---
title: "How cruise ships actually make money"
url: https://modern-mba.com/case/cruises
sector: "Travel"
sector_url: https://modern-mba.com/sector/travel
published: 2023-06-11
updated: 2026-09-02
reading_time_minutes: 15
charts: 16
video: https://www.youtube.com/watch?v=QqQtV7wHSV0
publisher: Modern MBA
license: All rights reserved. Quote with attribution and a link.
---

# How cruise ships actually make money

Every other travel business competes on getting you to the destination faster. Cruises sell the journey instead, because the journey is the only place they hold a monopoly. A ship is a sealed retail environment where the operator owns every store, every bar, every excursion and increasingly the island at the end of the route — and the passenger cannot leave. This case study reads the unit economics of Carnival, Royal Caribbean and Norwegian to show how a niche business carrying a fraction of the airlines' passengers earns better margins than Delta.

## Key figures

- **29M vs 4.5B** — Cruise passengers against airline passengers, 2019
- **$14,400** — Average annual wage of a Royal Caribbean shipboard worker
- **$1,500–4,000** — Cost to rent a cabana for one day on Royal Caribbean's private island

## The argument

Every other business in travel has spent thirty years competing on speed. Airlines, resorts and tour operators all accepted the same premise — the destination is the product, the journey is friction. New York to Barcelona is eight hours by plane and eight to ten days by ship. The cruise industry cannot win that argument and has never tried. It sells the journey instead, because the journey is the only place it owns the customer completely.

That is the whole business. A cruise ship is not a floating hotel; it is a sealed retail environment with no competitors inside it. The operator owns the bars, the casino, the spa, the jewelry store and the shore excursions, and the few concessions it does not own pay a cut of gross. Airports keep up the appearance of competition across terminals. A ship does not bother — if you object to the price of a drink or sunscreen, there is no second vendor and no exit for a week. Royal Caribbean took it to the conclusion, spending $250 million to build the destination too.

The result is a niche industry with better economics than a mainstream one. In 2019 airlines carried 4.5 billion passengers; cruises carried 29 million and called it a record. Carnival still ran a 15% operating margin, Norwegian 17%, Royal Caribbean 14% — ahead of United, level with Delta. The three reach that from opposite directions: Carnival drives volume by giving the food away, Norwegian drives spend by charging for everything and calling it free. What holds all three up is not the ocean view. It is the offshore crew earning $14,400 a year.

## Charts

### Carnival carries more passengers than both rivals combined

Annual revenue for the three lines holding roughly three quarters of the market. 2020 and 2021 are the shutdown, and 2022 is still short of 2019.

|  | Royal Caribbean | Carnival | Norwegian |
| --- | --- | --- | --- |
| 2017 | $8.7B | $17.5B | $5.4B |
| 2018 | $9.4B | $18.9B | $6.1B |
| 2019 | $10.9B | $20.8B | $6.5B |
| 2020 | $2.2B | $5.6B | $1.3B |
| 2021 | $1.5B | $1.9B | $0.6B |
| 2022 | $8.8B | $12.2B | $4.8B |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-1 · Sources: https://modern-mba.com/case/cruises#sources

### The same ranking, counted in people

Annual passenger volume. Carnival moved over 12 million a year before the shutdown against Royal Caribbean's 6 million and Norwegian's under 3 million.

|  | Royal Caribbean | Carnival | Norwegian |
| --- | --- | --- | --- |
| 2017 | 5.8M | 12.1M | 2.5M |
| 2018 | 6.1M | 12.4M | 2.8M |
| 2019 | 6.6M | 12.8M |  |
| 2020 | 1.3M | 3.5M | 2.7M |
| 2021 | 1.0M | 1.2M | 0.2M |
| 2022 | 5.5M | 7.7M | 1.6M |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-2 · Sources: https://modern-mba.com/case/cruises#sources

### A third of Carnival's revenue is earned after boarding

Ticket sales against onboard sales. Onboard ran near $5B a year — about 33% of revenue, and the number the ticket price exists to protect.

|  | Ticket sales | Onboard sales |
| --- | --- | --- |
| 2010 | $11B | $3B |
| 2011 | $12B | $3B |
| 2012 | $12B | $4B |
| 2013 | $12B | $4B |
| 2014 | $12B | $4B |
| 2015 | $12B | $4B |
| 2016 | $12B | $4B |
| 2017 | $13B | $4B |
| 2018 | $14B | $5B |
| 2019 | $14B | $6B |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-3 · Sources: https://modern-mba.com/case/cruises#sources

