Why Caribbean Vacations Are Becoming Big Business for Airlines, Cruise Lines, and Even Rail Lines

Delta, Southwest, and Amtrak are offering more ways to get to the islands.

Jul 10, 2014 at 9:19AM

The summer vacation season is in full swing, and it seems like everyone's focus is on the Caribbean. That's especially true for airlines and cruise lines that are offering more flights, new cruise ships, and package tours to sunny beaches and off-the-beaten-track retreats.

Delta Air Lines (NYSE:DAL) announced at the end of June that it's scaling up from four to five flights per day from New York's JFK to San Juan, bringing that route's daily total to 1,600 seats -- 160 of them in first class, which is typically the moneymaker for airlines. Southwest Airlines (NYSE:LUV), meanwhile, launched its first international routes at the beginning of July with non-stop service from five East Coast cities to Aruba, the Bahamas, the Dominican Republic, and Jamaica, with service from more U.S. cities rolling out later this year.

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Punta Cana, Dominican Republic. Southwest Airlines.

Cruises, always a popular choice for Caribbean getaways, are offering newer boats and more choices. Carnival Corporation (NYSE:CCL) and Royal Caribbean (NYSE:RCL) are both sending new ships to the region, and Disney Cruise Line plans to home port a ship in San Juan later this year. Even the railroad is getting in on the cruise craze, with Amtrak Vacations offering new package deals that combine a rail trip to New York City with Norwegian Cruise Line (NASDAQ:NCLH) Caribbean itineraries.

All of this activity raises the question of why there's such increased capacity and deals for the Caribbean -- and why now? The cruise market was already crowded in the region -- in fact, Carnival expects its third-quarter net revenue yields to be flat or down due to Caribbean competition. Travel agents who talked to The Motley Fool report an increase in interest among travelers. But Travelocity travel expert Courtney Scott said her company's data doesn't show a measurable increase in travel to the Caribbean overall, although the region is already one of the most popular destinations, year after year.

So what's going on? It looks like a confluence of airfare costs, time pressure, and social factors are raising the region's already popular stock.

Caribbean travel is competitively priced
"For American travelers who want to go abroad but may not have a huge budget, the Caribbean just works," said Scott. She added that the Caribbean, along with Mexico, has the highest concentration of all-inclusive hotels, making it a value destination for budget-minded travelers.

Getting there is generally cheaper than going farther afield, too. Rising long-haul airfares have priced some travelers out of other destinations. Jenifour Jones, a Los Angeles-based travel agent whose firm, Go Get It, specializes in destination weddings, honeymoons, and customized travel packages, said she's seen an increasing number of clients choosing the Caribbean over Polynesia based on the cost of plane tickets.

"It used to be that when a couple had $10,000 or $12,000 for their honeymoon, they knew they could do Bora Bora," Jones said. "Within the last year, that's changed. You can't. It's so expensive now. It's not the hotels so much as it is the airfare. The flights alone will typically cost you about $4,000 for two, and sometimes it's more."

Other travel agents report the same phenomenon. "Our business to the Caribbean experienced a sharp upturn last year due to rising airfare to Europe," said Haisley Smith, marketing director for Brownell Travel in Alabama.

Caribbean getaways make the most of tight vacation time
Distance has a lot to do with the difference in airfare cost. The region's proximity offers another selling point for Caribbean destinations, especially for overworked Americans and those reluctant to take too many days off. "With people having less vacation time, they want to use it wisely and basically get to relax and breathe sooner, rather than [take] an 8-hour or more flight to do so," said Monty Smatt, whose family owns several hotels and a tour company in the Caribbean.

The Caribbean appeals to safety-minded travelers
A safe image also brings travelers to the islands, especially families with kids. Last year, Mexico's ongoing drug violence spilled over into popular resort areas, and mass murders in Cancun and armed assaults on tourists in Acapulco made global headlines.

Social media is also shining up the Caribbean's image, said Scott. "People are now being exposed to different places and different islands that they may not have known about before. They're reading reviews and seeing posts and pictures, and seeing that 'my friends are safe in Freeport and Ocho Rios, and now I feel safe to go there, too.' "

It will be interesting to see whether Southwest's new routes take off and whether Delta maintains or continues to increase capacity to San Juan. We'll also be eager to see whether increased cruise competition, especially between Carnival and Royal Caribbean, lifts all boats over the rest of the year or causes revenues to sink.

For now, it looks like the Caribbean is the offshore destination to beat for budget- and time-conscious American travelers, which means it's a smart destination for airlines and cruise lines, too.

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Casey Kelly Barton has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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