Cruise giants Carnival, Royal Caribbean doubling down on China

March 27, 2015, 5:44 PM UTC
Aboard Royal Caribbean Cruises Ltd.'s New Ship Quantum Of The Seas
A ship to shore crane stands alongside the Quantum of the Seas cruise ship, operated by Royal Caribbean Cruises Ltd., as it sits moored to a berth at Southampton Docks in Southampton, U.K., on Friday, Oct. 31, 2014. Royal Caribbean's newest ship Quantum of the Seas is one-third smaller than its Oasis-class ships, but is fitted out with onboard activities such as bumper-cars and robotic bar tenders. Photographer: Simon Dawson/Bloomberg via Getty Images
Photograph by Simon Dawson — Bloomberg via Getty Images

Move over, Miami. Here comes Shanghai.

Buoyed by the explosive growth of the cruise industry in China, the world’s two largest cruise operators, Royal Caribbean (RCL) and Carnival (CCL) are redoubling their presence there.

Carnival, which on Friday raised its 2015 profit forecast on the strength of better than expected advance bookings, expects the overall number of outbound cruise passengers from China to hit the 1 million market for the first time in 2015, and serve almost half of those.

Chine remains a much smaller market for the cruising industry than the United States or Europe, but interest in taking to the seas as a middle-class vacation option is surging in China, and buoying the whole industry.

“China presents the next great frontier for cruising,” Carnival CEO Arnold Donald told Wall Street analysts. “It’s just a matter of time before China becomes the largest cruise market in the world.”

According to data from the United Nations World Tourism Organization, the total number of trips abroad by Chinese citizens rose about 10% to 109 million in 2014, with spending up about 17%. And more of that is going to cruises: the number of cruise passengers originating from China rose 79% between 2012 and 2014.

Carnival currently has four ships based in China. The company recently signed a memorandum with state-owned China Merchants Group to look into forming two joint ventures that will build cruise ports and ships.

Meanwhile, Royal Caribbean said earlier this week that Tianjin, a city of 10 million about 100 miles from Beijing, will be the new home for its third Quantum-class ship (those with the most bells and whistles like space observation decks) starting in April 2016. It will be the fifth China-based ship in the company’s fleet and its first to be based in China from the get-go. Last year, Royal Caribbean decided to redeploy its newest ship, the 4,200-passenger Quantum of the Seas, to Shanghai year-round as of this spring, after only six months cruising New York-Caribbean trips.

To funnel more Chinese passengers to its ships, Royal Caribbean is looking for partnerships with local travel companies. In the fall, it struck a deal with Chinese online travel company Ctrip, which is the biggest seller of its cruises there.

And to make it clear to the China government, whose cooperation Royal Caribbean and its rivals need to get more infrastructure that lets large ships dock in various cities, that its plans to keep investing in China. Royal Caribbean said this week it is looking into building Chinese dry dock facilities and developing logistics centers to supply its ships deployed in the region. It is also considering programs that would bring thousands of North American vacationers to visit China by cruising.

While China is still Royal Caribbean’s No. 3 market, after the U.S. and Europe, it is clear executives see the Middle Kingdom as a major growth engine.

“Potential growth here is greater than the U.S. market,” Michael Bayley, president and chief executive of Royal Caribbean’s international operations, told the Wall Street Journal in Beijing earlier this week.