'It appears likely that Carnival will announce the development of a Chinese national brand, hopefully this year, through a partnership with a Chinese company,' William Blair & Co. told investors following Carnival analyst meetings in New York last week.
Plus, beyond the previously announced newbuild for Princess Cruises that's being tailored to the Chinese market, 'some' of the group's nine newbuilds through 2022 will be custom-built for China,' according to a Wells Fargo Securities note. Carnival could shift brands beyond Princess and Costa to China, and/or create a domestic brand, Wells Fargo analyst Tim Conder said.
Meanwhile, capacity growth in China is limited by a five- to 10-year horizon before local yards have full shipbuilding capability, on top of the shipbuilding capacity constraints in the rest of the world, Conder said.
Early this year Carnival inked a memorandum of understanding with state-owned enterprise China Merchants Group to explore the possibility of a domestic cruise line for China and turnaround and transit port development. This followed 2014's MOU with China State Shipbuilding Corp. and Fincantieri to explore the possibility of joint ventures in constructing cruise ships for the Chinese market.
Carnival management indicated formal agreements with both entities are expected this year on the development of domestic cruise brands, according to William Blair analyst Sharon Zackfia, adding that sailings would be a few years away given the time needed to retrofit ships. Zackfia also reported Carnival management sees it as unlikely China would begin building ships within the next two to three years, but more likely within the next seven to 10 years.
Carnival now claims a 43% market share in China—mainly through six ships, four Costa and two Princess—compared to a reported 32% share for Royal Caribbean.
William Blair said China demand is predicted to average more than 30% on a compound annual growth rate over the next five years, reaching 4.6m passengers by 2020, up from 800,000 last year. Zackfia said the market is already profitable for Carnival with higher-than-average yields and healthy on-board spending on retail and gambling.
'For CCL, China should help absorb the company's 3%-5% capacity growth outlook, leading to a more balanced supply/demand dynamic in other markets,' Wells Fargo's Conder told investors.