Costa Ships in ShanghaiCosta Crociere and Princess Cruises will carry about one million Chinese passengers this year, up from 500,000 in 2015, according to Alan Buckelew, COO of Carnival Corporation, who also has oversight of Carnival Asia. He added that he expects to see a significant percentage increase in 2017 as well, and that the growth will continue (with more Carnival Corp. brand ships being introduced into the market).

“The potential in China is huge,” Buckelew said in an exclusive interview with Cruise Industry News. “They have the largest outbound travel market in the world with some 130 million Chinese travelling internationally, compared to about 90 million Americans. By 2025, the forecasts call for some 300 million Chinese travelling internationally. They are our target audience.”

Carnival Corporation had the first brand in China when Costa first entered service there in 2006. Next year, Carnival will have nine ships in China, up from six this year.

Today, Carnival’s China operation is profitable, but it was not always so. “It is challenging to build up a new market, particularly when the (market) language is so different from the brand,” Buckelew said. “One of our biggest challenges have been to adapt the brands to the Chinese market, while retaining their brand identity, which is the heart and soul of who they are.

“Now, we are very excited about introducing more capacity and Princess (which launched China service in 2014) has been profitable from the start, primarily because it was able to benefit from the infrastructure and market already built up by Costa.

“Having several brands allows us to offer different options to consumers in this large and mostly untapped market.”

While North Asia has huge potential as a whole, Buckelew described China as being the anchor of Carnival’s Asia strategy. In addition to mainland China, ships are also deployed out of Hong Kong, Singapore, Japan and Taiwan, while calling in South Korea. He noted Princess’ seasonal deployment in Japan and that Costa is sourcing passengers in both Japan and South Korea as well.

Being the first and largest brand in China, Costa has created a mostly, if not completely, self-sufficient organization in China, Buckelew explained, handling procurement, HR, hotel and maritime operations. Other brands moving into China, rather than duplicating what Costa has created, are encouraged to use the Costa Group’s back-office service organization.

“For ships based here we try to procure whatever we can locally,” he continued. “In addition we have more than 90 other ships that require supplies made in China, that we don’t buy here. Now that we are creating a supply chain in China our goal is to purchase more products directly rather than through distributors. We are in the early stages of creating a sourcing chain not just for the local organization but for Carnival Corporation as a whole.”

The company is continuing to work on its joint venture with China State Shipbuilding Corporation (CSSC) and China Investment Corporation (CIC) that will eventually see the creation of a multi-ship domestic brand to operate ships to be acquired as well as new ships to be built in China. The joint venture is a 25-year agreement and calls for a $4 billion investment. In addition, Fincantieri has entered into a joint venture with the CSSC to facilitate the building of new ships in China for Carnival’s joint venture.

Meanwhile, Costa and Princess have generated hundreds of thousands of happy passengers, according to Buckelew, who said their satisfaction level is higher than anywhere else. And he is convinced that China can become the single largest cruise market in the world and still have a relatively modest penetration rate.

“Keeping our (global) market share (about 45 percent) and tapping into the Chinese market with the brand portfolio we have, will be our growth story for the next decade and beyond,” Buckelew said.

Excerpt from Cruise Industry News Quarterly Magazine: Fall 2016