Christian Savelli, Director, Cruise Analytics, Tourism Economics
Similarities between the current situation and post-Great Recession
The ocean cruise sector entered both of the last two major crises, the economic one in 2008 and the public health crisis in 2020, with a cruise ship order book in a sharp ascending cycle. Following the great recession, rebuilding the order book took several years, with a sharp acceleration in 2015 resulting in an order book at a record level in 2019, right before the beginning of the pandemic.
Starting in 2025, the cruise industry could enter a similar cycle for rebuilding the orderbook as the number of cruise ships due to launch will decrease drastically. Indeed, since the pandemic's beginning, cruise operators have not announced any new orders other than for smaller luxury or ultra-luxury vessels. The cruise order book has not been replenished as most cruise lines are integrating significant new capacity into fleets while still absorbing the financial burden generated during the global shutdown.
The deceleration of vessel launches post-Great Recession spurred recovery in revenue
The cruise industry benefited from the lull in new launches after the great recession to rebuild occupancy and average revenue per passenger cruise day. In 2009 and 2019, a soft travel demand hampered the recovery as households were not in favorable financial situations following the financial collapse. As a result, cruise operators relied on deep discounts to stimulate demand while absorbing new capacity. Occupancy rates remained relatively healthy throughout this period but revenue per passenger day fell sharply in 2009 and took seven years to regain 2008 levels.
Current capacity projections versus historical averages can help to understand if the cruise industry could be facing similar challenges to rebuilding finances in the post Great Recession period. Comparable capacity growth would suggest that there will be similar challenges, while a softer outlook bodes well for pricing power. The number of new vessels and berths about to reach the market exceeds the new capacity seen in the last cycle, but this is being integrated into a larger cruise sector with potentially more ability to absorb these large volumes.
Growth prospects for the industry post-pandemic are significantly lower than the previously anticipated growth
In 2019, the ocean cruise sector was poised to grow faster than the historical growth trend for the prior ten years, based on the strength of the order book before the global shutdown. By 2022, the orderbook pointed to capacity 3.5% higher than suggested by the historical trend. However, due to the acceleration of cruise ship retirements and lack of significant new orders, actual capacity has fallen short of these projections and has dropped below the historical growth trajectory. This gap will increase drastically starting in 2026. As a result, by 2028, without any further new orders, the cruise sector could have an overall capacity of about 11% lower than based on its historical growth trajectory.
When comparing the historical growth and current trajectory, this gap represents about a 4 million passenger deficit by 2028. This gap could be closed somehow, but it is doubtful that it will be significantly resorbed due to the timeline between new orders and delivery dates. We would expect some slowdown in capacity growth in percentage terms over time as the sector matures and this latest projection still implies that there will be over 150,000 additional cruise berths over this period. But if demand growth is more closely aligned with historic trends, as expected, cruise lines will have greater pricing power.
Based on the latest financial results and reports from major cruise operators, deep discounts were not required to support recovery efforts and absorb additional supply. Thus, the industry is starting this potential recovery cycle from a more favorable starting point than in 2009.
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