Royal Caribbean's cruise prices are higher today than in 2019, and the company wants to raise those prices even more.
Historically, cruise vacations have, in addition to their convenience, been popular because of their value. For one price, you get unlimited food, accommodations, entertainment, and transportation between destinations across the world.
This price gap between the cost of a cruise vacation and a land vacation grew significantly during the cruise industry shutdown. Since then, cruise fare prices on Royal Caribbean have gone up at the same time demand was also rising.
In the second quarter of 2023, the percentage of guests on Royal Caribbean who were new to the brand or new to cruising in general surpassed 2019 levels. Additionally, those considering future cruises is near an all-time high.
Over the last couple of months, airfare and hotel prices have decreased; the price of a Royal Caribbean cruise, however, has increased.
Royal Caribbean International's CEO Jason Liberty spoke with CNBC's Seema Mody about the price gap between cruise and land vacations after their Q2 earnings call on July 27.
"In the earlier part of this year, that value gap was somewhere around 45%. And today, we've closed that value gap by about ten percentage points, so we still think there's a lot of runway that is still there to close," he said.
This means that the value of a land-based vacation and cruise vacation are becoming more comparable, while you'll still get more bang for your buck on a Royal Caribbean cruise.
The comment surprised one of the panelists on the CNBC show, Tyler Mathisen, who asked Mr. Liberty doesn't he want to maintain a value gap in order to attract customers and keep demand up.
Mr. Liberty responded, "We always want to be as competitive as we possibly can be, but of course, we want that gap to be much smaller."
"We were able to close that gap to about 10-15 points pre-covid, we think there's a lot of opportunity for us to close that gap even further."
Royal Caribbean is known for having dynamic pricing for their cruise add-ons, such as drink packages. This model extends to their cruise fares, too. They change their prices back and forth based on the demand. As they have continued to increase the cost of their cruise fares this year, they have seen that their customers continue to book into 2024.
In the earnings call with investors on Thursday, he noted that it's clear that Royal Caribbean guests continue to spend more on their overall vacation experience.
Additionally, customers continue to book cruise add-ons in advance through their online Cruise Planner, which is essentially passengers' go-to place to see what is available on their upcoming cruise.
You can make dining reservations, look at available onboard activities, and even pre-book drink and internet packages, as well as shore excursions.
"We know that if we can get them to spend a dollar before they get on the ship," Liberty remarked, "we'll get them to spend somewhere around seventy cents on the dollar more when they get on and enjoy their vacation experience."
Royal Caribbean always wants to be as competitive as they can; however, they are striving to really close to value gap between the cost of a cruise and land-based vacation, and they believe that there is room to close it even more than they already have this year.
"...cruising remains an exceptional value proposition," Liberty said during the Q2 earnings call, "allowing us to outperform broader leisure travel as we seek to further close the gap to land based vacations, drive better revenue and welcome even more happy customers."