James Hardiman, an analyst at Citi Leisure and Travel, examines travel demand trends related to cruise lines and their growth prospects in the leisure and travel industry.

video transcript

DAVE BRIGGS: This week we learned that President Biden intends to end the national and public health emergencies of COVID-19 on May 11. With the pandemic firmly in the rearview mirror, or awake in this case, is it time for the cruise industry to complete this slow turnaround? James Hardiman, leisure and travel analyst at Citi, said it could be a great year for the industry. Nice to see you, sir. Why do you say that?

JAMES HARDIMAN: Yeah, I mean, I think if you think about the rest of the economy, certainly the rest of the consumer space, everybody came out of the pandemic years ago, isn’t- it not? It wasn’t as easy for this crew room. And so I think there’s a good argument that there’s still some catching up to do here. There were around 50 million people who would have otherwise cruised in 2020 and 2021 and ultimately never made it.

Now some of those people have joined the team over the next year or so. But a significant portion did not. I think the other thing that helps – and we go into so-called wave season is when there’s a disproportionate number of bookings for the upcoming spring break and summer season, which have been really affected last year by the start of the Russian-Ukrainian conflict, then by the break-up of Omicron. This year’s wave season has started much better by all reports from our work. And by all appearances, it’s a good start. And I think that sets the stage for a much more productive year.

JARED BLIKRE: Let me ask you what the next step is. Now that we had withstood the pandemic, we had a set of changing habits and behaviors. I’m just wondering if the average person who doesn’t go on cruises very often, for example, may have broken in or do they rely on regular customers? Just wondering what their TAM is currently compared to the general population who may have lingering concerns about going on a cruise.

JAMES HARDIMAN: Yeah, that’s a good point. I think this is a crucial question. I guess it’s safe to say that at the start of the reopening it was mostly repeat customers, isn’t it? On top of all the fear surrounding the pandemic, few people who have never set foot on a cruise ship have been willing to add that extra fear. I think since the late 22’s and early 23’s we’ve heard about new cruisers returning to space, which I think is a crucial part.

You could tell, based on my previous comment, 50 million people who are some sort of regular cruiser, that you don’t necessarily need that new customer at first. But to get this industry back to where it wants to go, you need that new customer. I also think it’s worth noting that only about 15 million Americans have ever been on a cruise, right? So when you consider that TAMs are definitely most Americans, you’re only scratching the surface. And so it doesn’t take a ton of new cruisers to increase that number by 15 million quite dramatically.

SEANA SMITH: Well, James, just looking at the price of some of these stocks here year-to-date, Royal Caribbean, I know you have a buy recommendation for this. This stock has risen 38% since January 1. How much of this good news has already been integrated? And if not, what is its upside potential?

JAMES HARDIMAN: Yeah, I mean, it really depends on how you phrase it, doesn’t it? Since the beginning of the year, these stocks are in an upward trend. If you compare it to 2019, right, for an overall market up 25%, 30%, Royal Caribbean is only half of what it traded in 2019. That might not be a apples to apples comparison as they are superimposed on a lot of that. But that just goes to show that this is an industry that has been left behind by the rest of the market. And so they have a long way to go to catch up here.

DAVE BRIGGS: My guess – and maybe it’s wrong, James – that’s often the case – is that the typical cruise line is just looking around trying to get the best deal. But you have Royal Caribbean as a purchase. So what is their competitive advantage over their competitors?

JAMES HARDIMAN: Yes, I mean the price is very important. So from that point of view you are right. But in many cases not as important as some other factors, especially the route, right? And Royal Caribbean is arguably the most glocal cruise brand. And I think that helps when you’re trying to travel to distant destinations, some of the more attractive destinations.

I think they’re the best choice, and I think they’re a good combination of the breadth of their offering and their brand perception. I would probably put them first, those two factors combined. But yes, I think there are several factors. The novelty of ships, right? The equipment of the ships and certainly the voyage destinations play a major role. And RCL is certainly no weakling in this regard.

JARED BLIKRE: James, we’ll have to leave it at that, but we really appreciate your ideas here. James Hardiman.

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