Michael Bayley will tell you it’s easy to explain Royal Caribbean Cruises Ltd.’s Asia strategy.
"The allure of Asia is obvious," RCCL’s executive vice president, international said last month on one of the rare days he was in the company’s Miami offices. "The overall population of North America is 350 million. If you look at greater Europe, it’s 550 million. The population of greater Asia is 3.5 billion. China alone has 1.3 billion people."
Better yet, despite all those numbers, Bayley said, "There is really no cruise market there today. It’s a natural fit that companies such as ours want to be in at the ground floor, developing what appears to be a significant future market."
Moreover, the lack of a cruise market coincides with what Bayley described as "massive economic growth" and a booming emerging middle class in China.
"There is more of a desire for the middle class to travel," he said. "I’m fairly confident in saying that outbound growth from China is exceptionally high."
Demonstrating this growth is the number of Chinese nationals that Royal Caribbean International’s China ship carries; the Legend of the Seas operates about 27 cruises from the Chinese ports of Tianjin and Shanghai.
Three years ago, the ship carried no Chinese passengers. Today, Bayley said, about 75% to 80% are Chinese, representing an annual growth rate of 150%.
He said such growth has been achieved by maintaining a heavy focus on developing the Chinese market from the inside, within one of the company’s three China-based offices.
Even so, he said, building this market takes time, and in some cases it requires a sacrifice in profit.
"Pricing is better than the Caribbean and not as high as Europe," Bayley said of comparable cruises. "You have to take into account that there are a lot of variables, especially with exchange rates, etc. We are seeing a double-digit increase in ticket prices as demand improves."
Port development is key to building up the Asian cruise market, and Bayley said Asian ports are well ahead of other corners of the world in terms of making that investment.
"We are seeing a high degree of focus on building the infrastructure to help support the growth of the cruise industry in that region," he said.
China recently opened a new terminal in Tianjin, and in 2012 it will debut a second facility in Shanghai, giving that port the ability to handle eight cruise ships per day.
Hong Kong is also developing new port terminal facilities capable of handling ships as large as the Oasis class, and Singapore is doing the same.
That kind of investment is crucial to attracting cruise lines, said Jan Swartz, Princess Cruises’ executive vice president.
"Port infrastructure is critical to delivering an exceptional passenger experience," she said. "As cruise interest in those regions increases … those needs are going to be increased. The whole industry will work with the government officials there to try to get the investments made in the right place so everybody best supports our customers."
For Princess, Swartz said, the local source markets are not the main driver of its Asia itineraries. Long a leader in exotic-destination cruising, Princess originally began sending its ships afar to offer new itineraries for its repeat passengers in the West.
"Princess was the first cruise line to put a larger ship in a place like South America and Asia, because we found that we have a very experienced past-passenger base," she said. "They have determined that cruising is the way they want to see the world."
Swartz added: "A critical mission of ours each year is to develop appealing itineraries for experienced travelers."
She noted that while some cruise lines dabble with far-flung destinations and pull in and out of places like Australia and New Zealand, Princess considers those products a strategic part of its offering.
"We stayed put and held our leadership position in those markets," she said. "Anytime you have a consistent product in the marketplace over a number of years, travel agents know what your brand is about and how to sell you in those destinations. …Over time it’s given us the top position in those places."
Princess’ Asia cruises from Australia are mostly sourced from its North American passenger base but also include a number of Australians and Europeans as well as some Asian cruisers.
"There are certain countries, like Japan, that we have solid business from," Swartz said. "Generally, those Asian itineraries very much appeal to North Americans, and that’s the primary sourcing focus."
Princess does source from some local markets abroad, especially in Europe and Australia.
"One of the benefits we have is the globally known brand," she said. "This gives us deployment flexibility and scale that other brands might not enjoy. It’s a unique opportunity to continue to grow the Princess brand globally."