Carnival Cruising to Shanghai - Analyst Blog

Carnival Corporation CCL announced that it was redirecting a European liner to Shanghai to capitalize on the growing Chinese market in cruises. The liner — Costa Serena — which will sail all year round starting Apr 2015, will help the company to tap into the demand surge in China which is projected to become the world's second largest cruise market by 2017.

The 3,780-passenger Costa Serena joins Costa Victoria and Costa Atlantica operational in China, in addition to the Sapphire Princess under the Princess Cruises brand, to be launched later this month. This redeployment will expand overall capacity of Costa – one of Carnival's top brands – in Asia by 74%. In 2015, with four ships based in China, Carnival's industry-leading capacity is projected to leap 140% over a two-year period.

Carnival's decision to dispatch a fourth ship to China intensified the competition in the fast-growing Chinese market. Last month, reflecting the growing importance of Asia for the cruise industry, Royal Caribbean Cruises Ltd. RCL announced that the 4,180-passenger ship Quantum of the Seas will sail from Shanghai to Japan and Korea next year.

China has emerged as a strong revenue generating market for the cruiser lines. The vast population and a fast-growing middle class, not yet familiar with cruising, make China an attractive bet for these companies striving to make the most of the opportunity by making an early entry. Additionally, Shanghai -- China's largest city -- plans to invest substantially to develop its cruising infrastructure, such as building larger ports.

Not only China, but the Asian continent is steadily emerging as a major revenue generating market for the cruise companies. Carnival is looking to tap into this demand by investing significantly in other Asian growth markets like Japan, Singapore, Hong Kong, Taiwan and Korea as well.

Carnival currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include Regal Entertainment Group RGC and Speedway Motorsports Inc. TRK. Both these stocks sport a Zacks Rank #2 (Buy).