Royal Caribbean recently reported a strong turnaround in net profit, but optimism remains guarded for most travel businesses as reported in this Wall Street Journal article.
Cruise lines continue to hold up pretty well through this difficult economic cycle for a few reasons. The first reason is cruise vacations remain a great value. Our recent research on the spending patterns of over 1,000 high-income spa-goers clearly shows that bargain hunting is still alive when it comes to discretionary spend and that ‘rest and relaxation’ remains a high priority. Higher airfares will continue to wreak pricing havoc as it relates to all travel businesses, but unlike hotels, cruise lines don’t rely on the business traveler for demand and rate integrity. The industry relies almost exclusively on the leisure traveler, and markets like China offer unbelievable potential for the demand side of the equation.
And while the leisure traveler is the perennial bargain hunter, people just do not stop going on vacations with the same finality that businesses cut travel. During difficult times, one email from the CEO to ‘travel only if you have to’ can cut the travel budget at a big company booking millions quicker than you can close off a faucet.
The leisure traveler cuts back for sure, but demand gets pent up and low-cost alternatives like ‘staycations’ don’t provide something that cruise lines do beautifully: months of sweet anticipation. Today’s traveler wants a bargain, but so did yesterday’s and last year’s and the year before that, something cruise lines seem to clearly understand.