Royal Caribbean Cruises Ltd's (NYSE:RCL) late-March announcement that its new Quantum-class ship Ovation of the Seas will debut in China focused attention on the rapid growth of the Chinese domestic market for cruise vacations. But Royal Caribbean is hoping to make China into a cruise destination for Western travelers as well.
The Motley Fool recently spoke with Royal Caribbean President and COO Adam Goldstein about the company's inbound growth strategy in China, which will likely involve offering add-on land vacations and balancing the shorter cruises Chinese travelers like with the longer ones U.S. and European travelers prefer.
New builds, new cruise routes
When Ovation arrives in Tianjin next April, it will be one of five Royal Caribbean ships homeported in China, along with Quantum of the Seas, Mariner of the Seas, Voyager of the Seas, and Legend of the Seas. As the newest ships in China, Quantum and Ovation are expected to strongly appeal to Chinese cruisers. The opportunity to sail on a new, high-tech ship, most likely to ports of call in Japan and South Korea, may appeal to dedicated cruisers from other countries, as well. (Royal Caribbean's other new Quantum-class ship, Anthem of the Seas, will homeport at Cape Liberty in New Jersey starting in November.)
Longer cruises for Western vacationers
One consideration for Royal Caribbean in China is that Chinese and Western leisure travelers vacation differently. "We need to attract Chinese customers, and they tend to take shorter vacations than people from the U.S. and Europe," Goldstein said, adding that Chinese vacationers usually prefer 4- to 6-night getaways, while U.S. travelers go for week-long vacations, and Europeans linger for up to 14 days of R&R.
One approach, Goldstein said, might be to "intersperse shorter cruises with 6 to 8 night cruises on the Quantum class ships, which we expect to draw a higher percentage of international travelers."
Land trip and cruise packages
Then there's the matter of making the most of such a long trip. "If you're going to go to the other side of the world, you probably want to go out there for a couple of weeks," Goldstein said. "China's a phenomenal 'bucket list' place to visit. There's been extraordinary development in the past 25 years, and there's 5,000 years of history."
Royal Caribbean plans to sweeten its Chinese cruise deals by experimenting with the sort of pre- and post-cruise land vacations the company offers in other parts of the world.
We can partner with other land-based trip opportunities around China to combine a cruise with a land vacation, in the way that you would take a Caribbean cruise and combine that with visits to Miami and Caribbean ports. We will have to be imaginative and see what resonates with US and European travelers. There will be a fair amount of experimentation.
Making the most of government support in China
Goldstein noted that the Chinese government is looking for ways to boost inbound travel. "The Chinese want to benefit from the cruise economy. Employment is critical for their economic development, and we are interested to have the cruise economy benefit the Chinese in a variety of ways."
One way the cruise market could help would be to offset some of China's vast and growing "tourism deficit," which has been an issue since 2008. Rising costs within China, air-pollution woes, and travel-related red tape have contributed to a drop in the number of inbound travelers.
Meanwhile, more Chinese vacationers than ever are traveling beyond their country's borders, and spending money in ways that have sparked intense competition for their business. In 2014, Chinese vacationers abroad spent $164.8 billion, while international travelers to China only spent $51.2 billion. The $113.6 billion gap is 50% larger than China's 2013 tourism deficit, according to the International Business Times. Cruises that bring foreign vacationers to spend money in China -- ideally for a couple of weeks or longer -- could help reduce the gap, and their development will almost certainly have government support within China.
No one expects inbound cruise travel to China to grow at the same rate as the country's domestic market, which is currently the fastest-growing in the world. But by planning to appeal to international travelers as well as local cruisers, Royal Caribbean can expand its reach in China and give itself a buffer against any headwinds in Chinese consumer spending trends. And if Chinese cruises become popular among European and American vacationers in the next few years, more developmental support from the Chinese government will likely follow.