How cruising keeps its head above water

Per annual tradition, the CEOs of the four largest cruise companies gathered on stage at Seatrade Cruise Global in April, microphones in hand, to address the state of the cruise industry. And for the second year in a row, they found themselves in the midst of a period of sudden economic upheaval.

Last year, that show, fell within a week of U.S.-imposed tariffs that sent stocks tumbling. This year, the conference was held about six weeks into the Iran war, and inflated oil prices were pressuring consumers and companies everywhere.

But in both cases, the CEOs on stage were firmly confident in their business’ prospects.

“The great thing about this industry is we adapt, we pivot and we persevere,” Carnival Corp. CEO Josh Weinstein said. “And I have no reason to believe that it’s going to be any different this time.” 

“What we’ve now shown — now for many, many years — is incredible resiliency and demand,” Royal Caribbean Group Jason Liberty added.

Their confidence in cruise was far from isolated. Cruising has a history of bouncing back from moments that tested it — 9/11; the Covid pause; recessions and stock-market fluctuations; conflicts in the Middle East and Europe — and an ability to attract business even when wallets are tight.

But how do cruisers make decisions about their vacations during economic downturns? And what does that mean for cruising’s positioning relative to other vacation options as the economy ebbs and flows?

As consumers tighten their wallets, travel advisors see how client behavior shifts. And there’s one thing that rarely happens in that process, advisors say: Fans of cruising deciding not to cruise.

Cruisers cling to the desire to cruise rather than trading down to a local trip, like a nearby beach or day at an amusement park, said RacQuelle Major-Holland, owner of Major Adventures Travel Agency in Columbus, Ohio.

“They see how much fun they can have and what’s included, and they want to keep doing it,” she said.

A safe bet

This decision to prioritize travel even while sacrificing spending on other categories when times get tough is a phenomenon well known to financial analysts. It is rooted in a mentality that travel, and the time it offers with family and friends, is sacred, said Deutsche Bank analyst Chris Woronka.

“People tend to find ways to magically stretch the budgets when it comes to travel,” he said.

Taylor Haenny, chief marketing officer at The Vacationeer agency in Celebration, Fla., said he doesn’t change messaging significantly during economic slowdowns. His strategy, regardless of the whims of the economy, is to emphasize what is included in the cruise experience rather than just the price. He believes consumers want to make decisions based on value.

Cruising has a unique ability to attract budget-conscious travelers because of the consistent, packaged experience it provides, he said. Travelers who find themselves with less disposable income and time feel that knowing exactly what to expect out of a financial decision is value in itself. 

And cruising feels like a safe bet. It offers those travelers a sense of confidence that they are spending on something that will deliver, Haenny said.

“In uncertain times, people don’t really want to gamble with their vacation time or dollars,” he said. “They don’t want to risk a bad hotel or experience with a land itinerary. They want to know what’s consistent and a guaranteed win.”

Erin Douglas, senior vice president of trade sales for MSC Cruises’ U.S. division, is familiar with this sentiment. When budgets get tighter, travelers “prioritize vacation options that offer greater predictability and convenience,” she said.

That desire for predictability includes a preference to know what the final price of the vacation will be in advance.

“We also see travelers gravitating toward all-inclusive options that don’t have surprise fees down the line,” Douglas said. “Cruising offers that peace of mind.”

While there are always extra amenities and experiences cruisers can purchase, the fare includes what Major-Holland considers the necessities of a cruise vacation like food, entertainment, port fees and taxes. 

“A lot of the families are just opting to not add on extra things,” she said. “It might be a few days without WiFi, and it may just be eating at the buffet or the included dining options.”

When the economy sinks, she doesn’t change the way she speaks to clients, but they approach her with different questions, such as about opportunities for price monitoring and more clarity on what the cruise fare includes.

The nature of the cruise vacation itself also offers seemingly endless ways travelers can adjust cruise plans to fit a tighter budget, like booking a lower-priced cabin, trading cruise lines, cutting back on add-ons or even booking fewer cruises. 

“There’s a tremendous amount of bandwidth,” said Signature Travel Network chief marketing and sales officer Michelle Lardizabal.

