Vacations are the No. 1 savings priority for most consumers after they meet their annual goals of funding retirement and meeting living expenses. And while cruises currently make up just a small portion of the massive travel industry, they're likely to grow in popularity given their wide appeal and competitive pricing when stacked up against land-based trips.

Below, we'll look at the two cruise line operators that represent the best long-term bets for investors seeking exposure to this promising vacation segment.

A cruise ship in the water.

Image source: Getty Images.

The industry leader

Carnival Cruise Lines (CCL 1.99%) is the leading company in the sector, serving over 11 million guests across its fleet of 100 ships. That demand was good enough to cover just under half of all cruise vacationers in 2016, which gives the company dominant scale in the industry. 

Carnival gets about half of its business from the U.S. market and has a significant presence in continental Europe, the U.K., and Australia. China only accounts for 6% of its capacity today, but the cruise giant expects that market to become one of its biggest over time as incomes rise in the area.

Carnival's fiscal 2016 was the most profitable year in its history as the company carefully managed cabin capacity in a way that allowed it to maximize earnings. Net income spiked 55% to $2.8 billion (with some help from falling fuel prices), which trounced the 4% increase in revenue. New ship launches helped push demand higher, but so did investments in its current fleet like the "Fun Ship 2.0" initiative that upgraded on-board dining and entertainment options.

CEO Arnold Donald and his executive team are targeting another year of strong growth in 2017 as rising demand helps prices increase in its core Caribbean itineraries. Both booking volumes and prices are running well ahead of last year, in fact. Over the longer term, efficiency improvements should help Carnival return to the double-digit return on invested capital that it last enjoyed over a decade ago.

Smaller, but still profitable

With 25 ships in its fleet, Royal Caribbean (RCL 2.25%) is in second place in terms of industry capacity. Shares don't track closely with Carnival's, though, since its operations differ in important ways, including size, branding, and profitability. Royal Caribbean's stock underperformed its rival last year on worries of a slowdown in vacation spending in key markets like Latin America and Australia. Thanks to its bigger presence, Carnival is better able to weather these shifts by moving capacity around the globe away from weak spots and toward those with rising demand.

Yet Royal Caribbean is enjoying its own set of impressive operating and financial rebound right now. Net yields are on track to jump by as much as 6% in 2017 for its fastest growth pace in at least five years. Rising volumes and pricing convinced the company to raise its full-year earnings guidance to over $7 per share, which would amount to roughly double its net income haul in 2014.

CCL Return on Invested Capital (TTM) Chart

CCL Return on Invested Capital (TTM) data by YCharts.

Like Carnival, Royal Caribbean is aiming for double-digit ROIC in the near future, which requires striking a tricky balance between building out to meet future capacity without flooding the market with excess cabins that drive profitability lower.

Risks and valuation

Cruise lines are exposed to major risks that land-based hotels and resorts aren't, including guest experience challenges around extreme weather and food safety issues that become more severe in close quarters. Both Carnival and Royal Caribbean rely heavily on debt to fund their increasing ship capacity, too, and that can pressure profits during a prolonged industry downturn.

Yet these two cruise operators still boast attractive, albeit cyclical, businesses with improving profitability and rising revenue. Both are priced modestly at 16 times the past year's earnings, which lessens the risk that investors will significantly overpay to buy either of these stocks in 2017.