Why cruise stocks have been outperforming

Consumers have spent a great deal on leisure spending in 2023, with Carnival's (CCL) stocks seeing 60% gain over the last year. Some markets, however, have not seen the same success, like mountain resort company Vail Resorts (MTN) which is down more than 10% since last year. Paul Golding, Macquarie Capital Analyst, joins Yahoo Finance to give insight into how different businesses in leisure travel have been able to succeed during times of inflation and why certain ones have struggled.

Golding expounds on why cruises did so well: "Cruise has been benefiting, in our view, from some of these dynamics on later international re-flation and the value proposition that cruise represents versus land-based alternatives. We heard during the Q3 earnings call at RCL [Royal Caribbean Cruises] that they continue to see a 35-40% discount versus land-based, whereas pre-COVID that discount was about 10-15%. "

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Video Transcript

- 2023 has been a strong year for leisure spending as Americans continue to splurge on experiences. Cruise lines like Carnival, they've enjoyed roaring post-pandemic demand with folks eager to set sail. The stock up 58%, almost 60% now here as we're taking a look at that year over year over the past 52 weeks, and demand is showing no signs of slowing down. Several Carnival brands saw record bookings over Black Friday as folks prepare for 2024 and 2025 travel even.

But Vail Resorts hasn't seen the same upward momentum. Even as the upcoming ski season saw an increase in bookings, headwinds from weather still weighing on the company's bottom line. We're joined now by Paul Golding who is the senior US lifestyle payments analyst over at Macquarie Capital. Great to have you here with us. First and foremost, Paul, when you kind evaluate these two different parts of the experience economy, where is their kind of continued strength that we should expect, and where is the consumer perhaps wavering on the ability to spend into some experiences?

PAUL GOLDING: Yeah, great to be with you both. I think when we look at what's been happening across cruise versus ski, for example, we didn't have the inbound testing requirement for COVID come off in the US until August of last year. So there's some late tail international reflation that we've been seeing throughout this year. And of course, the majority of the EBITDA generation for Vail is North America resorts.

And so as we look at cruise, cruise has been benefiting in our view from some of these dynamics on late international reflation and the value proposition that cruise represents versus land-based alternatives. We heard during the '23 earnings call at RCL that they continue to see a 35% to 40% discount versus land-based. Whereas pre-COVID, that discount was about 10% to 15%.

So as we look at that business, we see an opportunity for cruise to continue to drive price and attract demand versus Vail, which we're neutral on and have been neutral on, which tends to be a more premium product, and is domestic, and also has other structural things going on like weather volatility. So for example, most recently, we took our target price down $10 from 235 to 225 on the back of a Lake Tahoe start and weather volatility over the Australian winter. So a lot of different dynamics here. Some demand-driven, some supply-driven, and that drives this dichotomy in our outlook.