Carnival taps into booming Chinese cruise industry

Cruise giant Carnival has left its accident-prone history in the past and switched its focus to Asia

A Carnival cruise ship
(Image credit: Karen Bleier/AFP)

by Emily Perryman, Shares magazine

Cruise giant Carnival is expanding its presence in the rapidly growing Chinese cruise industry in an attempt to win market share from rivals.

The $38.91 billion business, the largest in the cruise industry, had a torrid few years in the earlier part of the decade after several high-profile disasters, including the Costa Concordia accident which killed 30 people and severely damaged the company's image.

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The P&O operator has since rebuilt consumer confidence and managed to swing to a net profit of $49 million in the first quarter of 2015 from a loss of $20 million a year earlier. This was driven by a 38 per cent drop in the price of fuel and efforts to get passengers to spend more money once they are at sea in Carnival's shops.

"The latest results saw a 3.5 per cent year-on-year improvement in the constant dollar passenger ticket revenue yields, with the yields up by 1.8 per cent in the first half," says investment bank Berenberg.

"Against a backdrop of improved bookings, better capacity distribution and greater price discipline in the industry, it looks increasingly certain that Carnival will see passenger ticket yields turn positive for the first time since 2011.

"This would suggest that Carnival is now beginning to move into what we would call phase three of its recovery, following improved occupancy and higher on-board spend."

One of the group's key areas of focus is China, which represents just 3 per cent of the global cruise market but is expected to grow by almost 70 per cent between 2013 and 2016, making it the world's second largest market after North America. Carnival has four ships in China and recently announced plans to base a fifth passenger liner in Shanghai. It is also in talks with state-owned China Merchants to build cruising ports and ships in China and last September relocated its chief operating officer to Shanghai from Miami.

Carnival has 23 ships in Asia and is planning to add a further nine ships in the region over the next three years. Asia is expected to achieve a record-breaking year in 2015 following years of double-digit growth.

The ageing population is also benefiting Carnival, with global cruise demand rising by 77 per cent in the past decade. President and chief executive Arnold Donald says there is strong consumer demand for its brands and it is stepping up marketing investment for the remainder of the year.

The group recently signed a multi-billion dollar contract to build four ships that can accommodate more than 6,000 guests, making them the largest ever built.

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