cruise ships onboard revenue

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Here’s How Much Money Cruise Ships Make Off Every Passenger (Infographic)

It starts the moment that you book your cruise. That low headline cruise fare suddenly doubles when two people are added… followed by hundreds more in port taxes and fees… and even more money with the addition of gratuities.

Once on the ship plenty of things are free, but you are expected to pay for extras ranging from soda to alcohol to excursions.

You are also bombarded with sales messages while on board. Art auctions, spa specials, and slot tournaments are just a few of the things that cruise lines pitch to passengers.

With all that, you can sometimes feel like you are spending a fortune on your cruise. In addition, it may seem like the cruise line must be raking in massive profits. But is that true?

That why we just dug through the financial reports of one of the world’s biggest cruise companies — Royal Caribbean Group. We wanted to give you a better idea of exactly how much money people spend on a cruise ship and how much profit the cruise company makes when it comes to each individual passenger.

How Much Passengers Spend Per Person

How can we find out how much passengers spend… and where it goes?

As a public company, Royal Caribbean Group (just like rivals Norwegian Cruise Line Holdings and Carnival Corporation) makes regular financial updates to investors.

These reports provide insight into the business of the company, which is parent to the popular Royal Caribbean brand, as well as Celebrity and other lines. While the reported figures aren’t broken down by cruise line, they do give insight for the company as a whole.

In 2023, Royal Caribbean and its cruise lines carried 7.65 million passengers on its ships located around the globe. In total, those passengers generated $13.9 billion in revenue during the course of the year.

In other words, for every passenger Royal Caribbean carried, the average passenger spent $1,818 with the company last year. This figure includes everything from cabin fares to buying drinks to souvenirs in the gift shop.

Of that $1,818, 68.8% ( $1,251 per passenger ) was spent on cruise fare and the remaining 31.2% ( $567 per passenger ) was spent onboard for everything from booze to t-shirts in the gift shop.

Where the Money Goes to Operate the Cruise

Now, it goes without saying that all that money being spent on cruising doesn’t make it to the bottom line as profit. After all, cruise lines run major expenses, starting with the cost of the ship itself. Then there is the cost of all its employees, food, and even fuel to get the ship moving. That’s to say nothing of expenses like marketing and commissions to travel agents.

Royal Caribbean Group identifies numerous different groups of expenses in its financial statements, presented below in their own words:

Our cruise operating expenses are comprised of the following:

• Commissions, transportation and other expenses , which consist of those costs directly associated with passenger ticket revenues, including travel advisor commissions, air and other transportation expenses, port costs that vary with passenger head counts and related credit card fees;
• Onboard and other expenses , which consist of the direct costs associated with onboard and other revenues, including the costs of products sold onboard our ships, vacation protection insurance premiums, costs associated with pre- and post-cruise tours and related credit card fees as well as the minimal costs associated with concession revenues, as the costs are mostly incurred by third-party concessionaires, and costs incurred for the procurement and management related services we perform on behalf of our unconsolidated affiliates;
• Payroll and related expenses , which consist of costs for shipboard personnel (costs associated with our shoreside personnel are included in Marketing, selling and administrative expenses);
• Food expenses , which include food costs for both guests and crew;
• Fuel expenses , which include fuel and related delivery, storage and emission consumable costs and the financial impact of fuel swap agreements; and
• Other operating expenses , which consist primarily of operating costs such as repairs and maintenance, port costs that do not vary with passenger head counts, vessel related insurance, entertainment and gains and/or losses related to the sale of our ships, if any. 

In addition, the company has depreciation and amortization expenses and marketing, selling and administrative expenses before it arrives at its operating income. This is the money the cruise company makes in the day-to-day operation of its business.

Before arriving at net income (profit), one more category must be factored in — other income and expenses . This includes thing like interest income and more importantly for cruise companies, interest expense. 

With the pause in sailing during the pandemic, cruise companies like Royal Caribbean Group took on billions in debt to survive. Now, they are paying these loans back aggressively but still have higher interest expenses.

How Much Cruise Lines Profit Per Passenger

All told, these costs eat into revenue, but there is still a healthy profit. How much so? Of the $1,818 in revenue generated from each passenger, 12.3% — or $223 — ends up as profit.

Below, we’ve broken down all the expenses the cruise line sees on the average fare per passenger (click to enlarge) :

As you can see, a healthy portion of the money taken in by Royal Caribbean still goes down to the bottom line. All told, last year saw a profit of $1.704 billion  — or $4.67 million per day — before adjustments.

If you’re a shareholder, however, it’s been anything but smooth sailing. Consider that in 2022, the net income loss totaled more than $2 billion, on top of billions lost during the pause in sailing. With cruising back and seemingly more popular than ever, the healthy profits today are a welcome sight to the industry.

Source: Royal Caribbean Group Form 8-K. February 2024

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Well, I don’t buy alcohol, cigarettes or gamble, so their profit percentage on me is probably in the negatives LOL

This is so well presented and easy to understand. Thank you for taking the time to frame it this way.

