UBS: Volume is key for cruise move to China

China will remain profitable for the cruiseship industry even without pricing improvements in the emerging market, a leading industry analyst said Wednesday.

UBS analyst Robin Farley, who covers cruise and leisure stocks for the investment bank, says volume increases, not pricing, matter most for the market as cruiseship giants continue to push vessels into the country.

She said China deployments still offer cruise lines a 25% to 30% premium in net yield compared to other markets, even with significant capacity increases predicted for this year and 2017.

"Even with no yield growth in China, supply shift to this market will raise overall company yields," said Farley in a note to clients. "Even with flat pricing and recent FX [foreign exchange] headwinds, it is more profitable to deploy an incremental ship into China versus the Caribbean."

Plus, reducing cruiseship capacity elsewhere will help yields in other markets.

China is the hottest new market for the cruise sector, and even lines that had previously been cautious about deploying ships the the country have jumped on the bandwagon.

UBS estimates that 5% of the cruiseship passenger capacity is deployed to the Chinese market. That is expected to grow to 8% to 9% by 2020.

Among recent additions, Carnival announced earlier this month that it finalised a ship order that includes two 4,200-berth cruiseships that will be deployed to the Chinese market.

Earlier today, Chinese state shipbuilding group CSSC is forming an alliance of yards and designers to develop its cruiseship business.

China cruise capacity

^{* Estimated / Source: UBS}