Norwegian has no plans to reduce China service, Del Rio says

Norwegian Joy
It’s full speed ahead in China for Norwegian Cruise Line.

Despite recent announcements by other lines that ships once scheduled for year-round service in China would move to Australia for part of the year, Norwegian Cruise Line Holdings chairman Frank Del Rio said his company has no plans to follow suit.

“I’m glad to see that the others are leaving,” Del Rio said. “That leaves us perhaps the last man standing, and that’d be great. I’ll take all the demand.”

Del Rio’s comments came during a conference call with analysts to discuss first-quarter financial results.

Cruise selling in China has been disrupted since March by the Chinese government’s move to halt travel to South Korea, a protest of a decision by the South Korean government to install a U.S.-made missile defense system.

“The disruption caused travel agents to be distracted from focusing on contracting charters further out into the year, then trying to book, in some cases rebook, [and] find new customers [for those] who no longer wanted to go on sailings that didn’t include Korea,” Del Rio said. “But it’s also had a bit of a chilling effect on overall demand.”

He added that sales for new cruises had started to pick up in the past two weeks. “The South Korea situation, we believe, is a temporary bump in the road, and time will tell,” he said.

Norwegian Cruise Line is scheduled to start sailing the 3,883-passenger Norwegian Joy, its first ship custom-designed for the Chinese market, from Shanghai in late June.

Princess Cruises recently said that its Majestic Princess, also custom-built for the Chinese market, will be deployed to Australia for six months in 2018-19. The move follows the redeployment of the Sapphire Princess from China to Europe in the latter half of 2018.

Because Norwegian is new to the Chinese source market, Del Rio said he’s being cautious about predicting the impact of the Norwegian Joy on the company’s performance in the second half.

“So in many ways, all the good things that I have to say about how our business is operating on the other 24 ships is being somewhat tempered by the potential that could arise in China,” Del Rio said.

A strong Wave

Del Rio said on the call that this year’s Wave was “the best Wave season that we and likely the industry has experienced in quite some time.” As a result, NCLH brands have fewer cabins to sell for the rest of 2017, and it expects higher prices on those bookings than last year.

NCLH, which also includes Oceania Cruises and Regent Seven Seas Cruises, posted Q1 net income of $61.9 million, compared with $73.2 million a year earlier. Revenue rose 6.8%, to a record $1.15 billion.

Del Rio attributed the net-income decline to higher-than-expected maintenance and repair costs, particularly for the Norwegian Star, which broke down in Australia for five days in February.

Outside of that, CFO Wendy Beck said the results were driven by “strong close-in demand in the Caribbean, coupled with strength in onboard revenue.” Cuba itineraries are now available on all three brands, and “the performance of that itinerary is just astonishing,” Del Rio said. NCLH is also doing better than it planned in Europe this year, which Del Rio attributed to a combination of less inventory to sell than at the same time last year and positive market conditions. “That is resulting in very, very strong sales in Europe at significantly higher prices than the same time last year,” he said.

Carnival settles pollution lawsuit with state of Alaska

Image result for carnival cruise ships pollution

Carnival Cruise ship Belching out Fumes

Carnival Corp. has settled with the Alaska Department of Environmental Conservation over allegations that Carnival Cruise Line violated Alaska’s standards that regulate visible air pollution from marine vessels.

Carnival said the settlement was reached Aug. 6, 2016, and resulted in a payment “not material to our consolidated financial statements.”

The disclosure was made in Carnival’s 2016 annual report filed with securities regulators.

Carnival said Alaska in 2015 issued notices of violation to all major cruise lines operating in Alaska, including its Princess Cruises and Holland America Line brands, the two biggest lines in the market.

Carnival said it is cooperating with Alaska and “conducting its own internal investigation into these matters.”

Carnival courts burgeoning Asian markets

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Gentling Dream cruise ship

Carnival Corporation & plc is centre stage when it comes to developing Asia’s burgeoning cruise industry. COO Alan Buckelew tells Susan Parker why the corporation is growing its focus on China

Carnival courts burgeoning Asian markets

Image: James Bellorini

This article was first published in the Autumn/Winter 2016 issue of International Cruise & Ferry Review. All information was correct at the time of printing, but may since have changed. 

Carnival Corporation & plc entered China a decade ago with Costa Cruises. Today, the company has around 45% of the market share, is building three ships designed specifically for the market, and is taking two more brands east.

