Chinese shadow cast over big cruise companies

Genoa - In the Art of War, Sun Tzu suggests that sometimes it is better to opt for a strategic retreat than a blood bath. Cruise company managers must have read the teachings of the Chinese general-philosopher because they are using strategy to justify their withdrawal, albeit still partial, from the Asian market. In 500 BC it was all about the Chinese soldiers, today it’s all about the ships: in 2018 the large groups’ presence in China will be minor, according to a research by Wells Fargo. There will be no significant increase in capacity and thus in a market that everyone always thought was in perpetual expansion, there will be a reduction in the number of ships. At least in some cases. So China has not ceased to be the land of cruise opportunities? “It’s a long-term bet,” say the managers of the industry’s main groups. Because in the meantime some exciting predictions were proven wrong by reality.

The last stumble seems to be North Korea’s fault: with Kim Jong-un’s missile threat, the Seoul coastline has also become off-limits for Chinese cruise ships. The alternatives in Asia, however, don’t cut it for the passengers. The commercial countermeasures consisted of slashing prices and for now it seems to have worked since Carnival, Royal Caribbean and Norwegian are talking about record attendances onboard ships deployed in Asia. However, Norwegian CEO Frank Del Rio had to admit that for six weeks the market has basically halted. China, like all mature markets, has highs and lows, and companies are taking damage-control measures. The sales model applied in China has also played a part in this, because customers cannot book their trip directly. In Beijing, tour operators do it all (most of the time state travel agents) and often they even charter the whole ship. Then they fill it and resell it: this has been confirmed by multiple industry sources to the XIX Secolo / TheMeditelgraph. Because in China holidays are very brief, only a week in most cases, and the middle class on which the cruise companies rely on prefer to leave the city and go back to the countryside to see their families.

Route: return to Europe

If there is less capacity in the market, companies benefit financially: prices could rise from current levels, even if there’s a modest growth. In China, however, it’s not as simple as all that, because companies have to deal with tour operators and not with the passengers. They do, however, possess a winning strategy that allows them to adapt to all situations. Ships can move and deploy to other markets. Some moves are already taking place and others may be in the planning stage, although for now they’re only defined as strategic withdrawals: “We believe that China is a large market, full of opportunities, and if any ship is removed from the area, it’s only done as a short-term measure,” explained Royal Caribbean CEO Michael Bayley to analysts.

Costa Cruises also decided to remove one ship, the Victoria, in order to use it in the Mediterranean. Even if China becomes a “mature” market with highs and lows like the rest, it is worth returning to the safe seas of Europe which, in 2018, are expected to register the highest growth in terms of demand. Companies are now counting more on Northern Europe, Alaska and Australia than China. It is no coincidence that the Majestic Princess, the vessel specially built for China, will now be leaving Asia, and will be arriving at Sidney next August. However, new arrivals are still expected; in 2024, according to the data provided by Cruise Industry News, there will be capacity for six million passengers: Royal Caribbean for example in 2019 will deploy one of the last mega ships of the Quantum Ultra class. And it’s not the only one: Carnival, as the giant’s CEO Arnold Donald argued, will bring new ships to the Asian market. Then it will be the turn of those built in China for the Chinese customers, with all the features that appeal to that type of passenger: made in China but above all made for China.

The companies also hope to find a different sales model which will allow them to dodge the tour operators. Norwegian seems to be the only one to have tried an alternative plan, signing an agreement with the giant Alibaba. “However, we’re still short of a few licenses,” the company’s chief executive admitted, and so direct sales to potential passengers are, for the moment, impossible. It is a first step, but also a sign that the current system doesn’t work. The last point has to do with infrastructure: China often anticipates demand, building mega structures with capacities that go way beyond the actual needs. Operators are working towards filling their cruise terminals soon and companies hope to be able to increase the offer: as in the case of Korea, to where travel has ceased; companies need to come up with alternatives to the existing routes.