Making Sense of China’s Booming Cruise Industry

You’ve probably heard it before—China’s cruise industry is booming, and it’s all hands on deck for cruise companies all around the world. The market growth rate is in the high double digits, and projected numbers of cruise tourists range from “a lot” to “an enormous amount.” “I expect [Chinese cruise tourists] to reach 2.5 million by the year 2020, 4.5 million by 2025 and seven million by 2030,” Zheng Weihang, the executive vice president of the China Cruise and Yacht Industry Association (CCYIA), told The Maritime Executive. However, it’s easy to get blindsided by sheer market growth and miss out on the underlying trends and preferences among the customers that are shaping this booming market. Capitalizing on “free” market growth alone only takes you that far, and it risks causing you to miss out on the more profitable market segments. Just ask Venice: the historical city is so overrun with unprofitable budget travelers that it’s considering imposing a visitors’ toll. So, what’s going on in the Chinese cruise industry? A free-for-all With staggering growth, it should come as no surprise that a vast number of cruise companies are making moves into the Chinese market. Market leader Carnival Corporation and runner-up Royal Caribbean Cruises are both in the Chinese market. So are Norwegian Cruise Line and MSC, which recently added another cruise ship to the market. Domestic companies have also entered the market—HNA Group launched China’s first luxury cruise ship back in 2013, a venture it later abandoned in 2015 after a string of controversies and operational problems. State-owned operator Bohai Ferry also entered the market in 2014. Ctrip and Royal Caribbean also entered a joint venture to launch the China-focused SkySea Cruise Line to court Chinese tourists. In addition to the usual suspects, and Ctrip, the Malaysian conglomerate Genting—best known for its many casinos—has also decided to enter the Chinese cruise market. "It's practically a virgin market. Our competitors are seeing a five-million (passenger) market just out of China," Genting chairman Lim Kok Thay said in an interview when trying to justify the company’s US$5 billion bet on the market. Built for China There has been a lot of noise recently about ships built in China, for China, but the bigger trend is ships built for China, period. The biggest shipyards remain outside China, but the biggest demand for cruise ships lies in China—so cruise companies are building new ships throughout the world for the Chinese market. Cruise lines such as Norwegian Cruise Line, Princess Cruises, Costa Cruises, and MSC all have new cruise ships underway that are either constructed entirely customized for the Chinese market, or are being reconfigured with the Chinese market in mind. Neither company has been very specific in what made-for-China means for the facilities and features on board, so whether China-centric cruise ships are more marketing than they are substance remains to be seen. None of the cruise lines that Jing Travel reached out to chose to elaborate on their China-centric facilities. However, a multitude of Chinese restaurants and luxurious karaoke rooms in addition to Chinese-speaking staff and Chinese-language entertainment are to be expected. Joint ventures and built in China The most high-profile joint venture in the Chinese cruise industry so far is the aforementioned SkySea Cruise Line, which brought China’s leading online travel agency Ctrip and the world’s second-biggest cruise operator Royal Caribbean together. Each of the two parties owns 35 percent of the joint venture, with Shanghai-based Stone Capital responsible for the remaining shares—making it a majority Chinese-held company. Carnival Corporation has also announced a joint venture together with China State Shipbuilding Corporation (CSSC) and China Investment Capital Corporation, but details about the China-focused brand resulting from the joint ventures are still under wraps. However, Carnival is already building two Vista-class ships in China—constructed by a different joint venture between CSSC and Italian Fincantieri. In China, the hope is that this marks the beginning of a strong domestic shipbuilding industry. Infrastructure challenges beyond China In a panel discussion during ITB Asia hosted by DestinationElite, panelists from Norwegian Cruise Line and the Strand Cruise discussed the challenges with luxury cruises in Southeast Asia. One of the main challenges addressed was the lacking port infrastructure in many attractive cruise destinations throughout the region, which has been impending both the growth of the Australian cruise market, as well as the growing Chinese market—limiting the number of possible destinations for cruise operators. Indeed, port infrastructure in China has been improving remarkably over the last few years, and East Asian countries such as Japan, South Korea, and Taiwan have sufficient infrastructure to welcome a large number of Chinese ships—but attractive cruise destinations such as Vietnam, the Philippines, Malaysia, and Indonesia are lagging behind. “Destination development is important and each of those destinations needs work,” Carnival Australia’s CEO Ann Sherry said during the Cruise Shipping Asia-Pacific Conference. The dream scenario would be to make Southeast Asia into the “Asiaterranean”—an area ripe for cruise tourism—but infrastructure problems are still making it a far-off dream. However, China’s growing domestic cruise industry and vested state interests in the continued growth of Chinese shipbuilding may open for Chinese outbound investment into overseas port infrastructure. Last but not least, the growth of Chinese cruise tourism in the region could serve an effective soft power tool in China’s territorial disputes in the South China Sea as it starts to heavily traffic the area, not only with goods, but with its own population on board luxurious cruise ships. With competition mounting in the Chinese cruise market, operators are facing downward pricing pressures, but with sustained double-digit growth and large players with big war chests entering the market, it would seem that they’re all in it for the long haul. Partnering with dominant and marketing-oriented domestic companies such as Royal Caribbean has done with Ctrip could be one effective way to not only enter the market, but to strengthen the bottom line. It remains to be seen if any other Chinese online travel agency would be interested in making a big bet on its domestic cruise industry together with an overseas cruise operator—and there are many potential suitors in the market. Don't want to miss out on anything important? Keep pace with the business of global Chinese travel by subscribing to the Jing Travel newsletter!

Making Sense of China’s Booming Cruise Industry

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Published November 18, 2016

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Making Sense of China’s Booming Cruise Industry