I would like to know how long does it take for a cruise ship to recoup the cost to build the ship, roughly 850,000 to 1.5B? Obviously, there are many factors to consider including how many passengers the ship will hold and what amenities must be offered (or not) to get people willing to pay for the passage? And what would that ticket price be? Question; are people willing to go back to paying passage for a FAST luxury liner (3 days from US to Europe) to avoid the cramped, bacteria, germ-filled ventilation in close quarters of a jet plane? I used to like to fly, but not anymore! Would passengers be willing to pay more for the experience to travel on a historic ship that is presently derelict but still holds the record for fastest time crossing the Atlantic? Do people have to have a “Disney Land” experience on every ship or would people be willing to pay to relive the heyday nostalgia of a cruise liner with today’s 5-star, first-class amenities? I ask these questions in reference to bringing back the SS United States docked in Philly since 1969. I for one would prefer to set sail on such a ship over the “carnival” most all ships offer.

I always tell our Cruising Customers that a Cruise is a WHOLESALE vacation. Cruise lines make NO profit (do the math) on the BASE cruise fare. Their profit is all the other “stuff” – that 28% extra.

So….. If you don’t drink, buy gifts, do specialty dining, take shore excursions, you get a DEAL. And I am MOST happy with the people who DO make these purchases, and they subsidize MY Cruise Vacation

I think the actual profit must be higher than 8%. Royal Carribean have hired a good accountant in order to minimise their official profits and therefore taxes paid. Investors regularly make 10% with a mixed portfolio. You would think the actual figure must be higher to justify the effort and risk involved.

This was from a recent annual report. It could be higher or lower in more recent reports. We plan to take another look in the future.

On The Royal Caribbean 3-day cruise to Bahamas that we just came from, it seemed like we spent quite a bit. It seemed like they must be making a lot.

I took an 11 Baltic Cruise with Princess. The cruise was free of charge as an offer for giving up a 7 day cruise of south Japan. The cruise fare was advertised at $4600.00 CDN pp. When we received our statement for the Baltic Cruise, it included the base fare and extras we booked re: shore excursions, gratuities etc. The base fare was $2600.00 pp! That is $4,000.00 ($2000.00pp) less than the advertised price that we would have paid if not for the ‘Move-over-offer’ That equates to a profit of over 40% on the base price (not including the profits off alcohol, excursions etc.). The Royal Caribbean stat. of 8% sounds ridiculous.

Very cool. Thanks for taking the time to research this.

8% is good but it’s also not true. They are making much more. The ships are tax havens or are put in onshore schemes that pretty much make them tax free (less than 1% in annual tax). The deprecation is also used to offset any taxes that may have been applicable so that’s a lot to keep profits above 8%.

Dan, the data comes from financial reports filed with the SEC.

8% is a pretty healthy profit margin – higher than I would have expected.

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Cruise Line Onboard Revenues Are “Off the Charts”

Not only are travellers finally cruising again - they’re proving themselves to be big spenders, too. At least when it comes to ‘splashing out’ while on board.

Cruise Industry News reports that cruise lines are seeing record onboard revenues on a per passenger basis.

Industry executives are attributing the welcome boost in revenues on pent up demand, bundling sales strategies, and consumers just dying to spend.

The trend is being seen across the board at all the major cruise corporations.

On Carnival Corporation’s Q3 earnings call, CEO Arnold Donald said, “Our onboard revenues for guests are off the charts, and our Net Promoter Scores have been exceptionally strong.”

Rival Royal Caribbean Group reported similar results in its third quarter, with outgoing Chairman and CEO Richard Fain calling onboard spend in Q3 “unparalleled.”

Royal Caribbean Group’s CFO, Jason Liberty, who takes over for Fain in JAN, added that onboard spending exceeded the same quarter pre-pandemic. “Onboard revenue strength contributed to a 12 percent increase in total revenue per passenger cruise day, compared to the third quarter of 2019.”

The same thing is happening over at Norwegian Cruise Line Holdings, confirmed CEO Frank Del Rio on that company’s Q3 earnings call.

“Onboard revenue has exceeded our base on expectations by over 20% with broad-based strength across all shifts, regions, and revenue streams,” he said.

Royal Caribbean International’s CEO Michael Bayley credited some of the unprecedented increase to a new, pre-cruise revenue marketing software system, and added, “We've also really increased the volume of special groups such as gaming groups that are coming on our ships and that's proving to be very profitable.”

NCLH’s Del Rio credited bundled packages. “We're doing more and more bundling across the three brands, and that gives people a very fresh wallet because the combination of them booking further out means they have even more time to refill that wallet and make it even fresher, if you will. And so, all these factors are contributing to the higher onboard spend.”

While Del Rio cautioned that the spike in onboard spending may not last as early enthusiasm for the return to cruising and ‘splashing out’ on a cruise vacation settles down, cash-strapped cruise lines that are still working through the ‘re-birthing’ pains of getting their fleets sailing again have something to smile about.

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Royal Caribbean Lifts Profit View Again on Cruise Boom, Higher Prices

FILE PHOTO: Royal Caribbean's Icon of the Seas, the largest cruise ship in the world, is docked at Costa Maya Cruise Port, in the village town of Mahahual, Quintana Roo state, Mexico, February 6, 2024. REUTERS/Paola Chiomante/File Photo

By Juveria Tabassum and Doyinsola Oladipo

(Reuters) -Royal Caribbean Group on Thursday raised its annual profit forecast for a second time, after record bookings during the first quarter and higher ticket pricing boosted its results, sending its shares 4% higher premarket.

Soaring demand for vacations at sea has given cruise operators ample room to raise ticket prices as the industry looks to close the pricing gap between more expensive land-based holidays and give their profits a lift.

Royal Caribbean also beat expectations for quarterly profit and revenue, with half of its yield growth coming from higher ticket pricing.

