Cruise company Carnival casts eye toward Asia

Jason · April 3, 2004

MIAMI, April 2 (Reuters) - Carnival (nyse: CCL - news - people), whose luxury ships hold sway over global cruising's best markets in North America and Europe, is looking eastward to tap the booming economies of China, India and other Asian nations.

The Miami operator of Cunard, Princess and 10 other lines providing sea holidays is seeking a partner to sell cruises to tens of millions of Asians ripe for Western-style leisure services, Carnival Corp and Plc executives said.

Such a start-up would be a second foray into the promising region for Carnival, the world's biggest cruise group, which dipped a toe in Asian waters during the 1990s and then pulled back. Other Western lines have also had mixed results in Asia.

China and India are both seeing the rise of a substantial middle class, which is the main customer base in the West for Carnival and other big cruise lines. Last year, foreign trips by Indians jumped 15 percent to 4.5 million over 2002.

In China, whose economy grew 9.1 percent in 2003, the number of outbound journeys is expected to rise to 16 million next year and to 100 million by 2020. Foreign trips from Shanghai alone are rising an estimated 20 percent each year.

Until now, the main customers for cruises have been North Americans and Europeans, although cruise ships travel far beyond the Caribbean and the Mediterranean. Some 9.52 million people took a cruise last year, with nearly 8 million leaving North American ports, according to a trade group. The most popular itineraries are in the Caribbean, Alaska and Europe.

The scale, itineraries and financing of any Carnival venture in Asia have not been fixed, according to executives, but Carnival has not ruled out starting a new line in the region or building new ships for a market whose main player now is Star Cruises Ltd .

"We are in very early stages of beginning discussions with a number of companies," Carnival Vice Chairman Howard Frank said. "It's too early to say whether it's for an existing or a new brand."

Neither Frank, who spoke at an industry conference last month, nor company spokesman Tim Gallagher would identify any of the possible partners and emphasized that no agreement was near.

"As we look at new markets, Asia is an obvious one," said Gallagher, noting the thriving economies of India, China and other Asian nations now had millions of consumers likely to be interested in cruises and other leisure travel.

Carnival very much needs a regional partner to compete successfully in Asia and was likely talking to large tour companies and others in the travel industry, according to industry analyst Tony Peisley of A.R. Peisley Ltd of Britain.

"You need that to open doors," Peisley said. "It should be a market. Star proved you can sell cruises to Asians."

Big cruise groups based in Miami have tried to enter Asia in the past, with Royal Caribbean Cruises Ltd (nyse: RCL - news - people) basing an older ship in Singapore from 1995 to 1997 and getting mixed results, according to Peisley.

Carnival, which last year merged with P&O Princess of Britain and now runs 75 ships in its fleets, struck a deal with Hyundai Merchant Marine of South Korea to start an Asia cruise venture, but unwound it in 1997 before starting service amid a regional financial crisis.

Asia, with multiple cultures, languages and consumer tastes, more closely resembles Europe's cruise market than the relatively more homogenous North American one, according to Peisley. Cruises tailored to people in Hong Kong and Singapore were most promising, he said.

Spending patterns do vary, with Asian cruise passengers spending less than North Americans and Europeans on drinking, but showing more willingness to pay for on-board entertainment than Westerners, Paisley said.

"Cruising in Asia is very different than it is here," said Colin Veitch, the chief executive of Norwegian Cruise Line, a unit of Star based in Miami. "It is a market in which it is difficult to get a good yield on a ticket."

Peisley said Asian consumers were growing ever more demanding and were quite likely to turn up their noses at older cruise ships shifted to Asia from North American and European routes, but said the region warranted the expanding industry's attention and investment.

"If you want to grow, you just can't put everything in the Caribbean," Peisley said.

Reuters, 04.02.04, 1:50 PM ET

By Michael Connor