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.
Adding ships to the Chinese cruise market generates better yields to cruise lines than an incremental ship would do in the Caribbean, although the rise in yields in the first named market will slow down this year from 2014, said Robin Farley, cruise industry analyst at UBS in New York
"China is an important market for the cruise lines not because it is growing price at an outsized rate, but rather it is important because the growth of pricing in China has already surpassed the tipping point about two years ago where a ship is more profitable in China than an incremental ship in the Caribbean," Farley said in a research note.
Carnival Corp & plc (CCL), the world’s largest cruise shipping group, is growing yields in China at a single digit rate in 2015 after double-digit growth in 2014 and that is with CCL's 45% capacity increase in China this year.
After growing yields at a double-digit clip, Royal Caribbean Cruises Ltd (RCL), the industry’s number two group, is now seeing mid to high single digit yield growth in China, on top of yields that already made for RCL's second best performing ships last year in terms of profitability.
“Our checks found Quantum (of the Seas) selling for 35% higher price in China than it was selling in the Carib. earlier this year, and while that has the benefit of summer seasonality, we would point out that Quantum's price in the Caribbean was already at a double-digit premium to other Caribbean product. RCL & CCL will also home port some cruises out of Tianjin next year, which price checks suggest may be a little lower than Shanghai, but even a 15% discount to Shanghai puts it above RCL fleet on average,” Farley said.
Even without an increase in yield in China, adding ships to China is yield accretive to the cruise lines overall. It is even further accretive to earnings growth, since expense/ unit comes down with big scale increases. 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, and that also helps capacity and price in existing markets,” Farley noted.
While the stock market pull back in China has concerned investors about consumer demand, and we also frequently get questions about the revenue declines in gaming, we would point out that cruises in China are driven by the growing middle class. As long as there is wage growth in China and as long as GDP growth causes China's middle class ranks to continue to swell, that is the source market for cruises -- not VIP wealth and not stock market wealth.
Carnival Corporation & plc, the world's largest travel and leisure company, today announced plans to further expand its operations in China with the deployment of two additional cruise brands in China in 2017. Carnival Cruise Line and AIDA Cruises will join Costa Cruises and Princess Cruises in the Chinese market, making Carnival Corporation the first company to operate four brands in China – which is expected to eventually become the world's largest cruise market based on surging demand for cruise vacations by Chinese travelers.
As a result of Carnival Corporation's expansion in China in 2017, four of its 10 brands will have at least one homeported cruise ship in China, further bolstering the company's industry-leading presence in the market. The plan to deploy two additional ships – one new ship each for both its Carnival and AIDA brands – and operate four total brands in China in 2017 embodies Carnival Corporation's long-term, multi-brand strategy to provide Chinese travelers with a variety of vacation options and experiences to meet growing demand across all segments of the Chinese market.
"We are excited to introduce our Carnival Cruise Line and AIDA Cruises brands to our fleet in China, giving us a total of four global cruise brands in the market and a unique opportunity to provide a diverse lineup of brands and cruise offerings to Chinese guests who are looking for a great vacation experience," said Carnival CEO Arnold Donald, who was in Shanghai to announce the news at the 10th Annual China Cruise Shipping and International Cruise Expo (CCS10). "As we execute our multi-brand growth strategy in China, we are emphasizing choice and variety in our offerings to match the different tastes and preferences of Chinese travelers."
Added Donald: "As more and more Chinese are discovering why cruising is the best vacation experience, they are having a great time on our Costa and Princess brands, and we look forward to even more Chinese travelers enjoying vacations on our AIDA and Carnival brands. This is an exciting time in China for the cruise industry, and as the world's largest cruise company and the first global cruise operator in China, we are more committed than ever to helping China become one of the world's most popular regions for cruise vacations."
Further details on plans for Carnival Cruise Line and AIDA Cruises to enter the Chinese market in 2017 will be announced soon by each brand.
Christine Duffy, president of Carnival Cruise Line, said: "We greatly look forward to introducing Chinese guests to the exceptional vacation experience that has made Carnival the world's most popular cruise line with more than 4.5 million guests a year. With cruise demand rapidly increasing in China and our ability to work in partnership with other Carnival Corporation brands to leverage our collective experience and scale, it provides an outstanding opportunity for Carnival Cruise Line to enter the Chinese market."
Added Felix Eichhorn, president of AIDA Cruises: "We are honored to join our Carnival Corporation sister brands in China in 2017, including Costa Cruises, which pioneered cruising in China for the entire industry back in 2006. We look forward to offering Chinese guests our authentic AIDA experience of German style on the seas. By focusing on the interests of our guests in China, there is a significant opportunity to grow cruising demand for our brand, Carnival Corporation and the industry at large."
Two new brands build on other recent China expansion announcements for 2016 and 2017
Carnival Corporation announced in July that its existing brands already sailing in China – Costa Cruises and Princess Cruises – will continue to expand in 2016 with each brand introducing a new ship to its fleet in China in 2016, making Carnival Corporation the first global cruise company with six total ships based in China and extending the company's industry-leading market presence in the overall market.
The expansion of Carnival Corporation's China fleet to six ships will represent a 58 percent increase in total capacity in China in 2016, including three year-round ships and three seasonal ships in the market. Together, the Costa and Princess brands will potentially offer about four million passenger cruise days in 2016, giving Chinese guests more choice and flexibility in both the contemporary and luxury segments.
