TUI Group is slowly building up quite a formidable cruise operation. How long before it starts to consider buying out joint venture partner Royal Caribbean?
TUI Group is looking to bolster its cruise division by adding another ship as part of an effort to modernize and expand its fleet.
The multinational tourism company, which isn’t necessarily thought of as a big cruise operator, will have a fleet of 18 ships by 2023. By comparison, Carnival Corp., the world’s largest cruise operator, has 103 ships across nine brands.
As part of the expansion, TUI is buying Golden Era from Royal Caribbean Cruises for the group’s British cruise subsidiary, Marella Cruises. At the same time, the current Mein Schiff 2 vessel, which was due to join Marella Cruises, will now remain within TUI Cruises.
“We will continue to invest in our cruise portfolio and expand, modernize and rejuvenate our fleet. With these decisions we increase the offer at TUI Cruises and accelerate the expansion of this growth segment,” said Sebastian Ebel, who heads up TUI’s cruise businesses.
TUI’s purchase of Golden Era also means the end of SkySea Cruises, Royal Caribbean’s joint venture with Ctrip. Royal Caribbean, however, still has a 50 percent stake in TUI Cruises.
SkySea will wind down its business operations before the end of 2018 but Royal Caribbean will still serve the Chinese market and insists it will retain “a strong collaborative relationship with Ctrip.”
Alongside the addition of Golden Era, Hapag-Lloyd Cruises, TUI’s high-end line, is waiting on two new expedition ships, while TUI Cruises is getting three newbuilds.
Three existing ships will go, leaving a total of 18 vessels by 2023.
TUI Group has spent the last couple of years moving away from a business concentrated on tour operating to one that is much broader and asset-heavy. Central to this plan is an expansion of its cruise business. TUI is slowly morphing from a trading to a yielding business.
“A yielding business means you sit on an asset and you fill it, and you fill it in a way which is yield optimized, that you have a full occupancy as much as possible at the end of season and you adapt prices,” CEO Fritz Joussen said last year.
With this in mind, it’s not difficult to understand why TUI would want to invest in cruise ships. Perhaps equally as important is that cruising remains popular. The Cruise Lines International Association expects around 27.2 million people will go on a cruise in 2018, a rise of 5.4 percent.
The only problem for TUI might be capacity pressure from its rivals. TUI is the fifth largest cruise company with MSC Cruises its closest rival. MSC is going through its own period of expansion and will have 26 ships by 2026.
“One potential concern is the level of supply growth coming to Europe, with this likely driven by the lackluster growth seen in the Chinese cruise market resulting in cruise companies looking for new pastures to implement supply,” said Richard Clarke, a senior analyst at Bernstein in a note to investors.
“However … we believe the European market is well placed to handle this planned supply growth.”
Photo credit: The ship now known as Marella Discovery. TUI Group is going deeper into cruising. TUI Group