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Why Royal Caribbean is immediately sending a gargantuan 168,000-ton cruise ship to this country

Brian Sozzi

With the bounce in the Chinese economy this year thanks to a litany of fresh stimulus measures, apparently comes a rebound in demand for cruise vacations from the country’s consumers.

“If the Chinese economy is slowing down, we aren’t seeing it in our bookings there,” Royal Caribbean (RCL) chairman and CEO Richard Fain told Yahoo Finance on Wednesday.

Fain is putting his money where his mouth is following a year in which industry capacity in China declined sharply as companies pulled ships from the market due to the country’s economic growth slowdown. When Royal Caribbean’s all-new 168,000 ton Spectrum of the Seas hits the waters in two weeks, it will head directly to the China market, Fain says.

Royal Caribbean is no stranger to doing business in China. In 2015, the company was among the first of the major cruise lines to send a ship (the then new 4,180 passenger Quantum of the Seas) to the country to capitalize on the interest in the Chinese for family-focused cruise vacays. Since then, Fain has built up the presence of Royal Caribbean’s sales team in China in order to keep it top of mind.

Passengers pose for photos onboard Royal Caribbean's cruise ship the Ovation of the Seas ahead of its inaugural voyage at the International Cruise Terminal in northeastern China's Tianjin Municipality, Friday, June 24, 2016. (AP Photo/Ng Han Guan)

Even still, the competition in the Chinese market — mostly from rival Norwegian Cruise Line — has Royal Caribbean mindful of the risk extra capacity alongside a challenging economy could mean to its bottom line.

“To the extent that we or our competitors deploy ships to a particular itinerary and the resulting capacity in that region exceeds the demand, we may lower pricing and profitability may be lower than anticipated. This risk exists in emerging cruise markets, such as China, where capacity has grown rapidly over the past few years and in mature markets where excess capacity is typically redeployed,” Royal Caribbean writes in the risk factor of its latest annual report.

The overall Asia Pacific market will account for about 15% of Royal Caribbean’s capacity this year. China specifically, notes Fain, will make up roughly 6%.

In the end, the long-term growth opportunity in the Chinese cruise market likely looks too good for Royal Caribbean and others to pass up. So why not bring back the ships.

The Cruise Lines International Association (CLIA) forecasts that nearly 10 million Chinese travelers a year will go on a cruise by 2025. That would be up markedly from a mere 2.5 million in 2017.

Brian Sozzi is an editor-at-large and co-host of ‘The First Trade’ at Yahoo Finance. Follow Brian Sozzi him on Twitter @BrianSozzi

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