Building on its expanding presence in China in 2016, Princess Cruises, a leader in worldwide destinations, just announced last week the name of its new ship that will be based year-round in China when it is introduced in summer 2017. Based in Shanghai, the all-new Majestic Princess will be the first year-round cruise ship built specifically for Chinese guests incorporating a unique blend of international and Chinese features.
Carnival Corporation is also exploring potential joint ventures in China with China State Shipbuilding Corporation (CSSC) and China Merchants Group (CMG) designed to accelerate the growth of the overall cruise industry in China, including the possibility of launching a world-class Chinese domestic cruise brand, building new ships in China, and supporting port and infrastructure development. These efforts support Carnival Corporation's commitment to help China realize its goal to develop cruising as a key economic driver for its economy and become one of the leading cruise markets in the world.
Additionally, to underscore the company's commitment to the region and developing the strong growth opportunities for cruise vacations across Asia, Carnival Corporation recently announced Michael Ungerer as chief operations officer for Carnival Asia, a newly created position for the company that became effective Sept. 1. Ungerer, formerly president of AIDA Cruises, will help lead the execution of Carnival Corporation's growth plans across the region, especially in China.
Alan Buckelew, global chief operations officer (COO) for Carnival Corporation, relocated to China over a year ago to more closely oversee Carnival's growing operations in the country and capitalize on the significant opportunities to accelerate growth in the market. Buckelew, who has extensive experience in Asia from nearly four decades in the cruise industry, leads all the company's initiatives in China in this expanded role, while retaining his overall global responsibilities for the corporation, including oversight of all maritime and port operations around the world and other related functions as part of his COO position.
Carnival Cruise Line and AIDA Cruises, US and Germany focused contemporary market brands of Carnival Corp & plc, the world's largest cruise shipping group, will base vessels in China, Travel Weekly reports on its website.
Both would enter the Chinese market next year and bring to four the number of Carnival group brands that operate in the country - Costa Crociere and Princess Cruises are already well established in China.
The vessels to be employed and itineraries together with further details would be disclosed later.
Norwegian Cruise Line (NCL), the contemporary market unit in the Norwegian Cruise line Holdings group, will introduce the first purpose-built ship customised for the China market in 2017, CEO Frank Del Rio announced today during the CruiseWorld China summit in Shanghai.
The new ship will be the second of Norwegian Cruise Line’s 164,600 gross ton Breakaway Plus class and features the line’s unique style of cruising known as Freestyle Cruising. “Aboard NCL ships, Chinese guests will indulge in a resort-style vacation experience, with the freedom and flexibility to joyfully spend time doing whatever they wish, from enjoying world-class entertainment to fine Mandarin, Cantonese and Continental dining; from duty-free luxury shopping to participating in any number of incredible first-at-sea activities onboard; all on their own time schedule,” the company said in a statement.
The ship is currently under construction, at the Meyer Werft shipyard in Germany. “Our new purpose-built ship for China will have characteristics that are authentic to Norwegian Cruise Line and yet distinctively Chinese in all of its sensibility,” said Del Rio.
“With this new ship, Norwegian will unquestionably offer our Chinese guests a superior product and introduce a new standard of innovation and excellence into the marketplace, with an unrivalled level of customisation for the Chinese consumer. It will perfectly suit what modern Chinese travellers value from an upscale cruise experience.”
Norwegian Cruise Line is widely recognised as the leading innovator in the cruise industry. Not only will Norwegian Cruise Line’s new ship offer the highest-level of purpose-built customisation, it will clearly be the most innovative ship ever built exclusively for the China market. With a capacity of 4,200 guests, this new Breakaway Plus-class vessel will provide the same sense of freedom and flexibility found on all Norwegian Cruise Line ships, but with experiences and amenities designed specifically with Chinese guests in mind, the company stated.
The level of customisation will go beyond the physical design of the ship. Working with partners in China and local experts on the subtleties of Chinese culture, Chinese guests who sail on this new ship will be provided with an unmatched quality-level for service, cuisine, entertainment and overall experience that is simply not available in the China market today. Additional details, including the ship’s name, homeport, accommodation, dining and entertainment will be shared in the coming months.
To better support the company’s expansion efforts in China, Norwegian Cruise Line Holdings has opened offices in Beijing (Guomao CBD) and Hong Kong (Quarry Bay) and today opens its Shanghai office in Xintiandi. These China-based offices support all three brands in the company’s portfolio – Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises which span the upper end of the contemporary, premium, and luxury cruise categories and relevant to each segment and each stage in the Chinese consumer life cycle.
“Our China offices house a dedicated leadership team uniquely focused on ensuring the success of our local travel agent partners, which is crucial to the success of our expansion in what will soon be the world’s second largest cruise market,” said Del Rio. “These offices will provide sales and marketing support to our travel partners whose customers not only wish to sail on our new China-based ship, but also on any of the incredible voyages around the world offered across our portfolio of brands.”
The new ship will be delivered in Spring 2017. Norwegian will take delivery of the line’s first Breakaway Plus class ship, Norwegian Escape, next week on 22 October. Two additional ships in this class are on order for delivery in 2018 and 2019