During the pandemic the major cruise lines slowed spending in any way they possibly could.
Royal Caribbean International (RCL) – Get Royal Caribbean Group Report, for example, delayed amping any of its ships, even though a few had been scheduled for the procedure, which adds water slides and restaurants and includes other onboard improvements.
The cruise line also slowed or stopped work on projects like its Nassau beach club and its deal to buy the Grand Lucayan Resort in Freeport, Bahamas (although that may not be something the company wanted to happen).
Those changes in spending made a lot of sense given that revenue had essentially stopped coming in.
Royal Caribbean, Carnival Cruise Lines (CCL) – Get Carnival Corporation Report, and Norwegian Cruise Line (NCLH) – Get Norwegian Cruise Line Holdings Ltd. Report did not, however, stop building or even slow construction on their new ships.
Royal Caribbean added Odyssey of the Seas and Wonder of the Seas to its fleet not long after it resumed sailing, and Carnival welcomed Mardi Gras during the same period.
Building ships, of course, takes a very long time, and putting off a new order means that you don’t believe demand will be there. Demand is difficult to forecast, but delaying construction on a ship that’s already in the works suggests that demand in the relative near term has gone soft.
That’s what a new player in the cruise line space, Richard Branson’s Virgin Voyages, has done.
Virgin Voyages’ Timing Has Been Terrible
Branson’s cruise line was supposed to debut in spring 2020 while the entire industry was shut down due to the covid pandemic. It had to push its launch into summer 2021, when all the major cruise lines had made a cautious return with limited capacities and lots of pandemic-related rules in place.
Virgin Voyages did manage to get two ships sailing, but the company has decided to delay the launch of its third ship, Resilient Lady, for months, Cruzely reported.
The ship was supposed to begin sailing in August 2022 with Athens as a home port making trips to Greek Islands from August through October. After that, it was going to be based out of San Juan, Puerto Rico.
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Instead, Virgin Voyages has decided to delay the launch until May 2023.
The brand new cruise line blamed “a number of global challenges that affect travel and particularly the cruise industry, including supplychain issues, crewing challenges and regional uncertainty,” according to a statement on its website.
What Does This Mean for Royal Caribbean, Carnival, and Norwegian?
Virgin Voyages is unlikely to have delayed Resilient Lady if demand was outpacing its existing supply. Crew and supply-chain issues are, of course, a factor, and the Greek economy may make that market less viable than sailing from U.S. ports. But the global economy has led to concerns about whether consumer demand will soften.
So far, Royal Caribbean has not seen that, according to Chief Executive Jason Liberty’s remarks during the cruise line’s first-quarter-earnings call.
“We continue to see strong demand for leisure travel and cruising,” he said.
“The robust secular trend of experiences over things that propelled our business in the past years is now recovering toward pre-covid levels. Consumers are now reengaging with the world, and as a result, spending on travel in 2022 is set to outpace prepandemic levels with consumers planning to travel more frequently.”
Liberty also noted that “cruise consideration is the highest it has been in two years and nearing prepandemic levels, with the most significant recovery among those new to cruising.”
The CEO did say that economic conditions could affect demand, but he made clear that has not been happening yet.
“We are watching the high inflationary environment but so far we had not seen an impact on consumer behaviors or willingness to spend on travel in cruise vacations,” he said.
Virgin Voyage’s delayed ship may speak to one market, but the company could also have taken delivery and found another port.
The fact that it didn’t may not translate into business woes for its rivals, but it does suggest that cruise demand may not be where Royal Caribbean, Carnival, and Norwegian hope in the medium term, even if current booking patterns are encouraging.
For investors, this is a watch-and-see environment that could delay share-price recoveries for all three cruise lines.