Bloomberg News

Hong Kong Turns Airport Into Cruise Terminal

June 11, 2013

Hong Kong Turns Airport Into Cruise Terminal to Woo Rich Chinese

Workers prepare for the arrival of the 'Celebrity Millennium' ship, a Maltese registered vessel, at the under-construction Kai Tak Cruise Terminal in Hong Kong on March 16, 2013. The terminal will open today. Photographer: Dale de la Rey/AFP/Getty Images

Hong Kong has turned a former airport into an HK$8.2 billion ($1.1 billion) cruise terminal as the city seeks to woo wealthy Chinese travelers to help it become Asia’s hub for luxury liners.

The terminal, built at the city’s former Kai Tak Airport, will open on a public holiday today. Royal Caribbean Cruises Ltd. (RCL), one of the operators, expects to draw mostly Chinese tourists to travel from the iconic Victoria Harbour, said Zinan Liu, regional vice president for the Miami-based company.

“China is quite small compared to the U.S. and Europe in terms of market size, as the cruise market is still in its infancy,” Liu said in a telephone interview yesterday. “But it is certainly taking off, as its growth rate is doubling every year.”

China will overtake the U.K. in 2 to 3 years as Royal Caribbean’s second-largest market after the U.S., as demand from the Chinese middle class rises, Liu said.

Hong Kong joins Singapore in adding a second terminal capable of handling the world’s biggest cruise ships as cities across Asia expand facilities to capture a share of the growing vacation market. Worldwide cruise vacationers are expected to increase 3.3 percent from a year earlier to 20.9 million this year, with Asia accounting for 6.5 percent of the traffic, according to industry data and analysis provider Cruise Market Watch.

Royal Caribbean’s ocean liner Mariner of the Seas will dock today at one of the two berths built for the terminal. The second one will be completed next year.

Aircraft Carrier

Royal Caribbean, the world’s second-largest cruise operator, owns a 20 percent stake in a consortium that operates the terminal. Another 20 percent stake is held by Shun Tak Holdings Ltd. (242), founded by gambling magnate Stanley Ho. Worldwide Flight Services, which provides airport and air-cargo services, has the remaining 60 percent.

The group has agreed to pay the government about HK$13 million as fixed rent for the 10-year operation and another variable rent of 7.3 percent to 34 percent of gross receipts.

In addition to the existing Ocean Terminal in Tsim Sha Tsui, the Kai Tak Terminal on the eastern Kowloon peninsula can accommodate the world’s largest cruise ships or an aircraft carrier, said Jeff Bent, managing director of the consortium.

“It is important for Hong Kong to have a facility that can accommodate modern cruise vessels and their passengers efficiently and comfortably,” Bent said in an e-mail reply to questions. “It is to our mutual benefit that Hong Kong and Singapore both have modern facilities like this.”

With modern facilities in Asia, cruise lines will be more likely to deploy ships to the region, compared with other parts of the world, Bent said.

Singapore opened its second cruise terminal last year as operators including Royal Caribbean seek to tap the region’s growing appetite for travel and make up for slowing demand in Europe.

Economic Benefits

The new Hong Kong terminal has the flexibility to convert waiting halls into exhibition venues outside peak seasons and is expected to bring as much as $2.6 billion in annual economic benefits, the government said last week. It will generate as many as 8,900 new jobs in the next decade, it said.

Kai Tak Airport, which opened in 1925, was considered one of the most challenging aircraft landing locations in the world as it was built in the densely-populated Kowloon City. The former airport was shut in 1998 and was replaced by an airport at Chek Lap Kok on the outlying Lantau Island.

The number of Chinese passengers at Royal Caribbean quadrupled to 100,000 last year from 25,000 in 2010 and is expected to double to 200,000 this year, Liu said. Disposable income per capita for urban households in China has doubled since 2008 to almost $1,200 in the first quarter, according to Bloomberg Industries data.

The company already has home ports in the Chinese cities of Shanghai and Tianjin, as well as Singapore, and it plans to set up one in Hong Kong later this year, the executive said.

“Shanghai, Tianjin, Singapore and Hong Kong all have their own unique appeal to travelers,” Liu said. “The cruise market in this region is going to be so big, and they don’t necessarily need to compete for guests.”

To contact the reporters on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net; Jasmine Wang in Hong Kong at jwang513@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net


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