When the 704-passenger luxury cruise ship Adonia sailed from Miami on its maiden voyage to Havana in early May, it ended a 40-year-long pause in commercial travel in the Florida Straits, the body of water that separates the United States and Cuba. Seen as a good omen by the cruise industry, the US$1,800-per-person, seven-day leisure trip may have unlocked a lucrative revenue stream for cruise operators.
The Adonia voyage is yet another sign of future growth for the global cruise industry, already growing at a record pace. An estimated 24 million passengers are projected to go on cruises this year, up by two million from 2014. Most of them are headed to the Caribbean (33.7%), followed by the Mediterranean (18.7%), according to the most recent data released by the Cruise Lines International Association (CLIA). And while the global cruise industry is projected by online data portal Statista to generate more than US$40 billion in revenue this year, the stock-market performance of these companies has been lagging. The S&P 500 Hotels, Resorts and Cruise Lines sub-index has fallen more than 6% on a year-to-date basis, as of May 6.
Individually, the leading cruise operators were down between 10% and 25% in the year to date, as of May 10. Yet these three companies, which control 90% of the global market, continue to trade at a sizeable discount to their fair value built on strong fundamentals. These businesses consistently bump up passenger capacity and price, cater to a diverse pool of customers and are looking to expand their reach beyond high-capacity regions like the Caribbean to rapidly growing Asian markets, according to Morningstar equity research.
