Analysts see confidence in Carnival and Royal Caribbean ship orders

06.03.2024 - 14:04 / travelweekly.com / Josh Weinstein

Travel advisors and analysts view new megaship orders from the world's two largest cruise lines as a sign of confidence in cruising and a signal that normal shipbuilding rates could soon return.

The ships, one ordered by Carnival Corp. and the other by Royal Caribbean Group, are the first new orders by either company since the pandemic.

"I'm a big believer that you're either growing on the vine or you're dying on the vine. There is no 'I'm just going to sit,'" said Geoff Cox, vice president of sales and marketing at Ohio-based host agency KHM Travel Group (No. 34 on Travel Weekly's 2023 Power List).

The ship order announcements came in rapid succession. Carnival Corp. on Feb. 13 ordered a fourth Excel-class ship for Carnival Cruise Line for delivery in spring 2027. Royal Caribbean Group followed two days later, announcing an order for Royal Caribbean International's seventh Oasis-class vessel, slated to debut in 2028.

Cox called it "incredibly brave" of Carnival Corp. to place the ship order despite having tripled its debt load to survive the pandemic and now working to pay it down.

Ship orders also offer a psychological boost to those in the industry, including advisors and investors, to communicate that the company won't be shackled by debt, he said.

Carnival Corp. has taken a cautious approach to shipbuilding since the pandemic while working to heal its balance sheet. The line had about $10 billion in debt before the pandemic, and it grew to more than $30 billion by the end of 2022. In response, the company is carrying its lightest order book in years, said Josh Weinstein, CEO of Carnival Corp.

"With one newbuild scheduled for delivery in 2025, none for 2026 and this order being our only expected newbuild in 2027, our responsible capital approach will support utilizing our substantial free cash flow over the next several years to strategically improve our balance sheet, significantly reduce our leverage levels and continue to transfer value from debtholders to shareholders," he said.

Analysts anticipated both Carnival Corp. and Royal Caribbean Group would place ship orders this year. One such analyst was UBS's Robin Farley, who considers Carnival Corp.'s order a reflection of the company's short-term reality and long-term strategy.

"While investors are often cautious about any new capacity, this could be taken as a sign of strong current demand," she said. "Ordering ships three or more years in advance means that it is not just about current demand levels, of course."

By 2027, she added, other ships in Carnival's fleet will be older and could be retired.

Taking a cue from land vacations

Cox said he sees signs of future growth in cruise by looking to land vacations, such as demand for