Cruise demand is weakening for European itineraries, particularly for brands reliant on US travelers, while premium segments remain more resilient, Morgan Stanley said Thursday in a report.

Mass-market demand is softening as inflation, higher travel costs, and geopolitical tensions make customers more cautious, leading to shorter booking windows and weaker pricing, the report said. Premium and luxury segments remain steadier, with stronger March bookings, higher spending, and continued demand for upscale offerings, Morgan Stanley said.

Pricing trends are mixed, with Europe seeing some declines while other regions show increases, and demand is shifting away from higher-risk areas such as the Eastern Mediterranean toward destinations such as the Caribbean, Alaska, Canada, New England, and Northern Europe, the report said.

Morgan Stanley cut Royal Caribbean Cruises' (RCL) expected net revenue yield growth to 0.5% from 1.7% for Q2 and to 2.5% from 3.2% for the full year. It now expects earnings before interest, taxes, depreciation, and amortization down 4% in 2026 and 3% in 2027 and earnings per share down 7% in 2026 and 5% in 2027.

For Norwegian Cruise Line Holdings (NCLH), Morgan Stanley reduced its EBITDA estimate by 1% in 2026 and 2% in 2027, resulting in EPS cuts of 4% in 2026 and 3% in 2027.

Morgan Stanley cut its price target on Royal Caribbean stock to $310 from $330 and trimmed its target on Norwegian Cruise to $23 from $24, maintaining equal-weight ratings on both.

Royal Caribbean shares fell 1% in Thursday trading, and Norwegian Cruise dropped 1.4%.

Price: 276.38, Change: -2.88, Percent Change: -1.03