June 7 (Bloomberg) -- Singapore opened its second cruise terminal as operators including Royal Caribbean Cruises Ltd. seek to tap the region’s growing appetite for travel and make up for slowing demand in Europe.
SATS-Creuers Services Pte, which has a 10-year contract to run the only Asian terminal catering to the world’s biggest class of cruise ships, expects 100,000 passengers in its first year, Chief Executive Officer Melvin Vu said. The center will receive eight vessels by August, including Royal Caribbean’s 15-deck Voyager of the Seas.
“They will deploy to new markets so we may profit from the European turmoil,” Vu said in an interview June 4, referring to the cruise business in Asia. “The ships are coming because of the natural burgeoning tourism and travel profile with the middle class in Asia.”
Singapore, Hong Kong and South Korea are among Asia markets opening new terminals as worldwide cruise vacationers are forecast to grow to 23 million in the next five years from 18 million in 2011, according to data compiled by the Singapore government. Asia accounts for less than 10 percent of traffic now. The euro-area economy was unchanged last quarter as companies cut spending to weather the sovereign-debt crisis.
“Our biggest level of uncertainty right now is really the heart of the European season” in the third quarter, Royal Caribbean Chief Financial Officer Brian Rice said on an earnings conference call in April.
The passenger traffic for cruise lines in Asia excluding India and Australia could increase 25 percent annually for the next five years as more operators reposition their ships to the region, said Jonathan Galaviz, managing director of Galaviz & Co., a tourism industry analyst.
“The cruise travel market in Asia is under-served,” Galaviz said. “Cruise lines are going to be looking at the top two to three cities to have a home port in Asia and they need to have the infrastructure.”
The new terminal operator expects the European debt crisis, which led the MSCI World Index to its worst monthly slump in two years in May, to curb cruise travel from Europe.
“That can easily be made up for in the growing population of China and India and even Indonesia” as cruise operators seek new destinations for growth, Vu said. “Cruise lines are saying, yes, this is a potential market that we can tap.”
Asia hasn’t been immune to the protracted European crisis. India’s economy expanded 5.3 percent in the March quarter from a year earlier, the least since 2003. China’s gross domestic product growth slowed to 8.1 percent in the first quarter from a year earlier, the lowest in almost three years.
Cruises in Asia make up 0.5 percent of all travel in the region, said Stu Lloyd, senior director at the Pacific Asia Travel Association in Bangkok.
“The cruise passenger is typically of a higher median age, education, and higher spending, and that’s why it plays well into Asian markets,” Lloyd said. “There’s a lot of upside.”
The S$500 million ($391 million) Singapore terminal, which hosted its first vessel on May 26, doubled the city-state’s cruise-ship berth capacity and will boost tourist arrivals, said S. Iswaran, Singapore’s second minister for trade and industry.
“This is a relatively big market,” said Michael Chiam, senior lecturer at Ngee Ann Polytechnic in Singapore, who forecasts the cruise industry in Asia will increase 10 percent to 20 percent annually. “With the international cruise lines coming to port, that will give us a bigger market for both the local tourism and as well as for the international tourism.”
The new terminal may help attract 1.5 million visitors arriving in Singapore on cruise ships annually in the next three to five years from 1 million in 2011, Iswaran said. The arrivals could also create about 3,000 jobs, he said.
The 28,000 square-meter (300,000 square-foot) Marina Bay Cruise Centre close to the financial district has two berths, one big enough to handle ships carrying around 6,800 passengers.
The new terminal “has enabled us to deploy our bigger ships into Singapore namely Voyager of the Seas, Celebrity Solstice and Celebrity Millennium,” Jennifer Yap, managing director of Royal Caribbean in Singapore, said in an e-mailed statement. It’s “better suited to handle cruise passenger volume like ours,” she said.
Yap said Royal Caribbean will have more than 20 calls at the new terminal this year.
SATS-Creuers, the terminal’s operator, is a venture between SATS Ltd., Singapore’s biggest ground handler for airlines, and Creuers del Port de Barcelona, which manages cruise terminals in the Spanish city. The venture won the license in December to run the new cruise terminal for a decade, with an option to renew for another five years.
Singapore also has an existing two-berth terminal across from the island of Sentosa, which features a casino resort that houses Southeast Asia’s only Universal Studios theme park. The older terminal serves more than 600 ships a year, including those operated by Royal Caribbean and P&O Cruises.
The new terminal has a cruise-fly service allowing passengers to check-in for flights as they disembark from ships, Vu said. Singapore Airlines Ltd., its unit SilkAir and Qantas Airways Ltd. will offer the services and more carriers are expected to join the list, he said.
The cruise-fly strategy is crucial for a city with a population of just 5.2 million people, Galaviz said.
“To have a successful cruise port, you need a large domestic population,” Galaviz said. “The challenge for Singapore is to convince consumers from across Southeast Asia to fly to take a cruise from Singapore.”
Another drawback is the warm weather in Singapore and neighboring countries, Pacific Asia Travel’s Lloyd said.
“That is a factor that you can’t actually underestimate,” Lloyd said. “A tropical cruise doesn’t necessarily have the same sexy allure as it may have in other climates and cultures.”
Hong Kong is building a new cruise terminal at the site of the old Kai Tak airport to start operations in mid-2013. The terminal will be operated by Royal Caribbean and two partners, according to the city’s government. South Korea is also trying to attract more cruise ships to its terminal in Busan and is expanding the existing one in Incheon.
“We don’t see Hong Kong as competition, Korea as competition,” Vu said. “When cruise ship operators see infrastructure being developed in our part of the world, then they will feel more confident in deploying larger ships to this part of the world and putting Asia as one of the key cruising playgrounds.”
To contact the reporter on this story: Kyunghee Park in Singapore at firstname.lastname@example.org
To contact the editor responsible for this story: Neil Denslow at email@example.com