Big Cruise Lines Sail In To Hoist China Travel Market CCL RCL MAR

Forget slow boats to China. The nation could be the next “major force in cruising” as new ships from more mature cruising regions head to China to tap into its growing middle-class family-vacation market, said UBS analyst Robin Farley in a research report Thursday.

In addition to satisfying new demand, redeployed ships from North America and Europe could help ease pricing pressures in mature cruise markets such as the Caribbean, she said.

All cruise operators benefit from less capacity in mature markets. But those with the scale to deploy ships to China benefit the most, she wrote, namely Carnival (NYSE:CCL) and Royal Caribbean Cruises (NYSE:RCL), both based in Miami.

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Royal Caribbean plans to deploy its newest ship, the Quantum of the Seas, to Shanghai year-round starting in May-June, after just six months of initial New York-Caribbean voyages.

China could become a major cruising market just as it has become a major market for the lodging industry, Farley noted. For example, China is the biggest market outside the U.S. for both Marriott (NASDAQ:MAR) and Starwood Hotels (NYSE:HOT), she noted.

Royal Caribbean is the best positioned in the China cruise market, Farley says, due in part to new business ties with Chinese online travel company Ctrip (NASDAQ:CTRP), the biggest seller of cruises in China.

Royal Caribbean recently struck a deal with Ctrip for the sale of one its older ships. Under a joint venture, Royal Caribbean will manage the renovated vessel. Ctrip has been Royal’s largest cruise agency in China for the last couple of years.

Partnering with Ctrip is a “pretty good way to learn what the Chinese consumer wants and how to reach them,” Farley said.

That knowledge will be especially helpful when the 4,180-berth Quantum of the Seas begins service out of Shanghai next year.

Since Royal Caribbean’s newest ship has “cutting-edge amenities” and would usually “command the highest price in the Caribbean,” why put it in China?, Farley asked. Her answer: it’ll have “a first mover advantage in a market that is just learning about the cruise sector and its brands.”

Carnival’s Costa brand actually entered China as early as 2006, Farley noted, but with much smaller ships than the Quantum. And the Quantum will sail year-round in China rather than seasonally.

Next year, Carnival plans to move its fourth ship to China, the 2,928-berth Costa Serena, which sails in the Mediterranean.

Sending the Quantum to China full-time “has execution risk,” given its large size in a new market — “a bigger ship to fill than anything that market has seen,” Farley noted. But the nearly $1 billion investment “can be floated back to North America if China isn’t ready for it yet.”