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Carnival Sees China as Its Biggest Potential Area of Expansion

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Jan. 4 2016, Updated 1:05 a.m. ET

Snapshot

Carnival Corporation (CCL), the largest cruise company in the world, saw a strong comeback in the past few quarters. Let’s look at some factors that are expected to positively impact the company in the future.

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Improving economy

The US economy has been showing signs of improvement, and this is expected to benefit the company as consumer spending could grow. The company has already seen strong advance ticket sales for the next few quarters of 2016 despite the growth in industry-wide ticket fares.

Continual investments and joint venture

Carnival has been continually investing to expand its fleet of cruise ships that currently stands at 99 ships across its ten brands. During 2015, Carnival opened a new cruise facility named Amber Cove on the northern coast of the Dominican Republic. It also launched two new ships, Pacific Aria and Pacific Eden, for its Australian brand, called P&O Cruises.

Like other businesses, cruise companies also see a strong potential market in China. Carnival has also identified China as the biggest potential area of expansion for itself. The company announced that Carnival Cruise Line and AIDA Cruises will enter the Chinese market in 2017.

The company also announced a joint venture with China State Shipbuilding Corporation and China Investment Corporation to launch a domestic cruise brand in the market. It also said that brands Costa Cruises and Princess Cruises already have a combined fleet of six ships to be launched in the Chinese market in 2016, while Princess Cruises will introduce the Majestic Princess in China in 2017.

Thus, CCL has many positive factors in its favor that could help it grow in coming years.

Carnival has a market share of ~47%, followed by Royal Caribbean (RCL) at ~23%, and Norwegian (NCLH) at ~10%.

ETFs such as the PowerShares Dynamic Large Cap Growth Portfolio (PWB), the PowerShares Dynamic Leisure and Entertainment Portfolio (PEJ), and the Consumer Discretionary Select Sector SPDR Fund (XLY) hold stocks of the three major cruise liners.

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