How Cruise-Owned Private Islands Are Transforming the Caribbean | WSJ The Economics Of

Summary

Highlights

• Carnival Cruise Line's $600 million investment in Celebration Key marks a new trend. 🌊
• Private islands profit cruise lines by promoting on-island spending and keeping guests engaged. 💸
• MSC's Ocean Cay offers free dining but charges for specialty shops and cabanas. 🏖
• Private islands are criticized for drawing funds away from local businesses and ports. 😬
• Bahamian Ministry touts higher passenger taxes and VAT on private islands balancing the scale. ⚖️

Key Takeaways

• Carnival's $600 million Celebration Key opening in 2025 highlights a trend of cruise-owned islands. 🌴
• These islands keep the cruise ecosystem closed, boosting onboard profits through on-island spending. 🏝️
• Critics argue these developments can harm local tourism and economic streams. 🤔
• Traditional ports and small businesses may suffer as cruise lines prioritize private destinations. 🛳️
• Despite concerns, agreements with local governments bring investments and job promises. 📈

Overview

Chapters

• 00:00 - 00:30: Introduction to Celebration Key The introduction of Celebration Key, a new development on Grand Bahama Island, transformed from a barren stretch to a luxurious destination with a white sand beach, lagoons, and a waterpark, funded by Carnival Cruise Line. Scheduled to open in July 2025, this project is part of the cruise industry's trend towards owning private islands for economic benefits by keeping passengers within their ecosystem.
• 00:30 - 01:00: Economic Benefits and Concerns The chapter discusses the economic benefits and concerns of private islands owned by cruise lines. While these private destinations offer free access for cruise passengers, they generate substantial profits for cruise companies through on-island spending, akin to theme parks where additional costs are common. However, experts express concern that these developments could negatively impact local tourism by diverting revenue away from small businesses in the area.
• 01:00 - 01:30: On-Island Spending and Attractions The chapter discusses strategies employed by cruise lines to keep passengers spending on their private islands. Using MSC's Ocean Cay as an example, it highlights the availability of free food options and standard beach access included with cruise tickets, while pointing out additional charges for specialty shops and amenities like cabanas. These strategies are designed to ensure that money remains within the cruise's ecosystem.
• 01:30 - 02:00: Financial Impact on Cruise Lines The chapter discusses the financial strategies employed by cruise lines, particularly focusing on the benefits of directing cruise traffic towards owned destinations such as private islands. By diverting passengers to these private locations, cruise companies like Royal Caribbean can capitalize on all tourist spending on drinks, food, and souvenirs, thereby retaining more revenue. The narrator highlights the significant investment Royal Caribbean made in renovating its private destination, Perfect Day at Cococay, with over $250 million spent, which a UBS analysis projected as being on the path to a favorable financial return.
• 02:00 - 02:30: Concerns About Private Islands This chapter discusses the increasing popularity and profitability of private islands owned by cruise lines. It highlights the projected profits for Carnival Celebration Key, which is expected to generate significant annual revenue. However, there are concerns and criticisms regarding the proliferation of these private destinations, as more islands continue to be developed over the years.
• 02:30 - 03:00: Impact on Local Economies The chapter titled 'Impact on Local Economies' discusses the economic impact of cruise tourism in Caribbean countries. Traditionally, these countries have earned revenue through cruise tourism, but the emergence of private islands leased to cruise lines creates a new revenue stream. These long-term leases, often lasting 100 years, can be lucrative, although specifics about the lease agreements are not well-disclosed. Cruise lines argue that these private islands help alleviate congestion at crowded ports, offering an additional benefit.
• 03:00 - 04:00: Taxation and Employment The chapter discusses the impact of private islands on local economies. While these islands serve as alternatives during bad weather and provide appealing itineraries, they divert revenue from traditional ports. This shift affects local businesses, particularly restaurants, that depended on spending from cruise ship passengers. The reliance of communities and businesses on this income creates concerns about the economic sustainability when funds are redirected to private island destinations.
• 04:00 - 05:30: Tourism's Importance in the Caribbean The chapter discusses the economic implications of private islands owned by companies in the Caribbean. While private islands offer alternative tourism experiences, experts express concerns about their economic impact, as they may allow companies to sidestep traditional port fees and taxes. However, local governments, like the Bahamian Ministry of Tourism, argue that these private islands can still contribute to the economy. They state that cruise passengers visiting these islands pay a higher passenger tax, and a value-added tax introduced in 2024 ensures that goods and services on these islands are taxed comparably to those outside the cruise ecosystem.
• 05:30 - 06:00: Future Expansion of Private Destinations This chapter discusses the future expansion of private destinations by cruise lines, particularly focusing on the Bahamas. Key players like Royal Caribbean, MSC, and Carnival have initiatives to benefit local economies, including employing Bahamian locals on their islands, and collaborating with the Bahamian government to ensure mutual benefits. The chapter highlights the critical role tourism plays in these economies and the lengths to which they will go to maintain strong ties with cruise lines, emphasizing the necessity for cooperation to prevent the lines from moving their business elsewhere.

