Major cruise companies are betting on the growing cruise market in China. Recently, Carnival Corporation (CCL) announced the signing of a memorandum of understanding (MOU) with Italian shipbuilding company Fincantieri SpA for a potential shipbuilding joint venture for constructing cruise ships for the Chinese market. This MOU seeks to capitalize on the fast developing Chinese market.
Carnival has also signed another MOU in mid-October with China's largest shipyard – China State Shipbuilding Corporation (CSSC) – for establishing a shipbuilding joint venture. Further, both the collaborations signal a possibility of forming a three-way arrangement between Carnival, Fincantieri and CSSC.
Per the agreement with CSSC, Carnival will explore joint venture opportunities other than shipbuilding, such as forming a domestic cruise company, port development, talent development and training as well as supply chain and logistics.
China’s growing middle class consumers, which is boosting the cruise market has ignited Carnival interest in the region. Further, China is projected to be the world’s second-largest cruise market – after the U.S. – by 2017. In fact, the Chinese cruising market is expected to grow at a faster pace than those of North America and Europe, the two regions that have historically been the most profitable for cruise companies.
In 2013, the Asian Cruise Association estimated that in the Asia Pacific region, demand will nearly triple to 3.8 million annual cruisers in 2020, with 1.6 million from China alone. To cater to such high demands, Carnival has plans to significantly expand its presence in Asia, with four ships to be based in China next year, while also boosting its year-round fleet in Australia.
We believe that these MOUs will help Carnival to grab a major share of the profitable Chinese cruising market, especially when revenue yields from the both Caribbean and Europe are declining.
Among other cruisers, Royal Caribbean Cruises Ltd. (RCL) announced plans to move a brand new ship, Quantum of the Seas, to Shanghai in May 2015 after its inaugural run in New York. Traditionally, the cruise companies have only deployed older ships to Asia — a practice which Royal Caribbean Cruises changed.
Carnival currently carries a Zacks Rank #2 (Buy). Better-ranked stocks in the same sector include Interval Leisure Group, Inc. (IILG) and Diamond Resorts International, Inc. (DRII). Both these stocks sport a Zack Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment