Skift Take

It takes patience and methodical planning to build a new market — and the cruise industry seems to be settling into China until that’s done, with whatever tweaks are necessary along the way.

Earlier this month we released our annual travel industry trends forecast, Skift Megatrends 2017. You can read about each of the trends on Skift, or download a copy of our magazine here.

Download Your Copy of Skift Megatrends 2017

The giddy days of unbridled optimism for the cruise industry in China were gone by 2016, and executives came to grips with the fact that even a market with huge potential couldn’t keep up with massive increases in supply.

“In China, we’ve been growing at 40 percent and 50 percent growth rates without any difficulty. Those are pretty extraordinary levels,” Royal Caribbean Cruises Chairman and CEO Richard Fain said. “But this year, we as an industry have pushed those figures into triple digits. Even China has trouble growing at that pace.”

So 2017 becomes the year when slow growth is met with relief in a region that many insiders expect to one day become the world’s largest cruise market.

Make no mistake: More ships designed for local passengers will parade into China with careful attention paid to shops, restaurants, public spaces, and crew. Norwegian Cruise Line and Princess Cruises both plan to introduce new ships in 2017. It will be Norwegian’s first entry into the market.

But some of the fervor of recent years has been cooling. Two cruise lines that were planning to send ships in 2017 — AIDA and Carnival Cruise Line — are holding off. Another with a large presence in the country, Royal Caribbean International, is selling an older vessel that sails there, although its CEO said the ship would have been sold no matter where it was based.

Investment research firm Morningstar said in a recent report that analysts expect growth to be “lumpy rather than linear” in part due to the way cruises are sold in China. Cruise lines typically charter large chunks of staterooms to distributors, who then sell them to consumers.

Christine Duffy, president of Carnival Cruise Line, said she still sees a place in China for her brand, which characterizes itself as “America’s cruise line.” Plans for the brand to enter the market in 2018 have also been put on hold; for now, the company expects to deploy a ship in 2019.

“We need the distribution system to catch up with the capacity that is coming into China,” she said. “We believe that Chinese consumers, especially a lot of the families, will really enjoy the brand. So I do envision that Carnival Cruise Line as a brand will be in China. We’ll just see when makes the most sense.”

Even as North American companies line up to bring ships in, they are aligning with state entities to build the industry from the ground up. Carnival Corp. announced in late 2016 that its joint venture with the China State Shipbuilding Corp. and China Investment Capital Corp. had signed an agreement to order two new ships built in Shanghai with the option to order two more. The first would arrive in 2022 — at a time when the industry expects many more people to be sailing.

By 2020, according to the Morningstar forecast, the number of cruise passengers in China may reach 4.3 million, up from roughly a million in 2015. The report said China could produce 7.3 million cruisers by 2025.

“China remains the most robust opportunity for the three major cruise operators, and the companies have moved into the region more meaningfully over the last three years to build brand awareness and cater to the expanding middle class,” the report said.

Download Your Copy of Skift Megatrends 2017


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Tags: carnival corp., megatrends 2017, ncl, royal caribbean

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