We have discussed the Consumer Spending Pyramid, which illustrates how people buy better food, better booze and better bling as their incomes and aspirations rise, as well as how we seek to invest in that spending. But sooner or later, all that “getting and spending” begins to pall as aging inevitably brings along intimations of mortality.  At which point time becomes the most precious commodity.

In short, we long to goof off and enjoy it.

One time-honored way to do this is to travel. That is why we have invested for many years in the cruise industry. The demographic forces that drive demand, and the structure of the industry, support growth and return characteristics that are attractive to us.

The world is getting older with the number of people aged 60 and over expected to grow by more than 2.5% annually for the next few decades.1 As people age their spending patterns change. The only areas in which those over 65 spend more on consumption are health care, travel and leisure.2 These trends are potentially positive for the travel industry, as can be seen in the forecast below.

Many of these older travelers prefer cruising to backpacking.

In addition, rising incomes in Asia, particularly in China, are breathing life into a nascent and fast-growing cruise industry there.

Together, these demographic forces are increasing the number of cruise passengers by nearly 4% every year.3

The cruise industry is well-structured to profit from this volume growth. There are few players that matter, with four companies sharing nearly 90% of the market.4 And the market is relatively small, with only 400,000 berths. This is fewer than the number of hotel rooms in Florida. 5

Compared to the capacity of the world’s hotel industry, the cruise industry is infinitesimal.

(Furthermore, unlike Florida hotel rooms, those berths are moveable: should demand soften in one market, it is possible to sail a ship to another region.) All of these characteristics are supportive of the potential pricing power within the industry.

In our opinion, the cruise industry is likely to continue to grow and profit from the rising tide of aging adults.

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  1. ^Source: United States Department of Labor, Bureau of Labor Statistics.
  2. ^Bank of America Merrill Lynch: Carnival Corporation, Buoyed by demographics. July 24, 2017.
  3. ^Bank of America Merrill Lynch: Carnival Corporation, Buoyed by demographics. July 24, 2017
  4. ^Business Research & Economic Advisors, November 2016.
  5. ^VisitFlorida.org.