With cautious optimism surrounding the travel industry, let's take a look at two of the world's largest investable cruise companies and how each is prepared to capitalize on a major travel rebound.

Royal Caribbean's exclusive private island experience

Royal Caribbean (RCL 6.67%) operates a global fleet of 64 ships, including the world's largest cruiseliner, the Wonder of the Seas. Royal Caribbean is also the parent company of Celebrity Cruises and Silversea Cruises.

Although Royal Caribbean sails its passengers to roughly 1,000 destinations worldwide, many of these ports cannot accommodate massive cruise ships. This presents a common problem to cruise lines, which often take passengers to private island destinations to avoid busy ports. However, these so-called "private islands" have traditionally been quite minimal: a beach, a bar, and a barbecue.

Reimagining the concept, Royal Caribbean launched its own private island destination, Perfect Day at CocoCay, in 2019. The company transformed its existing CocoCay private island into nothing short of a fantasy land complete with a water park, ziplining, hot air balloon rides, dining options, and an adults-only section.

Having flipped the script on private island destinations, which were previously forgettable stops, Royal Caribbean began attracting customers whose sole purpose was visiting Perfect Day on CocoCay. This has given Royal Caribbean a distinct advantage over competitor Carnival, whose private destinations offer a much less immersive experience -- at least for now.

Carnival's "Grand Port" project

Carnival (CCL 3.40%) (CUK 3.79%), the self-dubbed "World's Most Popular Cruise Line," operates Princess Cruises, Holland America Line, Seabourn, Cunard Line, and others. Aware of Royal Caribbean's competitive advantage in the form of an elaborate private island, Carnival recently unveiled its own plans to build an exclusive destination for cruisers.

In May, the company broke ground on a $200 million project on Grand Bahama Island that will include a mile-long beach area, a waterpark, pools, shopping, dining, as well as a nature preserve. Carnival hasn't provided an official name for its exclusive port destination yet, so far calling it the "Grand Port Project."

Unlike Royal Caribbean's exclusive one-off island, Carnival has chosen to build its destination on an island with existing residents and infrastructure, and will coordinate with the local community on its construction and operations. Carnival's exclusive port on Grand Bahama Island will have the capacity to receive the fleet's two largest ships simultaneously, which could deliver roughly 12,000 guests to the island at once.

As the cruise market share leader, Carnival accounted for 37.1% of all cruise revenue last year and carried an impressive 42% of all cruise passengers worldwide. But its game-changing port destination isn't expected to open until late 2024. Can the industry leader hold off the clever competition?

Which of these two cruise stocks is a better buy at the moment?

Comparing the two companies' price-to-sales (P/S) ratio based on the trailing-12-months of revenue, as well as their P/S ratios based on 2023 earnings estimates, we can get a better picture.

Company Market Cap Forward P/E Ratio P/S Ratio
Carnival $12.9 billion 12.2x 2.20
Royal Caribbean $12.5 billion 10.5x 2.67

On one hand, Royal Caribbean's lower forward price-to-earnings (P/E) ratio of 10.5 times looks more attractive than Carnival's. However, since the P/E ratios were calculated based on earnings estimates, a more reliable figure is the P/S ratio.

Since Carnival has a lower P/S ratio based on the last 12 months of reported revenue, it makes a slightly better buy than Royal Caribbean at the moment. However, both of these consumer discretionary stocks stand to recover in the months and years to come, provided the pandemic stays firmly behind us. After all, a rising tide lifts all boats.