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Global cruise lines set sail for China

Posted: Aug 20, 2014 9:22 AM HONG KONG (AP) — Royal Caribbean's newest ship has attractions not usually seen on cruise liners, including bumper cars, a skydiving simulator and a glass observation capsule on a mechanical arm that lifts its passengers high into the air.

What's also a surprise is the vessel's intended home port: Shanghai.

After floating out of a German shipyard last week, the $935 million Quantum of the Seas will spend the winter running between New York and the Caribbean before moving to its new base next summer in mainland China's financial center.

It's a gutsy move for the world's second biggest cruise company. Cruise operators have traditionally sent older vessels to developing countries while saving their most advanced ships for U.S. and European customers. But surging growth in China means it's a market operators can no longer ignore.

Carnival Corp., the No. 1 cruise company, will become the first global cruise operator to have four ships based in China when it deploys its Costa Serena to Shanghai in April.

The race for China underscores the growing strength of the leisure and travel industries in the world's No. 2 economy as authorities try to spur domestic spending rather than trade and investment as an engine of growth.

Executives are confident about China's prospects even as its economy struggles with a prolonged slowdown from double digit rates of expansion, saying that growth is still strong when compared with developed markets.

Miami-based Carnival expects to carry 500,000 Chinese cruise passengers in 2015, up from 350,000 this year.

"We know that's just a drop in the bucket to what lies ahead in terms of the market in China, which we believe is going to someday represent more than half of all the cruise guests," Carnival CEO Arnold Donald said in a phone interview.

The Asian Cruise Association estimated last year that the overall Asian market, which totaled 1.3 million passengers in 2012, could nearly triple to 3.8 million in 2020, including 1.6 million from China.

Carnival is even more optimistic, predicting the number will grow to 7 million by 2020 or about a fifth of the global market.

"For the next five to 10 years, greater China including Hong Kong will play a critical role to the global cruise industry's development," said Zinan Liu, Royal Caribbean Cruises Ltd.'s managing director for China.

While the U.S. and European are showing signs of revival, "there's no region like China and Asia that will grow as rapidly," he said.

Liu said Royal Caribbean expects to carry 400,000 Chinese cruise passengers in 2015, double the number from last year, from four main ports — Shanghai, Hong Kong, Xiamen and Tianjin.

The company's 18-deck Quantum of the Seas, which carries 4,180-passengers, arrives in Shanghai in May next year, joining two other Royal Caribbean ships based in China. It's also expanding operations in Hong Kong to better market to customers in neighboring Guangdong, the richest province in mainland China, Liu said.

For Carnival, the addition of the Costa Serena will raise its China capacity by 3,780 passengers. The company has two other Costa brand vessels stationed in Shanghai as well as one with its Princess brand.

While companies are salivating over the growth potential of China's newly wealthy middle class, hurdles remain.

One factor complicating efforts to pitch cruises to mainland Chinese is that "the vast majority of the population have no concept of a cruise," said Donald, Carnival's CEO.

Unlike American or European cruise passengers, who tend to be older and have the time to take two week journeys, Chinese cruise travelers are younger and have less vacation time. That limits the possible itineraries and presents a challenge in cultivating repeat travelers.

Shanghai software engineer Cao Ying took a five-day cruise to Japan and South Korea with her husband on Royal Caribbean's Princess Sapphire after he took one with other staff at his Internet company to entertain clients.

The 30-year-old loved the dining, the shows, the spa and the helpful staff. But she complained that there wasn't enough time during port calls.

"I think travelling by cruise is a good experience, but the downside is that you couldn't really see a lot. I couldn't go to visit the places I would like to go in a foreign country," said Cao. "So unless it's a free trip, I wouldn't take a second cruise, even to go to another country."

Another big complaint is insufficient cruise ports and related facilities. China's focus in the past few decades on export manufacturing means ports are geared to shipping containers rather than leisure travelers.

Uncoordinated infrastructure development was highlighted when Shanghai opened a new $260 million cruise terminal on the city's historic riverside Bund in 2008, only to discover that many big ships couldn't access it because of a low bridge downstream. Another $140 million terminal with two berths opened at the river's mouth in 2011 to accommodate those vessels.

Hong Kong christened a new $1.2 billion cruise terminal last year, but the Norman Foster-designed facility has so far been infrequently used. Visits are expected to pick up in coming years.

Visitors have criticized the terminal, built at the end of the old Kai Tak airport's runway jutting into the scenic harbor, for being hard to access by bus or taxi. A smaller terminal near the city center is more popular and a home base for ships operated by Genting Group's Star Cruises.

China's "lack of infrastructure is the biggest impediment to growth," the annual World Travel Market industry conference, said in a report last year that recommended government intervention to realize improvements.


Researcher Fu Ting in Shanghai contributed to this report
