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.
The truth is somewhat surprising.
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 profits 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 5.4 million passengers on its ships located around the globe. In total, those passengers spent nearly $8.3 billion during the course of 2015.
In other words, for every passenger Royal Caribbean carried, they spent $1,536 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 $1,536, 73% ($1,121 per passenger) was spent on cruise fares and the remainder ($415 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.
In total, Royal Caribbean identifies ten 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. Additionally, costs associated with Pullmantur’s travel agency network, land-based tours and air charter business to third parties are included in Other operating expenses through March 31, 2014, the date of the sale of Pullmantur’s non-core businesses.
In addition, the company has depreciation and amortization expenses, impairments, marketing and administrative expenses, and “other” costs.
How Much Cruise Lines Profit
All told, these costs eat sharply into revenue. How much so? Of the $1,536 in revenue generated from each passenger, only 8% — $123 — ends up as profit. Below, we’ve broken down all the expenses the cruise lines see on the average fare per passenger (click to enlarge):
As you can see, only a small portion of the money taken in by Royal Caribbean becomes profit. But don’t worry, the cruise line isn’t hurting. All told, last year saw a profit of $665 million before adjustments.
Source: Royal Caribbean 2015 10-K