Cruise Control: Why Royal Caribbean and Carnival Are Navigating 2025's Seas Better Than Norwegian

The cruise industry is experiencing a divergence in fortunes as Royal Caribbean (RCL) and Carnival (CCL) raise their 2025 outlooks, while Norwegian Cruise Line (NCLH) remains stagnant. With airlines and hotels struggling against macroeconomic headwinds, cruise lines are proving resilient—thanks to strategic pricing, cost discipline, and a surge in demand.

Royal Caribbean: Full Steam Ahead
Royal Caribbean’s first-quarter results were a masterclass in operational execution. The company reported an adjusted EPS of $2.71, far exceeding estimates, and raised its full-year outlook to $14.55–$15.55, a 16% increase from prior guidance. Key drivers include:
- Revenue Power: Gross margin yields rose 13.9%, fueled by last-minute (“close-in”) bookings and strong WAVE season pricing. Net yields increased 5.6% in constant currency, highlighting pricing discipline.
- Cost Efficiency: Net cruise costs (excluding fuel) fell 0.3%, with lower fuel expenses (hedged at $487/ton for 59% of 2025 needs) and operational improvements.
- Capacity Growth: A 3% year-over-year capacity expansion, driven by new ships like the Star of the Seas and Celebrity Xcel, is boosting load factors.

The company’s “Perfecta Program” aims for a 20% CAGR in EPS by 2027. CEO Jason Liberty’s focus on converting land-based travelers into cruisers is paying off: 1/3 of bookings now come from first-timers. With $4.5 billion in liquidity and an upgraded credit rating, Royal is well-positioned to weather future storms.

Carnival: Riding the Wave, but Tariffs Lurk
Carnival’s outlook upgrade reflects its strong Q1 bookings and pricing power. CEO Joshua Ian Weinstein’s emphasis on WAVE season’s record results has fueled optimism. However, risks loom: U.S. tariffs on imported goods could pressure margins. Still, Carnival’s liquidity and scale—serving 9% more guests year-over-year—give it staying power.

Norwegian: Anchored in Uncertainty
Norwegian remains the laggard. Its Q1 net yields fell 0.2% month-over-month, compared to Royal’s 0.7% rise. Weakness in onboard spending and competitive pressures have kept its outlook unchanged. While cruise sector spending grew 6.4% in March (per Jefferies), Norwegian’s stock has underperformed peers amid macroeconomic fears.

Why Cruises Are Outperforming: A Macro Hedge
While airlines and hotels face demand declines, cruises are thriving as cost-effective alternatives. Travelers are “trading up” to cruises, which bundle accommodation, meals, and entertainment—making them more economical than land-based vacations. Jefferies’ data underscores this: cruise spending is growing while airline (-6.6%) and hotel (-2.6%) sectors slump.

Risks on the Horizon
Despite current strength, risks remain. Rising interest rates, inflation, and fuel price volatility could test cruise lines’ pricing power. Royal’s sensitivity analysis shows a 1% net yield shift impacts EPS by $141 million, underscoring reliance on demand resilience.

Conclusion: Royal and Carnival Are the Anchor Stocks
Royal Caribbean and Carnival are the clear leaders in this sector, with Royal’s superior yield growth and cost control giving it an edge. Its upgraded credit rating and Perfecta Program’s 20% EPS CAGR target make it a compelling long-term bet. Carnival’s scale and WAVE season success also merit attention, though tariffs are a wildcard.

Norwegian, however, faces an uphill climb. Its stagnant yields and weaker onboard revenue growth suggest it may underperform unless it revitalizes its product offerings.

For investors, Royal Caribbean’s stock—currently trading at a forward P/E of 12.5x its $15.55 EPS guidance—offers a blend of growth and value. Carnival’s valuation at 10.2x its $15.80 EPS target is also attractive, but its tariff exposure demands caution.

In a sector where “sea legs” matter most, Royal and Carnival are sailing with the wind, while Norwegian remains becalmed—until it finds its own wave.