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what to expect from the spike

by Staff

On its recent earnings call Norwegian Cruise Line (NCLH) CEO Harry Sommer claimed cruise demand has been “as robust as we have ever seen it.” The travel sector saw a boom in 2023 and cruises may continue in that trend as demand for cruise vacations soar.

Citi Leisure Analyst James Hardiman joins Yahoo Finance for the latest edition of Travel Guide 2024: Industry Insights. He breaks down the pricing momentum following a strong fourth quarter.

Hardiman further details which regions have the best performance for cruises: “I think geographically the Caribbean is clearly the strongest region in the world right now. Europe is strong, but not as strong. As a global cruise company, you do have to deal with a whole lot of stuff, including the fallout from the unrest in the Middle East and the Red Sea restrictions that have now been placed. So, there’s some voyages here and there that have had to be moved around the world, and certainly there’s going to be a pricing impact there, but I would argue certainly you showed the more recent private movement. If you were to take that back to 2019, these stocks have, at best, held serve or at best flat for 2019 relative to a market that’s up dramatically.”

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor’s note: This article was written by Nicholas Jacobino

Video Transcript

JOSH LIPTON: Yes, travel demand for cruise vacations has risen spectacularly post-COVID. And with it, ticket prices Norwegian Cruise line CEO Harry Sommer called demand as robust as we have ever seen it. On this week’s earnings call, after issuing strong guidance for 2024, adding that when demand is strong, we take advantage of it.

Joining us now as part of Yahoo Finance’s travel guide 2024 industry insights, we have James Hardiman, Citi Leisure and Travel Analyst. James, it is always good to see you. So you’re pointing out, James, maybe our cruises actually could even get a bit pricier here in 2024. How come, James, and how much price pricier could we see?

JAMES HARDIMAN: For sure. I mean, I think the pricing momentum, the trajectory of what we’re seeing is exceedingly positive. As you mentioned, Norwegian had a really good fourth quarter. And the guidance for the first quarter, now, there are some easy comparisons in there.

But for pricing, that’s up mid-teens year-over-year. That’s a trajectory that we won’t be able to sustain. But I think what’s important to understand is if you think about that early pandemic and early post-pandemic period, where we saw inflation across the economy, the cruise industry was largely sitting that out, right? They were on the sidelines for a good amount of that time.

And so for a cruise space that’s historically been what they would argue is an unfair discount to land-based vacations. They then sat that out. And so they found themselves at an even wider gap relative to land-based.

What we’ve seen over the last year, year and a half is a little bit of catch-up getting back to maybe 2019 levels. But they look at it and see significant pricing opportunity moving forward.

JULIE HYMAN: At the same time, James– hey, Julie here. It’s good to see you. At the same time, the cruise industry’s message has been we are a better value than a land-based vacation, right? All in. And so how much room do they still have to raise prices and still sort of tout that value opportunity for travelers?

JAMES HARDIMAN: Sure. Yeah, so historically, we’ve talked about this maybe call it 20% to 30% discount to comparable land-based. Coming out of the pandemic, that number was probably closer to 35 to 50 depending on what you’re looking at. And we’ve seen that gap close a little bit.

But I think that leaves still on a like-for-like basis a meaningful opportunity. And that doesn’t factor in– what I would argue is some pretty good innovation in the cruise industry.

We’ve seen a number of these companies make big investments in land-based attractions, right? Private islands, resorts, water parks. And I think, those investments have allowed them to cater to a multigenerational vacation. And I think that is only going to drive pricing higher from here.

JOSH LIPTON: And, James, I’m curious, you look at the stocks of these names. And they have enjoyed just these massive runs, James. I mean, investors clearly cheering them. They’re moving in. Broadly, as you look across the market, the industry, James, any signs of softness that you would point out?

JAMES HARDIMAN: No, I mean, I think, geographically, the Caribbean is clearly the strongest region in the world right now. Europe is strong. Not as strong.

As a global cruise company, you do have to deal with a whole lot of stuff, including the fallout from the unrest in the Middle East and the Red Sea restrictions that have now been placed. And so sort of there are some voyages here and there that have had to that have had to be moved around the world.

And certainly, there’s going to be a pricing impact there. But I would argue, I mean, certainly, you showed the more recent price movement. But if you were to take that back to 2019, these stocks have at best held serve or at best flat with 2019 relative to a market that’s up dramatically. And so depending on the time frame you look at, there’s some pretty meaningful underperformance here.

JULIE HYMAN: Do you also think that when you look across the industry that they all have some degree of pricing power right now?

JAMES HARDIMAN: I do. It varies depending on which new hardware you’re bringing to the market. What’s your relative exposure is. And so there’s certainly names that we like more than others. Having said that, again, relative to hotels, which may have stalled out here a little bit from a pricing perspective, yeah, I think the industry is strong.

JULIE HYMAN: James, good to see you. Thanks so much for your insight as always.

JAMES HARDIMAN: Great seeing you guys.

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