Genting Hong Kong comes out with new version of luxury liners to tap into China market
INTO his mid-60s, Tan Sri Lim Kok Thay of the Genting group doesn’t seem to be showing any signs of slowing down. In fact, he is steering the cruise business at flank speed and aspires to be known as the “King of Asian Cruise” instead of ascending to the title of “Casino King”, something that his late father Tan Sri Lim Goh Tong had earned after building a casino on Genting Highlands.
The group’s flagship company, Genting Bhd, commands a market capitalisation of RM30bil, thanks largely to its casino operations on the highlands and in Singapore.
The Lim family controls the Genting group through Kien Huat Realty Sdn Bhd, in which Kok Thay is a substantial shareholder through the direct holding of shares and indirectly through a trust.
“His phone has to be switched on for 24 hours because the casino business runs all over the world,” says the tycoon.
As for Kok Thay, it is his passion for the business that still drives him.
And his affinity for the cruise business is telling with his probable plan to retire and live on a ship.
“I enjoy what I do, whether it’s the cruise or land side of the business and I would continue to do it as long as I enjoy it. If I stop enjoying it, then I might retire and live on a cruise ship.
“That’s what I started more than 20 years ago, without really knowing what it’s all about until today. I think we should be rightfully proud of it. But it’s still not finished yet. The story is going to get more exciting,” says Kok Thay in an interview with Malaysian media in Bremerhaven, Germany.
Kok Thay, who is the chairman of Genting Hong Kong Ltd (Genting HK) that controls Star Cruises and the entire cruise business, speaks passionately about the cruise business and the way forward.
He recounts that his involvement with the cruise business stretches back to more than 20 years ago, when he started what was known at that time as Star Cruises.
Kok Thay’s first brush with the cruise business was in the 1990s when the Genting group was operating a casino business in the Bahamas. Its lease ended and it was sitting pretty on profits, said to be more than US$5mil.
At that time, there was an opportunity to invest in Carnival Cruises, which was then a struggling cruise operator plying the North America and Central America routes. Kok Thay was keen on it but his father (Goh Tong) was not. Over the years, Carnival Cruises went on to become a US$5bil company, while the Genting group was still looking at expanding its operations away from the highlands.
Only in the late 1990s did the family go into the cruise business under the flagship of Star Cruises and kept on building on it over the years – through a painful process.
Today, the cruise business comes under Genting HK, which has a market capitalisation of HK$18.9bil.
Under the Genting cruise umbrella sits three brands – the original Star Cruises brand, Dream Cruises and Crystal Cruises.
“We’re very proud that Crystal Cruises is part of Genting cruises. We acquired it about two years ago and it gave us the motivation that we had the strength and depth to build this new cruise brand, Dream Cruises,” Kok Thay says.
According to him, Crystal Cruises has the distinction of being the most awarded cruise line in the world. Two leading industry magazines – Conde Nast Traveler and Travel Trade – have awarded it as the No. 1 cruise line in the world for 20 years in a row.
Kok Thay says the group is now ready to transform the industry further with its “Total Freedom” concept or what he deems as “Cruising 4.0” with the latest vessel, the Genting Dream.
It cost them US$1bil and took 12 months to build.
“This ship took 12 months to build, from what we call keel laying to the handover. On land, it would be impossible to put up a 1,500-room hotel in 12 months from foundation. So, the shipbuilding business, especially what is done by the German shipyards, is quite amazing,” he says.
The Genting Dream liner is built to cater specifically to the fast-growing Chinese cruise market.
“We are bullish because we don’t see a slowdown. All the players are announcing more ships being based out of China,” Kok Thay says, adding that there are less than five vessels operating in China compared with 100 ships based in the Mediterranean and North America.
“China is practically a virgin market. Our competitors are seeing a five-million-cruise-passenger market out of China. So you need a lot more ships.
“We’re very fortunate to have placed an order. If not, we won’t be able to see a ship for another five years, and our competitors will take us to the cleaners,” reckons Kok Thay.
He says with Genting Dream, the group can now at least start the “total freedom” concept to get more data as to how the global-class ship should be built.
“Total freedom” revolutionises the current free-and-easy cruising concept. The “total freedom” concept allows passengers a wider range of flexible onboard spending choices compared to the current offerings.
In explaining its Cruising 4.0 concept, Kok Thay says prior to Genting’s cruise, the two American players dominated the cruise business and were rigid in their ways. The two are Carnival Cruises and Royal Caribbean Cruises and catered mainly to Europeans and Americans.
“I remember in my first cruise, I had to bring my dinner jacket to the Caribbean in 90-degree heat, and especially for an Asian, you really feel uncomfortable. You’re assigned to a table and if you have a 6pm round for dinner, you have to eat … otherwise you’re stuck.
“There’s only one choice, the main dining room, and obviously, it’s all Western food. After the third day, you get so sick and tired because there are no choices,” recalls Kok Thay.
He saw an opportunity – which is to build a cruise business to cater to the Asian crowd.
“When we planned for Star Cruises, we targeted it for Asians with the same culture and background. We need to offer that freedom of choice. So we called it ‘freestyle’. When I talk about ‘total freedom’, it is moving more in that direction,” he says.
