Cruise Companies Reap High Returns from Private Islands

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Cruise Companies Reap High Returns from Private Islands

Major cruise operators such as Royal Caribbean Group (NYSE:RCL), Carnival Corp (NYSE:CCL), and Norwegian Cruise Line Holdings (NYSE:NCLH) are making significant investments in exclusive destinations that have proven to be lucrative revenue sources. These private islands offer various attractions, including excursions, beaches, bars, and restaurants.

Royal Caribbean pioneered this trend with the launch of the "Perfect Day at CocoCay" project in the Bahamas in 2019, which has since captured considerable investor attention. As Bob Levinstein, CEO of Cruise Compete, explained, cruise companies can avoid passenger fees and government taxes by owning their own ports, thereby generating additional revenue.

The investments in these exclusive destinations are substantial. Royal Caribbean spent $250 million on the renovation of CocoCay, and since its opening, the company has seen a 41% increase in expenses, including commissions, while ticket revenues rose by 48%. Royal Caribbean's CEO, Jason Liberty, noted that the private destination provides "great, significant returns" for the operation.

Competitors are now following this path as well. Carnival plans to invest $600 million to develop Celebration Key in Grand Bahama, while Norwegian announced a $150 million investment for a new pier development at Great Stirrup Cay in the Bahamas. Royal Caribbean also intends to open three new private destinations between 2025 and 2027, with total investments projected to be approximately $815 million.

The focus on private island destinations reflects changing trends in cruise itineraries. According to Christian Savelli from Tourism Economics, private islands have seen an annual passenger capacity increase of 41%, reaching around 10 million passengers.

However, this shift has led to a decline in visits to some publicly-owned Caribbean destinations. The Cayman Islands experienced a 36% drop in cruise visits in the first half of 2024 compared to 2019. Despite an increase in total visitor numbers to the region, some locations such as St. Kitts and Nevis, Belize, and St. Maarten have seen declines exceeding 20%.