LONDON — On Dec. 31, a "watershed year" will come to a close for Royal Caribbean Cruises Ltd.

"When the clock turns at the end of the year," said Richard Fain, the company's chairman, "the majority [of passengers aboard RCCL cruises will be from] outside of the U.S."

Fain made the comments during an invitation-only lunch on behalf of the charity "Just a Drop" at the World Travel Market on Monday.

RichardFAIN-capIn response to a question from an audience member, Fain stopped well short of calling the U.S. market of diminishing importance, or even "mature."

"It's more mature than many markets. But when I compare my 9-year-old gorgeous grandson to my 5-year-old gorgeous grandson, the former is more mature, but I would still not refer to him as an adult."

The U.S. is growing at "a smaller rate, but it is still growing. We'll be adding 1.5 million new cruisers this year."

Fain said that the East Asian market's growth rate was the fastest, joking that RCCL had gone "from two passengers to six," but then, turning serious, said that the company was pursuing China "quite aggressively."

"Four years ago, one ship there made six stops. Two years later, we dedicated a ship [the Voyager of the Seas], small by our standards, but amazingly successful," Fain said.

He confessed that "we're losing money out there," but that "the potential is so great, and we're investing, putting a newer, larger ship into China" next spring.

The U.S. is still the largest single market for RCCL, followed by the U.K.

"We've dedicated a lot of resources [in the U.K.]," Fain said, noting that it was "structurally growing at 7% per annum."

In addition to Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises, RCCL owns Pullmantur Cruises, which sells primarily in Spain, and CDF Croisieres de France. RCCL has a 50% stake in TUI Cruises, which is marketed heavily in Germany.

Fain said that response in those markets is higher than he had initially expected.

"I must admit, 10 years ago when we looked at the German market, we thought they would not be interested in any vacation that didn't start with the words, 'Mercedes-Benz.'"

Agent economics  

Michael East of MD Eastcastle Management, who conducted an interview with Fain in front of attendees, said he was surprised that cruise lines depend so heavily on travel agents, and asked why.

"The only thing that surprises me is that people are surprised," Fain said. "We are ruthless and businesslike. The answer is that it's more profitable. If we were to do it ourselves, it would cost more, or be less effective or, more likely, both. If you look at the cost of distribution of chairs, or suits, it's much higher than what we pay travel agents.

"Cruises are sold, they're not bought," he continued. "I went shopping with my daughter and wife, and the salesperson really helped us. We probably would have done okay, but the salesperson was so efficient, [my daughter] not only got what she came in for, but more: Not only a dress, but an outfit — the scarf, shoes, the belt and the purse. We wouldn't have done that without that salesperson. And that's what the travel agent does."

Last February, Complete Cruise Solution — the U.K. trade arm of Carnival Corp. brands P&O Cruises, Princess Cruises and Cunard — reduced British travel agent commissions to 5% from a base of 12-15% in response to widespread rebating. Fain was asked if he would consider doing the same.

"We don't talk about those things publicly, but there is a legitimate concern that the distrubution system will end up in self-destructive rebating and discounting. It has been our decision so far [not to lower commissions], but are we reevaluating? We are always reevaluating."

Cruise line economics

At various points, Fain referred to the economy as "lousy" and said "it stinks," and said "it's been a pretty terrible year" for most people, but that "against that background, we can still produce healthy profits."

"Pricing for RCCL and its competitors today is higher than a year ago," he said. "Consumers are inundated with offers, so it may look like pricing is lower, but revenues are higher per passenger, per day than a year ago. But we're still struggling to get back up to a more reasonable level."

Carnival Corp. in the house 

In Fain's audience were top executives of three Carnival Corp. brands: Holland America CEO Stein Kruse, Seabourn President Rick Meadows and Carnival U.K. CEO David Dingle.

Dingle raised his hand and supported comments Fain made about capacity and growth, noting that future capacity increases are relatively small and that as the lines develop new markets, it takes the pressure off existing markets and helps balance demand.

He also concured that pricing is moving higher.

"The job we have to do is get a better understanding of the booking model, hold our nerve on pricing and believe in all the good things Richard just talked about. There is fundamental growth in cruising," Dingle said.

In interviews after Fain spoke, both Kruse and Meadows stressed the importance of international distribution, but neither would comment on whether sales outside the U.S. constituted a majority of their cruises sold in 2011.

Follow Arnie Weissmann on Twitter @awtravelweekly. 

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