Cruise operators reap benefits of their own private islands

An artist's rendering shows Carnival Corps Celebration Key, a private 65 acres destination on Grand Bahama set to open in 2025, in this handout image obtained by Reuters October 28, 2024. (Carnival Corporation/Handout via Reuters) NEW YORK--Major cruise operators are steering their ships - and millions of dollars in investments - into their own private destinations packed with excursions, beaches, bars and restaurants. The phenomenon appears to have started with Royal Caribbean Group, which in 2019 opened "Perfect Day at CocoCay," an amusement park-like private destination in The Bahamas that has caught the eye of Wall Street. By operating their own private destinations on small Caribbean islands, Royal Caribbean and other cruise operators have managed to grow revenues faster."By having their own port and not having to pay passenger fees and government taxes, they are able to capture more of that total revenue," Bob Levinstein, CEO of cruise marketplace Cruise Compete, told Reuters. For example, Royal Caribbean spent $250 million to renovate CocoCay and since its opening in 2019, the company's third-quarter expenses including commissions have increased 41% while ticket revenues are up 48%. Now, competitors Carnival Corp and Norwegian Cruise Line Holdings are scrambling to recreate that success. "Royal is getting some of the best returns in all of cruise right now, and the big edge they have is CocoCay, and everybody else is trying to catch up," Kenneth Kuhrt, executive vice president at Ariel Investments, told Reuters. Cruise companies have been posting banner earnings as the more affordable price of cruises attracts consumers itching to travel in the post-COVID era. Royal Caribbean shares are up 69% so far this year, while peers Carnival and Norwegian are up 27% and 30%, respectively. "Perfect Day at CocoCay has been a game changer for both our guests and our business," said Royal Caribbean CEO Jason Liberty in a statement. Announcing its third-quarter earnings on Tuesday, the company told investors this was in part because private destinations are driving "sizable, significant returns".Cruise companies are shuttling a record number of travelers into the region on three- and four-day itineraries with stops at private destinations, according to industry experts. Meanwhile, rising direct bookings allow Royal Caribbean to save on commissions, which are about 10% to 20% of the ticket price, said Patrick Scholes, Truist Equity analyst. "Travel agents are getting cut out of the mix," Scholes said. "Cruise companies are extremely reluctant to acknowledge this because they are still very dependent on travel agents and don't want to highlight that they are seeing more direct bookings." There are currently 12 private destinations in the Caribbean, including two set to open in 2024 and 2025, with more on the way. Carnival for instance plans to invest $600 million to develop Celebration Key, its private destination in Grand Bahama."The returns must be pretty good if Carnival is willing to put a half billion dollars into development of their private island rather than either trying to clean up the balance sheet or build another ship," Kuhrt said. Carnival CFO David Bernstein told Reuters that the rate of return on investment for Celebration Key is similar to those of its new ships, which is "high teens" with a three- to four-year payback period. Royal Caribbean has three more private destinations set to open between 2025 and 2027. The company is expected to spend about $650 million to develop a private destination in Mahahual, Mexico - the company said it acquired the port and surrounding land for $290 million - and $165 million on another destination in the Bahamas. The company has not disclosed its investment in a third destination in Cozumel, Mexico. Norwegian announced plans in April to invest $150 million to develop a new pier at the company's private island Great Stirrup Cay in the Bahamas. Based on itineraries published as of July 2024, passenger capacity for private islands increased 41% year on year to about 10 million passengers, according to Tourism Economics' Christian Savelli. Non-private island Caribbean destinations increased 18% to about 57 million passengers.Visits to some public Caribbean destinations, however, are falling compared with before the pandemic, even though the region is expected to see a record 14.5 million in visitors in 2024, according to the Cruise Lines International Association. The Cayman Islands saw a 36% decline in cruise visits from the first half of 2024 compared with 2019, according to the Caribbean Tourism Organization. Certain other destinations, including St. Kitts and Nevis, Belize and St. Maarten, saw declines of more than 20%. "I don't think they can deliver the same authentic experience guests are still looking for," said Natasha Chalwell, the British Virgin Islands Port Authority marketing director. "But it pushes us as well to deliver on our unique offerings."

