China kicks off its plan to take on the cruise industry: 'There's no turning back'
Yin Liqin/China News Service/VCG via Getty Images
- After a three-year hiatus, international cruise lines can resume sailings from China.
- But now, China has its own cruise line — and it's building its own mega-ships.
- US and European cruise giants are divided between partnering with China or competing against them.
Royal Caribbean's Wonder of the Seas, once the world's largest cruise ship, was originally scheduled for year-round sailing from China.
Then COVID-19 shut down the cruise industry and China blocked sailings from international cruise lines.
Instead of launching its highly-anticipated Shanghai debut, Wonder of the Seas moved its home port across the world to Fort Lauderdale, Florida. Royal Caribbean canceled plans for a hot pot restaurant on the ship, and instead installed a Southern-themed dining room serving fried chicken and jalapeño cornbread.
Now, after a three-year hiatus, international cruise lines can resume sailings from China. But this time, they'll have a new competitor.
While most Western cruise companies distanced themselves from the Asian market as they canceled sailings and took on massive debt, China moved forward on a 10-year plan to break into the multi-billion dollar industry with its own cruise line.
Enter the Adora Magic City, the first Chinese-built and operated cruise ship. The 5,200-passenger ship concluded its second sea trials in September and is scheduled to launch commercial service later this year.
The ship, which took four years to build, is part of a broader plan to boost Chinese tourism and manufacturing through the construction and operation of cruise ships.
China's entrance into the industry changes the landscape for foreign cruise lines. It's no longer a "free playground for the established international cruise operators," Kun Cao, a senior manager at the Finnish consulting firm Reddal, told Insider.
"The cruising industry is reviving in China, but this time, it starts with a different setup," he said. "The Chinese want a share of the cake."
James D. Morgan
China has a massive market of potential cruise customers
The size of the Chinese market "is just so significant that nobody can really ignore it," Cao said, adding that with Caribbean and European routes sufficiently tapped, Asia routes hold the most potential for growth.
With sailings resuming from Chinese ports, Joel Katz — Cruise Lines International Association's (CLIA) managing director in Australasia and Asia — said he expects China to "reclaim its position as a dominant cruise market very swiftly."
In 2019 (before the COVID-19 shutdowns), 2.4 million people in China went on a cruise, according to data from CLIA. That's the second largest share behind United States, which contributed 11.9 million passengers that year.
China's cruise tourists are also big spenders on board the ships, Michael Bayley, CEO of Royal Caribbean International, said on a May earnings call.
"The value of a Chinese customer is very high," Bayley told investors. "When you look at the net revenue from a Chinese consumer, it's typically around the same level as an American and slightly higher."
All the cruise giants agree: China is a jackpot worth fighting for. But they are all taking different approaches to win.
Cruise companies weigh joining or competing against China
CFOTO/Future Publishing via Getty Images
US and European cruise companies attempting to grow their footprint in Asia are now faced with a choice: partner with China's state-backed cruise enterprise or compete against them.
Adora Cruises, which will offer international voyages from China, is a joint venture between state-owned China State Shipbuilding Corporation (CSSC) and Miami-based Carnival Corporation.
Separately, Viking Cruises, a European cruise line with main headquarters in Switzerland, partnered with China Merchants Group to create another domestic brand with cruises along China's coast and to various Chinese islands.
Both joint ventures have scheduled cruises this year, while purely international operators like Royal Caribbean and MSC are further behind — with China operations scheduled to resume in spring 2024.
In some cases, a China partnership is necessary. International companies are prohibited from operating purely domestic routes along China's coast, for example.
Xinhua via Getty Images
Despite the hype around China's potential for cruise tourism, there's still unknowns about the local market.
"The question is, how big is the domestic market?" Cao said. "The next 10 years will be quite interesting. A lot of things can go right or go wrong."
The cruise industry is uniquely positioned to make some risky bets, however, since its assets are mobile. In 2018, Norwegian Cruise Line moved the Norwegian Joy — a ship specifically designed for Chinese passengers — from China to Alaska. Following the move and $50 million in renovations, Andy Stuart, the cruise line's CEO at the time, told Skift that "China's a good market. But it's not as good as Alaska."
China built its first cruise ship, but can it supply its 20 million parts?
Large cruise ships cost more than $1 billion to build and require 20 million parts from hundreds of suppliers, Yang Guobing, chairman of CSSC Carnival Cruise Shipping, told the state-owned Global Times. That's 10 times more parts than large aircraft and 50 times more parts than high-speed trains, he said.
China has been expanding local supply chains in high-tech industries, such as electric vehicles and commercial aircraft, with the goal of becoming less reliant on foreign suppliers. But it still has a ways to go when it comes to building cruise ships.
While the Adora Magic City was constructed in a Chinese shipyard, many parts were likely imported from different countries, Cao told Insider. But the government has long-term plans to create their own domestic supply chain, he said.
"It's part of [China's] economic ambition," Cao said. "There's no turning back. It took them over 10 years to prepare and finally get to where they are today."
from Business Insider https://ift.tt/6Tl3GJz
No comments