A Bank of America survey conducted last spring found that nearly half of cruisers were choosing to cruise because the all-inclusive nature “provides predictable costs and simplifies budgeting.”

Cruise was also the only travel sector Bank of America identified in which lower-income Americans were spending more than they had the year prior. Spending among lower-income Americans had decreased for air travel, lodging and other types of tourism.

It classified lower-income households as earning up to $66,000 annually, middle income as households earning between $66,001 and $130,000 and higher income as over $130,000. 

Spending on cruises also increased more among middle- and higher-income Americans than the other travel sectors, according to Bank of America.

“It just continues to have high growth as more and more people recognize how the experience of cruising enables you to see a lot at a really good value, and that’s regardless of income level,” said Mary Hines Droesch, head of consumer and small-business products and analytics at Bank of America. 

“There’s certain cruise lines that are really focused on lower income relative to higher income, but we’ve been seeing consistent growth across those levels, given the popularity of it.”

Buy now, pay later?

Major-Holland said some clients of hers “that don’t have much of a budget” manage to cruise multiple times a year because they live near a cruise terminal and book itineraries at rates of just several hundred dollars per person. Some cruise lines like MSC or Margaritaville at Sea are known for having low prices, and others like Royal Caribbean leverage short itineraries as products with entry pricing, Haenny said.

The “travel is sacred” mentality that Woronka identified can translate to the decision to go into debt to cruise, a phenomenon seen across travel sectors.

A consumer survey conducted by credit bureau Experian in June found that 2.5% of respondents were using buy-now, pay-later programs to fund their summer travel this year, and 15.7% were using credit cards.

More than a quarter of respondents said they were either somewhat or very comfortable carrying debt to pay for a vacation.

Major-Holland said her clients are increasingly choosing to use buy-now, pay-later programs to fund their cruises. A couple of her clients defaulted on their payments, but they were still able to take the cruise and viewed the credit impact as a trade-off for that experience, she said.

“I think people just really want to get out,” she said. “Times are so stressful now that everyone needs a break, and they’re willing to sacrifice to have it.”

Many clients also book well in advance, pay the minimum deposit and then make gradual payments leading up to the cruise or wait until they receive a tax return, Major-Holland said.

Still, most people who cruise are above the median economic income, Woronka said, which is representative of travel overall, a space that “does tend to favor people with a little higher net worth.” 

“I think the reason the [cruise] industry has held up relatively well, as have resorts in the hotel space, is because those customers either are not feeling much pain or, again, they reprioritize,” he said. “They cut somewhere else. They cut restaurants, or they cut retail spending. Whatever it might be.”

One advantage cruise has over the lodging industry during recessions is that it doesn’t feel the impact of cuts to corporate transient or group business.

That’s why Woronka sees cruises and resorts as more apples-to-apples points of comparison, and those industries fared similarly during the 2009 recession, he said.

When cruisers get hooked

Advisors said they believed one way cruise benefits from economic downturns is welcoming newcomers who may be drawn to promotional rates or cheaper, short-itinerary getaways.

“You see people that might not have cruised will take a leap for the first time because they see a price that they just can’t pass up,” Lardizabal said. 

Even though the industry can weather economic downturns, that doesn’t mean it prefers them.

Woronka said that the consumer decision to try a cruise for the first time is more likely to happen when the economy is prospering and consumers are more freely spending. As appealing as cruising remains when times are tough, the industry is most comfortable when Americans’ wallets are full. 

Cruisers are, too. Woronka likened boarding a cruise on a tight budget to buying a house one can’t afford to furnish well.

“They felt good when they booked it, and then they get on and can’t spend a dime,” he said. 

Travel advisors, of course, benefit from having a tapped-in clientele that has already made the decision to invest in the travel experience. Those travelers would be less likely to work with an advisor if they were looking for a local getaway to a nearby beach, Woronka said. 

“If they’re leaning cruise and they use a travel agent, I think the travel agent’s going to use every tool in the toolkit to get that person on a cruise and not lose them to the staycation,” he said.

Photo: F Armstrong Photography/Shutterstock.com  •  Illustration: Jenn Martins