"Our existing fleet along with our new ships continue to perform exceptionally well, highlighted by the market response to the launch of Icon of the Seas," said CEO Jason Liberty.

The company now expects annual adjusted profit between $10.70 and $10.90 per share, compared with its earlier forecast of $9.90 to $10.10.

The Celebrity Cruises operator carried 2.05 million passengers in the quarter, nearly 14% higher year-over-year. It also reported record demand during the "wave season" - a period marked by special cruise deals and discounts for the year.

That helped its quarterly revenue of $3.73 billion surpass expectations of $3.69 billion, according to LSEG data.

Higher ticket prices have helped shield the company from slightly steeper net cruise costs expected this year due to increased dry dock days, as well as an impact from canceled voyages to the Red Sea amid tensions in the region.

The company expects net cruise costs excluding fuel to increase about 5.5% for the year, up from its earlier forecast for a rise between 3.75% to 4.25%.

Royal Caribbean's adjusted earnings per share of $1.77 beat market expectations of $1.33.

"I remember owning the stock in 2022 and every client was giving me grief about it," said Peter Ahluwalia, manager at Belinvest Global Equity Fund that holds Royal Caribbean stocks and chief investment officer at Swiss Partners Group. "We're turning almost 45% return on equity at the moment, which is quite incredible."

Shares of the company have risen 126% to about $137 in the past year.

(Reporting by Juveria Tabassum in Bengaluru and Doyinsola Oladipo in New York; Editing by Devika Syamnath)

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Cruise passenger spending has been 'off the charts' this year — see what the travelers at sea have been splurging on

• Major cruise companies have reported an increase in onboard passenger spending.
• Cruise goers have been splurging on onboard retail, specialty dining, spas, and more.
• Both Royal Caribbean Group and Carnival Group have noticed increased spending on internet access at sea.

Cruise goers are spending big: Major cruise companies like Royal Caribbean Group, Carnival Group, and MSC Cruises have reported increased passenger spending aboard its ships throughout the resumption of sailing in 2021. 

"Satisfaction level among those who are cruising today is the highest in our company's history and their onboard spending is unparalleled," Richard Fain, Royal Caribbean Group's CEO, said during the company's 2021 third-quarter earnings call in late October. The group oversees brands like its eponymous cruise line, Celebrity, and Silversea.

Royal Caribbean noted that its passengers have been splurging on internet access at sea, shore excursions, casinos, spas, and dining, the company reported during its 2021 second-quarter earnings call in August. But Royal Caribbean isn't alone in noticing these spending patterns:  Carnival has also seen its passengers treating themselves at its bars, casinos, shops, spa, and on internet access, especially as people continue to work remote .

Related stories

Like Royal Caribbean, passenger splurging on Carnival Group's ships has been "off the charts," Arnold Donald, the company's president and CEO, said during Carnival's 2021 third-quarter earnings report in September. The group also manages several major brands, including Carnival, Princess, and Holland America.

The following quarter , Carnival attributed its 4% spike in revenue per passenger cruise day — compared to the same time in 2019 — to "exceptionally strong onboard and other revenue," specifically pent-up demand and spending on bundled packages.

Bundled packages allow passengers to pay for services like internet and drink packages before the cruise begins.  This then gives travelers a "fresh wallet" that encourages more onboard spending when they finally sail, David Bernstein, Carnival's CFO, said during its 2021 third-quarter earnings call.

Even the more European-centric MSC Cruises saw a rise in passenger spending across its international cruising market, especially when the cruise line was offering activities that were only available aboard the ship instead of at shore, a spokesperson told Insider. Like the previous two cruising giants, most of this additional spending was on specialty dining, bars, and retail offerings.

"This was, of course, more pronounced during the peaks of the pandemic when people felt safe on board and were inclined to treat themselves and spend more," the spokesperson said.

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Onboard Revenue: The secret of the cruise industry’s success?

Cite this chapter.

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Based on an analysis of Carnival Corporation and Royal Caribbean Cruises’ published financial statements since 2001, this paper derives five stylised facts of cruise line economics: 1. Net onboard revenues are outgrowing ticket revenues. 2. Ticket prices are barely or not cost-covering. 3. Real ticket prices tend to decline. 4. Demand for mass market cruises is highly price elastic. 5. Demand for items onboard is only weakly price elastic. The paper then develops an argument to explain the first three stylised facts using the last two. It looks at cruise industry market structures off and onboard, analyses the impact of onboard revenue on the optimal pricing of cruises, on profit, and on optimal capacity levels. It concludes that high-margin onboard revenue is likely to be the main driver of cruise industry growth because it gives the cruise lines the possibility to subsidise ticket prices to make cruises more affordable. Lower ticket prices attract more customers who, once onboard, fuel this process with their spending.

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Bull, A.O. (2006), Industrial economics and pricing issues within tourism enterprises and markets, In L. Dwyer & P. Forsyth (Eds.), International Handbook on the Economics of Tourism (pp. 138–154), Cheltenham: Edward Elgar

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Vogel, M.P. (2009). Onboard Revenue: The secret of the cruise industry’s success?. In: Papathanassis, A. (eds) Cruise Sector Growth. Gabler. https://doi.org/10.1007/978-3-8349-8346-6_1

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Carnival Cruisers Are Spending More Money — Here’s Why and On What

Doug Parker

• October 3, 2021

Carnival Corporation is once again seeing revenue come in from their fleet, and it’s not only because ships are finally able to welcome paying guests back.

