Carnival or Royal Caribbean—Which Cruise Stock Has More Upside?

Key Points

• The cruise industry has been more than rebounding from the pandemic as operators saw accelerated demand in the third quarter of 2024.
• Royal Caribbean cruised to a solid Q3 2024, matching consensus estimates, but dangled the carrot of 2025 EPS starting with a $14 handle.
• Carnival broke over six financial metrics records in its Q3 2024, with half of 2025 bookings already sold out, leaving less inventory for sale than last year as 2026 booking volumes are off to a record start.

The cruise operators were unfortunately locked into an epicenter industry in the consumer discretionary sector during the COVID-19 pandemic. The spread of the disease onboard cruise ships spurred fears that no one would ever want to take a cruise again and risk catching a fatal infection. Fast forward four years later, and the industry is booming as the pent-up demand spawned a travel boom after the reopening that has lasted years.

The best-run operators like Royal Caribbean Cruises Ltd. NYSE: RCL have enjoyed a robust recovery, with shares surging to all-time highs at $214.12 in October 2024. Lagging the recovery but finally catching its stride is Carnival Co. & plc NYSE: CCL, whose shares are still trading nearly 70% off its all-time high of $72.70 set in January of 2018.

Investors may wonder which stock has more upside, the leader or the laggard. Let's take a look.

Royal Caribbean: The Premium Experience at Premium Prices

With a focus on premium brands and experiences, Royal Caribbean is firing on all pistons. Its premium brands include Celebrity Cruises and Royal Caribbean International, which targets families. Silversea Cruises is an ultra-luxury expedition brand. Royal Caribbean also has seven of the world's largest cruise ships, including the largest, 1200-foot ship, Icon of the Seas, which accommodates 5,610 guests and 2,350 crew members.

Its higher-spending customer base continued to help drive record quarterly revenue of $4.89 billion, up 17.4% YoY. Its third quarter of 2024 EPS was $5.20, beating consensus estimates by 17 cents. Its gross cruise costs per available passenger cruise days (APCD) rose 1.3% YoY.

The load factor was 111%, indicating strong demand and solid capacity utilization, which is impacting profitability to the upside. Gross margins yield increased 13.4%. Due to higher pricing across key products, better onboard revenue and strength in Alaskan and European itineraries.

Accelerated Demand and Pricing Outpacing 2023

The demand and pricing environment accelerated since last quarter and exceeded 2023 levels. Closer in-demand 2024 sailings led to higher load factors at higher prices and higher onboard revenue exceeding expectations. Onboard consumer spending and pre-cruise purchases significantly exceed 2023 levels, fueled by greater participation at higher prices. Demand for 2025 is strong, with booked load factors in line at higher rates, which allow for further pricing and yield growth as bookings continue to accelerate. The company closed Q3 with $3.9 billion in cash and cash equivalents.

Full-Year Guidance Is In-Line, But 2025 Expected to Start With $14 EPS

Royal Caribbean expects full year 2024 EPS of $11.57 to $11.62 versus $11.58 consensus estimates. This was raised from its previous EPS guidance of $11.35 to $11.35. Net yields are expected to increase from 10.8% to 11.3%. Demand for 2025 is strong, and booked load factors align with last year's but at higher rates. Elevated demand patterns are expected to drive EPS to start 2025 with a $14 handle.

Carnival Corp: The Affordable Budget Friendly Option Breaking Records

Catering to the budget-conscious customer base, Carnival Cruises offers more affordable cruises with a more party-going atmosphere featuring family-friendly and adults-only areas.

It does sport some premium brands like Princess Cruises, Seabourn, Cunard, and Holland America. Carnival also experienced a demand surge in Q3 2024, which came after an impressive Q2 2024 EPS beat and raise.

Carnival Breaks All Kinds of Records in Q3

The company hit record revenue of $7.9 billion with record yields and record net per diems in constant currency, which exceed 2023 levels. Gross margin yields rose by 19% YoY. Operating income reached a record $2.2 billion, which exceeded 2023 levels by $554 million.

Carnival achieved record adjusted EBITDA of $2.8 billion, up 25% YoY and outperforming June guidance by $160 million. Customer deposits hit a new record of $6.8 billion.

Upbeat CEO Comments Suggest Carnival Has the Upside 

Carnival CEO Josh Weinstein was overwhelmingly and convincingly upbeat with his comments. He stated that high-margin, same-ship yield growth drove a 26% YoY unit operating income improvement, hitting the highest level in 15 years. If CEO enthusiasm is the measure of upside, Carnival runs away with the lead over Royal Caribbean.

Weinstein summed it up,  "With nearly half of 2025 booked and less inventory remaining for sale than the prior year. We are leveraging strong demand to achieve record ticket pricing (in constant currency). Our brands continue to deliver robust booking momentum, with all our brands ahead on price for 2025 sailings, based on the success of their demand generation efforts, along with the exciting offerings and unparalleled experiences we consistently provide our guests. Likewise, 2026 is off to an unprecedented start, achieving record booking volumes in the last three months."