How cruise ships actually make money

Cruises are not competing with airlines and never were. A New York to Barcelona flight takes 8 hours; the same route by ship takes 8 to 10 days. The industry concedes the speed argument entirely and specializes in routes to the Caribbean, the Bahamas and the South Pacific where the fantasy of sea travel does the selling.

It remains a tiny market and the industry sells that as upside. In 2019 airlines carried 4.5 billion passengers on 42 million flights while cruises carried 29 million — a record high. Over 50% of those passengers were American, and only about a third of Americans have ever been on a cruise.

There are two revenue streams and the second one is the interesting one. Tickets are priced like hotel rooms by night and room type. Onboard sales are everything else — beverages, Wi-Fi, spas, photo shoots, laundry, casino credits, arcade tokens, diamonds, watches, art and shore excursions — sold to customers who cannot leave for a week.

The ship is a monopoly and the operator owns nearly every store on it. Not just the bars and gift shops but the casinos, candy stores, laundromats, spas, jewelry stores, restaurants and even the shore excursions. The few concessions run by outside vendors pay a percentage of gross sales, so the cruise line still nets on every transaction. An airport at least maintains the facade of competition between terminals.

Carnival won on volume by throwing out the Titanic script. It undercut the industry, bundled the food, and rebranded cruising from a multi-week luxury commitment into cheap rowdy fun for a few days. It carries over 12 million passengers a year against Royal Caribbean's 6 million and Norwegian's 2 million.

Carnival has not raised prices in over a decade, deliberately. Average total spend per trip was $1,581 in 2010 and $1,580 in 2022 — while a 2010 dollar was worth $1.34 by 2022. Average ticket price fell from $1,211 in 2010 to $1,096 by 2019 as passenger counts grew from 9.1 million to 12.4 million.

Because Carnival bundles the food, its passengers spend less onboard: about $350 per passenger, or 30 cents of onboard spend for every dollar of ticket. Onboard sales still cleared nearly $5 billion a year through the 2010s and averaged 33% of revenue.

Norwegian runs the mirror image and earns more per head for it. Average total spend per passenger grew nearly 70%, from $1,433 in 2010 to almost $2,400 by 2019, while the ticket alone rose over $600. Onboard spend went from $427 to over $700 — 40 cents for every ticket dollar, the highest in the industry.

The markups are the mechanism. A streaming-capable Wi-Fi package costs $20 a day on Carnival and $40 a day on Norwegian. Unlimited alcohol is $60 a day on Carnival and over $100 a day on NCL. The go-karts are $15 per ride, per passenger.

Norwegian's "Free at Sea" promotion is the tell. Free Specialty Dining is two meals for the whole trip. Free Wi-Fi is 150 minutes. The Free Shore Excursion is a one-time $50 coupon. The Free Unlimited Open Bar bills you the difference on any drink over $15. The purpose is to hold ticket prices up while complicating the comparison.

Royal Caribbean sits in the middle on price and spends its money on spectacle — the deepest pool at sea, a 40-foot surf simulator, an 82-foot dome, bumper cars, skydiving simulators and a slide that drops ten decks. Passenger volume grew from 4.5 million in 2010 to 6.5 million by 2019, with total spend per passenger at $1,671.

Its real innovation was buying the destination. CocoCay cost $250 million and solved the one leak in the model — passengers stop being monetizable the moment they walk off the ship. Now they walk from a monopoly on water into a harder one on land, where a cabana rents for $1,500 to $4,000 a day and prices are only revealed at booking because there is no comparable to price against.

All three earn better margins than most airlines. Carnival 15%, Norwegian 17%, Royal Caribbean 14% — higher than American, nearly double United, level with Delta, in an industry carrying 0.6% of the airlines' passengers.

The margins rest on offshoring, not on the ocean. Each ship needs 500 to 1,000 crew, yet payroll is under 25% of operating expenses across all three companies against 35% or higher in most industries. Royal Caribbean does not employ a single US-based worker on its ships; the crews come from the Philippines, Indonesia and India and average $14,400 a year. Carnival pays $25,762 and Norwegian $26,125.

And the passenger prepays the tips regardless. Every line charges an automatic 18–20% daily gratuity as a line item at booking, before any of the tips added on individual drinks, meals and spa visits.

No moat here lasts. All three companies have owned Bahamian islands since the twentieth century and two of them never developed anything until the third proved it worked — Norwegian and Carnival began building their own resorts only after watching CocoCay.