Carnival Wants More Ships in China, Even as Prices Slump

Carnival Corp. has high hopes for China, a market the cruise giant and competitors see as the next great frontier for the industry.

And if cruise fares aren’t staying at quite the lofty level of yesteryear, no one is complaining too much.

In an earnings call with analysts Wednesday, executives with the world’s largest cruise ship company said operations in China were profitable for the first fiscal quarter, with returns higher than the fleet average. Company-wide, Carnival beat expectations for the quarter that ended Feb. 29.

Still, chief financial officer David Bernstein said results in the country for the quarter were “behind on pricing and not surprisingly behind on percentage occupancy, given our over 60 percent increase in China capacity.”

The company has six ships in China between the Costa and Princess brands, with plans to add vessels from German line AIDA and Carnival Cruise Line. Carnival Corp., which includes 10 brands around the world, has 99 ships total with 16 more due over the next four years.

By 2020, CEO Arnold Donald told analysts, Carnival could have 8 to 9 percent of its capacity sailing from Chinese ports. That’s compared to 5 percent today.

“Most of the growth in capacity we have will actually be going to China,” he said. “And that means that we’ll be growing at a much slower rate in the rest of the world’s markets, 1 percent to 2 percent there, while big percentage increases in China. But in terms of absolute number of ships, still relatively small compared to the latent demand that exists in the country.”

Slower capacity growth in the rest of the world is good news for Carnival. The company wants to create “relative scarcity” in established markets that will allow demand for cruises — and prices — to increase.

Even as Carnival and its rivals make headway into the burgeoning China market, Donald believes there is plenty of room.

“With 1.3 billion people, China is very capable of absorbing lots of different brands,” he said. “And so we see it, at this stage, as we just have a toe in the water.”

Of China’s estimated 135 million outbound travelers, only about a million are taking cruises, Donald pointed out.

“We haven’t even begun to touch the surface hardly,” he said. “So there’s plenty of room and capacity.”