Name: Why Cruise Lines Are Pumping Billions Into Private Islands | WSJ The Economics Of
Uploaded: 2025-03-27T08:35:06.000Z
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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 water park.

Carnival Cruise Line is pouring $600 million into this tropical escape, exclusive to its passengers.

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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 within their own ecosystems.

But experts worry these developments drain local tourism, pulling profits from small businesses.

This is the economics of the private islands of cruises.

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 for a particular amount of time, four hours, six hours, whatever, and to basically keep them spending there and not leave.

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 a cruise ticket.

But cabanas can range from an extra $278 to $422, or even more, depending on season and location.

And all this keeps money within the cruise ecosystem.

If a cruise ship goes to another port and just lets people out, they're going to 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.

Perfect Day at Coco Cay cost Royal Caribbean over $250 million in renovations.

But a UBS analysis estimated the island was on track to generate an additional $100 million in annual profit based on its first few months.

And the same analysis estimates that Carnival's 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.

The more and more we see these islands built out, the less we'll see ships visiting more traditional ports.

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.

We have such little information about the details of these agreements, what the lease agreement is, what the sale price was, and so on.

Cruise lines say these islands can also help ease congestion at packed ports and serve as backup stops when bad weather disrupts itineraries.

But critics argue that private islands cut into previously reliable revenue streams, like passenger 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, the souvenir vendors and so on.

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.

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, something that hasn't been required in the past.

Royal Caribbean and MSC said most workers on Coco Cay and Ocean Quay 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 because it is such a major driver of economic activity for these countries.

The Caribbean is the world's leading hub for cruise lines, with about 44 percent 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.

And we will increase the number of visitors coming to your country.

And they oftentimes present what, 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.

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 some of those will be successes, 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 because it's been so successful in the Caribbean.