It turns out that once onboard, passengers are making up for lost time (and cruises) by opening their wallets and spending on discretionary items not included in the price of their cruise fare.

What Cruisers Are Spending Money On

During a recent earnings call, Carnival Corporation’s president and CEO, Arnold Donald, happily reported that the company’s “onboard revenues per guest are off the charts.” And it is in part due to that increase in spending that the exec predicted that “we expect cash from operations for the whole company to turn positive at some point early next year.”

READ MORE: Mardi Gras Trip Report, Day 1

Chief Financial Officer David Bernstein got more specific about onboard revenue, saying the increases came mainly from “bar, casino, shops, spa, and internet.” And indeed, both our own experiences and those of Cruise Radio readers would indicate that’s true.

Cruise Radio reader Brian Lawson told us, “When I was aboard Carnival Horizon , it was impossible to find a spa or a steakhouse reservation. We have both booked in advance for our Thanksgiving sailing on Sunrise .”

Earlier this summer, we experienced the same booking issue during our sailing aboard Carnival Cruise Line’s newest ship, Mardi Gras . And it’s important to note that both  Horizon  and  Mardi Gras are currently sailing at reduced capacity, meaning fewer people are fighting for those reservations.

Note: It’s also true that in many cases, restaurants have fewer reservations available to accommodate social distancing requirements.

Guests Have a ‘Fresh Wallet’

During the earnings call, Bernstein said that the ships in service during the most recent quarter were, in fact, cash-flow positive, generating nearly $90 million of ship-level cash contributions. “When people get on board,” he explained, “they really have a fresh wallet. It does incentivize more onboard spending in total.”

What, exactly, is a “fresh wallet?”

Essentially, it refers to the fact that by the time passengers board the ship, they have already paid off the cruise itself. In essence, they feel freer to spend on discretionary items such as specialty restaurants than they might if they were presented with a bill for the entire cost of the sailing at the end of the trip.

Looking forward, Bernstein pointed out that other facts will increase the line’s influx of cash, particularly when comparing new ships such as Mardi Gras  or the upcoming  Carnival Celebration  to older ships, including some which have been decommissioned.

For one thing, new ships have a more significant number of balconies, which sell at a higher price than do inside or oceanview staterooms.

Additionally, he pointed out that newer ships have “more opportunity for onboard revenue because there’s more public space in larger ships.” In other words, they can easily add for-fee venues such as Mardi Gras ‘ Rudi’s Seagrill.

To date, the company has carried over a half-million passengers since the restart, with 50,000 guests being onboard their brands collectively on any given day.

And that number — as well as the corresponding cash flow from onboard spending — will only increase as more and more ships return to service, with Carnival hoping to see their entire fleet sailing by the spring of 2022.

READ NEXT: Carnival Posts $2B Loss, Now Cash Flow Positive 

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Royal Caribbean lifts profit view on record cruise demand, higher prices

(Reuters) -Royal Caribbean Group on Thursday raised its annual profit forecast for a second time, after record bookings during the first quarter and higher ticket pricing boosted its results.

Shares of the cruise operator rose about 4% in premarket trade, as the company also beat first-quarter revenue and profit estimates.

The boom in demand for cruise vacations has sustained through high inflation as people opted for vacations at sea over land-based alternatives that are often more expensive.

Half of Royal Caribbean's first-quarter yield growth was driven by higher ticket pricing, with the remainder driven by a combination of onboard revenue rates, higher occupancy, and new ships, it said.

"Demand for our leading brands ... continues to be very robust, resulting in outperformance in the first quarter, a further increase of full-year earnings guidance, and 60% expected earnings growth year over year," said CEO Jason Liberty.

Royal Caribbean now expects annual adjusted profit between $10.70 and $10.90 per share, compared with its earlier forecast of profit between $9.90 and $10.10 per share.

The Celebrity and Silversea Cruises operator carried 2.05 million passengers in the first quarter, nearly 14% higher year-over-year. It also reported record demand during the "wave season" - a period between January and March when operators offer special cruise deals and discounts for the year.

That helped its first-quarter revenue of $3.73 billion surpass market expectations of $3.69 billion, according to LSEG data.

The industry is expecting 35.7 million passengers to set sail this year, a 20% increase from pre-pandemic levels, according to estimates by the Cruise Lines International Association.

Royal Caribbean's first-quarter adjusted earnings per share of $1.77 also beat market expectations of $1.33.

Shares of peers Norwegian Cruise Line Holdings and Carnival were up about 1% premarket.

(Reporting by Juveria Tabassum and Doyinsola Oladipo; Editing by Devika Syamnath)

Cruise News and Updates

How cruise ships operate: profits, strategies, and continuous operation.

Table of Contents

Key Takeaways

• Cruise ship ticket prices include both the base fare and additional onboard spending, such as casinos, spas, shopping, dining, Wi-Fi, and drinks.
• Main sources of profit for cruise lines are casinos, spas, shopping, dining, Wi-Fi, and drinks.
• Placement of common areas like lounges, bars, and casinos strategically along passenger routes helps generate more revenue.
• Cruise lines employ various profit-making strategies, such as making most of the money upfront for premium cruise lines and catering to passengers who spend more time in ports for luxury cruise lines.

How They Make Money

Continuous Operation Process

Ownership and categorization.

