Cruises: structural drivers support long-term growth

Over the past several years, cruise operators have delivered remarkably resilient operating and financial performance despite geopolitical instability, including US tariff uncertainty, conflicts in Ukraine and the Middle East, broader economic uncertainty and higher energy costs.

The outlook remains equally strong. Leading operators continue to report record bookings in both volume and pricing, with visibility extending into 2027 and 2028. Customer deposits, another key leading demand indicator, also continued to grow in Q2 2026, with Carnival, Royal Caribbean Cruises and TUI Cruises all reporting record highs.

This resilience may appear counterintuitive. In our view, it reflects a combination of structural drivers that help mitigate the intrinsic cyclicality of the sector.

Demographics: a powerful long-term catalyst

Population ageing is expected to remain an important long-term demand driver. Cruise vacations are particularly well suited to an increasingly affluent population gradually ageing out of more physically demanding leisure activities. This trend is reinforced by the concentration of wealth among older generations. In the United States, Baby Boomers (aged 69-79) and older generations (the Silent Generation and above) control about 70% of national wealth (Federal Reserve data), providing substantial spending power for leisure and travel.

Importantly, however, cruising is no longer solely an older-generation product. According to the Cruise Lines International Association (CLIA), the average cruise passenger is now just 47 years old, while more than a third of passengers are under the age of 40. More than one-third of cruise passengers are first-time cruisers, highlighting the industry's continued ability to attract new customers.

Demand is also supported by exceptionally high engagement among younger cohorts. According to CLIA, among survey respondents (previous cruise travellers), more than 80% of Generation X (1965-1980) and Millennials (1981-1996) say they intend to cruise again, while repeat cruise intent among Generation Z (1997-2012) is close to 75%. The result is a broad and increasingly diversified customer base that supports long-term, multi-generational demand growth.

The wealth effect supports leisure spending

Strong financial markets continue to support discretionary travel spending, particularly in the US, where household wealth remains closely linked to equity market performance. Rising asset prices create an important wealth effect, increasing consumers' willingness to spend on leisure and travel. In an April 2026 Bloomberg survey, nearly two-thirds of respondents planned to increase travel spending, broadly unchanged from the previous year. In May, a second survey found that roughly half would further increase their holiday budgets in response to rising travel costs, a figure that had risen since November.

Higher interest rates provide an additional tailwind. Travellers aged over 60 account for roughly one-third of all travellers and derive a meaningful share of their income from fixed-income investments, including bonds and savings products. The 2022-2025 rate-hiking cycle significantly increased recurring investment income for this demographic, and the effect should strengthen as portfolios roll into higher-yielding instruments and savers lock in elevated coupon rates. We believe this dynamic is particularly supportive in Europe, where investors typically exhibit a more defensive investment profile.

Affordability and customer satisfaction

Industry executives suggest cruise vacations can be 25-30% cheaper than comparable land-based holidays. The value proposition stems from the all-inclusive nature of the product, which bundles accommodation, transportation between destinations, most meals, entertainment, children's programmes, and a wide range of onboard activities.

This affordability becomes particularly attractive when household purchasing power is under pressure. Cruise passenger volumes increased by approximately 7% annually in the two years following the 2007-2008 Great Financial Crisis. Growth subsequently accelerated to roughly 8% CAGR until Covid-19 hit. The industry then required only a short period to recover from the Covid trough, surpassing pre-pandemic passenger volumes within two years.

Customer satisfaction provides an additional support for demand. Industry surveys indicate that nearly 90% of cruisers intend to sail again. Strong repeat demand and positive word-of-mouth reinforce booking momentum and may become even more valuable as AI-driven travel discovery expands and customer ratings play a greater role in travel recommendations.

Underpenetration, supply discipline and market structure

The industry's long-term growth runway remains substantial. According to CLIA, cruise liners represent less than 1% of the global commercial fleet, while cruising accounts for only around 3% of international tourist arrivals worldwide.

North America accounts for approximately 55% of global cruise passengers and remains the world's most penetrated market. Yet even there, only an estimated 20-25% of the US population has ever taken an ocean cruise.

According to CLIA, passenger volumes are expected to continue growing at approximately 3% CAGR through 2029. Importantly, the key constraint remains supply rather than demand. New vessel construction is concentrated among a handful of European shipyards, notably Fincantieri, Meyer Werft and Chantiers de l'Atlantique. Newbuild costs can reach $2bn per vessel, and delivery schedules often extend over several years.

The industry's fundamentals are further reinforced by an oligopolistic market structure. The top five cruise operators collectively control over 90% of global cruise capacity. Combined with limited shipyard availability and multi-year vessel delivery schedules, this concentration supports pricing discipline and reduces the risk of irrational capacity expansion.

Balance sheet repair and rating momentum

Continued volume growth and supply tightness have translated into meaningful balance sheet repair across the sector. Net leverage declined to approximately 3.0-3.5x in 2025 for market leaders Carnival and Royal Caribbean Cruises, which together represent more than 70% of combined market share, compared with roughly 5-7x in 2023.

Similar trends have been observed across other operators, including Norwegian, Viking and TUI Cruises, with leverage declining by roughly 2x on average since 2023.

Credit ratings have followed suit. Carnival and Royal Caribbean Cruises have both received approximately five to seven notches of cumulative upgrades since the 2020-2022 trough, recovering at least one investment-grade rating by 2025.

