Best Breakdown of How Cruise Lines Make Money I've Seen

[mnocket]

Props to @Jim9310  I came across this post of his on the Crystal board.  It's the clearest explanation I've seen of how/where cruise lines make money.  Since this topic frequently comes up on other boards - especially with regards to operating at reduced capacity, I thought I'd share it with others.

________________________________________________________________________________________________________________________

 

These charts can be found in an article entitled “The Economics of Cruise Ships”.  They provide a frame of reference for the discussion of cruise prices.

They summarize revenues per brand and typical revenues, costs, and profits per passenger, per week (“Overhead” consists of direct and indirect costs).  The data omits 25% of the global market not served by the 3 largest companies.

Because Genting hasn’t earned a profit in recent years and Crystal employs smaller ships offering additional amenities, their situation would not be entirely comparable.  Apparently, Crystal frequently prices below full cost.

 

 

https://thehustle.co/the-economics-of-cruise-ships/

Edited July 9 by Jim9310

[neverbeenhere]

Interesting.

 

I don't think we have spent $ 650 a piece on any seven day cruise. I guess that many cruisers spend more of their cruise dollars through the cruise company sources.  (tours, transfers, ?)

Edited July 29, 2020 by neverbeenhere
Spa, dining, gambling and booze are ship purchased

[chipmaster]

One of the reason's I rotate into cruising is the value.  I never drink, selectively do the upsell dining, buy almost trinkets on board, and as a rule never do cruise tours unless they are the only choice.

 

Thus cruise looks like a deal, always cheaper for what you get.

 

Like when you go out as well if you don't drink, order desert/appetizer you can get lots of value too.

 

 

[lenquixote66]

27 minutes ago, neverbeenhere said:

Interesting.

 

I don't think we have spent $ 650 a piece on any seven day cruise. I guess that many cruisers spend more of their cruise dollars through the cruise company sources.  (tours, transfers, ?)

My first cruise on a Cunard ship was 7 nights from Manhattan to Bermuda.$699.00 for both my wife and I in 1973 for an elite cabin.

[Joebucks]

Very interesting. I appreciate this post. Obviously, some numbers will flex depending on certain companies conduct business.

 

What really blows my mind is the travel agent / commission portion being the biggest portion of the expenses. With the way most industries evolve, the "human interaction" portion of things really goes away. Surprised to see it alive so much in cruising.

[Aplmac]

39 minutes ago, Joebucks said:

Very interesting. I appreciate this post.

 

What really blows my mind is the travel agent / commission portion

being the biggest portion of the expenses.

 

Yes! I thought so too!

[ldubs]

I would be interested in seeing the margins for on-board spending vs ticket revenues.  I would guess the former is the profit driver.  

[SRF]

I really wonder about a source that lists "Overhead" and includes salaries, fuel, and food.

[cruisemom42]

I wish there was a way to see the revenue + profit for the individual lines, rather than just the overall corporate profit. I imagine there is a big difference between, say, Carnival Cruise line and Seabourn, or between Norwegian and Regent Seven Seas...

 

[iancal]

The only way we can tell is to watch and see what cruise ships are sold or sent to the breakers yard.  Those are the  ones that will be on the bottom tier of individual ship ROI's.  The ships that do not justify the cost of laying up, capital investment or those that will not fit into future marketing directions.  

 

The first ones to go are the dogs.  The ones where there was a no brainer compelling financial argument to dump them immediately.

 

 As time marches on the cruise lines will move up from the bottom to rid themselves of poor performers.  It is just good business and financial survival.  Hopefully this covid situation will be over before the cruise lines are forced to make difficult decisions and cut into the meat as it were.

Edited August 2, 2020 by iancal

[Heidi13]

On 7/29/2020 at 9:17 PM, ldubs said:

I would be interested in seeing the margins for on-board spending vs ticket revenues.  I would guess the former is the profit driver.  

 

Most definitely, the on board spend is where the profits are generated. Back in my day, the bars were the largest on-board revenue generator, while currently, on at least some Lines that has been surpassed by Shore-ex and probably casinos.

 

While alcohol prices have increased significantly, as I paid less than UK Sterling 1 for a bottle of Whisky, Rum, etc. When DS left the ships about 7 or 8 yrs ago he paid about US $6 for a bottle. The company was still making profit from the officers and no doubt the slops chest added a small premium. Basically, the bars pay for the bottle with the first drink, so a very substantial mark-up.

 

Shore-ex revenues vary by region, with Alaska one of the highest performers. Within the past 10 yrs, when chatting with officers I knew from one of the Vancouver based ships, they mentioned the average weekly net (after paying vendors) shore-ex revenue was about US $350K. This was a ship holding about 2,000 pax.

 

[Aquahound]

Several years ago, I remember a show called "Cruise Inc: Big Money On The High Seas." It seemed like a pretty good representation of cruise lines' profits.  I also seem to recall onboard spending was the biggest profit earner.  

[ldubs]

On 8/2/2020 at 10:39 AM, Heidi13 said:

 

Most definitely, the on board spend is where the profits are generated. Back in my day, the bars were the largest on-board revenue generator, while currently, on at least some Lines that has been surpassed by Shore-ex and probably casinos.

 

While alcohol prices have increased significantly, as I paid less than UK Sterling 1 for a bottle of Whisky, Rum, etc. When DS left the ships about 7 or 8 yrs ago he paid about US $6 for a bottle. The company was still making profit from the officers and no doubt the slops chest added a small premium. Basically, the bars pay for the bottle with the first drink, so a very substantial mark-up.