Frequently Asked Questions

How do cruise ships handle medical emergencies and provide medical care to passengers on board, what safety measures are in place to prevent accidents or incidents on cruise ships, how do cruise ships handle waste management and environmental sustainability, what is the process for hiring and training crew members on cruise ships, how do cruise ships handle security and ensure the safety of passengers and their belongings.

Claire, a creative soul with an unquenchable thirst for storytelling, is an integral part of the Voyager Info team. As a dedicated writer, she weaves captivating narratives that transport readers to enchanting cruise destinations and beyond.

Claire’s love affair with writing began at an early age when she discovered the magic of words and their ability to craft worlds and emotions. Her innate curiosity led her to explore various literary genres, but it was travel writing that truly captured her heart. Drawing inspiration from her own globetrotting adventures and encounters with diverse cultures, Claire embarked on a journey to become a travel writer par excellence.

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Claire, a creative soul with an unquenchable thirst for storytelling, is an integral part of the Voyager Info team. As a dedicated writer, she weaves captivating narratives that transport readers to enchanting cruise destinations and beyond. Claire’s love affair with writing began at an early age when she discovered the magic of words and their ability to craft worlds and emotions. Her innate curiosity led her to explore various literary genres, but it was travel writing that truly captured her heart. Drawing inspiration from her own globetrotting adventures and encounters with diverse cultures, Claire embarked on a journey to become a travel writer par excellence.

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Tracking the evolution of onboard retail on cruise ships

Cruise line executives share how they are using retail to improve the guest experience and grow revenue

Cruise lines are expanding their focus on retailing to improve the guest experience and increase onboard revenue. Allan Jordan explores the latest trends with the help of cruise executives

By Allan Jordan | 28 January 2020

One of the newest areas cruise lines are focusing on to increase their onboard passenger revenue is retailing. While cruise ships have always had shops, today’s operators are looking to go far beyond simply selling basic duty-free items, souvenirs and other necessities. Instead, they are exploring how they can make shopping a broader part of the overall cruise experience.

“Duty-free products are very appealing, so shopping is an essential part of the cruise vacation,” says Ross Henderson, senior vice president of onboard revenue operations for Norwegian Cruise Line, noting that passengers’ changing tastes are influencing how the cruise lines are approaching retail operations. “Over the past two decades, onboard retailing has shifted from traditional souvenir shopping to a more diversified experience.”

The first modern cruise ships had small, hidden shops packed with trinkets and souvenirs, as well as duty-free liquor and cigarettes. Although the space for retailing improved on the later mega cruise ships, often being expanded and moved to a more visible location in the atrium, the shops still offered the tried-and-true merchandise mix. “Historically, the cruise lines have used a set formula featuring jewellery, liquor, watches and a small fragrance area,” comments Adrian Pittaway, head of retail at MSC Cruises. “Today, we’re looking at how you integrate shopping into the cruise experience. We don’t want it to be in segregated areas.”

Generally, the size of the cruise ship dictates the size of the shopping area, but most cruise lines are now finding ways to optimise this space, often taking it beyond the confines of the stores. Pop-up displays are now common, but they are just one element of the new approach to selling. For example, Carnival Cruise Line has expanded to offering everything from bathrobes, to coffee cups in cafés and beer glasses at the onboard breweries. Some analysts suggest the brand now has total retail sales of over US$300 million annually. “We’re looking at how we better infuse retail to the overall cruise environment and make it more meaningful for our guests,” says William Butler, the line’s vice president of retail services. “The retail space remains more or less the same, but we’re looking at how items are positioned in the store creating, for example, new branded areas.”

The changes in onboard retailing are not limited to one cruise segment or any particular geography. Germany-based brands TUI Cruises and AIDA Cruises know that while German passengers tend to be value oriented, they enjoy shopping while onboard. Starting with Mein Schiff 6, TUI has worked with travel retail partner Gebr. Heinemann to adopt a new, unique interior design concept that integrates the shops into the passenger areas with a meandering, open marketplace not separated by doorways. AIDA is taking a similar approach.

“AIDA is moving away from the one shop concept to multiple outlets spread out over several decks, inviting guests to browse and spend time in these spaces,” says Casper Koch, director of onboard revenue for AIDA Cruises.

Meanwhile, Celebrity Cruises has introduced a new Serendipity concept (starting on the Solstice-class vessels), where the shops on its ships change daily. In addition, it has also unveiled a ‘Sensory Shopping Journey’, which is designed to engage the guests’ five senses: sight, sound, scent, taste and touch.

“Retail on our ships has shifted dramatically,” explains Michael McCarthy, associate vice president of onboard revenue for Celebrity Cruises. “The days of buying quirky port t-shirts and souvenirs are gone with guests now seeking elevated, unique experiences and offerings.”

Cruise lines are also recruiting executives from the onshore retail industry, drawing on their expertise to build better at-sea retailing opportunities. Pittaway, for example, started his career at British retailer Debenhams and later managed airport retailing before heading a group that operates the more than 160 boutiques across MSC Cruises’ fleet. Meanwhile, Butler worked at FAO Schwarz and Macy’s before joining Carnival. “My team has increased its level of involvement with Carnival’s retailing partners, building greater depth in our offerings to go beyond the staples that guests expect onboard, including liquor, cigarettes, duty-free and logoed merchandise,” he says.

