Tom Stieghorst
Viking started out in 1979 as a river cruise company, and that is still how it is viewed by most people inside and outside the industry. Viking dominates the category with 51% of capacity, far ahead of the 18% claimed by its nearest rival, AmaWaterways.
But in 2015 Viking stuck its nose under the tent of the ocean cruise business, debuting the 940-passenger Viking Star. Don't look now, but next year will be the 10th anniversary of its entry into ocean. And it may be the year that ocean surpasses river as the most important single segment of Viking Holdings' business, financially speaking.
It could even be this year, but it will probably be the first quarter of 2025 before we know. In part that's because of the seasonality of the river cruise business. Viking has released the results of the first six months of 2024, but because it does comparatively little river cruising in the January-to-March quarter, it's hard to draw comparisons.
A look back at 2023 shows that the ocean cruise business was nearly as big as Viking's river cruise segment, but not quite. Viking reports segment profitability as "adjusted gross margin," which is defined as revenue minus certain direct variable costs. Last year, Viking's 70 river cruise ships had adjusted gross margin of $1.41 billion. Using the same yardstick, its nine ocean ships earned $1.35 billion. In other words, ocean was only 4% behind river in its contribution to Viking's profits.
Both segments are poised to grow. For river, Viking has ordered 17 additional vessels for delivery by 2027, including 10 ships for European rivers, six for Egypt and a chartered river vessel that will travel through Vietnam and Cambodia. For Viking Ocean, six new ships are commissioned for delivery by 2028, with options for four additional newbuilds.
But in its filings with securities regulators, Viking said that ocean has become its fastest-growing segment.
There are a few reasons for that. Unlike river cruising, which is heavily skewed towards Europe, ocean cruising does not pull back for part of the year for weather reasons. Although the first and fourth quarters are less robust, cruise ships can follow the sun and typically move from north to south, from Europe to the Caribbean, from Alaska to Mexico and so on.
Secondly, cruise ships are much bigger than river ships and can capitalize on economies of scale. Although on the small side for the ocean business, Viking's cruise ships carry up to 998 passengers, more than five times as many as its 190-passenger, European-river-based Longships.
Viking's net revenue yields in 2023 were $477 per passenger per day on the rivers, but $497 for the ocean.
That said, the ante is quite a bit higher on the oceans. At about $500 million each, Viking's ocean ships are 10 times more costly to build than its river ships. That's one factor behind Viking's first offering of stock to the public early this year.
Certainly, Viking's river business isn't fading away. Just ask any of its competitors. It has been among the more aggressive pioneers in nontraditional markets, such as Egypt's Nile and the American Mississippi.
But the perception that Viking is mainly a river cruise company is outdated. Even as it remains a titan in that market, it is evolving into a true river/ocean hybrid as shipyards continue to feed its ocean ambitions.