### What a passenger is worth barely moved in thirteen years

Average total spend per passenger — ticket plus everything bought aboard. $1,582 in 2010, $1,580 in 2022, with a dip through the middle of the decade.

|  | US dollars |
| --- | --- |
| 2010 | $1,582 |
| 2011 | $1,652 |
| 2012 | $1,565 |
| 2013 | $1,536 |
| 2014 | $1,503 |
| 2015 | $1,450 |
| 2016 | $1,423 |
| 2017 | $1,444 |
| 2018 | $1,522 |
| 2019 | $1,619 |
| 2020 | $1,599 |
| 2021 | $1,590 |
| 2022 | $1,580 |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-4 · Sources: https://modern-mba.com/case/cruises#sources

### The ticket got cheaper on purpose

Average ticket against average total spend. The fare fell from $1,212 to $1,096 while the total left behind rose. The ticket is the loss leader.

|  | Ticket cost | Total spend |
| --- | --- | --- |
| 2010 | $1,212 | $1,582 |
| 2011 | $1,272 | $1,652 |
| 2012 | $1,186 | $1,565 |
| 2013 | $1,158 | $1,536 |
| 2014 | $1,125 | $1,503 |
| 2015 | $1,070 | $1,450 |
| 2016 | $1,049 | $1,423 |
| 2017 | $1,067 | $1,444 |
| 2018 | $1,123 | $1,522 |
| 2019 | $1,096 | $1,619 |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-5 · Sources: https://modern-mba.com/case/cruises#sources

### Every ticket dollar brought thirty cents aboard

Ticket cost against onboard spend per passenger on Carnival. Onboard held near $355 for eight straight years, then jumped to $492 in 2019.

|  | Ticket cost | Onboard spend |
| --- | --- | --- |
| 2010 | $1,212 | $339 |
| 2011 | $1,272 | $351 |
| 2012 | $1,186 | $357 |
| 2013 | $1,158 | $358 |
| 2014 | $1,125 | $358 |
| 2015 | $1,070 | $359 |
| 2016 | $1,049 | $353 |
| 2017 | $1,067 | $357 |
| 2018 | $1,123 | $377 |
| 2019 | $1,096 | $492 |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-6 · Sources: https://modern-mba.com/case/cruises#sources

### A ship takes a year and a half to arrive

Days from the start of construction to delivery. A cruise ship is a three-to-five-year commitment placed against demand nobody can forecast that far out.

|  | Durations |
| --- | --- |
| Cruise ship | 547 days |
| Boeing 747 | 43 days |
| Boeing 737 | 9 days |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-7 · Sources: https://modern-mba.com/case/cruises#sources

### Carnival owns the largest fleet in both markets

Ships in service, 2022. Carnival runs 91 globally against Royal Caribbean's 64 and Norwegian's 31, plus the most US homeports of any line.

|  | Domestic | Global |
| --- | --- | --- |
| Royal Caribbean | 24 | 64 |
| Carnival | 26 | 91 |
| Norwegian Cruise Line | 17 | 31 |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-8 · Sources: https://modern-mba.com/case/cruises#sources

### Twice the margin of the airline it is always compared to

Average operating margin, 2010 to 2019. Carnival cleared 15% against United's 7% and American's 6% — and beat Delta, the most valuable airline in the world.

|  | Percentages |
| --- | --- |
| Carnival | 15% |
| Delta | 11% |
| United | 7% |
| American Airlines | 6% |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-9 · Sources: https://modern-mba.com/case/cruises#sources

### Norwegian went the other way and raised the fare

Average ticket against total spend on a Norwegian cruise. The fare climbed from $1,005 to $1,675 — a $600 increase, against Carnival cutting its own by $116.

|  | Ticket cost | Total spend |
| --- | --- | --- |
| 2010 | $1,005 | $1,433 |
| 2011 | $1,022 | $1,450 |
| 2012 | $1,068 | $1,514 |
| 2013 | $1,115 | $1,578 |
| 2014 | $1,145 | $1,617 |
| 2015 | $1,446 | $2,007 |
| 2016 | $1,450 | $2,085 |
| 2017 | $1,489 | $2,142 |
| 2018 | $1,524 | $2,166 |
| 2019 | $1,675 | $2,397 |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-10 · Sources: https://modern-mba.com/case/cruises#sources

### And its passengers spent more once aboard, not less

Ticket cost against onboard spend on Norwegian. Onboard went from $428 to $722 — 40 cents on every ticket dollar, against Carnival's 30.