Most cruise lines work with one of the major partners – Dufry Group, Effy, Harding Retail, Gebr. Heinemann or Starboard Cruise Services – which has helped to bring aboard well-known brand names including Channel, Fossil, Swarovski and Tag Heuer. As part of these new initiatives, cruise companies are also offering boutiques with luxury products from brands like Bulgari, Cartier and Tiffany. Some are even branching out into new retailing categories, such as AIDA’s Living & Gifting range, which features selected home decor products. TUI, meanwhile, has implemented a cross-category concept presenting perfumes alongside textiles and accessories to inspire guests’ purchases.

As part of their changing approach to retailing, cruise brands are also seeking to integrate shopping into the daily shipboard routines. Royal Caribbean International, for instance, is now working towards creating memorable experiences rather than having a traditional transactional retail experience. The company’s newest cruise ship, Symphony of the Seas, has fragrance and beauty bars on the Royal Promenade and liquor tastings in the duty-free store.

Similarly, Celebrity Cruises hosts the Apprentice of Time seminar during which guests explore the inner workings of a timepiece to understand the workmanship in the items. Carnival has everything from its Watch & Scotch seminar to an exclusive new crafting programme with retailer Michaels. Fashion shows and jewellery lectures continue to be common, but even these events have evolved to include exclusive designer trunk shows, invitation-only events, or private viewings such as the ones MSC Cruises hosts for passengers in its Yacht Club suite enclave.

Costa Cruises, which is best known for its presence in Europe and Asia, has also recognised the potential of creating a retail experience. “For many of our guests, part of the exciting onboard experience is the shopping opportunities and events related to shopping,” says Scott Knutson, vice president of sales and marketing for Costa Cruises North America. “Our aim is to take a soft approach so we’re not pushing sales. We want our shops to be warm, friendly, welcoming and informative, so our guests are comfortable and find the experience enjoyable.”

Understanding that cruise guests have time during their vacation to explore items and contemplate purchases, the lines have shifted away from the aggressive daily promotions, taking retailing into relationship building, adding to the cruise experience. In doing so, retailing is taking its place alongside the bars, speciality restaurants, spa and shore excursions increasingly contributing to the growth in onboard revenues.

This article was first published in the Autumn/Winter 2019 issue of International Cruise & Ferry Review . All information was correct at the time of printing, but may since have changed.

Subscribe to International Cruise & Ferry Review for FREE here to get the next issue delivered directly to your inbox or your door.

Tags: Costa Cruises     Celebrity Cruises     MSC Cruises     AIDA Cruises     retail

Allan Jordan

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The economics of cruise ships

In the wake of coronavirus and tanking stocks, cruise companies have sought assistance from the us government. but for decades, the industry has done everything in its power to avoid paying into the ....

Published: June 30, 2020

Updated: February 09, 2024

Cruise ships are often called “monsters” of the sea.

If you’ve ever seen one in action, you’ll understand why: A vessel like Royal Caribbean’s Symphony of the Seas is longer than 12 blue whales. At 228k gross tons, it is 5x the size of the once-formidable Titanic . It can hold 6,680 passengers and 2,200 crewmembers, the population of a small American town .

In 2018, 28.5m passengers — the bulk of them from America — spent more than $46B on cruises globally. The biggest players see annual profits in the billions.

But cruise companies have done more to earn the “monster” moniker than churning out huge ships and market gains.

For decades, these companies have utilized century-old loopholes to avoid paying corporate taxes. They’ve gone to great lengths to bypass US employment laws, hiring foreign workers for less than $2/hour. They’ve sheltered themselves as foreign entities while simultaneously benefitting from US taxpayer-funded agencies and resources.

Now, in the wake of a coronavirus crisis that has sunk cruise stocks by double digits , these companies are lobbying for federal assistance.

To better understand the dynamics of this wild industry, we spoke with maritime lawyers, legislators, and cruise experts in 3 countries.

The cruise industry at large

Before we get into how cruise companies circumvent US taxes and regulations, let’s take a quick look at the major players, the money they make, and how they make it.

The global market comprises dozens of cruise lines and more than 250 ships. But 3 players — Carnival Corporation & PLC, Royal Caribbean Cruises LTD, and Norweigan Cruise Line HLD — control roughly 75% of the market.

Zachary Crockett / The Hustle

These companies, which preside over an empire of subsidiary cruise lines, collectively raked in $34.2B in revenue in 2018.

Cruise ships make this money through two channels: Ticket sales and onboard purchases (e.g., alcoholic drinks, casino gambling, spa treatments, art auctions, and shore excursions), which passengers pay for with pre-loaded cruise cards and chip-equipped wristbands.

On average, tickets account for 62% of total revenue and onboard purchases make up the remaining 38% .

Though tickets represent a majority of revenue, onboard purchases account for the lion’s share of the profit, according to several experts.

As a high fixed-cost business, a cruise ship relies on getting as many passengers as possible on the ship — even at fire-sale rates. The major cruise lines will often fill each ship to 105%-110% capacity, then upsell its captive consumers on additional services.

“They have mastered the ability to get their hands into people’s pockets and to take out every last dollar,” says Ross A. Klein, a professor at Memorial University of Newfoundland, who has closely studied the cruise ship industry. “They can almost give a cabin away for free and still make a profit.”

Despite sizeable overhead costs — which include travel agent commissions, fuel, marketing, and payroll — these large crowds yield handsome profits. Industry-wide, cruise lines enjoy net margins of 17%, nearly double the average of some comparably large hotel chains:

• Carnival: $3.2B net profit (17% margin)
• Royal Caribbean: $1.8B net profit (19% margin)
• Norwegian: $955m net profit (16% margin)

To make these figures a bit more relatable, here’s what this works out to on a per-passenger level for a 7-day cruise:

On average, a passenger will spend $1,060 ($151/day) on a ticket and $650 ($92/day) on onboard purchases. After subtracting overhead costs, a ship will make out with roughly $291 in net profit per passenger, per cruise.

