China is ready to restart cruises, but big companies are left out

Battered international cruise operators are keenly awaiting the reopening of the Chinese market. They’re going to have to wait a little longer.

China is set to resume cruises in December, as its economy revives and the pandemic remains largely under control. The catch is the international cruise lines that spent the past decade building the market from scratch aren’t invited to the party.

With standard cruise routes from China to destinations such as Japan and Vietnam shut down by global travel restrictions, the country is tiptoeing back in with cruises to nowhere that start and finish in the sunny southern Chinese resort island of Hainan with no stops in between.

The government awarded the first permit to ply that route to Astro Ocean International Cruise Co. Ltd., a joint venture between two state-owned juggernauts. International operators such as Carnival Corp. and Royal Caribbean Group, which would need an exemption from Chinese laws that ban foreign vessels from doing business between the country’s ports, haven’t been given approval to sail.

Zinan Liu, chairman of Royal Caribbean Asia, said he expects mainland Chinese ports to be among the last in Asia to reopen to foreign-flagged cruise ships, which have already been allowed to sail in Singapore and Taiwan. Among China’s main concerns, Mr. Liu said, is the risk of importing the virus through travel.

“We’re not worried about the Chinese consumers,” Mr. Liu said at a virtual industry event in October. “It is the government that we are dealing with in China, maybe also in Japan, to regain their confidence in the industry.”

Carnival, Royal Caribbean and others have spent the past decade prying open China’s market. Those efforts paid off, with passenger volumes from China growing rapidly—until the coronavirus pandemic swept across the world and into cruise ships in a series of notorious incidents that brought the industry to a halt.

The road back has been slow. European cruise sailings resumed in the summer with testing facilities and medical staff, but operators canceled or cut voyages short as cases surged in the fall. Taiwan started cruises with no stops in July; Singapore began similar sailings this month.

In the U.S., cruise operators must conduct mock sailings and apply for a sailing permit 60 days in advance to win approval from the Centers for Disease Control and Prevention. To satisfy the long list of requirements, some cruise ships under Carnival have extended their U.S. sailing hiatus into 2021.

China’s fast-to-recover economy has become a lifeline for companies struggling with shriveled demand in much of the rest of the world. U.S. brands from Nike Inc. to Tesla Inc. have found shelter in the world’s second-largest economy, where consumer spending has rebounded and GDP is expected to grow for the year.

Cruise operators are also betting on that swift rebound as they await the green light.

“We are currently in dialogue with local and central authorities to make sure we are ready to resume operations as soon as they will consider it is safe to do so, working on the basis of our safety protocols,” said Mario Zanetti, chief commercial officer of Carnival unit Costa Cruises. “China plays a strategic role for Costa Group.”

The country’s large and increasingly wealthy population helped cruising volumes grow at a compound annual rate of 38% between 2013 and 2018, according to Chart Management Consultants, making China the world’s second-largest cruise market by passengers after North America. Nearly 2.4 million people in China went on a cruise in 2018, the most recently available data, the majority of them on international fleets.

Yet the first sailing from the Chinese city of Sanya will be carried out by Piano Land, the country’s first domestically operated luxury cruise ship and the only one operated by Astro Ocean.

Foreign-owned and flagged vessels aren’t allowed to provide transport services in China’s domestic waters, a restriction that also exists in the U.S. China’s government made an exception for the 25-year-old, 13-deck Piano Land, which sails under a Bermuda flag but is Chinese owned and operated.

Royal Caribbean Chief Executive Richard Fain said the company doesn’t plan to find a joint-venture partner in China and that it is in talks with the country’s central and local governments about future sailings.

“Only one small operator has started so far—we don’t think that whether we’re Chinese or have a Chinese partner would change that,” Mr. Fain said in an October interview. “We think this worked well before the pandemic.”

Carnival’s China itineraries accounted for 4% of its passenger capacity in 2019, according to a securities filing. Before the pandemic, the company planned to expand its fleet in the country, which it said could become the world’s largest passenger market for cruises.

Ted Blamey, principal at consulting firm Chart, said he believed foreign cruise ships will be allowed back to China once authorities feel comfortable enough to expand the pilot.

Genting Cruise Lines, part of the Malaysian conglomerate Genting Bhd, has received verbal consent from Chinese authorities to deploy a luxury cruise to Sanya starting in December, according to a person familiar with the arrangement. The Bahamas-flagged Genting Dream will be chartered to and operated by a joint venture with a Chinese company, which retains majority control of the entity, the person said.

Genting didn’t comment.

International cruise lines went to great lengths to cultivate the Chinese market before the pandemic. Carnival set up a cruise joint venture in 2018 with state-owned China State Shipbuilding Corp., one of the country’s two shipbuilding giants. The Florida-based company also helped get Italian shipbuilder Fincantieri SpA to set up a separate joint venture with the Chinese company and impart its know-how in building large cruise ships.

When Costa Cruises brought its “Italy at Sea” voyage to Shanghai, the company made sure Chinese passengers would find not only Italian cuisine, but also more familiar spicy hot pot, as well as mahjong games.

Royal Caribbean also has chosen Shanghai as the base for some of its newest and most luxurious cruise ships, such as Quantum of the Seas and Spectrum of the Seas.

North America accounted for half of global passenger volume in 2018, while China claimed only 8.3%.

“Even though China has become the second-largest cruise market in the world in a relatively short amount of time, we haven’t…even scratched the surface of the true potential of the China cruise market,” said Adam Goldstein, former CEO of Royal Caribbean and chairman of the industry group Cruise Lines International Association.

This story has been published from a wire agency feed without modifications to the text