Emphasis On China Resulting In Lower North American Capacity

Cruise Week

More and more, rampant cruise capacity growth in China is seen as having an impact on the North American cruise market. And, agents are anticipating a shrinking market. As one top seller pointed out this week, “With so much capacity moving to China, the North American cruise market is likely shrinking.”

China growth is not exactly a new concern, but developments in the past weeks have accelerated the issue. For instance, after Carnival Corp. detailed its timetable for the arrival of its ships on order, UBS actually reduced its estimate of North American cruise capacity moving ahead.

UBS’ Robin Farley said they had expected Carnival Corp.’s 4 ship order that had initially been announced last spring, to be intended for North American and European home ports. But, with confirmation of the order and the ships’ deployments, the announcement represents a reduction in North American supply. 

Carnival Corp. CEO Arnold Donald provided the numbers during the recent earnings call when noting that industry capacity is expected to increase by 33% this year in Asia and 19% in Australia. To put that in perspective, Carnival Corp’s overall capacity is growing by 3.5% in 2016; for North America/Europe capacity growth is under 2%.
For China specifically, the capacity increase cited is 60% for Carnival Corp in 2016, on the heels of 50% capacity in 2015. And, based on other recent announcements, it could expand even more. As Carnival CFO David Bernstein pointed out, even with that growth, China still represents only 5% of the business.
Arnold Donald referred to China as “a very great market, a strong future market, a contributing market today to the bottom line and to our whole approach on developing relative scarcity around the world. So the capacity growth that you see for us, a lot of that goes to China - and similar for some of the other companies in the industry as well. And so that constrains the capacity growth in the other markets”.
Of course, China also cultivates the new to cruise market. “We have been approaching 11 million individual guests a year and probably 3.4 million of those are new to cruise,” said Donald. “It used to be 2.7 million. A large portion of that number is driven by China and that big expansion in 2014 of capacity in the Caribbean.”

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