That means that at full capacity, a single ship like Royal Caribbean’s Symphony of the Seas might make $9.8m in revenue ($1.7m of which is profit) during one 7-day excursion. That’s $239k in profit per day at sea.

As 50% of this money comes from American travelers, one might expect the cruise industry to be a substantial contributor to the US tax system.

But there’s a catch: These companies aren’t technically American. And they harbor what one legal expert calls a “dirty little secret.”

How cruise companies avoid paying US taxes

Carnival, Royal Caribbean, and Norwegian all have headquarters in Miami, Florida, a city that brands itself as the “ Cruise Capital of the World .”

With this homeland base, a large foundation of US customers, and red, white and blue logos, these cruise lines have manufactured an identity as authentically American corporations. President Trump has even called them a “great US business.”

Legal paperwork tells a different story.

International law requires every ship to register with a country and fly its insignia in open waters. A ship is only subject to the laws of the country it is registered in.

Under an obscure, 99-year-old section of the US tax code, cruise companies are able to register their ships with countries that have more lenient laws than the US — an act called flying a “ flag of convenience ” — and avoid paying into the US tax system.

It’s a tax loophole big enough to drive a cruise ship through.

The cruise industry isn’t alone in avoiding Uncle Sam: US companies use offshore accounts to avoid paying an estimated $90B-per-year in taxes.

But it is especially adept at the practice: Carnival is incorporated in Panama and flies the flags of Panama and the Bahamas; Norwegian is incorporated in, and flies the flag of, the Bahamas; Royal Caribbean has been incorporated in Liberia since 1985, and flies the flags of the Bahamas and Malta.

These impoverished countries often compete with each other to offer cruise lines the cheapest services, much like many US cities groveled for Amazon’s HQ2 by offering large tax cuts.

“Cruise lines want to register somewhere where they pay no taxes, are exempt from labor and wage statues, and don’t have to follow health and safety codes,” says Jim Walker, a Miami-based maritime lawyer. “They’re looking for a place that will leave them alone, not oversee their operations.”

For the most part, that’s what cruise companies have gotten: According to annual report filings, the major cruise lines pay an average tax rate of 0.8% — for below the 21% US corporate tax rate.

The benefits of such arrangements are nominal for the countries that register the ships.

Cruise lines will generally pay a small head tax ($4-$15 per passenger) to call on a port. According to Klein, these countries often spend more on maintaining facilities for cruise ships than they make through the fees.

They might also promise a boost to the economies they frequent. But Klein says they work out deals with local vendors where they take up to 70% of the onshore revenue — and studies have shown that local populations in foreign ports don’t get much out of such partnerships.

A cruise ship employee cleans a slot machine onboard MSC cruises’ Magnifica in Saint-Nazaire (FRANCK PERRY/AFP via Getty Images)

Registering ships abroad also shelters cruise companies from US employment and safety laws.

Cruise ships hire crew members from Southeast Asia, Eastern Europe, and  “anywhere else you can find people willing to work for nothing,” and demand grueling workloads in exchange for comparatively paltry wages.

The standard contract for a crew member like a cleaner or dishwasher requires a mandatory 308 hours per month — 11 hours a day, 7 days a week, for as long as 8-10 months, with no days off — for the equivalent of $400-700 per month, or $1.62 to $2.27 per hour .

Unprotected by labor laws and regulations, crew members who get injured on the job are swiftly replaced, like “ fungible goods .”

In its latest report , the Cruise Lines International Association, an influential trade group, argues that the cruise industry has a $52.7B “total economic impact” on the US economy and “supports” 421k American jobs. But Klein says it’s unclear what goes into calculating these figures.

The Hustle asked several major cruise lines to comment on the concerns raised in this article. None of the companies responded.

There is one thing the cruise industry has been expeditious about doing on US soil: Lobbying to keep its exemptions in place.

According to the nonprofit Open Secrets , the cruise industry spent $66.2m in lobbying fees between 1998 and 2019. It also made contributions of at least $1.1m to candidates in cruise ship states, including $29.5k to a US representative from Florida who chairs the Panama Caucus, and $23.5k to a senator who fought to blockade a cruise tax.

$813,807 for a single taxpayer-funded rescue effort

While cruise ships avoid paying US taxes, they simultaneously benefit from the services of taxpayer-funded federal agencies.

Professor Klein, who has testified before Congress on matters of cruise ship safety, says that in the past 25 years:

• 361 passengers have fallen overboard on cruise ships (14 per year)
• 353 gastrointestinal/norovirus outbreaks have broken out on cruise ships
• 500+ environmental violations have been charged to cruise ships

In many of these cases, US agencies have to intervene — and taxpayers, not cruise companies, usually eat the cost.

Rescue teams search for survivors on the Costa Concordia, which struck a rock off the Italian coast in 2012 (Target Presse Agentur Gmbh/Getty Images)

Klein has filed open-records requests and obtained documents on the companies, which he shared with The Hustle . They show that a single cruise ship passenger rescue effort can cost the US Coast Guard and the US Navy from $500k to $1m+ . One 2009 search for a woman who fell overboard off the coast of Florida set the Coast Guard back $813,807.

