It starts the moment that you book your cruise. That low headline cruise fare suddenly doubles when two people are added… followed by hundreds more in port taxes and fees… and even more money with the addition of gratuities.
Once on the ship plenty of things are free, but you are expected to pay for extras ranging from soda to alcohol to excursions.
You are also bombarded with sales messages while on board. Art auctions, spa specials, and slot tournaments are just a few of the things that cruise lines pitch to passengers.
With all that, you can sometimes feel like you are spending a fortune on your cruise. In addition, it may seem like the cruise line must be raking in massive profits.
Here’s how much one major company is really making.
We just dug through the financial reports of one of the world’s biggest cruise lines — Royal Caribbean — to give you a better idea of exactly how much money people spend on a cruise ship and how much profit the cruise line makes off its passengers.
How Much Passengers Spend Per Person
When it comes to cruise lines, the numbers are astonishing. Royal Caribbean and its subsidiary cruise lines carried nearly 6.1 million passengers on its ships located around the globe. In total, those passengers spent nearly $9.5 billion during the course of 2018.
In other words, for every passenger Royal Caribbean carried, the average passenger spent $1,560 with the cruise line last year. This figure includes everything from cabin fares to buying drinks to souvenirs in the gift shop. (Note that is doesn’t include things like taxes and port fees that are passed along.)
Of that $1,560, 71.5% ($1,116 per passenger) was spent on cruise fares and the remaining 28.5% ($444 per passenger) was spent onboard for everything from booze to t-shirts in the gift shop.
Now, it goes without saying that all that money being spent on cruising doesn’t make it to the bottom line as profit. After all, cruise lines run major expenses, starting with the cost of the ship itself. Then there is the cost of all its employees, food, and even fuel to get the ship moving. That’s to say nothing of expenses like marketing and commissions to travel agents.
Royal Caribbean identifies numerous different groups of expenses in its financial statements:
Our cruise operating expenses are comprised of the following:
- Commissions, transportation and other expenses, which consist of those costs directly associated with passenger ticket revenues, including travel agent commissions, air and other transportation expenses, port costs that vary with passenger head counts and related credit card fees;
- Onboard and other expenses, which consist of the direct costs associated with onboard and other revenues, including the costs of products sold onboard our ships, vacation protection insurance premiums, costs associated with pre- and post-cruise tours and related credit card fees as well as the minimal costs associated with concession revenues, as the costs are mostly incurred by third-party concessionaires, and costs incurred for the procurement and management related services we perform on behalf of our unconsolidated affiliates;
- Payroll and related expenses, which consist of costs for shipboard personnel (costs associated with our shoreside personnel are included in Marketing, selling and administrative expenses);
- Food expenses, which include food costs for both guests and crew;
- Fuel expenses, which include fuel and related delivery and storage costs, including the financial impact of fuel swap agreements; and
- Other operating expenses, which consist primarily of operating costs such as repairs and maintenance, port costs that do not vary with passenger head counts, vessel related insurance, entertainment and gains and/or losses related to the sale of our ships, if any.
In addition, the company has depreciation and amortization expenses, marketing and administrative expenses, and “other” costs.
How Much Cruise Lines Profit
All told, these costs eat into revenue, but there is still a healthy profit. How much so? Of the $1,560 in revenue generated from each passenger, 19.1% — $298 — ends up as profit. Below, we’ve broken down all the expenses the cruise line sees on the average fare per passenger (click to enlarge):
As you can see, a healthy small portion of the money taken in by Royal Caribbean goes down to the bottom line. All told, last year saw a profit of $1.815 billion — or $4.96 million per day — before adjustments.
If you’re a shareholder, that’s great. The company has raised its dividend from $1.10 per share to $2.60 per share (136%) during the last five years.
Interested in knowing how much the biggest cruise ships and cruise lines in the world make each day? Read our article the breaks down the daily revenue and profit for cruise lines… and estimates how much the biggest ships make in a single day.
Source: Royal Caribbean 2018 10-K
I would like to know how long does it take for a cruise ship to recoup the cost to build the ship, roughly 850,000 to 1.5B? Obviously, there are many factors to consider including how many passengers the ship will hold and what amenities must be offered (or not) to get people willing to pay for the passage? And what would that ticket price be?
Question; are people willing to go back to paying passage for a FAST luxury liner (3 days from US to Europe) to avoid the cramped, bacteria, germ-filled ventilation in close quarters of a jet plane? I used to like to fly, but not anymore!
Would passengers be willing to pay more for the experience to travel on a historic ship that is presently derelict but still holds the record for fastest time crossing the Atlantic? Do people have to have a “Disney Land” experience on every ship or would people be willing to pay to relive the heyday nostalgia of a cruise liner with today’s 5-star, first-class amenities? I ask these questions in reference to bringing back the SS United States docked in Philly since 1969. I for one would prefer to set sail on such a ship over the “carnival” most all ships offer.
I always tell our Cruising Customers that a Cruise is a WHOLESALE vacation. Cruise lines make NO profit (do the math) on the BASE cruise fare. Their profit is all the other “stuff” – that 28% extra.
So….. If you don’t drink, buy gifts, do specialty dining, take shore excursions, you get a DEAL. And I am MOST happy with the people who DO make these purchases, and they subsidize MY Cruise Vacation
I think the actual profit must be higher than 8%. Royal Carribean have hired a good accountant in order to minimise their official profits and therefore taxes paid. Investors regularly make 10% with a mixed portfolio. You would think the actual figure must be higher to justify the effort and risk involved.
This was from a recent annual report. It could be higher or lower in more recent reports. We plan to take another look in the future.
On The Royal Caribbean 3-day cruise to Bahamas that we just came from, it seemed like we spent quite a bit. It seemed like they must be making a lot.
I took an 11 Baltic Cruise with Princess. The cruise was free of charge as an offer for giving up a 7 day cruise of south Japan. The cruise fare was advertised at $4600.00 CDN pp. When we received our statement for the Baltic Cruise, it included the base fare and extras we booked re: shore excursions, gratuities etc. The base fare was $2600.00 pp! That is $4,000.00 ($2000.00pp) less than the advertised price that we would have paid if not for the ‘Move-over-offer’ That equates to a profit of over 40% on the base price (not including the profits off alcohol, excursions etc.). The Royal Caribbean stat. of 8% sounds ridiculous.
Very cool. Thanks for taking the time to research this.
8% is good but it’s also not true. They are making much more. The ships are tax havens or are put in onshore schemes that pretty much make them tax free (less than 1% in annual tax). The deprecation is also used to offset any taxes that may have been applicable so that’s a lot to keep profits above 8%.
Dan, the data comes from financial reports filed with the SEC.
8% is a pretty healthy profit margin – higher than I would have expected.