Seeking a Last-Minute Discount on a Cruise? Don't Bank on It

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Caribbean Cruise Ship Outbreak
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By Brian Sozzi

NEW YORK -- Summer is almost here and for many individuals and families, that means it's time to go on a cruise.

Be mindful, though, there are several big industry trends to know before you set set sail.

According to the Cruise Line Industrial Association, a record 23 million passengers are expected to take a cruise this year. Once on-board gargantuan ships from the likes of Royal Caribbean (RCL), Norwegian Cruise Line (NCLH) and Carnival (CCL), chances are the vacation experience may seem different than on last year's water-based vacation.

Most in the industry have vastly improved the speed of their Wi-Fi connections. Dining options have also been enhanced to feature dishes and cocktails inspired by celebrity chefs.

But there are also some broader trends of which to be aware. TheStreet takes a look at three of the biggest.

1. Say goodbye to last-minute discounts. For the last several years, growing access to online booking has led to cutthroat pricing on cruise vacations. The cruise lines essentially trained customers to believe that the best prices could be had if they waited to the last minute, instead of booking months earlier. That philosophy is now being done away with industrywide in order to protect profits.

Having ships booked well in advance of peak vacation season allows a cruise line to better plan their business and articulate financial goals to Wall Street.

The buzzwords being tossed about by execs are "revenue management" and protecting "price integrity."

"We are at roughly 80 million passenger cruise days a year, so $1 a day across our fleet is $80 million and $10 a day is $800 million -- so revenue management is absolutely a prime area of focus as it's the biggest driver we have and small tweaks add up to real dollars," said Carnival CEO Arnold Donald in a March 27 earnings call.

He explained, "So whether it's the actual tools that we use, the management systems that allow us to do more inquiry and change prices at smaller increments faster, or whether it's actual presentation and psychology and packaging on pricing, all of those are areas that we continue to mine."

Royal Caribbean has undertaken two initiatives with the goal of supporting higher-priced vacations.

First, it has begun marketing sailings earlier in the year. Second, in March, Royal Caribbean adopted a new policy that it wouldn't offer any last-minute discounts on bookings in North America. On an April 20 call, Royal Caribbean CEO Richard Fain conceded the decision may cost it some bookings in the short-term, which was reflected in the latest financial guidance it shared with Wall Street.

Norwegian Cruise Line is singing the same tune as its rivals. "I reject the notion that the only way to stimulate demand is by dropping prices, and that the industry can't increase prices over time," said Norwegian Cruise Line CEO Frank Del Rio in a Feb. 25 interview with TheStreet.

2. The crowds at the pool and bar may feel bigger this year. Amid an improving U.S. economy, the cruise industry enjoyed a strong "wave season." The wave season is the winter period in which people book their summer vacations.

"Overall, we have had a good wave period with both booking volumes and pricing exceeding last year's levels," said Royal Caribbean's Fain. He added, "We are seeing consistently strong booking trends for guests from North America, while trends during wave were particularly strong relative to expectations at the same time last year for Caribbean itineraries."

Carnival was even more bullish on the wave season. "We are enjoying a strong wave season, and are particularly pleased with demand for the Caribbean for the remainder of the year," said Donald. According to Carnival, its bookings during this year's wave season were strong, and prices were up "nicely."

As for Norwegian Cruise Line, booking trends during wave season in Europe and Alaska were characterized as strong and the Caribbean was seen as "very good."

3. All of the cool new ships are going to China. Sorry U.S. vacation goers, you may have to settle for riding the waves with just slightly upgraded amenities instead of the absolutely newest and coolest ships.

Cruise line operators want a sliver of the rising affluence of the Chinese, and are positioning their most technologically advanced ships in that country's waters.

Carnival, which is profitable in China, said CEO Arnold Donald in an interview with TheStreet, already has four vessels in China in its Costa and Princess lines and will debut another ship in 2016. The company projects 2.5 million passenger cruise days in China this year, jumping to 4 million or so next year.

As for Royal Caribbean, it positioned its newest, most advanced ship ever, the Quantum of the Seas, in Chinese waters this year.

"As expected, Quantum is commanding significant premiums -- its early success, with over 80 percent of her revenue currently booked for the inaugural China season, provided us with the necessary confidence to place her sister [ship], Ovation of the Seas, into the China market when she debuts in 2016," said Royal Caribbean CFO Jason Liberty on an April 20 earnings call.

China represents about 6 percent of Royal Caribbean's capacity.

Norwegian Cruise Line is the only operator sitting the party out in China, for now. "Well, what appears to be every ship in the world is going to China.. I say that only tongue-in-cheek but it is incredible to see our competitors devoting their newest largest, probably their best performing ships to the Chinese market," said Norwegian's Del Rio on a May 10 earnings call.

Norwegian Cruise Line recently hired an executive with experience launching cruise lines in China to explore its own entrance into the red-hot market.

It's hard to blame execs for betting big on the Chinese market. The number of cruise vacationers in China could top 8 million a year by 2020, accord to CLIA. In 2014, a mere 700,000 out of China's 110 million leisure travelers booked a cruise.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
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