An artist's rendering shows Carnival Corps Celebration Key, a private 65 acres destination on Grand Bahama set to open in 2025, in this handout image obtained by Reuters October 28, 2024. (Carnival Corporation/Handout via Reuters) NEW YORK--Major cruise operators are steering their ships - and millions of dollars in investments - into their own private destinations packed with excursions, beaches, bars and restaurants. The phenomenon appears to have started with Royal Caribbean Group, which in 2019 opened "Perfect Day at CocoCay," an amusement park-like private destination in The Bahamas that has caught the eye of Wall Street.

By operating their own private destinations on small Caribbean islands, Royal Caribbean and other cruise operators have managed to grow revenues faster. "By having their own port and not having to pay passenger fees and government taxes, they are able to capture more of that total revenue," Bob Levinstein, CEO of cruise marketplace Cruise Compete, told Reuters. For example, Royal Caribbean spent $250 million to renovate CocoCay and since its opening in 2019, the company's third-quarter expenses including commissions have increased 41% while ticket revenues are up 48%.

Now, competitors Carnival Corp and Norwegian Cruise Line Holdings are scrambling to recreate that success. "Royal is getting some of the best returns in all of cruise right now, and the big edge they have is CocoCay, and everybody else is trying to catch up," Kenneth Kuhrt, executive vice president at Ariel Investments, told Reuters. Cruise companies have been posting banner earnings as the more affordable price of cruises attracts consumers itching to travel in the post-COVID era.

Royal Caribbean shares are up 69% so far this year, while peers Carnival and Norwegian are up 27% and 30%, respectively. "Perfect Day at CocoCay has been a game changer for both our guests and our business," said Royal Caribbean CEO Jason Liberty in a statement. Announcing its third-quarter earnings on Tuesday, the company told investors this was in part because private destinations are driving "sizable, significant returns".

Cruise companies are shuttling a record number of travelers into the region on three- and four-day itineraries with stops at private destinations, according to industry experts. Meanwhile, rising direct bookings allow Royal Caribbean to save on commissions, which are about 10% to 20% of the ticket price, said Patrick Scholes, Truist Equity analyst. "Travel agents are getting cut out of the mix," Scholes said.

"Cruise companies are extremely reluctant to acknowledge this because they are still very dependent on travel agents and don't want to highlight that they are seeing more direct bookings." There are currently 12 private destinations in the Caribbean, including two set to open in 2024 and 2025, with more on the way. Carnival for instance plans to invest $600 million to develop Celebration Key, its private destination in Grand Bahama.

"The returns must be pretty good if Carnival is willing to put a half billion dollars into development of their private island rather than either trying to clean up the balance sheet or build another ship," Kuhrt said. Carnival CFO David Bernstein told Reuters that the rate of return on investment for Celebration Key is similar to those of its new ships, which is "high teens" with a three- to four-year payback period. Royal Caribbean has three more private destinations set to open between 2025 and 2027.

The company is expected to spend about $650 million to develop a private destination in Mahahual, Mexico - the company said it acquired the port and surrounding land for $290 million - and $165 million on another destination in the Bahamas. The company has not disclosed its investment in a third destination in Cozumel, Mexico. Norwegian announced plans in April to invest $150 million to develop a new pier at the company's private island Great Stirrup Cay in the Bahamas.

Based on itineraries published as of July 2024, passenger capacity for private islands increased 41% year on year to about 10 million passengers, according to Tourism Economics' Christian Savelli. Non-private island Caribbean destinations increased 18% to about 57 million passengers. Visits to some public Caribbean destinations, however, are falling compared with before the pandemic, even though the region is expected to see a record 14.

5 million in visitors in 2024, according to the Cruise Lines International Association. The Cayman Islands saw a 36% decline in cruise visits from the first half of 2024 compared with 2019, according to the Caribbean Tourism Organization. Certain other destinations, including St.

Kitts and Nevis, Belize and St. Maarten, saw declines of more than 20%. "I don't think they can deliver the same authentic experience guests are still looking for," said Natasha Chalwell, the British Virgin Islands Port Authority marketing director.

"But it pushes us as well to deliver on our unique offerings.".