Royal Caribbean International's decision to base the 167,800 gross ton Quantum of the Seas in Shanghai in May 2015 after an initial winter season in New York marks the first time a cruise brand has decided to operate a ship of its latest class on the Chinese market. And that decision could be a game changer for the cruise industry.
Until now, cruise lines have sent ships that have seen years of service on the North American and European markets to China. However, some critics have noted that as the region has some of the finest hotels in the world, it is unwise to assume that Asians in general and Chinese in particular would flock in great numbers on these sometimes already tired ships.
On the other hand, a decision to send a brand new ship that often carries a price tag in the region of $1 billion to the Far East, only to operate it half-empty, would be a disastrous decision. Quite simply, the volumes have to be built up first and once the market has reached a critical mass, then it is the time to up the ante and deploy a first rate vessel on the Asian market.
The growth rate of China has been very rapid: it was only in 2006 that Costa Crociere, the Italian unit in Carnival Corp & plc group, based the 28,400 gross ton Costa Allegra in Shanghai,which made it the first western cruise line to have a ship based there.
For Royal Caribbean International, the time to send a top rate ship to China has now come. As company executives explained in a conference call, the line needs to seek a balanced view to its ship deployments, so that customer needs and company's interests will both be met in an optimal way. This does not only mean looking for the best yields at all times, but also to factor in long term strategic prospects in the equation. Deployment of Voyager of the Seas and soon afterwards Mariner of the Seas to Shanghai had significantly boosted the line's business there. Clearly, this must have been a major factor to base Quantum of the Seas in Shanghai: the long term strategic prospects appear encouraging and the executives noted they have lots of confidence in the China business.
The decision is likely to have a number of consequences:
-Royal Caribbean's competitors will have accept that the Chinese / Asian markets have become significantly more important regions for the business than what they have been so far,
-Asia will join North America and Europe as key deployment area of first rate cruise ships,
-Dated tonnage will have increasingly limited prospects to trade in the region and
-Major brands will have to factor in the requirements of the Asian market in the design of their new ships.
For Royal Caribbean International, a lot is at stake. Success with Quantum of the Seas could help it to establish itself as the definite market leader in the Chinese source market and pave the way for positioning of the third Oasis class ship, currently under construction, to China. The financial rewards of all this could, in the medium to long run, be phenomenal.
But risks are great as well.
Booking windows are short on the Chinese market, which limits the visibility the management has to foresee the development of the business. The business has substantial seasonal fluctuations and political risks arising from maritime border disputes between China, Japan and South Korea can also upset the business. In case major problems arise that require repositioning ships away from China, the positioning voyages will be long and therefore, expensive.
Royal Caribbean's announcement came a short while after Star Cruises had unveiled a decision to build a second 150,000 gross ton cruise ship at Meyer Werft in Germany that also targets the Asian market. With three 20-year plus old ships in its fleet, Star may have to axe these, perhaps in favour of a newbuilding. A major competitor has just thrown the gauntlet at Star's home turf.
