If you frequent cruise line message boards, you see a lot of talk about how prices have increased. Many passengers blame inflation and talk about how the cruise lines are simply passing on higher prices to passengers.
It's also common to see people talking about the debt the cruise lines took on during the pandemic. That debt often takes the blame for perceived cutbacks in service and food quality.
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In reality, neither of those often-cited arguments sit at the core of how cruise lines set prices or deliver service.
David Bernstein, CFO of Carnival Cruise Line (CCL) , shared some information on both pricing and service during the cruise line's second-quarter earnings call.
"We are still in tremendous value compared to land-based alternatives. And so, as we continue to close that value gap, and raise the price, we should be able to continue the progression over time," he said.
Service decisions, he noted, are made based on the feedback it gets from passengers.
"The service levels on land-based resorts have deteriorated. And on our ships, we're doing a great job keeping our guest satisfaction levels up," he added. "It's a hassle-free vacation, and people love to cruise. And so, we expect to keep demand generation's efforts high. And hopefully, we can continue to see price improvements."
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Image source: Carnival Cruise Line
Carnival shares how it manages the booking curve
Consumers often think that fairness plays a part in setting prices. In reality, most pricing gets set by what the market will bear. There may be some concern about long-term goodwill, but the price gap between land-based trips and cruising give the cruise lines a lot of room.
Just the theme park tickets for a Disney World or Universal Studios vacation can often cost more than a basic cruise fare. Add in the cost of lodging and dining, and cruises — even really expensive ones — look like a good value.
Carnival CEO Josh Weinstein explained that his cruise line takes an aggressive and granular approach to pricing and the booking curve. A booking curve, it should be noted, shows the pace cabins are being booked at as well as the prices they're booked for.
The challenge for cruise lines is that they have two goals — filling the ship and maximizing revenue. Heavy demand to book ships earlier than they have traditionally been booked solves the first problem, but it could lead to rooms being sold for lower prices.
If a cruise line starts marketing a sailing at too high a price, then rooms may not sell. That leads to prices being lowered. That means that refunds or onboard credit will go to people who booked at higher prices.
Weinstein shared some insight into the balancing act his company must pull off.
"Keep in mind, we give you up a very rolled up number when we say our occupancy is X and our booking curve is the farthest out in history," he said. "When we go through this with our teams and what they do on a daily basis, it is ship by ship, sailing by sailing, brand by brand to figure out what that optimal point is."
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Carnival makes its pricing policy clear
A longer booking curve takes away flexibility. That's a bad thing if prices continue to rise. Because of that Carnival will not necessarily continue to push bookings out further.
"And it could very well be that, over time for lots of reasons, you're not going to hear me say overall that we are increasing the booking curve. And that's okay," Weinstein added.
The CEO, however, made the company's goals when it comes to pricing incredibly clear.
"Our goal is not to get it as long as possible. It's to generate as much revenue as humanly possible by the time the ship leaves for sailing," he stated.
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That's a challenging balancing act when you don't know what the economy might look like a year or two out. Weinstein acknowledged that pricing is challenging.
"There's a lot that goes into that mix. It's not just base loading, but what price are you base loading it at? How are you managing your metas against each other, the balconies versus the insides? I mean, so many variables go into it on a detailed basis and the output is what we talk about on this call," he added.
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