Royal Caribbean Bets Big on China

| Saturday, 28 Jan. 2012
   

Of all the cruise lines, it appears that Royal Caribbean is most adventurous in bringing cruises to new cultures. The line already boasts that more than 50% of its income comes from non-U.S. customers, and as time marches on they plan to permanently position more ships in far away places and re-style them for foreign taste.

The latest target market for Royal Caribbean is China, which is now one of the most successful bastions of Capitalism in the world. Most of us who remember Richard Nixon's controversial plan to "open the door" to the totalitarian Maoist Chinese regime in the 1970s are amazed at how well China not only assimilated, but actually came to dominate the world economy. China now makes everything from complex computer products to designer clothes. But most surprising is the burgeoning middle class who also now wants to consume these same products.

Of the 1.5-billion citizens of China, nearly half of them (700 million) are considered middle-class by local standards. That faction - more than double the entire population of the United States - is mostly the post-Mao generation born in the 70s and 80s who has embraced "western-style" capitalism to an extent that even we "westerners" may find excessive.

This new age of Chinese consumerism is known all too well in Hong Kong, a city of 7-million inundated by 28 million Chinese mainlanders on short shopping sprees for Western products in 2011. The Wall Street Journal reports that "on average during just overnight visits alone, mainlanders spend HK$7,453 (US$960) per visit on everything from Tissot watches to bottles of soy sauce."

Perhaps in the end that is the most ironic part of the story - that the Chinese people who make these products now also want to buy them, but they have to travel outside of their own country to do so.

What do you think about the booming cruise market in China? Discuss it in the Royal Caribbean forum.

Bringing Cruises to China

Royal Caribbean started offering cruises to the Chinese three years ago with the smaller Legend of the Seas sailing on regular cruises out of Singapore. That smaller ship will be soon joined by the larger Voyager of the Seas also sailing out of Singapore next month (June 2012).

Voyager of the Seas is twice the size of Legend, and was considered iconic when it was first introduced in 1999 coming in at a staggering (at the time) 138,000-tons. It was the first Royal Caribbean ship to boast a "Royal Promenade," a large open space inside the ship big enough for "parades" and an indoor shopping street experience. In 1999 it was believed the ship would only be able to sail to the most highly developed Caribbean ports.

The choice to add Voyager to the Chinese market just last year shows how quickly the Chinese have taken to western-style cruising. Chinese cruisers are said to love the very things that define the basic cruise experience; buffet-style dining, floor shows and casino gambling. Royal Caribbean only had to invest $5-million to refit Voyager for Chinese tastes; adding traditional Chinese food and more designer-label luxury products to the retail shops onboard; the brands that well-to-do Chinese consumers covet the most. The largest single purchase was probably $50,000 for the largest commercial wok available, to serve up the favorite style of wok-fried noodles.

After the initial cruises offered on Voyager of the Seas sold out faster than expected, Royal Caribbean decided to double down and also send Voyager's identical sister ship, Mariner of the Seas, to join her in 2013. At that point Legend will leave the region. That is an expansion from approximately 2000 to 8,000 guests daily in the Chinese market. Ironically, Mariner of the Seas is the same ship that was repositioned to become the largest ship to ever sail regularly out of California in 2007 but which the U.S. west-coast market could not support. Mariner was sent back to Galveston after the Mexican Riviera suffered setbacks due to the H1N1 scare and some possibly conflated reports of crime against cruise passengers in Mexico.

Following the Money

A four night cruise from China on the smaller Legend of the Seas sells for $400 inside and $680 for a balcony cabin. An eight-night (June 12, 2012) cruise sailing from Tianjan (the port for Beijing) to several ports in Japan and to Busan, South Korea, starts at $1069 inside and $1609 balcony.

The seven-night Voyager of the Seas cruises sailing this August (2012) from Shanghai start at $1219, with $1479 outside and $1719 balcony. The ship sails to Kobe, Japan (overnight) then on to Nagasaki and Jeju, South Korea. The same itinerary sailing in July is already sold out.

There is an interesting 9-night cruise on Legend sailing Sept. 13 (2012) from Tokyo to Busan (South Korea), Vladivostock (Russia), Sapporo, Kushiro and back to Tokyo (Japan) on Legend starting at $1390, with outsides at $1670 (balcony: sold out) and suites $2580.

Obviously, these are relatively expensive cruises for an older ship, and when you add the fact that Chinese citizens tend to love gambling and high-end shopping (two high-profit onboard activities) these Chinese cruises appear to be fairly lucrative for Royal Caribbean.

Voyager will reposition to Australia in 2014, but return to China for the winter season (southern hemisphere). Looking at the prices for a 11-day cruise from Sydney to Melbourne (Australia) and six ports in New Zealand inside cabins are $1189, outsides are $1609 and balconies are $1979. It appears the Chinese market still commands the higher prices. But part of that could be attributed to the flood of cruise ships from several lines re-positioning to Australia in the next two years, while China is still relatively an untapped market.

For the best of both worlds, 14-day re-positioning cruises (in 2013 and 2014) between Australia and China start at just under $100/day per person on Voyager.

What do you think about the booming cruise market in China? Discuss it in the Royal Caribbean forum.

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