How Cruise-Owned Private Islands Are Transforming the Caribbean | WSJ The Economics Of Transcription

• 00:00 - 00:30 - [Narrator] This once barren stretch of Grand Bahama Island will soon become Celebration Key, a 65-acre development with a mile long white sand beach, freshwater lagoons, and a waterpark. Carnival Cruise Line is pouring $600 million into this tropical escape exclusive to its passengers. The first phase is set to open in July 2025. It's part of a growing trend of private islands and destinations owned and operated by cruise lines themselves. - It makes a lot of economic sense for them. They're able to keep the passengers on the ship
• 00:30 - 01:00 within their own ecosystems. - [Narrator] But experts worry these developments strain local tourism, pulling profits from small businesses. This is "The Economics of the Private Islands of Cruises". (eccentric music) For cruise passengers, access to these private destinations is free, but the real profit for the cruise lines comes from on-island spending. - Cruise lines have figured out ways to upcharge folks left and right. So, similar to what you might find at a theme park, not everything comes for free. - The idea is to keep them in these private destinations
• 01:00 - 01:30 for a particular amount of time; four hours, six hours, whatever, and to basically keep them spending there and not leave. - [Narrator] Take MSC's private island, Ocean Cay. While there are free food options like a food court and a barbecue buffet, specialty shops cost extra, like the ice cream parlor. And standard beach access comes with the cruise ticket, but cabanas can range from an extra 278 to $422, or even more depending on season and location. And all these keeps money within the cruise ecosystem.
• 01:30 - 02:00 - [Jacob] If a cruise ship goes to another port and just lets people out, they're gonna visit other businesses and that's money that the cruise line is not making itself. Whereas if they go to the private island, the passengers get off the ship and when they buy drinks, buy food, buy souvenirs, that's money that the cruise line itself is directly making. - [Narrator] And it's paying off. Perfect Day at Cococay cost Royal Caribbean over $250 million in renovations. But a UBS analysis estimated the island was on track
• 02:00 - 02:30 to generate an additional $100 million in annual profit based on its first few months. And the same analysis estimates that Carnival Celebration Key could generate around $150 million in profit in its first full year. It's expected to become Carnival's most profitable private destination. But critics are concerned about the rise of these private locations. Over the past decade, at least four new private destinations have opened with even more under construction. - [Jacob] The more and more we see these islands stilt out,
• 02:30 - 03:00 the less we'll see ships visiting more traditional ports. - [Narrator] Historically, Caribbean countries have generated revenue from cruise tourism through several channels. Private islands create another revenue stream for countries with cruise lines securing multimillion dollar contracts for land through 100-year leases. But, - We have such little information about the details of these agreements; what the lease agreement is, what the sale price was, and so on. - [Narrator] Cruise lines say these islands can also help ease congestion at packed ports
• 03:00 - 03:30 and serve as backup stops when bad weather disrupts itineraries. But critics argue that private islands cut into previously reliable revenue streams, like passengers spending in ports and local job creation. - The communities and the businesses that have come to rely on the money that comes in when cruise ships dock and hundreds, if not thousands, of passengers get off, that money might dry up and instead go to these private islands. - Restaurants are not getting the businesses they used to get,
• 03:30 - 04:00 the souvenir vendors and so on. - [Narrator] Experts also worry that private islands could allow companies to bypass traditional port fees and taxes. - All of these traditional avenues of flowing into the Caribbean economies are either totally curtailed or limited by the private islands. - [Narrator] But the Bahamian Ministry of Tourism says that cruise passengers who only visit private islands actually pay a higher passenger tax. And a value-added tax implemented in 2024 ensures that goods and services on private islands are taxed the same as those outside the cruise ecosystem,
• 04:00 - 04:30 something that hasn't been required in the past. Royal Caribbean and MSC said most workers on Cococay and Ocean Cay are Bahamian locals. And in a statement, Carnival says they've teamed up with the Bahamian government to ensure mutual benefits. - It is hard to underplay how important tourism is to these economies. Anything that would lead a cruise line to perhaps sail elsewhere is something they want to avoid. So, there is the extent to which they are willing to play ball
• 04:30 - 05:00 because it is such a major driver of economic activity for these countries. - [Narrator] The Caribbean is the world's leading hub for cruise lines with about 44% of cruise passengers traveling to the region in 2023. Experts say tourism ministries have historically measured success by the number of visitors they attract, and cruise lines brought almost 13 million to the Caribbean that year. - Cruise lines come in and say, "We will bring in so much investment, we will create so many jobs, and so on," and they give them very large sounding numbers,
• 05:00 - 05:30 and "we will increase the number of visitors coming to your country." And they oftentimes present, when we're able to check them, oftentimes turn out to be very rosy and unrealistic figures to the country that they're negotiating with. - [Narrator] But with the success of private destinations in the Caribbean, cruise lines are expanding to new locations worldwide. Royal Caribbean's upcoming destination, Perfect Day Mexico, is slated to open in 2027. - I really do think it's an idea that cruise lines are going to export to other markets. And you know, some of those will be successes,
• 05:30 - 06:00 some may not be, but I think to the extent that they can create these closed ecosystems, they're going to try to see if that will work in a different market 'cause it's been so successful in the Caribbean. (light music)