Deployment of capacity to China is good for the cruise industry’s profitability as it absorbs capacity from the North American and European markets, said Robin Farley, cruise industry analyst at UBS in New York
“We have written extensively on the importance of China for the cruise lines, with not only greater profitability on Chinese-sourcing ships, but also the benefit of reducing capacity in existing North American and European markets by redeploying it to China,” she said in a research note.
“And we would argue that the benefit to the cruise lines from China may be greater for the 90% plus of the fleet that is competing with less supply, perhaps a greater benefit to overall profitability than the 5-8% of supply that is in China itself,” Farley continued.
So the bottom line is, China pricing is already higher than average, profitability is greater putting a ship there versus the Caribbean. “The China story has never been that pricing was going to keep growing at a double-digit rate. The China story is that volume is growing massively because of the high China price premium.”
“CCL (Carnival Corp & plc) is not yet given guidance for 2016 – but it still sounds likely that overall yield in China could be positive with onboard spend helping, since charter prices may not be up given the supply growth,” she said.
“But prices in China would still grow overall yield and returns would grow at a greater rate given the benefit from scale growth in China as well. And of course, two ships going to China (six next year up from four this year) also help the rest of the fleet since supply growth in the rest of the world is up only 2% for CCL next year, while company wide capacity is up 3.7%,” Farley stated.
