Arnold Donald Is Not Worried About Success In China

Cruise Week

As part of Arnold Donald’s recent presentation at the conference, the Carnival Corp. CEO featured something unusual for a North American agent audience: the North American premiere of a video about cruising aimed at the Chinese market.

“Princess will soon be taking delivery of the Majestic Princess, the 1st cruise ship ever purpose-built specifically for the Chinese market,” he explained.

The ensuing video, shot on a Princess ship and with a Mandarin script, featured images of elegance and sumptuous cuisine. For many Chinese, Donald says, cruising is seen as just another form of transportation, like a ferry. “Princess created this video literally to blow that image right out of the water,” he said.

The agents at the conference have little likelihood of sending clients on this particular Love Boat, yet most appeared to be in rapt attention. One reason was the entertainment novelty of seeing something familiar — a Princess cruise video — with a very different backdrop.

But another reason is that many retailers now recognize that how the market responds to the industry’s increasing presence in China will ultimately impact capacity and pricing in North America.

After the presentation CruiseWeek asked Donald if he believes there is enough demand in the Chinese market to support the capacity increases coming over the next few years. He replied by referencing a wide set of numbers: “With all the growth plans we have in the next 5 years, China is still going to be less than 10% of our total capacity. That’s a small percent.”

Then he gave a different type of numerical reference: “China is beyond-imagination huge. They have an estimated 135 million outbound tourists already. We have only a million people cruising.”

The China market has barely been scratched, but yields are down year-over-year, not a good sign for an emerging market. Donald contends this isn’t a concern because the Chinese market is a different beast than the U.S. and Canada.

“In North America, the only way you could grow significantly, if you had any scale, was to get yield [increases]. If you didn’t get yield, you didn’t have revenue growth. So the investors are used to looking at yield.”

Don’t, he says. In China, yield is not nearly as relevant, because it’s a volume story. For example: Carnival Corp. grew 58% in China this year.

Donald emphasized that operating the same ships in the Caribbean or Europe would have lower rates: “Overall, the returns in China are higher than our fleet average. We have premium pricing in China.”

Even if prices come down, there will still be a premium, Donald insists. “We had expected that there was going to be choppy yield in China because it’s a developing, emerging market. We’re making money in China. That’s the difference between this emerging market and others: We’re already profitable.”

Donald says there are big differences in the distribution models in China and North America.

One big difference is sales — U.S. and Canadian agents both market and sell cruises.

“Historically, the distribution system in China doesn’t market or sell; they make available,” says Donald. “It’s ‘You want a visa, you call me. You want to buy something, you come to me.’”

He added, “That has to evolve because a lot of Chinese don’t know what a cruise is. A cruise is a cruise is a cruise. Even a lot of distributors don’t yet differentiate.”

Looking ahead, one reason Donald believes the future in China is bright is because cruising is part of China’s 5 year plan. “That’s a huge deal because the Chinese government has declared cruise as an economic driver for the nation.

“They look at it and say, ‘Okay, to have cruises, you’ve got to have ports; to have ports, you got to develop hotels and retail around the ports. They’re looking for jobs for their citizenry that can lead to economic prosperity. They see cruise as being a potential for lots and lots of jobs.”

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