How Cruise Lines Make Money: Yields and Ship Finance

Introduction

A cruise line sells a floating resort: the cabin, the meals, the entertainment and the trip between ports, bundled into one fare and paid months before the ship leaves. The fare gets the guest onboard. What the guest spends once there, on drinks packages, specialty restaurants, shore excursions, the casino and the spa, does much of the work of turning a full ship into a profitable one. Behind both sits a capital-heavy balance sheet built around ships that cost billions, take years to build and are ordered long before anyone knows what demand will look like on delivery.

The scale is easiest to see in the filings. Carnival Corporation, which sails 94 ships across brands including Carnival Cruise Line, Princess and AIDA, reported fiscal 2025 passenger ticket revenues of $17.4 billion and onboard and other revenues of $9.2 billion, for total revenues of $26.6 billion, with its ships sailing at 105% occupancy, according to Carnival Corporation's Form 10-K. This article explains how cruise lines earn money, the capacity and yield metrics bankers use to measure them, how new ships are ordered and financed, and how cruise lines are valued.

Every cruise line reports two revenue lines, and they behave differently. Passenger ticket revenue is the fare: the price of the cabin, most meals and the main entertainment, along with port charges and taxes that pass through to the guest. Onboard and other revenue is everything the guest buys once onboard or adds before sailing. At Carnival, onboard and other revenues were about 35% of the 2025 total; at Royal Caribbean Group, they were about 30%.

Ticket revenue and the booking curve

Cruises are booked well in advance, often many months before sailing, and guests pay deposits when they book and the balance before departure. That gives cruise lines a long booking curve, the pattern of bookings and prices building up toward each sailing, which management watches closely: a curve that fills early lets the line hold prices, while a slow one forces discounts close to departure.

Advance payment also helps the balance sheet. Carnival held $6.8 billion of current customer deposits at the end of fiscal 2025, up from $6.4 billion a year earlier. Those deposits are cash the line holds before it has delivered the cruise, which gives a growing cruise line negative working capital, the same advantage some retailers enjoy when they collect from customers before paying suppliers, a dynamic covered in inventory turns, GMROI and retail working capital. The flip side is that deposits fall when bookings slow, so the cash advantage reverses in a downturn.

Brands and the price ladder

The large groups run portfolios of brands aimed at different guests and price points. Contemporary brands sell shorter, cheaper cruises to families and first-time cruisers on very large ships. Premium brands charge more for a quieter experience and longer itineraries. Luxury and expedition brands sail small ships with few guests, high fares and much of the onboard spending included in the price. River cruises, a separate business on purpose-built riverboats, sit alongside them in some groups.

Each tier earns a very different yield per guest, so a group's results depend on its brand mix as well as on prices within each brand. Groups use the ladder to keep guests in the family: a family that starts on a contemporary brand may later book a premium or luxury cruise with the same group, which makes the shared loyalty program and booking data valuable.

Onboard spending

Once the ship sails, the guest is a captive customer: there are no competing bars, restaurants or shops at sea. Cruise lines sell beverage packages, specialty dining, internet access, spa treatments, photos, art and shops, and shore excursions at each port. Many ships also carry a casino, which runs on the same house-edge logic explained in how casino operators make money: gaming and non-gaming, with the advantage that the line already has the guest's attention for a week.

Cruise lines increasingly sell these extras before sailing, through apps and pre-cruise planners. Prepaid packages raise spending per guest, lock in revenue early and give management better visibility of onboard income. Some services are run by concessionaires, specialist operators that run the spa or the shops and share revenue with the line, so the line reports only its share.

Lines that control their own private destinations, islands or beach clubs used only by their guests, capture spending that would otherwise go to businesses in port, which is one reason several have invested in them.

Cruise metrics start with capacity. Because ships differ in size and itineraries differ in length, bankers measure capacity in berth days, not ships or sailings.

