China Market Could Shrink 15% In 2018 – Other Cruise News: Two Megaships Planned For Alaska – Caspian Sea Cruise Ship Agreement
by Kevin Griffin
Noises from China have been speculating that that market is becoming overtonnaged and those noises have been followed more recently by annoucements of transfers of ships to other markets. Last Thursday, Tom Hancock gave probably the best summary to date of elements that are affecting the China market in The Financial Times. Meanwhile, as a result of that softness in the China market, two fairly new megaships will be finding their way to Alaska over the next year or two. Elsewhere, Russian and Azerbaijani cruise companies have come to an agreement to introduce cruise ships to the Caspian Sea.
THIS WEEK’S STORY
China Market Could Shrink 15% In 2018
There have been rumbles coming out of China about cruise ship overtonnage since the Chinese started banning cruise passengers from going to South Korea.
But last week came a much clearer message from Tom Hancock writing in the Financial Times (FT) that the number of Chinese cruise passengers is set to fall for the first time in 2018 as lines redeploy ships away from what had been the industry’s fastest-growing market.
Hancock cited a Cruise Industry News report that about 2.4m Chinese will take cruises in 2018, down almost 15%, from 2.8m om 2017, adding that almost all operators in the Chinese market are reducing capacity. The reasons for this are reported to be a combination of falling fares and the South Korean travel ban.
The FT article also cited Goldman Sachs as reporting that cruise passenger numbers had grown 70% annually in China in the four years through 2016. But Royal Caribbean Cruises and Carnival Corp & plc, the two US-based cruise groups that control about 70% of the global market, are both cutting the number of ships deployed to China this year, with some being transferred to markets such as Alaska (see below).
“International cruise lines are going to trim down their capacity,” Zinan Liu, China president for Royal Caribbean, told the FT, adding that “next year the passenger numbers could be less”.
Carnival’s Princess Cruises had two ships in China in 2017 but is now relocating one to Europe and another to Australia. “We are letting the market find equilibrium,” Anthony Kaufmann, vice-president for international operations told the FT. Carnival’s decision to cut cruise capacity “arguably confirms that China has not lived up to expectations”, Morgan Stanley said. The bank added that charter rates paid by travel agencies for ship places were down as much as 20% in 2017 from the previous year.
China bars cruise lines from selling directly to passengers, leaving the lines at the mercy of travel agents who can discount heavily to fill ships. The FT quoted Ken Muscat as saying “all these new ships were here and it was hard to fill them, so prices went down.”
Muskat is chief executive of SkySea Cruise Line, a joint venture between Royal Caribbean and Ctrip, China’s biggest online travel agency. “I deserve a much higher ticket price than I am getting today,” he told the FT.
The industry was dealt a blow by Beijing’s bans in March and again in December on group tours to South Korea because of objections to Seoul’s deployment of the US-built Thaad missile defence system. Mr Liu said “geopolitics” was the main reason for the industry’s struggles this year.
But while the tension between Beijing and Seoul has hit local tourism, there are other fundamental problems. Chinese passengers are more elderly than their global counterparts and tend to spend less on food and drink, say cruise line staff.
And according to Hancock, “Choppy seas and cold weather around most of China in winter also mean demand is highly seasonal, while port infrastructure has lagged behind, making for long and uncomfortable waits for boarding.”
But the FT draws the conclusion that cruise operators still see long-term potential because of the low penetration of cruises in China, where just 0.2% of the population have cruised compared with 3.5% in the US.
OTHER CRUISE NEWS
Two Megaships Planned For Alaska
The inland waterways of Alaska’s Inside Passage have traditionally drawn small cruise ships, which find it easy to maneuver into tight passages and shallow waters. But this is beginning to change now with the softness of the China market (see above).
Two megaships that were intende for the China market are now scheduled to start cruising the popular Alaska route. The first, the 4,000-berth Norwegian Bliss, is due to arrive this summer. Originally to have been named Norwegian Joy, her name was changed to Norwegian Bliss as that would have produced a more favourable Chinese transation.
The new Norwegian Bliss can carry 4,000 passengers and will commence her first Alaska season this June.
In 2019, the Bliss will be followed by Royal Caribbean International’s 5,000-berth Ovation of the Seas, which had been sent to work in the Chinese market when she was commissioned in 2016.
Alaskan cruise ships generally carry fewer than half as many passengers whereas the two newcomers will measure among the ten largest cruise ships in the world. Each carries an additional 1,200 to 1,500 crew members, adding to the numbers coming ashore.
The Norwegian Bliss will sail weekly 7-night Alaska cruises that will leavet Seattle on Saturdays, visiting Juneau, Skagway and Ketchikan, while Victoria BC will count as her foreign call, qualifing her to cruise round trip from Seattle.
The Ovation of the Seas will also be based in Seattle, sailing a similar itinerary to the Norwegian Bliss. She will join another Royal Caribbean ship, Radiance of the Seas, offering 7-night cruises between Vancouver and Seward.
Cruise ship passengers make up the majority of Alaska’s visitors, with more than a million last year. Cruise ship traffic is expected to continue to grow in 2018, particularly with the addition of the Norwegian Bliss and more capacity from Alaska cruise heavyweight Princess Cruises.
Alaskan ports are making changes to accommodate the new ships. But the Ketchikan Council has discussed trying to put a limit on how many cruise passengers arrive in a single day. No decision has yet been made.
Normally,the busiest cruise ship days bring about 10,000 visitors to Ketchikan, with its population of about 7,000. Some members of the community worry that as many as 20,000 visitors could now arrive on the same day, almost three tourists for every resident.
Caspian Sea Cruise Ship Agreement
In Baku last week the Azerbaijan Caspian Shipping Company (ACSC) and Moscow River Shipping Company (MRSC) signed a memorandum of cooperation in cruise shipping for the Caspian Sea region for the Russian-flag cruise vessel Pyotr Velikiy (Peter the Great).
The agreement forms a joint venture to develop optimal routes for cruise passenger vessels, such as ports of the Black Sea – Russian inland waterways – Astrakhan – ports of the Caspian Sea, as well as Moscow and Baku, Astrakhan and Baku, and Baku – Anzali – Nowshahr -Turkmenbashi – Aktau – Astrakhan, and other ports in Turkmenistan and Kazakhstan.
The two countries’ shipping companies will prepare joint investment projects, including joint operation of the Peter the Great and the construction of new vessels for the development of cruise tourism centred around the Caspian Sea.
ACSC and MRSC jointly will develop the coastal infrastructure to offer cruise tours – including berthage, border posts, customs and port logistics and port charges.
Offering such cruises is intended as a means of attracting tourists to Azerbaijan from Europe, the USA, Australia, China and other markets worldwide.
When the first ship, Peter the Great, is delivered in late 2019, her cruises will commence in the Azerbaijani port of Baku. Initially these will operate to the Russian port of Astrakhan on the Volga River, with itineraries to be expanded to other Russian cities in 2020.
Construction of the Peter the Great as the first Caspian Sea cruise vessel is now underway at Russia’s Lotus shipyard in Astrakhan.
(Kevin Griffin is managing director of specialist cruise agency The Cruise People Ltd in London, England. For further information concerning cruises mentioned in this article readers can visit his blog)