Carnival's Bold Loyalty Gamble: Will New Rewards Program Steer the Ship to Profitability?

The cruise industry is roaring back to life post-pandemic, but Carnival Corporation (CCL) isn't just sailing with the tide—it's reengineering its loyalty program to capture bigger waves of revenue. Let's dive into the strategic implications of Carnival's new Carnival Rewards™ program and what it means for investors.

The New Loyalty Rules: Spending Over Sailing

Carnival's old Very Important Fun Person (VIFP) program rewarded customers based on cruise nights sailed. The new Carnival Rewards™ flips the script by prioritizing spending over frequency. Members earn Reward Points for purchases (spa, dining, excursions) and Status Qualifying Stars based on total cruise-related spending. This dual system aims to boost onboard revenue—a critical profit driver, as cruises themselves often operate on thin margins.

The stakes? Carnival's onboard spending per guest is already among the highest in the industry. By tying elite status to dollars spent, not days sailed, Carnival is betting it can supercharge those numbers. But there's a catch: lifetime status is gone. Even Diamond-tier members must requalify every two years—a move that's sparked backlash from loyalists.

Will Customers Stay Aboard or Jump Ship?

The program's genius lies in its credit card integration with Barclays' new Carnival Rewards Mastercard. This card accelerates points and stars, turning everyday spending into loyalty currency. For frequent cruisers, this could be a win-win: more redemption power for cruises and perks. But Carnival risks alienating its most loyal customers—the ones who earned lifetime Diamond status under VIFP. Removing that perk could drive them to rivals like Royal Caribbean (RCL), which still offers lifetime elite status.

The Numbers Game: Revenue vs. Retention

Let's crunch the math. To reach Diamond status, a guest must spend $33,334 every two years. That's a $16,667 annual spend, far above the average cruise passenger's onboard budget. While this could drive luxury purchases (premium cabins, spa packages), it might also deter budget travelers. However, Carnival's points expiration rule (no expiration with activity every three years) reduces churn risk. Members are incentivized to keep spending to avoid point decay.

The program also introduces milestone gifts (e.g., 5,000 points for 50 nights sailed) to retain long-term cruisers. Yet critics argue these perks pale against the lost benefits of free specialty meals and automatic cabin upgrades under VIFP.

Why Investors Should Pay Attention

For Carnival shareholders, the program's success hinges on two factors:
1. Onboard Revenue Growth: If the credit card and spending-based model boosts per-guest spending, margins could expand.
2. Customer Retention: If Diamond members defect to rivals, Carnival risks losing its most lucrative clients.

The Bottom Line: A Risky Gamble with Upside

Carnival's move is bold—a necessary evolution to compete in an industry where loyalty programs are increasingly transactional. The Carnival Rewards Mastercard could be a game-changer, turning casual cruisers into credit card holders who spend more onboard and off. But the loss of lifetime status is a double-edged sword: it could simplify status management for Carnival but hurt retention among its top-tier customers.

Action Alert: I'm cautiously bullish on CCL here. The stock has rebounded from pandemic lows but still trades at a discount to pre-2020 levels. If the new program drives 10%+ growth in onboard revenue and stabilizes customer churn, shares could climb. However, keep an eye on competitor moves—if Royal Caribbean matches Carnival's perks or poaches its loyalists, the tide could turn.

Backtest the performance of Carnival Corporation (CCL) when buying 5 days before each quarterly earnings announcement and holding for 30 trading days, from Q4 2020 to Q2 2025.

Historically, such an approach has seen mixed results. From Q4 2020 to Q2 2025, buying CCL five days before earnings and holding for 30 days yielded a 3.06% compound annual growth rate (CAGR) but faced a maximum drawdown of 55.09%, with a risk-adjusted Sharpe ratio of 0.07. This underscores the stock's volatility around earnings—a critical consideration for investors aiming to time entries.

Final Take: Carnival's loyalty overhaul is a high-stakes bet. Investors should buy dips below $30 (as of June 2025) but stay wary of customer pushback. This is a “hold” for now—wait until the program's impact on revenue and retention becomes clearer by early 2027.