NEW YORK ( TheStreet) -- The voyage to China next year for Royal Caribbean's ( RCL) new 168,688 gross ton " smartship" Quantum of the Seas may be a little cheaper because of the plunge in crude oil prices.
The combination of a lower fuel bill for the ship, and others in the company's fleet, as well as the sales opportunities from the emerging Chinese cruise market could lead to some strong earnings reports in 2015 and 2016.
Initial "sales (bookings) are very good" for the Quantum of the Seas, said a Royal Caribbean executive at a presentation on board the vessel that was attended by TheStreet. The Quantum of the Seas, which cost the company more than $1 billion and took more than three years to construct in Germany, is scheduled to arrive in China by mid-2015. Once there, the ship will sail three to eight-night itineraries year-round from Shanghai to Japan and Korea.
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In a 2013 report, the Asian Cruise Association projected that demand in the area will surge to 3.8 million annual cruisers in 2020, with 1.6 million coming from China alone. By comparison, there are more than 12 million annual cruisers in the U.S.
Royal Caribbean's Quantum of the Seas won't be alone in the Chinese waters in 2015. Rival Carnival (CCL) will have four ships positioned in Mainland China next year, and 12 marketing offices in the region to get the word out on the relatively new concept of cruising.
But the entry into China isn't without a series of unique risks that aren't all related to the country's communist regime, which has been surprisingly supportive of the cruise industry by building infrastructure, such as terminals, along the coast.
There are "challenges with climates," explained Goldstein, as well as "visa issuances" and not having enough "ports of call." In addition, the company has to establish a large marketing network. Quantum of the Seas is expected to also receive a few "tweaks" before arriving in China, as noted by Chairman and CEO Richard Fain at the presentation, such as infusing Asian culture into the food, entertainment and staffing.
Royal Caribbean's new market, one in which ticket pricing should be stronger than the saturated Caribbean, arrives at a time when filling up the vessel -- and the broader fleet of ships -- is cheaper. Royal Caribbean hedges about 50% of its fuel needs two years forward, according to Goldstein, and it will see a "benefit in the next 24 months" from cheaper costs. Royal Caribbean's fuel costs for the year now stand at $943 million, down from a prior estimate of $949 million made in the second quarter, and an estimate made in April of $957 million.
In the case of the Quantum of the Seas, new fuel efficiency technology, such as an air liberation system that produces drag-reducing bubbles, will also help in keeping the fuel bill manageable. According to the company, the system is expected to trim fuel consumption by a net 7% to 8%.