|  | Ticket cost | Onboard spend |
| --- | --- | --- |
| 2010 | $1,005 | $428 |
| 2011 | $1,022 | $429 |
| 2012 | $1,068 | $447 |
| 2013 | $1,115 | $463 |
| 2014 | $1,145 | $472 |
| 2015 | $1,446 | $562 |
| 2016 | $1,450 | $636 |
| 2017 | $1,489 | $653 |
| 2018 | $1,524 | $642 |
| 2019 | $1,675 | $722 |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-11 · Sources: https://modern-mba.com/case/cruises#sources

### Norwegian tripled its revenue on a third of the passengers

Ticket sales against onboard sales. Total revenue went from $2B in 2010 to over $6B by 2019 — charging more per head rather than filling more berths.

|  | Ticket sales | Onboard sales |
| --- | --- | --- |
| 2010 | $1.4B | $0.6B |
| 2011 | $1.6B | $0.7B |
| 2012 | $1.6B | $0.7B |
| 2013 | $1.8B | $0.8B |
| 2014 | $2.2B | $0.9B |
| 2015 | $3.1B | $1.2B |
| 2016 | $3.4B | $1.5B |
| 2017 | $3.8B | $1.6B |
| 2018 | $4.3B | $1.8B |
| 2019 | $4.5B | $1.9B |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-12 · Sources: https://modern-mba.com/case/cruises#sources

### The premium strategy caught Carnival on margin

Operating margin before the pandemic. Norwegian started five points behind and was ahead by 2012, holding a lead in eight of the ten years.

|  | Carnival | Norwegian |
| --- | --- | --- |
| 2010 | 16% | 11% |
| 2011 | 14% | 14% |
| 2012 | 11% | 16% |
| 2013 | 9% | 15% |
| 2014 | 11% | 16% |
| 2015 | 16% | 16% |
| 2016 | 19% | 19% |
| 2017 | 16% | 19% |
| 2018 | 18% | 20% |
| 2019 | 16% | 18% |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-13 · Sources: https://modern-mba.com/case/cruises#sources

### Royal Caribbean got there too, from further back

Operating margin before the pandemic. Royal Caribbean bottomed at 5% in 2012 and finished the decade ahead of Carnival in four of the last five years.

|  | Carnival | Royal Caribbean |
| --- | --- | --- |
| 2010 | 16% | 12% |
| 2011 | 14% | 12% |
| 2012 | 11% | 5% |
| 2013 | 9% | 10% |
| 2014 | 11% | 12% |
| 2015 | 16% | 11% |
| 2016 | 19% | 17% |
| 2017 | 16% | 20% |
| 2018 | 18% | 20% |
| 2019 | 16% | 19% |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-14 · Sources: https://modern-mba.com/case/cruises#sources

### Crew pay is a fifth of what it costs to run a ship

Shipboard labor as a share of direct ship operating expenses. A hotel or restaurant runs 30 to 35%; a ship crewed at sea runs 20 and stays there.

|  | Royal Caribbean | Carnival | Norwegian |
| --- | --- | --- | --- |
| 2010 | 18% | 20% | 17% |
| 2011 | 21% | 20% | 17% |
| 2012 | 23% | 20% | 16% |
| 2013 | 21% | 21% | 16% |
| 2014 | 19% | 23% | 16% |
| 2015 | 20% | 25% | 17% |
| 2016 | 21% | 26% | 18% |
| 2017 | 20% | 26% | 17% |
| 2018 | 20% | 26% | 18% |
| 2019 | 17% | 25% | 18% |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-15 · Sources: https://modern-mba.com/case/cruises#sources

### The wage that makes the rest of it work

Average annual pay for a shipboard worker, 2012 to 2022. Ships are flagged and crewed abroad, so no domestic minimum wage reaches them.

|  | US dollars |
| --- | --- |
| Royal Caribbean | $14,400 |
| Carnival | $25,762 |
| Norwegian Cruise Line | $26,125 |

Source: Modern MBA, “How cruise ships actually make money”, published June 2023. Chart: https://modern-mba.com/case/cruises#chart-16 · Sources: https://modern-mba.com/case/cruises#sources


## Takeaways

1. 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.
2. 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.
3. 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.
4. 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.
5. **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**.
6. 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**.
7. 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.
8. **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.
9. 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**.
10. 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.
11. **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**.
12. 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.
13. 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.
14. 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**.
15. 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.
16. 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.

## Common questions

### How do cruise ships make money?

Two ways, and the second matters more than it looks. Tickets are the larger stream, priced by night and room type like a hotel. The second is onboard sales — drinks, Wi-Fi, spas, casinos, photos, laundry, jewelry, excursions — sold into a captive market. Onboard sales average about a third of revenue across the industry and reach the high 30s at Royal Caribbean. The reason the margins hold is that the cruise line owns nearly every store on the ship, and the outside concessions pay a percentage of gross.

