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

Abstract

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. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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