The corporation is also the first to have an office in China, showing its commitment to a country that values long-term business relations. Heading up the operation in Shanghai is Carnival’s COO Alan Buckelew. Although cruising is still in a nascent stage, Carnival is well aware of the potential of the region and, in particular, China. “In 2006, we identified China as having high potential but being a completely unpenetrated market,” recounts Buckelew. “About 130 million Chinese travelled internationally last year and fewer than a million took a cruise.”

With a target to corner the market, which is forecast to double by 2020, and with less than 1% penetration to date, Carnival has big numbers in its sights. However, marketing to an audience with little prior knowledge of cruising is not easy. “For any product, when it is new and unknown, it is a challenge,” Buckelew explains. “People cruising have positive things to say, but getting the word out to agents and con-sumers is the biggest hurdle. The challenge is how well we can market and sell to the Chinese. The onus is on us to communicate the efficacy of a cruise. China is the largest market we are focusing on in Asia, but also Japan, Taiwan and South Korea.”

Carnival has to tailor the product to consumer in each of these markets, taking into account printed material, food and entertainment. “We want to make it easy for passengers to enjoy the experience,” says Buckelew.

All of these products must be communicated to the different markets through the media, particularly in China, which is hot on social media. A benefit in China is that outbound travel agents act more like wholesalers, tending to charter the ships and market voyages through their own networks, according to Buckelew. “They do retail advertising and we do brand advertising so we marry the two.”

As the region is so new to cruise, there is much work to be done. “Today brand awareness is pretty weak because people have not cruised with multiple brands yet,” comments Buckelew. “The assumption is that everyone is a first-time cruiser.”

For now, explains Buckelew, it is all about showcasing the core elements of cruising and getting the word out. As with every region in the world, Carnival sees homeporting multiple ports as the best way of capturing the local market. Having a solid base of cruisers and travel agents is also a good start. Buckelew says there is plenty of room for expansion. “Around 90% of the [total] outbound China market is still focused on travelling in Asia.”

The Chinese have traditionally had short holidays, which has made long-haul travel less attainable. However, that is changing: “It varies from area to area and industry to industry, but there’s a lot of push from the Chinese government to provide vacations and longer vacations to all employees,” says Buckelew, adding that the middle and upper middle class market is growing fastest in this respect. “They look to the west and want some of the same benefits. They see themselves as equals on the world stage, and rightly so.”

In terms of growing the capacity, Carnival’s Princess Cruises and Costa Cruises brands have customised ships coming on stream in China. Princess will launch Majestic Princess in March 2017, while the two as-yet-unnamed Costa ships will debut in 2019 and 2020. Meanwhile, AIDA Cruises will start sailing out of China in 2017 and Carnival Cruise Line will follow in 2018.

While Majestic Princess is a sister ship to Royal Princess and Regal Princess, the Costa vessels are a blueprint. “We have looked at where Chinese behaviours are different and how can we reallocate space to maximise their experiences, so there are no dead nor overcrowded spaces,” notes Buckelew. He adds that there will be private rooms for high-stakes gambling, smaller spas, more luxury brands in the shops and tea-making facilities in the cabins and much more to tailor the ships to Chinese tastes.

In line with the Chinese central government’s five-year plan to build domestic cruise ships and grow domes-tic cruise companies, Carnival has agreed a joint venture with China State Shipbuilding Corporation (CSSC) and China Investment Corporation. Together, they plan to launch a domestic cruise brand in China in the coming years.

“We are very excited about it and it’s the right thing to do,” Buckelew remarks. “The Chinese government would like to have a domestic, Chinese-owned brand competing against us. We think it’s important to support growing the domestically-owned cruise market. It’s in our best interests long-term and fosters interests with the government which is very important. Having a joint venture clearly puts us in the driving seat as having the most visible commitment to the government.”

Buckelew adds: “We have to deliver on our commitment and we have every intention of doing so. To some extent it relies on how well we can market and how the Chinese take to our vacation. I don’t think it [joint venture] will give us any special benefits that our competitors won’t have. Like most governments, the Chinese want to treat the industry with equality so no company is given preference over another.”

Carnival is also keen to help bring China’s regulations, which are now focused on cargo rather than cruise ships, in parallel with other parts of the world. “This would lead to a better regulatory environment, which would be good for the entire industry,” says Buckelew.

Certainly, Carnival believes China has potential to be the largest market in the world. “We’re going to invest greatly not just in China, but also in Japan which has a population of 120 million and a population where most of the personal wealth is concentrated on the retired,” says Buckelew, adding that Carnival is also targeting Taiwan and South Korea. “The whole area is flush with potential. We think that most of our future growth will come from China and Northern Asia for the next decade and will be a big driver of our revenue growth as we move forward.”