When ships go dead in the water — as was the case with Carnival’s Splendor fire in 2010 and its Triumph disaster in 2013 — these costs can balloon to $5m+.

Walker, the maritime lawyer, adds that, in certain cases, cruise ships also require the resources of taxpayer-funded agencies like the US Public Health Service, Centers for Disease Control and Prevention, United States Citizenship and Immigration Services, and US Customs and Border Protection.

What does this all mean in the context of coronavirus?

In the wake of a COVID-19 pandemic that has infected more than 157k and killed at least 5.8k people worldwide (as of March 14), the hospitality industry is reeling.

Cruise ships — often called “ floating petri dishes ,” for their adeptness at spreading illnesses — have been hit especially hard. After at least 21 passengers tested positive for COVID-19 aboard Carnival’s Grand Princess , the State Department urged the public to “not travel by cruise ship.”

Customers clamored to cancel trips and cruise stocks fell by 60% — the worst stock performance on record for the industry. 

Initially, some cruise lines attempted to weather the storm by selling tickets at all costs . According to emails obtained by the Miami New Times, salespeople at Norwegian were instructed to respond to coronavirus-inquiring customers with scripted one-liners, like “The only thing you need to worry about for your cruise is do you have enough sunscreen?”

When we called the company’s booking hotline last week, a salesperson told us that coronavirus doesn’t exist in tropical climates .

Some major lines have since self-imposed suspensions on cruise trips to and from US ports for up to 60 days — a move that further imperils their revenue.

The Trump administration has hinted at a potential bailout , and the Cruise Lines International Association is urging its 43k travel agent partners to call the White House to express their support for the industry.

Critics like Klein aren’t having it. “They pay no taxes and now they want taxpayer support?” he says. “What happened to laissez-faire capitalism?”

But as federal aid begins to look unlikely, some cruise operators have shifted their pleas to a different set of ears.

In a video posted to Twitter, Jan Swartz, the President of Carnival’s Princess cruise line, called on the American public to help guide the company through dark waters.

“We ask you to book a future Princess cruise to your dream destination as a sign of encouragement for our team,” she wrote. “With your support we will emerge from this time of trial even stronger.”

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Norwegian Cruise Line Holdings: Onboard Revenue Up 30%

• August 4, 2023

“During the quarter, gross onboard revenue per Passenger Cruise Day was approximately 30 percent higher than the comparable 2019 period,” said Harry Sommer, president and CEO of Norwegian Cruise Line Holdings, speaking on the company’s second quarter earnings call.

Sommer said that onboard revenue was the company’s best real-time indicator of how consumers are feeling financially.

“In fact, presold revenue on a per passenger day basis for the second quarter of 2023 was over 75 percent higher than in 2019. An important contributor to our onboard revenue strength as these guests tend to spend more overall throughout their journey than guests who do not pre-book onboard activities,” Sommer said.

Is it a trend? Sommer said that every month continues to be good.

“We’re not seeing any weakness,” he said.

Mark Kempa, CFO, said that the company had more touch points with the consumer prior to the consumer getting on the ship.

“So we’re getting more share of the wallet from the consumer ahead of that. And I think one of our stats that we talked about, our prebooked revenue was up by almost 70 percent versus 2019. So again, it’s a longer elongated sales cycle that just helps build that overall onboard revenue product. We are not seeing any signs of any consumer deterioration. In fact, we continue to see strength on that and we’re very happy with that.”

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It’s full steam ahead for the cruise ship industry after Royal Caribbean hiked its full-year profit guidance on Thursday, saying it expects 60% growth from last year following record bookings during the first quarter.

Travelers are paying “record ticket prices,” according to Royal Caribbean — despite a recent spate of high-sea deaths and missing passengers reports, including a Florida 20-year-old who jumped off a Royal Caribbean cruise this month.

Soaring demand for vacations at sea has given cruise operators ample room to raise ticket prices as the industry looks to close the pricing gap between more expensive land-based holidays and give their profits a lift.

Royal Caribbean, which operates the Celebrity Cruises, now expects annual profits of between $10.70 and $10.90 per share, compared with its earlier forecast of $9.90 to $10.10.

“Our existing fleet along with our new ships continue to perform exceptionally well, highlighted by the market response to the launch of Icon of the Seas,” CEO Jason Liberty said.

Royal Caribbean’s shares — which have spiked 126% in the past year, were up 2% on Thursday morning, to $139.32.

“I remember owning the stock in 2022 and every client was giving me grief about it,” said Peter Ahluwalia, manager at Belinvest Global Equity Fund that holds Royal Caribbean stocks and chief investment officer at Swiss Partners Group. “We’re turning almost 45% return on equity at the moment, which is quite incredible.”

Overall, the industry which was among the hardest hit during the pandemic, is expected to grow to 39.4 million passengers in 2027 from 31.7 million last year, according to Statista.

The surge in demand comes amid major publicity blows from incidents at sea involving passengers who have gone missing, including the Florida man who jumped overboard on April 4 in front of his brother and father after a night of drinking.

Last December, a 41-year-old Royal Caribbean passenger went overboard on a cruise to the Bahamas. That followed an incident last August involving a 64 year-old woman sailing from Singapore to Malaysia on Royal Caribbean who is presumed to have jumped to her death .

On average, 19 people go overboard on cruise ships every year — and of those, only about four are rescued, according to a 2020 study commissioned by the industry trade group Cruise Lines International Association.

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