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Carnival (NYSE: CCL) (NYSE: CUK) and Royal Caribbean Cruises (NYSE: RCL) claim the No. 1 and No. 2 spots, respectively, in the cruise line industry. Both companies have benefited from record bookings this year.

Moreover, investors may remember that all cruise lines ran up massive debts in 2020 and 2021 to stay in business as the world's governments shut the industry down during the pandemic. Nonetheless, these companies have successfully serviced and reduced massive debt loads while funding the additional ships needed to meet rising demand.

Unfortunately, this success leaves investors with little clarity on which cruise line stock is in a position to deliver higher returns for its shareholders. Thus, investors need to take a closer look at each travel company to see which might serve investors better.

The case for Carnival

Carnival is the largest beneficiary of high cruise demand, with 43% of all cruise passengers sailing on a Carnival-owned ship, according to Cruise Market Watch. Best of all, it has the potential to at least hold that share in the current environment. Bookings are strong, with nearly half of its cabin space for 2025 filled. This means it has to rely less on discounting to fill its cabins.

Knowing that, it likely will not surprise anyone that its $19 billion in revenue for the first nine months of fiscal 2024 (ended Aug. 31) is up 18% from year-ago levels. Amid that gain and the slower growth in operating expenses, net income came to $1.6 billion in the first three quarters of the year, down from a $26 million loss in the same period last year.

Additionally, its debt situation improved. While it holds $29.6 billion in total debt, that number has fallen $1.7 billion in the last nine months. At this rate, it may cover the $2.2 billion in debt due over the next year, minimizing the need for refinancing. Carnival can also reduce debt while investing over $4 billion to add ships to its fleet, allowing it to capitalize on more of the record demand.

Such improvements may help explain the 70% increase in the stock price over the past year. With a P/E ratio of just 24 and its financials continuing to improve, investors may continue to be drawn to this stock.

Why investors might choose Royal Caribbean

Nonetheless, the question for travel stock investors is whether Royal Caribbean is a more attractive choice. Almost 26% of all cruise passengers travel on a Royal Caribbean ship. Like its larger competitor, the company benefits from strong bookings for 2025, except at higher prices than previous years.

That has allowed it to bring in nearly $13 billion in revenue for the first nine months of 2024, a 20% yearly increase. Due to slower operating expense growth, its net income for the first three quarters of the year rose 64% to $2.3 billion.

Such gains have allowed Royal Caribbean to service its debt and grow its fleet simultaneously. Its total debt of $21.4 billion is down by just over $600 million over the last nine months. At that rate, it will not pay off all the $1.9 billion current portion of long-term debt, but it probably reduces the amount that it will need to refinance.

Additionally, it spent about $2.7 billion in property and equipment purchases over the last nine months. This covered the cost of adding one ship to its fleet this summer, helping it to address rising demand across its industry.

That improving outlook contributed to stock gains of around 125% over the last year. Amid the rising stock price, its P/E ratio has risen to 26. While that is higher than Carnival, it closely approximates its third-place rival, Norwegian Cruise Line Holdings, at 25 times earnings, keeping Royal Caribbean's valuation largely in line with its industry.

Carnival or Royal Caribbean?

Ultimately, with record bookings and falling debt levels, both companies and stocks should continue to prosper. Still, under current conditions, I have to give the edge to Carnival.

Indeed, Royal Caribbean stock has grown faster in recent months. However, the fact that Carnival can pay off debt as it matures while continuing to add ships is a sign of financial stability that should continue to serve investors well. When considering those benefits along with its lower P/E ratio, Carnival stock is the clear choice.

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Will Healy has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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