Available Passenger Cruise Days (APCD)

A measure of a cruise line's capacity over a period: the number of lower berths (two per cabin) multiplied by the number of days the ship sails. Royal Caribbean Group calls it available passenger cruise days (APCD); Carnival Corporation uses available lower berth days (ALBD). Revenue and cost per APCD let analysts compare ships, brands and periods of different size.

The two-per-cabin convention explains a metric that surprises newcomers: cruise occupancy can exceed 100%. When a third or fourth guest shares a cabin, often a child on a family cruise, the line carries more guests than its lower berths. Royal Caribbean Group reported 58.5 million passenger cruise days against 53.3 million APCD in 2025, an occupancy of 109.7%, according to Royal Caribbean Group's Form 10-K. Carnival reported 105%.

The logic mirrors hotel metrics. A hotel measures revenue per available room, as explained in the Real Estate guide's hotel KPIs: ADR, RevPAR and occupancy; a cruise line measures revenue and cost per available berth day. The difference is that a ship can move its capacity, redeploying from the Caribbean to Europe or Alaska as seasons and demand change, which a hotel cannot do.

Capacity growth comes in steps

Capacity changes in large steps rather than smoothly. A new ship can add thousands of berths at once, so a line's capacity growth in a given year depends on its delivery schedule and on any older ships it sells or retires. Scheduled dry docks, when a ship is taken out of service for maintenance and refurbishment, also remove capacity for weeks at a time. Bankers separate the effect of new capacity from the change in price per berth day, because revenue can rise simply because the fleet is bigger.

Two metrics sit at the center of every cruise line's results: what it earns per berth day and what it spends. Both are stated "net" of costs that pass straight through, and together they are the unit economics of a cruise line, the cruise equivalent of a store's sales and costs per square foot.

Net Yields

Revenue per available berth day after deducting the costs most directly tied to that revenue: travel agent commissions, air and other transportation sold with the cruise, and the cost of goods and services sold onboard. Net yields measure the price and spending a line achieves per unit of capacity and are usually reported as a percentage change on the prior year.

Yield is the revenue half of the equation. The cost half is measured the same way, per berth day and on a net basis, so the two can be set against each other directly.

Net Cruise Costs (NCC)

A cruise line's operating costs, including ship payroll, food, fuel, port costs, marketing and overheads, after removing commissions, transportation and onboard costs already deducted in net yields. Net cruise costs per berth day, usually shown excluding fuel, measure how efficiently the line runs its fleet.

Removing commissions and transportation from both sides matters because those items vary with how a cruise is sold, not with how the line performs. A fare sold with flights included or through a travel agent produces more revenue but also more cost, so measuring on a net basis puts every booking channel on the same footing.

From yields to profit

The gap between net yield and net cruise costs per berth day is the line's operating margin per unit of capacity before depreciation and interest. Because most costs are fixed once a ship is sailing, small changes in yield move profit sharply: this operating leverage is the central feature of cruise economics.

Royal Caribbean Group's 2025 results show this at work. Net yields rose 3.8% while net cruise costs excluding fuel per APCD fell 0.1%, which the company attributed largely to efficiencies on newer ships and to scale. It reported Adjusted EBITDA of $7.0 billion on total revenues of $17.9 billion.

What drives yield growth

Yield growth comes from several sources, and bankers try to separate them:

The source matters for valuation. Yield growth from price and onboard spending on the existing fleet shows pricing power, while growth that comes mainly from adding new ships depends on continued capital spending.

Fuel and currency

Fuel is reported separately because it is large and volatile. Carnival burned 2.8 million metric tons of fuel in fiscal 2025, or 29.2 metric tons per thousand ALBD, down from 30.9 the year before as newer, more efficient ships joined the fleet, and paid $610 per metric ton against $665 a year earlier. Lines hedge some fuel exposure, but fuel price and consumption per berth day remain key sensitivities in any model.

Currency matters too. Lines with European brands earn in euros and sterling, so results are reported both as reported and in constant currency, which removes exchange-rate effects.

