CARNIVAL INVESTOR DAY - CHINA

Arnold Donald, CEO of CCL - commentary on China

  • Absorbs capacity from Caribbean

Alan B. Buckelew, COO of CCL

  • 90% of trips are to Asian destinations, most of them reachable by sea
    • Out of 98 million outbound trips, 88 million are in Asia.
  • Affluent Chinese growing at ~20% (>US$34K), Upper middle class growth ~22% (US$16-34K) CAGR (2012-2022)
  • Lower Passport Application fee $135 (before 2013); $32 (after 2013)
  • Japan: visa-free entry for Chinese cruisers, started March 2015
  • Korea: Visa-free entry to Jeju for Chinese cruisers started in last 3 years
  • Chinese Govt expects tourism to be 5% of GDP by 2020
  • Ministry of transport of PRC provided a detailed map of available Chinese ports
  • Chinese passenger projected to increase: +34% CAGR by 2020
  • Carnival entered Chinese market in 2006 with Costa. Costa reached profitability in 2013 and Princess reached profitability in 2014.
  • Costa: has 20 offices in China
  • 26,000 travel agents in China
  • 2,700 have outbound travel licenses and can sell cruises. Only Chinese companies can secure an outbound travel license.
  • Carnival strategic partnerships: CSSC, CMG
  • Princess target segment: age 30-40; affluent young adults with previous international travel experience, +150k RMB
  • Costa target segment: age 25-45; +120k RMB
  • Chinese prefer shorter cruises (3-6 nights)
  • Revised casino with baccarat 
  • Market share: Carnival has 43% market share; RCL: 32%; Star: 12%; local Chinese 14% (e.g Skysea)

Q & A

  • Would consider selling older ships... to Ctrip for example
    • Again, this would make a lot of sense for CCL
  • Constantly evaluating taking other brands to China
  • JV MOU - will be a domestic, Chinese brand
    • Very close on finalizing agreement. Hope partnership will be done in 2015. Ship won't be in the water 'for a couple of years'.
  • Will be a while before you get true competition within China
  • "Demand already exceeds supply"
  • Most Chinese cruisers are new cruisers
  • Carnival sell a lot of their Chinese inventory through distribution charters 
    • Do not see that system changing any time soon
    • Pricing integrity: charters pay Carnival and then go market the cruise
  • New Princess ship in China: expect higher double digit ROIC (above fleet average)
  • Carnival's inventory goes through a wholesale/charter model
    • Lots of charters. No one charter has a significant portion of CCL's bookings.
  • Working with Fincantieri on ship-building capacity in China. Could possibly build a ship from China in next 5-7 yrs.
  • China is a margin driver
  • New onboard initiatives: taking discounted cabins and targeting them towards gamblers.  
  • Cuba: still waiting for green light from Cuba govt regarding lifting the ban on leisure travel
  • Japan market: not going to have same growth as China because culture is quite 'cautious regarding travel'
  • Drydock days in 2015: used to put in more efficient fuel technology
  • Trends in Europe: economic malaise and geopolitical tensions pressuring results. Cruise demand concern as well because of popularity of European beaches. Germany is doing well. Europe doing better in 2015 vs 2014.