Battle at Sea? Carnival and Royal Caribbean Compete for Chinese Customers

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The two biggest operators in the cruise industry are setting course for China, the largest travel market going. The country is now the leading source of leisure travelers in the world, with Chinese tourists expected to spend $155 billion abroad this year, mostly on luxury goods. When they're not flying to Paris to buy Chanel suits and to Milan for Prada bags, China's newly minted and rapidly growing middle class is booking leisure cruises at a rapid clip. The country is expected to be the largest cruise market overall within a few years, surpassing the U.S. and Europe.

That prediction was made this summer by Carnival Corporation CEO Arnold Donald, so it's not surprising that the company's COO, Alan Buckelew, is relocating to China to oversee the leading cruise line's expansion in the world's fastest-growing cruise market.

Carnival and the second-largest cruise operator, Royal Caribbean , have both made overtures to the Chinese domestic cruise market over the past several years. Earlier this year, Royal Caribbean announced that its newest, most amenity-laden ship, Quantum of the Seas, will homeport in Shanghai starting in 2015 -- a departure from the industry practice of sending older boats to the Chinese market while the newest ships wow American and European cruisers.

Royal Caribbean CEO Richard Fain told The Motley Fool in August that he expects China to be a huge market for his company. And with Buckelew's deployment to China on the heels of Carnival's double-digit yield rise there in the third quarter, there are bound to be new developments from Carnival soon. So who will rule the waves?

More capacity versus more cruises

When the Costa Serena arrives in Shanghai next April, Carnival will have four ships homeported in China, the most of any worldwide cruise line. Its Costa Victoria and Costa Atlantica are already deployed in China and earlier this year Carnival's Sapphire Princess settled in to its new homeport in Shanghai. That will bring Carnival's passenger capacity there to slightly more than 10,400 passengers across all four ships.

Costa Serena. Image: Carnival Corporation

That's a lot of capacity, but so far Costa and Princess don't have many sailings from mainland China on published schedules. Costa Victoria currently has two cruises scheduled from Shanghai this fall. Sapphire Princess has one departure from Shanghai scheduled, as well as four departures from Beijing. Costa Atlantica currently has no itineraries posted on the Costa site.

Quantum of the Seas. Image: Royal Caribbean

Royal Caribbean, meanwhile, only has two ships set to ply the waters off Shanghai and Beijing: the new Quantum of the Seas and the slightly smaller Mariner of the Seas. Together the ships have room for 7,300 passengers. The combination of fewer ships and less capacity might seem to put Royal Caribbean at a disadvantage, but the company has been aggressive about scheduling cruises: As of this writing the Royal Caribbean site lists 52 upcoming departures from Shanghai and six from Beijing.

The flash factor

Both Carnival and Royal Caribbean understand the value of the "wow factor," especially in a market that craves luxury experiences. Royal Caribbean's Quantum of the Seas will offer onboard skydiving, 18 restaurants, roller skating, and the cachet of being a new ship. Carnival's Costa Serena, acknowledging its time serving Mediterranean ports, features a Greco-Roman theme, Gran Prix simulated racing, and an enormous Turkish spa.

These two ships' amenities may appeal to different segments of the market. Or Chinese travelers may decide to check them both out. Depending on the response, there could be an amenity arms race in the Chinese market in the years ahead.

Royal Caribbean also recently announced a deal with in-country travel agency Ctrip . The Shanghai-based company is purchasing Royal Caribbean's Celebrity Century, an older boat with a capacity of 1,800, with plans to renovate it. Once it's ready to sail, Royal Caribbean will oversee its operation on Ctrip's behalf.

Political storm watch

Carnival and Royal Caribbean also schedule cruises to and from Hong Kong, which tends to be considered separately from mainland China but which is increasingly coming under Chinese government control. Carnival currently has six departures scheduled from Hong Kong on the Diamond Princess and Sun Princess. Royal Caribbean has 28 cruises departing from Hong Kong between October and the end of next year. Both lines include Hong Kong as a destination or port of call on other cruises.

It appears unlikely that the current protests by Hong Kong residents against new Chinese rules will turn violent. But if the Chinese government takes military action to quell dissent, Carnival's and Royal Caribbean's Hong Kong businesses could be affected the same way Black Sea cruises were when Russia took Crimea from Ukraine.

Royal Caribbean out in front for now

Based on the published sailings, Royal Caribbean is making the most of its smaller capacity by encouraging Chinese travelers to plan ahead and letting them choose among dozens of trips. Whether Carnival can match or surpass its competitor's offerings in China will depend on how well the company navigates these potentially lucrative waters.

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