Cruise execs beam optimism about China despite challenges

SHANGHAI — In an indication that major cruise lines are
still bullish on China despite sluggish pricing, a skittish clientele and
falling currency, top executives of the four largest cruise lines appeared
before an audience of Chinese travel agents to offer words of reassurance and
commitment.

Carnival Corp. CEO Arnold Donald, Norwegian Cruise Holdings
CEO Frank Del Rio, MSC Cruises CEO Gianni Onorato and Royal Caribbean
International president of the north Asia and Pacific region, Zinan Liu, each
gave keynote addresses to more than 300 Chinese travel agents attending the
inaugural Travel Weekly’s CruiseWorld China conference here on Monday.

The reason why so many top cruise line brass attended was
explained with simple arithmetic by Zheng Weihang, executive vice president and
secretary general of the China Cruise Yacht Industry Association: This
year, .01% of the population — roughly 1.1 million people — cruised. That
number is expected to jump to 2.5 million in five years and hit 7 million in
15. In order to meet that demand, the number of ships dedicated to China would
rise from the current 12 to 80.

“It’s a gold mine,” said Carnival Corp. COO Alan Buckelew, who
is currently stationed in Shanghai. “But like all gold mines, you’ve got to
work really hard to get the gold out.”

Among the projects that need hard work is the revitalization
of existing ports and the building of new ones. Current ports couldn’t handle
80 ships, said Anthony Kaufman, Princess Cruises’ senior vice president, Asian
operations.

One point of controversy was whether it was best to continue
the primary distribution system that now dominates cruise sales in China: Most
ships are chartered by travel agencies, who then fill them.

“It’s a gold mine. But like all gold mines, you’ve got to work really hard to get the gold out.” — Alan Buckelew, Carnival Corp. COO

Although chartering had been a good business for many large
agencies, things took a turn south last June. After an outbreak of Middle East
Respiratory Syndrome (MERS) hit South Korea, a popular cruise destination,
Chinese consumers became skittish. Demand dropped significantly, price-slashing
followed, and the problem became further compounded by a weak yuan. The result:
Consumers were being trained to wait for a “fire sale” before booking, several
panelists said.

While no speaker called for an outright abandonment of the
charter model, Royal Caribbean’s Liu, after noting that chartering has
contributed greatly to cruise growth, said, “It doesn’t mean it will continue
to work in today’s market. If a model doesn’t work, a new one will replace it.”

Although chartering was questioned, the value of travel
agents wasn’t. Speaker after speaker pledged loyalty and a willingness to work
toward win-win situations with agents.

Carnival’s Donald acknowledged “some bumps in the road here
this year in terms of filling some of these ships,” but said that becoming the
world’s largest cruise market was China’s “ultimate destiny,” and, in an
onstage interview with this report’s writer following his prepared remarks,
said Carnival brands in addition to Costa and Princess “are also interested in
China, and in time we’ll see several of the other brands coming.”

(“In time” proved to be very short indeed. Carnival Cruise Line President Christine Duffy, who was also in the
audience, announced that her line and Germany-based sister line Aida would
enter the Chinese market.)

“We believe that every [ship we put in China] can be filled
with different psychographic segments that exist in the Chinese market,” he
continued. “We have very few ships against a very large population and a very
large middle class that has the wherewithal and an inclination to vacation.
There are far more people who are predisposed to cruise than there exists
cabins. The challenge is connect them to those ships, and that’s all of our
challenge together. It’s not just our travel agent partners’ challenge, it’s
our challenge, as well as a challenge for all the other companies that are
represented here in China.”

Donald noted that there are natural restraints in adding
tonnage, however, and proposed that one solution may be to get Chinese
consumers to sail from international ports. “We would love Chinese guests to
participate in cruising experiences we have throughout the world,” he said.
“The reality for the cruising industry is that it can only grow capacity 5% a
year. There are only so many shipyards.

“Next year, our capacity is going to grow 3.7% as a
corporation,” he continued. “Outside of China, our capacity is only going to
grow 2%. So the advantage to us for attracting a Chinese guest to fly/cruise,
in addition to domestic cruising, is that it increases overall [Chinese] demand
[despite growth limitations].”

MSC has been a leader in the fly/cruise market out of China,
and last month the company announced that it would be refitting the oldest ship
in its fleet, Lyrica, for deployment in China.

In his onstage interview, Onorato did not rule out that at
least one of the four new ships his company has under construction may be
headed to China. Although he stated that the new Seaside class was unsuitable
for the Chinese market because it was intentionally designed to maximize
exposure to outdoor sunlight and Chinese cruisers “don’t like to stay in the
sun,” he would neither confirm nor deny that one of the 4,500-passenger
Meraviglia-class ships would head to China.

In a fitting conclusion to a conference where cruise
leadership bent over backwards to reassure Chinese travel agents that future
growth was assured, Norwegian’s Del Rio announced that a customized,
4200-passenger Breakaway Plus-class ship was being constructed for China.

Immediately following the announcement, dancers from
Norwegian’s “Burn the Floor” show led attendees to a lavish, high-energy party
featuring chefs and entertainers who had been flown in from ships around the
world to reassure Chinese agents that they were very important to the future of
cruising.