Cruise industry set to grow, but constraints surface

With an increasing number of Chinese leisure travellers, cruiselines are expected to see substantial growth over the next few years, according to Bernstein’s analysts.  

However, constraints in distribution, infrastructure and geography may serve to limit the industry’s growth if they are not properly addressed, warns the brokerage.

“It should be overwhelmingly obvious that cruiselines will experience substantial growth in this market over time, but the cruiselines' experiences in China have been anything but smooth sailing thus far.”

One of the main problems relates to how cruises are distributed, said Bernstein’s analysts.

Unlike other parts of the world, in China, cruises are sold via charter, which has caused a misalignment of incentives between agents and operators, said Bernstein.

“As a result, pricing discipline has eroded and the market has devolved to one where close-in discounts are rampant. We believe cruiselines need to take back control of pricing and find a way to lengthen the booking curve in order to stabilize pricing and yields in the market.”

Infrastructural limitations may also serve to be a threat, with the number of home ports in China set to reach its limit somewhere around 2021.

“Clearly additional homeport infrastructure will be needed, but most of it will come from the largely untapped Tier 2 and Tier 3 cities to the south.”

Finally, geography will also present constraints, as tourists will eventually tire of travelling to Japan, South Korea, Russia and Taiwan - the only destinations available in a 5-7 day timeframe.

As a result, there is a need to develop a “fly-cruise” market, which involves flying a tourist to a further location before having them embark on a cruise, said the brokerage.

“Developing a fly-cruise market is difficult, however, especially when resources are pulled from a market,” it noted.