Cruises tend to be cheaper than hotel vacations, which is good news for these stocks | Wilnesh News
Cruise operators have enjoyed strong demand since emerging from the coronavirus pandemic, which may have some investors wondering whether the good times can continue. UBS believes they will. First, the gap between cruise prices and land-based hotel prices remains “significantly wider” than in 2019, UBS analyst Robin Farley wrote in a note on Monday. “While there will always be a gap in pricing between cruise lines and hotels because the cruise industry does not have business travel to support pricing, there is no fundamental reason why this gap should be significantly wider in 2024 than in 2019, especially since U.S. hotel price growth is driven by leisure Demand-driven,” she said. Farley pointed out that in the first quarter of this year, U.S. hotel prices increased by more than 20% compared with 2019. While demand from cruise lines has been strong year over year, per diem rates (the way cruise lines measure daily berth prices, including onboard revenue) lag hotel prices. She said Royal Caribbean’s daily per diems are up 16% in 2023 compared to 2019, Norwegian Cruise Line’s daily per diems are up 6%, Carnival Cruise Line’s daily per diems are up 6%, and Victoria Cruises’ daily per diems are up 6%. Beijing Cruises’ daily per diem increases by 17%. Viking just launched on May 1st. She added that the trend started before the pandemic, causing ticket prices to rise, and is continuing. “Cruise demand is also tied to a broader consumer desire for cumulative experiences rather than items,” Farley wrote. “We believe the same dynamics will continue to favor cruise demand as hotels have seen growth in leisure travel exceed In fact, the industry is benefiting from repeat business as well as attracting new passengers, she said. For example, he noted that new passenger traffic on Carnival cruise lines increased by more than 20% in the first quarter. “We can see that 2024 is not just benefiting from pent-up demand, because that’s brand new demand,” Farley said. Melius Research is also bullish on the industry’s future and believes cruise lines’ profit margins will continue to expand in the coming years. Analyst Conor Cunningham wrote in a May 28 report: “Cruise demand has recovered significantly since early ’23, and pricing has recovered with it. There have been concerns about the sustainability of the pricing increases, But demand/pricing accelerates each quarter (15% off vs. 30% off now). Meanwhile, Morgan Stanley’s channel survey shows bookings continue to normalize, in part due to lower remaining inventory and consumption. “Tighten your belt.” However, cruise pricing remains firm, analyst Jamie Rollo said in a note on Friday. He said the company recently met with management from Carnival, Royal Caribbean and Norwegian and the feedback was “overall positive.” Royal Caribbean would benefit from being a top pick at UBS Farley, who has a buy rating on the stock. She set a price target on the stock of $168, about 9% higher than Friday’s closing price. “RCL’s Wave season was the strongest in the company’s record from both a volume and price perspective,” she wrote. “RCL is seeing record bookings, with 2024 bookings even earlier than 2023 at the start of the year.” In April, the cruise operator reported better-than-expected first-quarter profits and raised its full-year per-share price forecast Earnings Guidance. “Consumers are doing very well. Demand is very strong and accelerating,” Chief Executive Jason Liberty told CNBC after the April earnings report. Management told Morgan Stanley at a recent meeting that the strong The demand is driven by structural growth in the travel industry, spending by high-income passengers and the value gap between cruise and land, which is about 25% to 30% compared to land. “The demographics are encouraging, with half of the company’s guests now being millennials, the rate of new cruises exceeding pre-COVID levels, and repeat booking rates double what they were in the past,” Rollo wrote. “Its private island destinations Capacity growth and technology improvements look set to add incremental benefits over the next few years, which the company sees as structural advantages. Rollo has an equal-weight rating on the stock, although this is his relative preference in the sector. Meanwhile, Farley also gave Carnival a buy rating. Her $21 price target implies an upside of about 26% from Friday’s closing price. She believes the stock will benefit from Celebration Cay, a private island set to open in summer 2025. %, so demand continues to grow. Rollo, who is underweight Carnival, said its private island currently receives as many visitors as all its competitors combined and expects the number of visitors to reach 4 million when Celebration Island is fully operational. “CCL’s brands are finding that customers are traveling less frequently but spending more when they do (e.g., taking one cruise and staying in a suite instead of two balcony cabins),” he wrote. Farley on the Acquisition List Another name for is Viking. She believes it should benefit from the travel needs of high-end consumers. Her price target is $35, an 11% upside from Friday’s closing price. In the end, Farley was neutral on the Norwegian language. She expects cruise lines should benefit from a strong demand environment but said balance sheet and execution challenges remain. Earlier this month, the cruise operator raised its full-year profit forecast, citing strong demand and an improved outlook for the year. In a meeting with Morgan Stanley, executives expressed confidence that Norwegian could achieve savings of $300 million.
