Set sail for the East – the cruise industry in China

This year, it's estimated that over a million Chinese will take a cruise holiday, an incredible increase of 500% from 2012. And the number is only set to rise as long as the infrastructure and industry can keep up. If all goes according to plan, the government estimates that by 2020 it will have increased to 4.5 million, a generous guess, but one the state is backing with hard cash - big investments in infrastructure and joint ventures with international companies.

In October last year, Carnival unveiled a key pillar of its strategy - its plan to stand out from the crowd and to build a domestic client base - the launching of an all-new multiship cruise brand, exclusively tailored to the needs of the new Chinese customer. A joint venture with the state-owned Chinese State Shipbuilding Corporation (CSSC) and the China Investment Corporation (CIC), the move represented a significant step forward for the cruise industry in China, at least according to Alan Buckelew, Carnival's chief operations officer, now heading its expansion in East Asia.

It's certainly a bold step, but not necessarily an unexpected one from the company that's been investing in China from the very beginning of this boom roughly ten years ago. International operators have so far avoided selling directly to the Chinese domestic consumer, instead working on expanding pre-existing lines. But with the government now firmly on board - now officially declaring the growth of cruising as a key pillar of the country's economic development plan - there's a sense that the timing is right for a major company to build a Chinese brand.

"The growth and interest in travel in China, including relatively new experiences like cruising, enables the cruise market to support new investments in capacity and the relocation of ships to the country," says Buckelew. "We're excited to have great partners who want to build the first domestic cruise brand that will be completely different from anything else in the market."

Know your audience

It's early days. Having only recently formed the joint venture, the first step is a market-segmentation study identifying neglected segments within the market and how best to serve them, as well as getting into the rhythm of working with SOEs.

"Once that work is complete, we will begin an exploration of branding options that will best communicate the product proposition that best serves the segment(s) of the Chinese cruise market we plan to target," explains Buckelew. "This is a big priority for our Chinese partners to be able to create a uniquely Chinese experience that is not currently available today.

"Cruising is a relatively new vacation experience in China, and we believe this collaborative approach with our partners is critical to not only developing the country's domestic cruise business, but also supporting China's goal to become one of the world's leading cruise markets in coming years," Buckelew told press in October 2015 as the deal was announced.

As a joint venture, it's also about maintaining the balance of collaboration between the world's largest cruise company and the Chinese SOEs. When it came to brand evaluation, for example, it was Carnival that took the lead, while keeping the final decisions on target markets and specifics as more collaborative.

A relationship already well established over months of planning, Buckelew says that Carnival was approached because of its prestige, and this combined with the CSSC's in-depth knowledge of the domestic market and relationships within the country's shipbuilding industry and CIC's investment experience, meant that the partnership could see the project from all angles.

"Our partners see significant opportunities with cruising and have made the industry a priority, so the joint venture arrangement grew out of that," Buckelew says. "We are excited about the pieces we have in place and using each other's strengths, including the many years of experience we have in owning and operating cruise brands that run in China and around the world."

Enter the brand

So why create a whole new brand instead of building on pre-existing lines? Carnival is really doing both at the same time. With the Chinese market growing so rapidly, it can afford to splash out on new investments in capacity and the relocation of ships to the country. This means six new ships this year alone, and even more in the next few years as the market matures, with the objective to give domestic consumers as much choice as possible, particularly as many of them might be trying cruising for the first time.

"In many ways, it resembles other emerging markets we've experienced over the years," says Buckelew. "At the same time, with growing affluence in China, the market is growing at a very fast pace and at a scale we haven't seen previously."

But while all this variety is great, there's also a need for a focused domestic product if China is going to become the world's biggest cruising destination and if Carnival is to take the advantage of the growth of the sector. For one, it can start from scratch, developing a cruise brand with Chinese input and creating a completely unique offering, all with a view to expanding destinations available to customers.

"As the market matures, we see great potential for growth in new offerings and destinations in China and all of Asia as well," says Buckelew. "Out of Shanghai, we are able to visit Japan and Korea, both of which show increasing demand for cruising. As we grow long term and the market continues to develop, we'll expand to other regional Chinese markets."

Consumer in focus

The Chinese cruise consumer is quite different from the customer that most operators will be used to dealing with. For one thing, they tend to be much younger - a trend that reflects many of the other emerging markets where the cruise industry has only recently begun to take off. On average, cruise guests in China are between 25 and 45 years old, and tend to travel with parents and children - a "multigenerational experience for families", as Buckelew puts it.

"Asians tend to have shorter holiday breaks," say David Goh, secretary-general of CLIA Asia. "They are not into seven-night or 14-night trips as is traditional in other markets. So you see that a lot of cruise lines develop their products around four nights or five nights."

This means an altogether different product. With cruise companies more accustomed to investing in week-long or fortnight-long trips, adapting to this shorter timeframe will be essential and means the Carnival brand will have to make a bold impression.

"So three, four and five-night cruises are really ideal for busy families, and they tend to book much later than other markets," says Buckelew.

But there are similarities. Like most tourists, many Chinese travellers seek a balance of new experiences and a sense that travelling is broadening the mind, combined with a desire for relaxation and comfort. There's definitely a learning curve involved, and as Carnival's new lines enter the market in 2017, there'll be plenty of opportunities to see what Chinese guests take away from their very first cruise experiences and work this into the new brand.

"More Chinese travellers are trying cruising for the first time," says Buckelew. "We are creating word of mouth organically and on social networks, which is a plus and is helping fuel double-digit annual growth in the market."

Chinese guests are also keen shoppers, on board and on excursions, and an appetite for luxury brands from Europe and the US, as well as practical products for day-to-day use such as consumer electronics, means Carnival's new brand will no doubt offer plenty of opportunities for visitors to splash their cash.

There's also the difference caused by the sheer rapidity with which the market is growing: 100 million Chinese citizens travel abroad every year, a number that's expected to double by the end of the decade, and these upwardly mobile consumers are the target audience. The benefit of this younger target audience means that word is spread quicker among other potential customers.

"With the proliferation of social media in China, and the sheer size of the potential target market and growing middle class, the word is spreading faster than we've seen in other emerging markets in the past 40 years," says Buckelew.

"As more Chinese guests experience cruising first hand and have a great time on their trip, they are coming back home and spreading the word about the value, the experience, the shopping, dining and cultural experiences that are included in the convenience of a cruise vacation."

There's obviously a lot of work still to do, and with the brand still in the early stages of development, more concrete specifics are thin on the ground. But it's obvious that others will be following in Carnival's footsteps and, as the scramble for China intensifies, the operator with the best understanding of the millions of new cruise guests up for grabs will have a great head start.