How you can make money from cruise liners
Kent Kwan is co-founder of AtlasTrend. With 15 years of professional experience in investing and international financial markets, Kent has successfully managed more than $1 billion in funds invested in international-listed shares.
Do you know someone who has been on a cruise ship lately? Yes? Not surprisingly, the cruise industry is now a multi-billion dollar industry with great growth opportunities.
How do cruise ship companies make money from passengers?
Cruise ship companies can be highly profitable. At AtlasTrend, our Splurging Baby Boomers Fund is currently invested in Royal Caribbean Cruises Limited. The following infographic shows how Royal Caribbean made US$1.1 billion of adjusted net profit in 2015 from 5.4 million passengers.
How can I make money from cruise ship companies?
A simple way to share in some of the potential profits that cruise ship companies make is by becoming a shareholder. The large cruise ship companies such as Royal Caribbean and Carnival are listed companies. By buying some shares in these companies, you’ll become a part owner. Of course, all share investments come with risks of making or losing money so you should consider all investments carefully.
Why should I invest in cruise ship companies?
Here are our top five reasons why investment in cruise ship companies may result in a positive investment return.
- Cruising is growing in popularity particularly in Asia: In 2015, only 1 million cruise passengers were from China (a similar number to Australia which has a far smaller population). However, by 2020, the Chinese government expects 4.5 million cruise passengers from China per year while cruise ship operator Carnival is even more optimistic suggesting the market for China cruise passengers may exceed 5 million by 2020. Together with the continuing (though lower) growth in cruising from North American and European passengers, the cruise industry is set for potentially strong demand in the coming years.
- Committed growth in new passenger capacity: To meet the upcoming demand, over the next 5 years 139,000 berths (from 44 new ships) have been committed by cruising companies to be built. This is a 29 per cent increase in passenger carrying capacity globally.
- Baby boomers’ spending power: Cruising has demographic and spending power on its side. Baby boomers are a key customer group for cruise ship companies. With more baby boomers heading into retirement over the next decade, there will be greater demand for cruises. Baby boomers being the wealthiest proportion of the global population are also able to spend more on their cruising holiday which will help boost cruise liner profits.
- Dominated by two rational companies: Royal Caribbean Cruises and Carnival together have approximately 70 per cent market share of the global cruise passenger market. It is essentially a duopoly where both companies are rational competitors who don’t tend to engage in prolonged price wars. As a result, shareholders should be the long term winners.
- Relatively cheap valuation with good earnings growth: Our preferred investment in the industry is Royal Caribbean. The share market currently values the company at less than 11 times price to earnings ratio (for the forecast 2017 financial year) with over 15 per cent projected earnings growth for that year. This is a relatively attractive valuation for buying Royal Caribbean shares given the positive industry dynamics over the next 5 to 10 years.
In addition to the five reasons above, shareholders of some cruising companies also gain a shareholder discount. Although we would never recommend buying shares just because you might get shareholder benefits, if the investment stacks up then any shareholder benefits are a bonus. For example, Royal Caribbean shareholders (with 100 shares or more) receive up to US$250 of onboard credit every time they cruise on a Royal Caribbean ship. 100 shares in Royal Caribbean Cruises currently costs approximately A$10,000.
If you’re a fan of cruising or believe the industry is set for a positive decade, then it could well be worthwhile to start considering investing in cruise ship companies. Join the AtlasTrend community of investors at for more information.
Any advice contained in this communication is general advice only. None of the information provided is, or should be considered to be, personal financial advice.
Related links:
A third of Aussie women are retiring in poverty
10 exciting retirement adventure ideas
Is it a bad idea to withdraw all of your super at once?