We expect this trend to continue. Consensus forecasts imply EBITDA growth of approximately 9% CAGR across the three largest listed operators between 2026 and 2028. At the same time, CapEx should remain manageable, resulting in leverage continuing to trend toward pre-pandemic levels of roughly 2-3x over the coming years.

Risks should not be overlooked

Despite these structural tailwinds, the sector remains exposed to several risks that should be considered seriously given the industry's high capital intensity and operating leverage.

Geopolitical disruptions

Geopolitical disruptions remain a meaningful risk. The recent escalation involving Iran negatively affected demand for certain Middle Eastern itineraries and disrupted capacity deployment for several operators. TUI Cruises was particularly affected. Two vessels, out of a fleet of roughly a dozen ships, remained stranded in the Persian Gulf from mid-March to mid-May, temporarily affecting revenue growth and profitability in Q2.

A broader deterioration in geopolitical conditions could have more significant consequences, particularly if it affected strategic cruise markets such as the Caribbean. The region accounts for more than 40% of global passenger volumes and remains heavily dependent on North American demand.

Consumer demand shock

Despite the structural support factors discussed above, cruise vacations remain a discretionary expenditure. A severe recession, accompanied by weaker labour markets and negative wealth effects, could weigh on booking momentum, onboard spending and pricing power. The industry's performance following both the Great Financial Crisis and the post-pandemic recovery suggests greater resilience than many leisure sectors. Nevertheless, demand would remain vulnerable in a sufficiently severe macroeconomic downturn.

Fuel costs

Fuel prices remain another source of volatility, with bunker costs typically representing around 10-15% of cruise operators' operating costs. However, the sector benefits from strong demand and constrained supply growth, which support pricing power and help operators absorb inflationary pressures. Occupancy rates sometimes exceed 100%, further reinforcing these dynamics. Fuel hedging provides an additional cushion, although practices differ significantly across operators. Carnival does not hedge fuel consumption, whereas TUI Cruises hedges most of its requirements.

ESG: a key weakness, but progress is being made

The cruise industry remains subject to significant ESG scrutiny. Key concerns include the energy intensity of cruise vessels, greenhouse gas emissions, local air pollution, wastewater treatment, waste management and the pressure placed on destinations through overtourism. As a result, operators remain exposed to increasingly stringent environmental regulation and carbon-pricing mechanisms, which are likely to translate into higher operating costs over time (for example, partial inclusion of the sector’s emissions in the EU Emissions Trading System since 2024, full inclusion from 2026).

The industry is also awaiting the International Maritime Organization’s (IMO) final stance on the expected decarbonisation trajectory. The core Net-Zero Framework was approved in principle in 2025 as part of the IMO’s strategy to get international shipping to net-zero by around 2050, but formal adoption was delayed amid political opposition mainly stemming from the US, pushing the next major decision point to October 2026. In practical terms, the direction of travel is clear, mandatory fuel-intensity cuts and emissions pricing are expected, but the final legal framework and timing remain somewhat uncertain. The main impact would be higher compliance and fuel costs, in addition to potential CapEx for newbuilds and retrofits to improve efficiency, enable the use of lower-carbon fuels, and expand shore-power capability in ports. Over time, that could support faster fleet renewal and greener cruise offerings, but it may also pressure margins and, in some cases, ticket pricing.

In response, the industry is committing resources to reducing its environmental footprint. Most major cruise operators have adopted net-zero emissions ambitions for 2050, with some companies (Royal Caribbean Cruises) pledging to seek formal Science Based Targets initiative (SBTi) validation. Progress is also visible across the fleet, as 57% of vessels currently on order feature multi-fuel capability, compared with only 19% in 2017, providing greater flexibility to adopt renewable and lower-carbon fuels as they become commercially available, port infrastructure matures and regulation evolves. Meanwhile, the industry is still betting on LNG as bridge fuel. Methanol is the main next step for flexibility, and the industry is trying to preserve optionality so it can switch to bio-LNG, e-methanol, or other low-carbon fuels later as supply and infrastructure scale. CLIA forecasts 32 dual-fuel cruise ships in service by 2036, of which 7 will be methanol-capable ships and 25 LNG-capable ships.

Operators are also investing in energy-efficiency technologies, route optimisation, waste-reduction systems and shoreside electricity infrastructure. In terms of energy efficiency, companies like Carnival are, for example, investing in technologies to reduce fuel consumption, such as air lubrication, which reduces frictional resistance between ships’ hulls and seawater. Electricity consumption on ships used for ‘hotel’ features, often referred to as ‘hotel load’, represents a major share of total consumption and is still reliant on shipping fuels (a common academic estimate is that hotel loads account for roughly one-third to 40% of cruise ship energy use, depending on the vessel type, speed, and operating conditions). Hence, shoreside electricity infrastructure allows vessels to switch off onboard engines while at berth and draw power directly from local grids, reducing local emissions and improving environmental performance.

Overall, ESG risks remain a key investment consideration for the sector. While the industry's long-term pathway towards net-zero emissions remains dependent on the availability of low-carbon fuels and supporting infrastructure, operators continue to invest in fleet modernisation, fuel flexibility and emissions-reduction technologies, a first step to improve their environmental footprint.