### Are cruises more profitable than airlines?

Yes, on margin. Carnival runs about 15% operating margin, Norwegian 17% and Royal Caribbean 14% — higher than American Airlines, close to double United, and roughly level with Delta. They achieve that while carrying a rounding error of the airlines' passengers: 29 million cruise passengers in 2019 against 4.5 billion airline passengers.

### Why is Carnival cheaper than Royal Caribbean and Norwegian?

Because it chose volume over margin and has held that line for over a decade. Carnival bundles food into the ticket, markets itself as cheap rowdy fun rather than a luxury voyage, and offers the most US homeports so passengers can drive to the boat instead of buying a flight. Average spend per trip was $1,581 in 2010 and $1,580 in 2022 — in real terms a 34% price cut. It carries more than twice Royal Caribbean's passengers and six times Norwegian's.

### Is Norwegian's "Free at Sea" actually free?

Barely. Free Specialty Dining is two meals for the entire trip. Free Wi-Fi is 150 minutes. The Free Shore Excursion is a one-time $50 coupon. The Free Unlimited Open Bar charges you the difference on any drink over $15. The promotion exists to keep ticket prices high while making the offer hard to compare against a cheaper competitor — and it works, because Norwegian has the highest onboard spend per passenger in the industry.

### What is CocoCay and why did Royal Caribbean build it?

A $250 million private island in the Bahamas that solves the one hole in the cruise business model. Passengers can be monetized continuously while on the ship, but the moment they disembark at a port they are spending money in an economy the cruise line does not own. CocoCay makes the destination part of the monopoly — Royal Caribbean owns the sand, the trees, the restaurants and the cabanas, which rent for $1,500 to $4,000 a day. It serves over 10,000 guests daily and there is no published pricing, because there is nothing to compare it to.

### How much do cruise ship workers get paid?

Royal Caribbean's shipboard crew average $14,400 a year, Carnival's $25,762 and Norwegian's $26,125. Royal Caribbean employs no US-based workers on its ships at all; crews come largely from the Philippines, Indonesia and India. This is the load-bearing number for the whole industry: payroll runs under 25% of operating expenses against 35% or higher in comparable industries, and that gap is most of why a niche business out-earns the airlines.

### How much does a cruise ship cost to build?

Roughly a billion dollars, more than twice a new Boeing 747, and it takes three to five years from order to delivery against about two months for the aircraft. Ships are built to order — the ice rinks, restaurants, pools and rooms have to be designed in and cannot be added later. That cost is the only real barrier to entry in the industry, which is why three companies hold it.

### Why do older people go on cruises?

Because the product is the removal of decisions, and that is worth most to people with time and money. Over 50% of cruise passengers are between 50 and 70-plus. One trip visits several countries with no repacking, no hotel check-ins and no airport commutes; the ship is dining, shopping, exercise and entertainment in one place; and anything on shore can be arranged for you. The onboard spectacle exists to broaden that appeal to everyone else.

## Discussion

- Every other travel business decided the destination is the product and the journey is friction. Cruises bet the opposite way. Is that a genuine strategic insight or just the only position left to a business that cannot compete on speed?
- A ship is a retail environment with no competing vendors and no exit for a week. Where else does a business get to own every store its customer can reach, and what stops that model from being exported to land?
- Royal Caribbean spent $250 million to buy the destination because passengers stop spending when they disembark. Follow that logic further — what is the next leak in the model, and what would closing it cost?
- Payroll under 25% of operating costs, crews from the Philippines and Indonesia at $14,400 a year, and margins that beat United. How much of this industry's profitability is strategy and how much is wage arbitrage?
- Carnival charges the same nominal price it charged in 2010, which is a 34% real price cut. Norwegian raised spend per passenger 70% over the same window. Both work. What does that tell you about who the customer actually is in each case?

## Sources

Passenger volumes, revenue by segment, ticket and onboard spend per passenger, operating margins, fleet counts and shipboard payroll from Carnival Corporation, Royal Caribbean Group and Norwegian Cruise Line Holdings annual reports and 10-K filings, 2010 through 2022; airline passenger and flight volumes and comparative operating margins from industry reporting for 2019; onboard and island pricing from published cruise line rate cards; inflation adjustment via US CPI

---

From [Modern MBA](https://modern-mba.com/). Read this case in full at [https://modern-mba.com/case/cruises](https://modern-mba.com/case/cruises), or watch the episode at https://www.youtube.com/watch?v=QqQtV7wHSV0.