The biggest cruise ships keep getting bigger and it's splitting the industry in two

• New cruise brands are launching smaller, luxury ships geared toward wealthy travelers. 
• They're a far cry from the 7,000-passenger mega-ships with water parks and concert venues.
• Large cruises are a "cash cow" for operators but experts say smaller ships have distinct long-term advantages. 

Every year it seems a new world's largest cruise ship is crowned.

Royal Caribbean's upcoming almost 10,000-person Icon of the Seas will be the next to claim this title. While it won't debut until 2024, it's already generated plenty of buzz. The cruise line saw its largest booking day ever when it opened reservations for the ship in October 2022, before construction was even completed. Since then, Royal Caribbean has repeatedly lauded it as the "best-selling product in its history."

But not everyone is a fan of the floating amusement park. When images of the Icon circulated online, social media users described the vessel with far less flattering terms (among them: "human lasagne," a "monstrosity," and "hell on water"), proving mega-ships aren't all travelers' cup of tea.

To fill this void, several new cruise lines are taking an underdog strategy of building smaller luxury vessels

Over the last few years, high-end resort brands like the Ritz-Carlton, Four Seasons, and Aman have announced plans to enter the cruise — or as they call it, the "yacht" — market. And it's safe to say they won't be participating in the mega-ship race: Aman says its vessel will have 50 cabins while Ritz-Carlton's second ship is set to sail in 2024 with just 224 suites.

Shipping giant MSC Group is also taking a similar downsized yet upscale approach with its new luxury cruise brand Explora Journeys with the 461-suite Explora 1 it launched in 2023. To compare, the largest MSC Cruises ship has 2,626 cabins.

This surge in small-ship brands has split the cruise industry's newest offerings into two distinct categories, with different target customers and business models.

"In general, smaller vessels are better for travels where you spend more time in the port cities and explore things outside the ship, whereas the mega ships are more geared towards having lots of entertainment within the ship," Per Stenius, a client director at Finnish consulting firm Reddal, which specializes in the maritime industry, told Insider.

Small cruises, or large "yachts," appeal to wealthy travelers

While giant ships are a short-term "cash cow" for operators, small cruise liners have advantages over their larger counterparts that give them a leg up in the long run, Stenius said, especially when it comes to attracting affluent travelers.

"The smaller ships are able to focus more on the itinerary," he told Insider, adding that cruises with more staff and fewer guests can also offer higher-end customer service.

Wealthy travelers who have never cruised before may also gravitate toward smaller ships for their first trip, especially if it's with a recognizable brand name like the Four Seasons or Ritz Carlton.

New-to-cruise is an important demographic to win over: In order to keep up with projected capacity forecasts, the industry needs to convince 4 million people to take their first cruise by 2025, according to Cruise Lines International Association, a trade organization that represents cruise lines.

Michael Ungerer, Explora Journeys' CEO, doesn't picture other vessels as his company's competition. Instead, he says Explora is contending with luxury resort hotels like the Belmonts, Amans, and Rosewoods.

"We think there is an opportunity to establish a luxury holiday brand, which is a boutique-style resort on the water," he said.

Smaller ships are better positioned to meet sustainability goals

Mega-ships may be popular among some passengers, but the ports they're visiting aren't always fans. Concerns of overcrowding and pollution have led cities across the US and Europe to place restrictions on cruise tourism and in some cases, enforce caps on the number of daily cruise visitors.

Port infrastructure poses a challenge to large ships, even in places without cruise bans. Several of the new mega-ships are too big to fit into some ports, requiring passengers to take smaller boats called tenders to shore. On ships that carry thousands of guests, this can be a logistical difficulty.

With worldwide port access no longer guaranteed, major cruise companies are snapping up private islands in the Bahamas to develop into exclusive resorts for visiting passengers.

"They have to compensate for the fact that they can't go into certain cities by creating their own entertainment centers to take these ships," Stenius said. "But of course that's not a game you can play forever."

Large ships also come with large carbon footprints. As the industry moves toward net-zero greenhouse gas emissions by 2050 (a target set by the International Maritime Organization), mega-ships will have a harder time meeting those requirements than smaller vessels, Stenius said.

Giant cruise ships have more opportunities for increased revenue but can ice out some travelers

Royal Caribbean didn't set out to intentionally build the next world's biggest cruise ship, Jay Schneider, Royal Caribbean's Chief Product Innovation Officer, told Insider in 2022. Instead, he says the company prioritized adding onboard experiences that go beyond the average "dinner and a show" cruise. But as its "wishlist" of amenities grew, so did its need for increased revenue. Meeting this demand then required adding more cabins, and subsequently, square footage for necessary spaces like dining rooms.

"As you go through the evolution of our strategy, you quickly grow into bigger ships," Schneider said. This approach has helped industry heavy hitters rake in even more cash: The more cruise lines add enticing pay-to-play amenities to their giant vessels, the more onboard revenue is generated.

"Mega ships tend to be more family-oriented with activities like water slides and bumper cars. But some tourists like a 'more quiet' vacation experience," Patrick Scholes, a leisure analyst at Truist Securities, told Insider in an email, noting that he thinks Royal Caribbean will continue to build giant ships following the Icon's success.

But as travelers' expectations and sustainability restrictions evolve at the same time, only time will tell if these little guys or the giant floating cities will win over travelers' wallets.