Report: Demand Could Exceed Ship Supply When Cruising Restarts

The research arm of Swiss investment bank UBS predicts that the return of cruising in North America will happen a bit later than expected, but that the industry's recovery will be strong once it begins.

"We believe that a U.S. restart is now more likely in late Q3 from Q2 previously," wrote UBS analysts Robin Farley, Arpine Kocharyan and Scott McConnell. "While the near-term outlook has gotten worse, with continued delays in restart, the longer-term outlook has improved as vaccines become more widespread than what we originally factored into our estimates last year. As a result, our 2021 and 2022 estimates are lower, but our 2023 estimates are higher."

The analysts predict a slow 12-month startup period, with less than 10 percent of capacity in use in the first quarter of operations. As the cruise fleet works through the bureaucratic and logistical process of coming back online, staterooms will be in limited supply, and there may not be enough to meet customer demand. "Despite what is likely to be a challenging restart period, we believe demand will exceed supply, partly because supply will be so limited initially and also because there will be 2-3 years since the last cruise for many itineraries," they wrote. 

That imbalance is good news for pricing and booking after a long dry spell for the cruise lines, which have been operating on drastically reduced income since last spring. 

With the disposal of older tonnage, the three top cruise line operators - Carnival Corporation, Royal Caribbean and Norwegian Cruise Lines - will likely see their operating margins improve, UBS predicted. Modern mega-vessels delivered since 2019 are more profitable, and high-grading the fleet may add up to five percentage points to Carnival's operating margin, along with smaller improvements for its competitors.