The race to get in on the ground floor of the Chinese cruise market is forcing the pace of development there, as several companies advanced their strategies in the world’s most populous country.
Whether it is ship operations, shipbuilding or travel sales, the incipient market in China is sparking creative new ventures from some of the industry’s most experienced players.
One eager entrant is Royal Caribbean Cruises Ltd. Only months after agreeing to sell its aging Celebrity Century to a new joint venture in China, RCCL has formalized the terms of that venture.
Royal’s vehicle for establishing Century in China will be called SkySea Cruises, the companies disclosed. Royal will own 35% of the venture, as will Ctrip.com International, the Shanghai-based travel services company that is partly owned by Priceline Group.
RCCL said the balance of the venture will be owned by SkySea management and a private equity fund.
“We look forward to working with Ctrip, a Chinese travel leader, to build a national cruise line for China,” said Richard Fain, chairman and CEO of RCCL.
“SkySea Cruises represents an important strategic milestone in our expansion efforts in the Chinese market,” he said.
RCCL already sources passengers in China through its Royal Caribbean International brand, which bases ships such as the Voyager of the Seas there. In June, it will begin sailing its newest vessel, the Quantum of the Seas, from Shanghai.
The joint venture with Ctrip.com is also expected to begin service in mid-2015 and will operate with one ship. However, “the venture anticipates the potential for additional vessels to be added over time,” the companies said.
In picking Ctrip as a partner, Royal Caribbean is betting on a company with a hand in every aspect of the Chinese online travel industry, from car rentals to tour operations, said HSBC Bank analysts Chi Tsang, Alice Cai and Joyce Ju, who recently started their coverage of the company with a “buy” recommendation.
Ctrip is already profitable, and the analysts said they expect net income to grow 43% a year through 2018.
Although Ctrip says it already sells 10% of the cruise tickets purchased in China, Deutsche Bank analyst Vivian Hao said most of its 2015 revenue will come from established sources such as air tickets and hotel reservations.
“We also see steady progress in new segments, such as train/bus tickets, local attraction tickets and cruise lines,” Hao wrote in a report issued Nov. 20. “However, we do not expect meaningful revenue generation from these new initiatives currently.”
Carnival Corp., also rushing to establish a joint venture with the Chinese, has focused on shipbuilding. In a deal announced in October, Carnival said it had a memorandum of understanding with China State Shipbuilding Corp. to work toward building China’s “first world-class cruise ship.”
The memo sets the groundwork for a potential collaborative joint venture, the companies said.
The venture would partly address the question of where supply will come from to meet demand in China for cruises, which is projected to reach 4.5 million passengers by 2020.
One consultant cautioned at a recent seminar in Asia that to meet that demand would require 35 to 40 ships, far more than European shipyards can build by then and most likely more than international cruise lines can spare from other markets.
To help accelerate cruise shipbuilding activity in China, Carnival has signed a second memorandum of understanding with Italy’s leading cruise yard, Fincantieri, which outlines the framework for bringing Fincantieri into the Chinese project.
Carnival said that in concept, the potential shipbuilding joint venture would be the first three-nation collaborative effort to construct world-class cruise ships in China.
“Building on our ground-breaking [memorandum of understanding] signed with CSSC last month, this new agreement with Fincantieri gives us the opportunity to work with our longtime partner to further explore a formal joint venture that could forever change the landscape of shipbuilding in China,” Carnival Corp. CEO Arnold Donald said in a statement.
Like Royal, Carnival is already sourcing passengers in China through two of its brands, Costa Cruises and Princess Cruises. The company said the addition of the Costa Serena next April would give it four ships homeported in China in 2015.
The other three are the Costa Atlantica, Costa Victoria and Sapphire Princess. Carnival said it expected to grow its capacity in China by 140% from 2013 to 2015 and to carry half a million cruise passengers in China next year.
Rapid growth is attracting travel sellers as well as travel suppliers.
One company springing up to offer services to Chinese travel agents is WorldTravel.cn, which is organizing with hopes of being fully operational by mid-2015.
The company is developing a bilingual website that is currently in beta testing. It said it expects to appeal to many of the more than 3 million travel agents who do business in China, only a few hundred of whom currently sell cruises.
To run the company, WorldTravel.cn has recruited U.S. travel executive Dwain Wall, who until 2013 was general manager of the Cruise-One and Cruises Inc. brands for World Travel Holdings. He has spent the past year at CLIA as a liaison to the trade.
The website will be designed to serve both consumers and travel sellers. Agents will be able to search live cruise and shore excursion inventory with real-time pricing and availability, the site promises.
It will also offer agents online and offline training, including sessions with senior managers from the world’s top cruise lines.
In addition to Wall, whose title is co-president and COO, the leadership of WorldCruise.cn includes Steven Donne (CEO and chairman), Jessica Lee (co-president, sales, marketing and operations) and Evgeny Demchenko (chief technology officer).