CruiseCruiseWorld China: Working hard to find the gold

Cruise companies say China demand will outstrip capacity

In an indication that major cruise lines are still bullish on China despite sluggish pricing, a skittish clientele and falling currency, top executives of the four largest cruise lines appeared before an audience of Chinese travel agents to offer words of reassurance and commitment.

Carnival Corp. CEO Arnold Donald, Norwegian Cruise Holdings CEO Frank Del Rio, MSC Cruises CEO Gianni Onorato and Royal Caribbean International president of the north Asia and Pacific region, Zinan Liu, each gave keynote addresses to more than 300 Chinese travel agents attending the inaugural Travel Weekly's CruiseWorld China conference in Shanghai on Monday.

The reason why so many top cruise line brass attended was explained with simple arithmetic by Zheng Weihang, executive vice president and secretary general of the China Cruise & Yacht Industry Association: This year, .01% of the population — roughly 1.1 million people — cruised. That number is expected to jump to 2.5 million in five years and hit seven million in 15. 

In order to meet that demand, the number of ships dedicated to China would rise from the current 12 to 80.

“It’s a gold mine,” said Carnival Corp. COO Alan Buckelew, who is currently stationed in Shanghai. “But like all gold mines, you’ve got to work really hard to get the gold out.”

Among the projects that need hard work are the revitalisation of existing ports and the building of new ones. Current ports couldn’t handle 80 ships, said Anthony Kaufman, Princess Cruises’ senior vice president, Asian operations.

One point of controversy was whether it was best to continue the primary distribution system that now dominates cruise sales in China: Most ships are chartered by travel agencies, who then fill them.

Although chartering had been a good business for many large agencies, things took a turn south last June. After an outbreak of Middle East Respiratory Syndrome (MERS) hit South Korea, a popular cruise destination, Chinese consumers became skittish. 

Demand dropped significantly, price slashing followed, and the problem became further compounded by a weak yuan. The result: Consumers were being trained to wait for a “fire sale” before booking, several panelists said.

While no speaker called for an outright abandonment of the charter model, Royal Caribbean’s Liu, after noting that chartering has contributed greatly to cruise growth, said, “It doesn’t mean it will continue to work in today’s market. If a model doesn’t work, a new one will replace it.”

Although chartering was questioned, the value of travel agents wasn’t. Speaker after speaker pledged loyalty and a willingness to work toward win-win situations with agents.

Carnival’s Donald acknowledged “some bumps in the road here this year in terms of filling some of these ships,” but said that becoming the world’s largest cruise market was China’s “ultimate destiny”, and, in an onstage interview with this report’s writer following his prepared remarks, said Carnival brands in addition to Costa and Princess “are also interested in China, and in time we’ll see several of the other brands coming.”

“We believe that every [ship we put in China] can be filled with different psychographic segments that exist in the Chinese market,” he continued. “We have very few ships against a very large population and a very large middle class that has the wherewithal and an inclination to vacation. 

“There are far more people who are predisposed to cruise than there exists cabins. The challenge is connect them to those ships, and that’s all of our challenge together. It’s not just our travel agent partners’ challenge, it’s our challenge, as well as a challenge for all the other companies that are represented here in China.”

Donald noted that there are natural restraints in adding tonnage, however, and proposed that one solution may be to get Chinese consumers to sail from international ports. 

“We would love Chinese guests to participate in cruising experiences we have throughout the world,” he said. “The reality for the cruising industry is that it can only grow capacity 5% a year. There are only so many shipyards.

“Next year, our capacity is going to grow 3.7% as a corporation,” he continued. “Outside of China, our capacity is only going to grow 2%. So the advantage to us for attracting a Chinese guest to fly/cruise, in addition to domestic cruising, is that it increases overall [Chinese] demand [despite growth limitations].”

MSC has been a leader in the fly/cruise market out of China, and last month the company announced that it would be refitting the oldest ship in its fleet, Lyrica, for deployment in China.

In his onstage interview, Onorato did not rule out that at least one of the four new ships his company has under construction may be headed to China. 

Although he stated that the new Seaside class was unsuitable for the Chinese market because it was intentionally designed to maximize exposure to outdoor sunlight and Chinese cruisers “don’t like to stay in the sun,” he would neither confirm nor deny that one of the 4,500-passenger Meraviglia-class ships would head to China.

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