Cruise ships are “in use” as a less expensive alternative to hotels.

Demand for cruises stays strong – and it doesn’t look like slowing down any time soon.

The industry was the last to recuperate from the Covid pandemic but enjoyed strong pricing and booking momentum thereafter. While price growth is beginning to normalize somewhat, it continues to be well above the speed of inflation, said Patrick Scholes, travel and leisure analyst at Truist.

“Cruise companies are having a moment right now,” he said in an interview with CNBC.

Despite price increases, cruises are still cheaper than land-based accommodation. This helps the industry stand out while weaknesses creep into other areas of the travel sector. For example, on Wednesday, Hilton CEO Christopher Nassetta said through the company's quarterly earnings call that demand for leisure travel within the U.S. is “stagnating, perhaps even declining somewhat.”

“The continued strength of cruise industry bookings/demand, while cracks are forming across much of the rest of the travel market, is primarily due to the combination of the still significant discount on land travel coupled with relatively high levels of service,” the Barclays said analyst Brandt Montour in a note last week.

As of the second quarter, the three major cruise lines reported weighted average every day net revenue that was 17% above 2019, he wrote. Net revenue per day is the web revenue per passenger cruise day. Hotel room prices within the Caribbean are about 54% higher than in 2019 and resort prices within the U.S. are up 24%, Montour said, citing figures from data analytics firm STR.

carnival CEO Josh Weinstein agreed that these so-called cracks elsewhere can assist boost his business.

“If it is true that the consumer is slowing down in other sectors, that is really a good sign that we can incorporate them into our demand profile because we will add value. We offer a better experience at a better price than they can get anywhere else,” he said in an interview with CNBC's “Money Movers” after reporting a third-quarter profit and revenue increase on Sept. 30.

Royal Caribbean is expected to report its quarterly results on Tuesday, followed by Norwegian Cruise Line Holdings“Report on Wednesday.

A price difference between hotels and cruises is not new. That's largely because a large portion of hotel demand comes from business travel, while cruise demand comes entirely from leisure travelers, who are much more price sensitive, explained UBS leisure analyst Robin Farley.

But in recent years, this gap has become even larger than it seems, their research shows. That means cruise lines may have more room to grow, she said.

One reason, according to Farley, is the increase in direct bookings for cruises since 2019. This means that fewer commissions are paid out to travel agents, which are included in the gross daily rates but are netted out of the net daily rate line.

“Although the companies do not disclose it, we believe there has been a significant increase in direct bookings by passengers since 2019,” she wrote. “If the proportion of cruises booked directly grows by 5 to 10 [percentage points]We estimate this could result in an increase in reported net per diems of nearly 200 basis points, although this would not represent an increase in gross per diems or the actual ticket price.”

Separately, since 2019, all three major cruise lines have increased onboard pooled and pre-sold revenue, which can also be included of their per diem rates, Farley said. That could indicate one other 300 basis point gap between cruise and hotel price growth that doesn't show up within the metrics, she argued. One basis point is the same as 0.01%.

Farley sees one other potential shortfall of 350 basis points for Royal Caribbean attributable to its private island CocoCay, which has a water park, zip line and other attractions for which passengers pay additional costs.

Additionally, all three cruise lines have introduced high-speed internet access via Starlink on board, which could also lead to an increase in passenger revenue.

“The larger that gap, the greater the opportunity for cruise lines to improve,” Farley said in an interview with CNBC.

Every price increase now helps cruise operators. Truist's Scholes' proprietary research into actual bookings for next year shows the price to be in the mid to high single digits. Wall Street is only expecting growth of about 3%, but it could easily be 5% or more, he said.

This is important because the industry has extremely high fixed costs.

“An additional pricing factor is extremely important for profitability,” said Scholes. “Almost 90% goes to the bottom line.”

Wall Street analysts are largely optimistic about the prospects for cruise lines.

“If we think about 10 years ago before Covid, these companies were competing with themselves,” Scholes said. Now they're competing with Orlando theme parks and Las Vegas vacations by offering passengers more attractions.

“They’re casting a much bigger net now,” he said.

Royal Caribbean was the first company to up the ante on a private island with CocoCay.

“This private island is a truly unique offering. It's not just a beautiful beach. It has all the amenities you can afford,” said UBS’s Farley, who rates the stock a “buy.”

The company's Icon of the Seas, which officially debuted in January, caused quite a stir as the world's largest cruise ship. Royal Caribbean's newest ship, Utopia of the Seas, set sail this summer. The fact that the latter offers three- and four-night weekend getaways shows that it is truly targeting first-time cruise passengers, Farley noted.

“They had so many home runs,” she said.

According to FactSet, Royal Caribbean has an average rating of “Overweight” among analysts covering the stock, but has a downside of about 1% from the average price target. The stock is already up almost 56% since the start of the year.

Carnival also has an average rating of “Overweight” among analysts covering the stock, up 12% from its average price target, according to FactSet.

During its third-quarter earnings report, the company reported record operating income and increased its estimate for adjusted earnings before interest, taxes, depreciation and amortization in 2024 due to strong demand and cost savings opportunities. Carnival also said cumulative advanced booked positions for full-year 2025 are above the previous record set in 2024 and prices are higher than last year.

Almost half of next year is fully booked – and that doesn't include the benefits of the new Celebration Key island, emphasized Farley. The island will be more similar to Royal Caribbean's CocoCay and will begin operations in July, she said.

“It’s a nice catalyst for Carnival,” she said. “A new goal emerges [and] This tends to generate new interest.

However, Scholes said his research showed that of the three major cruise lines, the Carnival brand faced the most price competition from private cruise operator MSC.

Carnival shares have underperformed the market, gaining about 13% year to date. In comparison, he S&P 500 is up about 22%.

Finally, according to FactSet, Norwegian Cruise Line Holdings has an average analyst rating of “Overweight” and about 4% upside potential from the average price target.

One of the companies that are Norwegian bullish is Citi, which upgraded the stock from Neutral to Buy on October 9th. The call sent shares up 11% on the day. The company also raised its price target to $30 from $20, suggesting an upside of 29% from Thursday's close.

“NCLH's shift in strategy gives us confidence that its significant pricing opportunity won’t be worn out by runaway costs,” analyst James Hardiman wrote in an Oct. 9 note.

Investors should expect a compound annual growth rate in earnings per share of 23% over three years, he said. However, that percentage could be closer to 30% if Norwegian can maintain its 2.5% return-to-cost spread, he added.

While Norwegian has not officially announced a CocoCay-style private island experience, Scholes expects there will be a competitive product by 2026.

The stock has also underperformed the broader market, rising nearly 16% so far this year.