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Royal Caribbean sells Celebrity Century to China's Ctrip, explores 'further partnership'

Fain - ship sale an 'excellent business opportunity' for both Royal Caribbean and Ctrip
Royal Caribbean Cruises Ltd. is selling the 1995-built Celebrity Century to a holding company led by International, which touts itself as China's leading online travel agency, and is exploring a possible further partnership. The sale to Exquisite Marine Ltd. will result in a non-cash loss of approximately $20m.

In what may be a key development for the Chinese cruise market and Royal Caribbean's growing role in it, the company entered into a memorandum of understanding with Ctrip to form a joint venture to manage the ship's operations and potentially broaden the relationship.

'At this point, we are still in discussions with Ctrip about what the agreement might entail,' a Royal Caribbean spokeswoman told Seatrade Insider. 'We have agreed to a joint venture for management services for the ship. There is a pursuit of a further partnership, but the details of what that might look like are not firm at this time.'

If the relationship develops, this assures RCL a significant role in the evolution of the Chinese market for cruise vacations, a senior cruise industry executive said. 

Established in 1999, Ctrip is a leading provider for accommodation reservation, transportation ticketing, packaged tours and corporate travel management in China. The company claims to have sent more than 120,000 travelers on cruises and acquired 10% of China's cruise market share.

'China is becoming one of the largest cruise markets in the world,' said Min Fan, vice chairman and president of Ctrip. 'We are excited about the strong growth of the cruise industry and strive to strengthen our leadership in this market.'

Century will be renovated to provide premium hotel services, diversified dining options, exciting on-board facilities and varied entertainment, Ctrip said.

'We admire Ctrip a great deal,' said Royal Caribbean spokeswoman Cynthia Martinez. 'They understand the China market, they are an innovative marketer, they are a leader in the travel industry and they have great skills in the online marketplace. It’s the sort of company we like to do business with.'

Earlier, Royal Caribbean had planned to redeploy Celebrity Century to its French subsidiary, Croisières de France, to replace Zenith next year.

Royal Caribbean said the loss on the sale will be excluded from adjusted net income in its third quarter results. The company will continue to operate Celebrity Century until April 2015.

UBS Investment Research estimated a sale price of $157m based on the $20m non-cash loss and the brokerage's $384m estimate of the ship's original cost.

That works out to approximately $87,000 per berth, which UBS analyst Robin Farley deemed 'not a bad price compared to other 20-year-old ship sales.'

Moreover, the transaction supports UBS's view that the emergence of China as a cruise market could provide demand for tonnage from more mature markets like North America—potentially helping bolster pricing in established markets by removing berths.

UBS expects Ctrip's China cruise business revenue to ramp up and reach break-even in 2016, and profits to turn to normal in 2017-18. The company might also seek strategic investors for its cruise business and become the minority shareholder in the future, Farley said.

Royal Caribbean chairman and ceo Richard Fain on Tuesday remarked that Celebrity Century has created 'many wonderful memories for hundreds of thousands of guests, and we expect this successful history to continue as she transitions to the Chinese cruise market.' He called the sale 'an excellent business opportunity' for both Royal Caribbean and Ctrip that will generate 'strong value for both companies' shareholders.'

Celebrity Century will complete its scheduled sailings through the March 22, 2015, itinerary. The 15-night Dubai to Rome cruise set for April 5 is being changed to a 14-night sailing from Dubai to Singapore. Passengers on the impacted itinerary have the option to cancel and receive a full refund or move to an alternative sailing and get an on-board credit and compensation to cover air change fees.

Built by Meyer Werft, Century—later renamed Celebrity Century—joined the Celebrity Cruises fleet in December 1995. It was extensively updated in 2006, gaining balconies, a ducktail for greater fuel efficiency and other features. The 71,545gt ship has capacity for 1,814 passengers, double occupancy, and 860 crew.