Written By Lincoln Cha
After the widespread adoption of air travel as the preferred method of international transportation in the mid-20th century, many ocean liners became repurposed as leisure cruises (Kulik, 2026). Today, cruise ships are a well-known staple of global tourism, and recent years have brought significant growth to the industry (Cruise Lines International Association, 2026). This growth highlights some of the unique financial strategies and economic impacts of cruise companies.
Entering the Cruise Market
Before entering the market, or once in the market and considering expansion, a cruise company must take into account the capital-intensive investment of a ship. For example, The Icon of the Seas, one of Royal Caribbean Group’s newest additions to their fleet, reportedly cost $2 billion to build (Meredith, 2024). The investment necessary to build a cruise ship is a significant barrier to entry for this sector of the tourism industry. Thus, the global cruise industry is dominated by a few large corporations: out of 34.64 million global cruise passengers in 2024 (Cruise Lines International Association, 2025), Carnival Corporation & plc carried roughly 13.51 million passengers (Carnival Corporation & plc, 2026), Royal Caribbean Group carried roughly 8.56 million passengers (Royal Caribbean Group, 2026), and Norwegian Cruise Line Holdings Ltd. carried roughly 2.93 million passengers (Norwegian Cruise Line Holdings Ltd., 2026). In total, these three corporations held around 72.2% of the global cruise market for that year, and although the data for total cruise passengers in 2025 has not yet been released, each corporation saw an increase in passengers from 2024 to 2025. Together, the high barriers to entry and small number of dominant companies give the cruise industry the characteristics of an oligopolistic market structure.
Financing a Cruise
Cruise companies can employ various techniques to cover the high capital expenditure of adding to their fleet. To begin with, many use dynamic ticket pricing, similar to what has now become a common strategy for airlines (Nikel, 2026). By adjusting ticket prices based on demand, season, and occupancy, cruises can capture a larger amount of consumer surplus (the difference between what someone is willing to pay and what they actually pay) and ensure occupancy is as high as possible. Tiered pricing models for dining plans and other amenities are an additional method of segmenting the market. Ancillary revenue, money earned from offerings beyond the core product, is also a crucial source. Onboard spending from casinos, bars, and other offerings makes up a significant portion of cruise revenues: 30.2% for Royal Caribbean in 2025 (Royal Caribbean Group, 2026), and 34% for Carnival in the same year (Carnival Corporation & plc, 2026).
In addition to these strategies, some cruise companies invest in or utilize private islands. Castaway Cay in the Bahamas, for example, is an island that is only accessible to passengers on Disney Cruise Lines (Reid, 2024). Not only do these islands provide a competitive advantage by offering passengers an exclusive experience, they also ensure that all money spent on these excursions, from activities such as parasailing, biking, and massage services, goes to the company. In this way, private islands serve as important additional revenue streams. Castaway Cay is owned by a subsidiary of The Walt Disney Company that paid over $220 million in dividends to its parent company between 2014 and 2024, signaling high profitability from island revenue.
Managing Expenses of a Cruise
Cruise companies utilize additional unique methods to manage costs. Many cruise ships owned by United States corporations are registered in other countries, such as the United Kingdom and Panama, even if they dock in the U.S. (Carnival Corporation & plc, 2026). Under international maritime laws, workers hired for cruise ships are generally subject to the labor laws of the country that the ship is registered in (International Labour Organization, 2006). By leveraging what is regarded as a “flag of convenience,” U.S. cruise companies keep labor costs down by attracting multinational employees who will work for lower wages and longer hours than what stricter U.S. labor laws would require (Dooley, 2025). Two additional benefits of flags of convenience are that these ships do not have to be manufactured in the U.S. (which would currently be infeasible), and are not subject to U.S. Federal taxes.
Besides leveraging flags of convenience, cruise companies can also benefit from their industry having strong economies of scale, meaning average costs fall significantly as production increases (Ros et al, 2021). By bulk ordering food and creating larger ships (a recent trend in the industry), these companies can reduce the average cost per customer (Carrington, 2024). This can add up to significant savings when considering the millions of passengers these ships accommodate each year (Cruise Lines International Association, 2025).
Lastly, cruise companies can outsource their services to third-party vendors as a means of reducing costs. For example, Royal Caribbean Group partners with local companies for shore excursions and outsources onboard retail and information technology systems (Royal Caribbean Group, 2026). Through outsourcing, cruise companies can more easily scale operations up or down, thereby reducing costs associated with the need to meet shifting demand.
Economic Impacts of Cruises
Although the cruise sector accounts for only 2% of the global tourism industry, it can generate substantial economic activity in its frequently visited destinations (Cruise Lines International Association, 2025). Cruise passengers often contribute to spending in the local shops, restaurants, and other attractions of port cities (Chen et al, 2019). At the same time, however, the rapid influx of tourists can create challenges for some of these destinations. Recently, authorities in Barcelona, a location that would have high tourist foot traffic regardless of being a port city, have cited concerns regarding overtourism and considered reducing cruise ship terminal capacity to manage the issue (Pons et al, 2025). Despite these concerns, cruise visits can still generate long-term benefits to local economies. While destinations such as Barcelona attract tourists independently, cruise passengers can contribute additional demand by supporting local suppliers, transportation systems, and tour services, creating jobs and a sustained stream of revenue for port city businesses.
Cruise ships also generate major environmental footprints, most notably in the form of air pollution, water pollution, and waste (U.S. Environmental Protection Agency). Many analysts argue that cruise corporations have historically externalized a portion of these costs, meaning the costs of the harm have not been fully paid by the responsible entities (Chen, 2025). However, newer cruise ships are shifting towards a capability of burning liquefied natural gas (LNG), which substantially reduces air and water pollution (Butcher, 2026). These investments can reduce environmental tax costs, mitigate the risk of violating environmental regulations that would result in legal fees and penalties, and protect a cruise company’s brand reputation.
Trends of the Cruise Industry
Prior to the COVID-19 pandemic, the cruise industry was one of the fastest growing sectors of global tourism (Holland et al, 2021). In 2019, more passengers boarded cruises than in any year prior (Cruise Lines International Association, 2020). The following year’s global pandemic abruptly reversed this growth, as travel restrictions and public health concerns brought tourism to a halt. Cruise companies suffered massively: Carnival reported a loss of $10.236 billion in 2020 (Carnival Corporation & plc, 2021), as well as losses in the three years that followed (Carnival Corporation & plc, 2023). Compared with many other industries, these corporations had limited ability to adapt their operational strategy. A restaurant can shift to delivery orders and a retail store can shift to online selling, but the business model of a cruise depends almost entirely on in-person travel and onboard experiences.
In recent years, the cruise industry has rebounded from the pandemic. Royal Caribbean Group and Carnival both reported higher revenue and net income than ever before in 2025 (Royal Caribbean Group, 2026, and Carnival Corporation & plc, 2026), and reports from the most recent two years showed that ships were sailing with the highest overall number of passengers in history (Cruise Lines International Association, 2025). Several factors could be contributing to this recovery, including pent-up demand for leisure travel following the lockdown. The launches of new ships, including Disney’s Destiny and Royal Caribbean’s Star of the Seas, could also be a factor in the industry’s growth (The Walt Disney Company, 2026).
Outlook for the Cruise Industry
The cruise industry, characterized by its oligopolistic market structure as well as unique methods of increasing revenue and mitigating costs, is economically distinct from many other sectors. Its economic impacts present tradeoffs between generating revenue for port cities and contributing to challenges such as overtourism and environmental externalities. As the industry continues to move beyond the pandemic, cruise companies must weigh each of these considerations as they strive for further industry growth.
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