Norwegian Bullish on China Prospects

The last of the major brands to enter the Chinese cruise market, Norwegian Cruise Line will do it with a new ship when the Norwegian Joy arrives in Shanghai next summer. The 164,400-ton Breakaway-plus vessel is being designed for the Chinese market and will split its time between homeports in Shanghai and Tianjin.

With an influx of capacity hurting pricing in Shanghai, some cruise lines have lowered pricing for travel agents, which typically block out cabins or charter the entire ship, according to a travel agent familiar with the chartering process in Shanghai.

However, Norwegian noted on its second quarter earnings call that it had not only already signed contracts, but that the pricing was “encouraging.”

“At this point, in the selling cycle, we are well along in allocating our available inventory among our top travel partners; and the early results are very encouraging,” said Frank Del Rio, president and CEO of Norwegian Cruise Line Holdings. “To-date, we have allocated the vast majority of our 2017 inventory for Shanghai sailings and almost all of that for our six Beijing departures. While these are only allocations and not yet hard contracts, the strong interest exhibited by the travel agent community for Norwegian Joy has been exceptional.

“The allocation selection period is followed by negotiations that lead to signed contracts; and I’m happy to report that not only have we closed on our first set of charter contracts for Shanghai sailings, but that these contracts closed at prices that meet our internal targets,” said Del Rio.

“The signing of these contracts coupled with strong indications of interest in the allocation process and an entry into the market at a time where capacity increases have begun to moderate after years of rampant growth gives us continued confidence in our China deployment strategy and reaffirms our expectations that China will be accretive to 2017 yields and earnings and will be a source of positive ROIC growth.”

The comments are encouraging, as most brands have had to lower pricing on Shanghai based sailings in 2016, while new brands entering the market have traditionally cut pricing to gain market share.

While the Joy is headed to China in 2017, Norwegian has an unnamed ship on order for 2019, and has yet to spec the hotel product to western or Chinese tastes — meaning a second new ship could enter the Chinese market for Norwegian as soon as 2019 if yields are strong.

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