 

Shore-ex revenues vary by region, with Alaska one of the highest performers. Within the past 10 yrs, when chatting with officers I knew from one of the Vancouver based ships, they mentioned the average weekly net (after paying vendors) shore-ex revenue was about US $350K. This was a ship holding about 2,000 pax.

 

 

Thanks.  Not surprised that beverage is a major driver.  I would be surprised that casinos could come close.   I hadn't thought about shore-ex, but considering the number of excursions that does make a lot of sense.  

 

  

[drsel]

My first cruise on a Cunard ship was 7 nights from Manhattan to Bermuda.$699.00 for both my wife and I in 1973 for an elite cabin.

That was too expensive for 1973, after considering inflation/ the depreciation in the value of the dollar

[drsel]

Very interesting. I appreciate this post. Obviously, some numbers will flex depending on certain companies conduct business.
 
What really blows my mind is the travel agent / commission portion being the biggest portion of the expenses. With the way most industries evolve, the "human interaction" portion of things really goes away. Surprised to see it alive so much in cruising.

the giant, high volume travel agents earn 10 to 16% of the basic fare (excluding port fees and taxes), depending on the cabin category and volumes.

Any amount above this would be the marketing costs of the cruise line.

[Sue Do-Over]

I think they make MORE with the all-inclusive beverage packages than they did selling drinks by the glass.  Some justify it planning to drink their fill, most of us can't keep up that pace over the duration of the cruise, especially a port-heavy schedule.  (Some will, but they won't remember the trip!)

 

Fountain soda costs pennies per serving, but we pay $8-12 a day (including debark day!), plus 20% auto-tips (and often an extra tip for an attentive server or a heavy pour)... 

 

The casino is a profit center... we almost always get a free cabin based on our play history.  "We always pay for our free cruise!".  It's a subcontracted business that pays the ship/line plenty to be there.

[lenquixote66]

2 hours ago, drsel said:

On 7/29/2020 at 4:24 PM, lenquixote66 said:

My first cruise on a Cunard ship was 7 nights from Manhattan to Bermuda.$699.00 for both my wife and I in 1973 for an elite cabin.

That was too expensive for 1973, after considering inflation/ the depreciation in the value of the dollar

We were supposed to be on the Greek ship Amerikanis but it broke down on its way to NY.

[Heidi13]

6 hours ago, Sue Do-Over said:

I think they make MORE with the all-inclusive beverage packages than they did selling drinks by the glass.  Some justify it planning to drink their fill, most of us can't keep up that pace over the duration of the cruise, especially a port-heavy schedule.  (Some will, but they won't remember the trip!)

 

 

Most definitely, as spread across all pax, they make more money by offering beverage packages. If it didn't provide overall positive results, they wouldn't offer beverage packages.

 

Yes, some pax will report they saved money, but based on product cost, the cruise line most likely makes profit on everyone that purchases a beverage package. Based on drinks costs, 1 drink pays for a bottle.

 

When I worked on the ships, a bottle cost us UK Sterling 0.75. More recently the cost was about US $6.00 per bottle. The cruise line was even making some profit at those prices.

 

While our cruise line provides free beer and wine at lunch and dinner, we still purchase the beverage package, for the convenience.

[Roger88]

12 minutes ago, Heidi13 said:

 

Most definitely, as spread across all pax, they make more money by offering beverage packages. If it didn't provide overall positive results, they wouldn't offer beverage packages.

 

Yes, some pax will report they saved money, but based on product cost, the cruise line most likely makes profit on everyone that purchases a beverage package. Based on drinks costs, 1 drink pays for a bottle.

 

When I worked on the ships, a bottle cost us UK Sterling 0.75. More recently the cost was about US $6.00 per bottle. The cruise line was even making some profit at those prices.

 

While our cruise line provides free beer and wine at lunch and dinner, we still purchase the beverage package, for the convenience.

Bar is making more money than a restaurant and its a fact. Its the same as with any other nigh club in town with some sort of an event or concert going there. The event itself is free, but the Bar - this is where all the money is made. Some simple cocktail that you could probably make at home for less than 2$, will cost around 10$ in a club. Same goes for cruises - they make more money in alcohol than on the rest of the stuff on board 

[drsel]

They also make 100% profit on shore excursions

 

 

[Roger88]

11 minutes ago, drsel said:

They also make 100% profit on shore excursions

 

 

I agree with you, but shore excursions is like a totally different story. Not everyone would go on shore excursion, while everyone will go to a bar to at least get a bottle of water lol. Also, shore excursion earn money from different angles, from souvenirs to various transfers. One of the major source of income there are tickets and other random stuff that people are getting on the way 

[drsel]

you can clearly see that not only does Norwegian make a lot more money from each customer, their profitability also substantially higher

[sfaaa]

Cruise lines make a profit. Cruisers have a good time. It's the perfect scenario and a win win. 

[ontheweb]

2 hours ago, sfaaa said:

Cruise lines make a profit. Cruisers have a good time. It's the perfect scenario and a win win. 

But the covid virus has made it a lose lose.😢

[chengkp75]

On 8/22/2020 at 12:52 AM, drsel said:

They also make 100% profit on shore excursions

 

 

Really?  The tour operator makes nothing?