Iran conflict, oil prices threaten to dent cruise line profits
The Carnival Miracle cruise ship docked on the Big Island of Hawaii on January 14, 2024.
Kevin Carter | Getty Images
The global cruise industry is reporting record demand and renewed consumer excitement, but leaders who run the world’s largest cruise companies say the industry is also facing some of the most complex challenges it has seen in decades.
“We are no longer an alternative holiday. We are a holiday” Carnival Company CEO Josh Weinstein said during a keynote panel at Seatrade Global, a cruise industry conference, on Tuesday.
As demand increases, passengers are getting younger; A third of cruise passengers are now under 40 State of the Cruise Industry in 2026 Report published by the Cruise Lines International Association, or CLIA. One-third of travel involves multiple generations, with families often traveling together. Almost a third of cruisers go on cruise vacations several times a year. report.
CLIA estimates that the cruise industry hosted 37 million passengers worldwide last year and will reach 42 million passengers annually by 2029.
“This mainstream demand sets us up very well for volatility,” Weinstein said.
A resilient business in an uncertain world
At least six cruise ships are stranded in the Persian Gulf due to the impasse in the Strait of Hormuz. One of these is MSC Euribia.
Although about 1,500 passengers were safely evacuated due to the closure of Dubai airport and missile warnings after the US and Israel attacked Iran in late February, the ship still has some crew members on board to maintain the ship.
“Obviously we are living day by day. The situation is very fluid,” MSC Cruises Chief Executive Pierfrancesco Vago said during the Seatrade Global keynote.
The current closure of maritime traffic in the Bosphorus has disrupted travel schedules in the Middle East and Southern Europe. Threats of blockade, seabed mines and on-again, off-again negotiations keep cruise managers guessing about when they can move their ships.
“Morning is one thing, lunch is another, dinner is still another,” Vago said of the numerous and often contradictory announcements by government leaders. “We need to stay cool and be ready to move in as soon as opportunity and opportunity returns.”
Despite these challenges, cruise executives argue the industry has never been better positioned to absorb shocks.
“We have adapted to every crisis we have faced – whether financial, geopolitical or health-related,” said Carnival’s Weinstein. “We have no reason to believe it will be any different this time.”
Fuel costs, sustainability and pressure to use less
Volatility in fuel prices has once again put energy strategy front and center for the cruise industry, particularly Carnival, which is not protected from fuel prices.
“No one is asking us about hedging when prices are low,” Weinstein said. “But our strategy was consistent: use less fuel.”
The cruise industry aims to reach net zero emissions by 2050, but CEOs agree they won’t be able to achieve this goal by saving fuel alone.
Industry leaders see biofuels, green methanol, and synthetic liquid natural gas (produced by combining captured carbon with hydrogen) as the most promising solutions to meet fuel needs.
Royal Caribbean Group CEO Jason Liberty said cruise lines invest hundreds of millions of dollars each year in innovations in technology and energy, but the availability of alternative fuels remains a bottleneck.
“It’s not about what we want to use,” Liberty said. “It’s about what’s scalable and usable.”
“We will also face intense competition from other industries for these fuels. There is no guarantee we will obtain them,” added Bud Darr, president and CEO of CLIA.
Tailwinds for growth
As the industry navigates choppy seas, cruise companies are also looking for new ways to grow.
Technological advances in artificial intelligence are used to reduce food waste, determine routes and routes, and increase efficiency. Cruise line executives say the most important practice is to reduce friction in the guest experience.
“A more flexible work environment has been a big demand driver for us,” Liberty said. Most Royal Caribbean ships now host Starlink connectivity for fast internet onboard.
Private destinations, private ports or islands owned or controlled by a cruise line continue to be a priority for investment. Royal Caribbean, for example, currently has three exclusive destinations on its itineraries, but will have eight by 2028.
To reduce or eliminate the time travelers to Antarctica will spend crossing the rough seas of the Drake Passage, Puerto Williams is developing a major land-based hub in Chile.
And the luxury segment is growing rapidly, despite being a small percentage of the overall industry. Customers are increasingly interested in exploring health, wellness and longevity, and these trends are also reflected in their holiday habits.
Smaller ships and river cruises suit ecotourism, remote destinations not yet discovered by social media influencers, and special interests such as culinary or art enthusiasts.
Social media-driven demand in tourism has also led to reactions in some destinations where crowds are overwhelming. The cruise industry is working with destinations on what it calls managed, predictable tourism.
Vago said MSC is working with the Croatian city of Dubrovnik, for example, to coordinate the flow of visitors to the medieval city that demands tourism spending but without impairing residents’ quality of life.
“A lot of these coastal communities actually appreciate it. We plan ahead. We create itineraries three years in advance,” Vago said.
“The strength of this industry is its ability to evolve without losing its soul,” Liberty said. “This spirit is hospitality.”
Leadership change and new perspective
On: Norwegian Cruise Line HoldingsThe challenge for new CEO John Chidsey is to right the ship.
In his first earnings call, just days after taking over in February, Chidsey acknowledged that the company had made numerous missteps.
Margins are under pressure. Stocks followed a volatile trend. Critics have questioned Norway’s effort to expand cruise programs in the Caribbean before the private island destination is completed.
Earlier this year, Elliott Investment Management acquired an activist stake in Norway, which may have provided impetus for the board to make a leadership change.
Chidsey told CNBC that Elliott’s goals are aligned with his own and that he aims to create a culture of accountability and urgency where teams work together rather than separating into silos.
The Seatrade conference was the cruise industry’s first event for Chidsey, who is the former CEO of Subway, Burger King and Avis.
When asked “what does a sandwich guy know about a journey,” Chidsey didn’t miss a beat, insisting that he’s “a comeback guy, not a sandwich guy.”
“I didn’t know anything about fast food when I went there. I think what Norway really needs is a new perspective,” he said. “And it’s all about execution.”
