Asia's cruise market is slow to set sail

Singapore’s own cruise market grew at a snail pace of 3.6% CAGR from 2002 to 2011.

The region accounts for less than 10% of the global market and still lacks suitable docking facilities for larger cruise vessels. 

Singapore’s own cruise market grew at a snail pace of 3.6% CAGR from 2002 to 2011. While the Marina Bay Cruise Centre has doubled Singapore’s cruise ship berth capacity and gave Singapore the key competitive advantage over other countries in the region, other Asian countries also need to do their part.

MBCC can expect to see significant earnings contributions from the third year, FY3/15, of operations onwards.

Here's more from Maybank Kim Eng:

Cruises are extremely popular in the west. Currently dominated by a few prominent names such as Carnival Corporation, Royal Caribbean and Norwegian Cruise Lines, the worldwide cruise industry is projected to reach 30m passengers over the next 15 years, an increase of 50%. North America is the largest cruise market globally accounting for more than half of the world’s market share, but it is largely mature. Europe, on the other hand, has shown significant growth, with passenger ridership nearly doubling from 2005 to 2010.

But still in early stages in Asia. Despite its growing popularity in Asia, the cruise industry here still trails far behind Europe and North America. Asia currently accounts for less than 10% of the global cruise market and hence offers significant growth potential. Singapore’s own cruise market has also grown but at a relative snail pace of 3.6% CAGR from 2002 to 2011, reaching almost 1m passengers in 2011.

Lack of suitable berthing the main limiting factor. Cruise tourism depends on a deep network of ports with the necessary infrastructure as passengers normally visit multiple destinations as part of an extensive and lengthy itinerary. However, the region here lacks suitable docking infrastructure for larger cruise vessels such as Royal Carribean’s 6,000-passenger Oasis of the Seas, the largest cruise ship in the world. This has hindered Asia’s cruise industry from achieving the success enjoyed by its Western counterparts.

Singapore vying to be a key cruise destination. To tap into this market, Singapore has just completed and soft launched the Marina Bay Cruise Centre in the Marina Bay area. Not only has this doubled Singapore’s cruise ship berth capacity, it also means Singapore now has the capability to accommodate the largest cruise vessels in the world, giving it a key competitive advantage over other countries in the region. While other Asian countries also need to do their part, having a bigger cruise terminal will help Singapore grow a previously stagnant source of visitor arrivals by sea.

SATS positioning itself to benefit. SATS has made an initial foray into cruise terminal operations via a joint venture with Spanish-based Creuers del Port de Barcelona S.A. This business is an extension of its capabilities within the aviation gateway space and the move improves its expansion possibilities. This is viewed as a longer-term catalyst for the stock.

SATS-Creuers Cruise Services won the right to operate the MBCC in Dec 2011. The rights are for a 10-year term, with an option to renew for an additional five years. The JV seems like a complementary partnership between two industry leaders – SATS as the market-leading gateway service provider at Changi Airport and Creuers similarly holding its own in Europe as a leading international cruise terminal operator. The JV will be structured using an asset-light approach with an initial paid-up capital of SG$6m, and most of its manpower needs subcontracted.

Medium-term contributions to bottomline. Although SATS-Creuers expects 100,000 passengers in its first year of operation, SATS should start to see significant earnings contributions from the MBCC operations only from the third year, FY3/15, onwards. This is when regional cruise infrastructure, eg, Indonesia, is expected to catch up to further complement the MBCC, and for cruise liners to implement changes to itineraries usually planned at least a year in advance.