A cruise ship is ordered years before delivery, from one of a few shipyards able to build large passenger ships, mostly in Europe. Because the yards' construction slots are limited, lines often reserve them long in advance, sometimes with options for further ships of the same design. Carnival's new ships are being built by Fincantieri in Italy and Meyer Werft in Germany; Carnival had seven ships expected to be delivered through 2033, with total future newbuild payments of about $11.8 billion. Royal Caribbean Group's brands, including its partner brands, had 12 ships on order at the end of 2025.

Why the orderbook matters

The orderbook, the list of ships on order and their delivery dates, tells bankers a line's future capacity growth and capital spending years in advance. A heavy orderbook means rising capacity that must be filled at good prices, plus large payments that must be financed whatever happens to demand. A light orderbook means slower growth but more free cash flow to repay debt or return to shareholders.

Disposals and currency

Older ships matter too. Ships stay in service for decades, and lines sell older, smaller vessels to other operators or retire them when they no longer earn competitive yields. Selling older ships while adding new ones raises the fleet's average yield and lowers its fuel consumption per berth day, so a fleet plan is as much about disposals as about orders. How capital spending of this kind affects valuation is covered in capex in consumer businesses.

Shipbuilding contracts are often priced in euros, since the yards are European. Carnival had about $8.4 billion of euro-denominated newbuild commitments, so lines that report in dollars hedge or match those payments to avoid a currency loss on the ship price.

Export credit agency financing

Export Credit Agency (ECA)

A government-backed institution that supports a country's exporters by guaranteeing or insuring loans to their foreign customers. Agencies in Italy, Germany, France and Finland have backed loans for cruise ships built in their yards, allowing lines to borrow on long terms at lower cost than they could alone.

Export credit financing has long been the backbone of newbuild funding. The structure typically covers up to about 80% of a ship's contract price with a loan that amortizes over around 12 years from delivery. A 2018 example: KfW IPEX-Bank provided about €786 million for a new Carnival ship built by Meyer Werft, with a term of 12 years from delivery and backing from Germany's export credit insurance, known as Hermes cover, according to KfW IPEX-Bank's announcement. Carnival reported $7.8 billion of undrawn export credit facilities at the end of fiscal 2025, committed financing for ships not yet delivered.

Export credit is not the only option. As credit ratings recover, lines can choose unsecured bonds when they are cheaper: Royal Caribbean Group said it financed the delivery of Celebrity Xcel with senior notes at a lower cost than its committed export credit facility.

Cruise lines carry high fixed costs and large debt, which makes them vulnerable when ships cannot sail. When the COVID-19 pandemic halted sailings in 2020, US cruises stopped for more than a year. With no revenue and ships still to maintain, the major lines borrowed heavily, issued equity and agreed with export credit lenders to defer loan repayments.

Recovery has been a long deleveraging story. Royal Caribbean Group's 2025 annual report said it had achieved investment-grade ratings from all three major credit rating agencies, after it repaid deferred export credit amounts in 2024. A borrower that moves from high yield to investment grade is known as a rising star, a path explained in the Debt Capital Markets guide's crossover credits: fallen angels and rising stars. Better ratings lower borrowing costs and let lines choose between bonds and export credit for each new ship.

Cruise lines are valued mainly on enterprise value to EBITDA, with close attention to the capital required to grow. Because ships last decades but cost billions upfront, two lines with the same EBITDA can generate very different free cash flow depending on their orderbooks. Bankers also look at return on invested capital (ROIC), since a line earning well above its cost of capital on new ships can justify a heavier orderbook. What drives premium and discount multiples across consumer sectors is covered in what drives consumer valuation multiples.

When advising cruise lines, bankers focus on:

For a coverage banker, a cruise line combines a hotel, a restaurant group and a ship operator. It sells its capacity in advance, earns its margin onboard and must decide years ahead how many ships the market will want, so every valuation starts with whether yields will keep growing faster than costs as the new ships arrive.