After a major downturn during the COVID-19 pandemic, the cruise industry has come back strong. Now comes the next disruption.
Gross US cruise bookings increased by more than 500% year-over-year in 2022, according to travel and tourism research firm Phocuswright. This rebound was needed, both by cruise lines and personal travel agents, who handle most cruise booking volume. However, the emergence of travel applications equipped with generative artificial intelligence (AI) capabilities may radically change the way travelers plan and book cruises. In Oliver Wyman’s August 2023 survey of roughly 1,100 leisure travelers in the US and Canada, 56% of recent cruisers previously used generative AI tools for planning travel.
The embrace of generative AI-enabled travel tools may result in significant booking share up for grabs between cruise lines and online travel agencies (OTAs). Based on forecasts for US-derived revenue of the three biggest cruise lines (Carnival, Royal Caribbean, and Norwegian), Oliver Wyman estimates up to $3.3 billion of annual cruise passenger ticket booking value could shift to online channels by 2028. The trend will extend to cruise add-ons as well: We estimate up to $400 million in annual shore excursion booking value could shift online over the same period.
The question is who will be best positioned to capture that new revenue. Cruise lines need to act fast if they want to take a bigger piece of this future pie than OTAs, some of which have already developed generative AI tools of their own. More specifically, cruise lines must begin evaluating their generative AI strategies and invest in the technology for cruiser interactions in their booking flow. This should be a priority, considering that 70% of cruisers said they would select a future booking channel because it has generative AI capabilities. Those that capitalize on the generative AI opportunity may also be able to reduce the commissions they pay to indirect booking channels. The projected online shift of cruise bookings would present an opportunity to lower annual indirect channel costs by more than $300 million by 2028. Generative AI stands to be a key catalyst for cruise lines to capture these savings.
Cruisers desire and trust generative AI
Online booking penetration in the cruise industry has historically been low, and most booking activity remains directed through offline channels. Generative AI has the potential to upend that tendency due to its rapidly enhancing functionality and ease of use. For example, cruisers can simply enter a few natural-language prompts about their travel criteria into Google's Bard tool to generate tailored recommendations for destinations, cruise itineraries, and port destination activities. In our survey, of leisure travelers who had taken a cruise since the beginning of 2022, 56% previously used generative AI tools, compared with only 24% of those who had not taken a recent cruise. Usage was even more common among those who had taken multiple cruises over the same period (60%), highlighting a positive correlation between generative AI interest and customer value. Even more impressive, despite how new the technology is, 62% of cruisers trust generative AI enough to use it to book its travel recommendations.
Cruisers also see significant value in generative AI after making their initial booking — 39% of cruisers would use generative AI tools pre-cruise to research, plan, and book add-ons such as onboard activities and shore excursions. Furthermore, 43% of cruisers would use generative AI mid-cruise for similar purposes. That is a promising development for cruise lines, who have found cruisers beginning to eschew their sponsored port destination activities. This has been attributed to the rise in popularity of independent excursions offering greater intimacy, personalization, and flexibility.
The next moves for cruise lines
Cruise lines with well-developed generative AI tools will be best positioned to meet cruiser demand for the technology and capture a sizable portion of the booking value that may shift online. Any resulting increase in cruise-direct booking share would lower indirect channel costs, while also allowing cruise lines to exert greater ownership over their customers throughout the cruise experience. In the near term, cruise lines must develop generative AI strategies and implement the technology through a test-and-learn approach.
Special thanks to Frank DePinto who contributed to this article.