The cruise business in Kok Thay’s terminology has gone through several phases.
The early phase of the cruise business, what Kok Thay describes as Cruising 2.0, is where the ship is primarily built to cater for people going on vacation. The vessels such as SS Norway are not meant for transportation, have rigid meal times, formal attire and have restricted facilities.
Cruising 3.0 came in when Genting bought Norwegian Cruise Line in 2000 and introduced what it calls “freestyle” cruising. A freestyle cruise concept effectively means that there are no set times or seating arrangements for meals and no requirement for formal attire.
Now, Kok Thay is looking at Cruising 4.0, which allows even more flexibility in terms of offerings such as dining and shows on board the ship compared to vessels under the “Cruising 3.0” concept.
“With this new brand called Dream Cruises, we are looking at Cruising 4.0,” Kok Thay says, adding that when Crystal Cruises gets its first ship built by its newly acquired shipyard, that would be Cruising 5.0.
Differentiating the cruise revenue from gaming
From a business standpoint, Kok Thay notes that companies in the cruise business have to remain flexible and compete on the same field as the Americans, as they are very aggressive and competitive.
“We have to stay on our toes, be creative and think outside the box. This business has only three meaningful players on a global basis. Not many mega industries have that small number of players.
“Between the three of us, we account for 70% to 75% of the total global cruise business,” he says.
The cruise revenue is broken into two parts – ticket revenue and onboard revenue.
Ticket revenue comprises payments for food, cabin and some form of entertainment. The rest of the amount spent by the customer on the cruise liner from entertainment to attractions such as gaming is considered as onboard revenue.
Kok Thay balks at suggestions that the biggest margins come from the gaming business on board the cruise liners.
“When you look at this ship (Genting Dream), it is designed to provide a lifestyle experience. This is the new way that the old industry is trying to build. The player that gets it right will enjoy the biggest margin. It doesn’t matter whether it comes from the ticket side or onboard revenue side,” he says.
He feels that Genting’s cruise business is being seen as skewed towards gaming because of its other casino operations.
“That’s how we get stereotyped because we’re Malaysian and we have a casino business,” Kok Thay says.
“While that may be true with the Star Cruises brand, if you look at Crystal Cruises, there’s no gaming dollar there. Not that it doesn’t have a casino, it does.
“All cruise ships have casinos, but it depends on which area of the world you are operating in, which market you are focusing on and the product itself. Cruise ships have become more innovative,” he explains.
In the first six months to June 30, 2016, Genting HK’s revenue from cruise and cruise-related activities increased 44.8% to US$384mil compared with US$265.1mil in the same period in 2015.
Its net revenue in the first half of 2016 (H1’16) increased 41.2% to US$307.8mil from US$218mil in the first half of 2015 due to an increase in capacity days of 20.9% and an increase in net yield of 16.8%.
The increase in both capacity days and net yield was primarily due to the inclusion of full six months’ contribution of Crystal Cruises in H1’16, as compared with its post-acquisition contribution since May 15, 2015 in H1’15.
Its revenue from non-cruise activities was US$51.9mil in H1’16 compared with US$10mil in H1’15, primarily contributed by revenue from yard repairs and conversion activities as a result of the acquisition of shipyards in Germany.
The group’s earnings before interest, tax, depreciation and amortisation for H1’16 was negative US$28.1mil compared with US$29.6mil in H1’15.
Kok Thay also notes that the group is in a unique position because there is an entry barrier to the US$50bil industry.
Banking on shipbuilding and cruises
Genting HK is currently the only cruise operator in the world with its own shipyards. The company has acquired three shipyards in Wismar, Warnemunde and Stralsund, Germany, for 230.6 million euros (RM1.04bil) and renamed them as MV Werften.
Kok Thay announced that Genting HK would be investing an additional 160 million euros (RM462mil) in its shipyard business, bringing its total to some 260 million euros.
“We have already stated that there would be another 160 million euros. So, the total would be 260 million euros, but I think rounding it up to 300 million euros may not be a surprise because we really need state-of-the-art technology to stay competitive,” Kok Thay says.
MV Werften will deliver the first of four luxury Crystal River ships in 2017, the first of a series of 20,000-gross-tonne Crystal Endeavor Class polar expedition yachts in 2018, and the first of a series of 201,000-gross-tonne Star Cruises Global Class cruise ships by 2020.
The planned annual output of MV Werften will be stepped up in future years to eventually build two Neo-Panamax cruise ships of over 200,000 gross tonnes each and one Panamax cruise vessel.
Kok Thay explains that Genting HK bought its shipyard business because it had no choice, as the demand for cruise ships has grown so substantially that slots have become scare in terms of the delivery of new ships.
Since taking over the helm. Kok Thay has been known to make bold decisions like the one to put money in Singapore to build one of the two casinos. It has paid off in ensuring that the Genting group stays relevant within the region.
Genting’s cruise business has always been competing on an international platform. With Kok Thay at the helm and taking a keen interest, it could just be the break he needs to tap into China’s growing demand for cruise holidays.