Management Summary
Carnival Cruise Lines (CCL) is the leader of an industry experiencing growth in both
capacity and customer base. The company is fiscally sound and positioned to capitalize on
the external opportunities.
Currently Carnival and two other large cruise lines, Princess and Royal Caribbean,
dominate the industry. Royal Caribbean and Princess are in a position to challenge
Carnivals industry leadership using many of the tools and strategies developed by
Carnival.
Because consolidation of the industry is occurring, Carnival must reinforce its position as
the industry leader. To achieve this goal the company must increase market share, better
serve its customers and maintain its low operating cost.
The first place to begin is when the customer buys the ticket. The cruise industry as a
whole, and Carnival in particular is victim to an archaic system whereby cruise line
customers and Carnival are locked into a system where the travel agent is the middleman.
The Internet has made direct purchasing easier and available to the customer but the
customer base is not actively taking advantage of the new technology. In 2000, over 90%
of all cruises were still booked through agents. Customers currently lack confidence in
their ability to research vacation options. The commission paid to the travel agents is 10%,
15% in Florida. There are three defficencies in this arrangement; one is the lack of
communication with the customer in one of the most crucial portions of the business
activity. The second is the overall cost to support the travel industry. The third is Carnival
lacks effective control over the sale of its product.
A second issue is the expansion in size of the cruise ship, now at about 2500 to 3200
passengers. While in many ways this creates a fantastic economy of scale, there will be a
quality sacrifice to be made by both the passenger and Carnival. There will be a backlash
that should develop a significant niche segment of the repeat cruise customer base. They
will be looking for the smaller more intimate cruise environment. Passengers will be
willing to forgo the deep discounts afforded by the economy of scale for a more
pleasurable experience. This market will not and doesnt have to be the high-end luxury
market, as it exists today. The cruises should be positioned above medium priced market
but below luxury pricing. There will be an opportunity for a strategic decision to be made
that will solidify this market and reap extraordinary benefits for the line that takes the
initiative to develop this market segment.
The third focus concerns the merger fever that is dominating the industry today. With the
rapid expansion of passenger capacities from the major carriers, the lower half of the
industry will be ripe for acquisition. A clear expansion strategy must be developed with
acquisitions made that can reinforce the economies of scale Carnival has built. It will also
create an opportunity to further diversify the company and allow it to take advantage of
growth in segments where Carnival is currently weak. In addition, Carnival must reinforce
dominance in the Caribbean market and further expand other markets including Alaska and
the Mediterranean. Being dependent on the mercy of Mother Nature in the Caribbean is
too big a risk.
Carnivals dominance can grow to new heights in this environment; we will also see many
companies fail because of poor planning and the lack of foresight in the rapidly changing
business environment of the cruise industry.
II. Mission Statement
Currently Carnival has no mission statement. Let me give a brief explanation of what a
mission statement is according to Peter Drucker:
What is a mission statement? An enduring statement of purpose that distinguishes one
organization form other similar enterprises, the mission statement is a declaration of an
organizations reason for being. It answers the pivotal question, What is our business?
Based on the overall profile of Carnival, a suggested mission statement might contain the
following:
Carnival Corporation is the world leader and innovator in quality and value in the cruise
travel industry. We commit to high standards and strive to provide the ultimate
entertainment experience in a floating resort environment. The company owns and
operates a modern fleet of cruise ships that sail to exciting destinations around the world.
At Carnival Corporation we work to excel at:
VALUE by being fiscally responsible and cost effective managers; we provide our
customers with the highest quality and luxury, supplying ultimate customer satisfaction
and value.
VARIETY- Carnival Corporation offers cruises designed to cover the entire market.
GROWTH- Carnival Corporation will pursue growth strategies to maximize investor
return. These will be done in accordance with sound management, strategic expansion and
ethical business practices.
ENVIRONMENT-Carnival Corporation will pursue sound environmental policies and be a
faithful guardian of the environment.
EMPLOYEES-Carnival Corporation is committed to hiring, developing and motivating
high caliber employees. We seek to offer our employees job security by making sound
business decisions and expanding the horizons of the organization
III. Opportunities and Threats (External)
The external environment contains forces that the company cannot control. The company
must adopt policies to adapt to these conditions. The goal is to maximize the opportunities
and minimize exposure to threats.
A. Economic Forces
Threats
* Economic uncertainty, US and European economies are stalling as growth declines.
* Employment and under-employment on the rise.
* Stock market in decline
* Increase in cost of oil translates into higher airfares and increased fuel cost
* Adverse weather or natural disasters in the Caribbean
Opportunities
* Prime interest rate very low
* As money tightens vacationers looking for value, package cruises become more
appealing
* Tax laws become more liberal for businesses
* Worldwide economy weakens, dollar may strengthen (good for Americans)
* Increased disposable income as baby boomers reach retirement age
* Baby boomers retire and look for leisure activities
B. Social, Cultural, Demographic, and Environmental Forces
Threats
* Ocean pollution becoming an increasing issue
* Aging population, decline in travel when health fails
* World wide terrorism
* Fewer married couples
Opportunities
* 90% of North America untapped market
* Warm climates of Caribbean attractive to large sector of North America during cold
months.
* Increased willingness to travel by middle class
* Cruise largest growth sector in travel industry
C. Political, Governmental and Legal
Threats
* Unified attack on ocean pollution
* RCL caught dumping pollution into ocean, increased scrutiny on cruise industry
* Governments looking to increase taxes on cruises
Opportunities
* Trend toward government deregulation
* International maritime laws become universally adopted
* World stability, no major wars or police actions
* Terrorism receding, world travel becoming safer
D. Competitive Forces
Threats
* Industry expansion, capacity increasing faster than demand. The plan is to build 54 ships
by 2005. Eight ships have been delivered in 1999 with larger passenger capacities.
* Deep discounting of fares to fill overcapacity, last year capacity increased by 11% while
sales increase by 9%, as reported by CLIA
* Industry consolidation creating cruise lines with economies of scale, industry leaders
becoming equals
* Discount pricing devaluing the product
* Dependence on travel agents
* Management of competitors mature, industry leaders are expanding to a few larger
carriers of equal ability to compete
* Increased competition in Caribbean market
* Trend toward larger ships diminishes quality
Opportunities
* Overall cruise line industry consolidation, weaker lines selling
* Industry as a whole involved in sophisticated marketing strategies to raise awareness and
inform
* 6.9 million people took cruises in 2000, largest number since records being tabulated.
* Increased awareness due to industry wide increase in marketing efforts
The graph below shows the increase in demand for cruises as well as the increases capacity
in terms of percentages.
E. Opportunities and Threats Analysis
Competition will heighten due to overcapacity issues. As demand is leveling off, capacity
is at record-breaking expansion levels. Price wars may affect profit margins.
The cruise industry finds itself in a situation where a third party sells the product.
Renaissance attempted to circumvent the relationship and failed miserably. There is a 10%
cost center attributed to travel agents commission. There is no direct interaction with the
customer during the cruise selection process. Over 90% of the cruises were booked
through travel agents.
A feature of the rapid expansion mode in the industry is the size of the ships. Cruise ships
are becoming larger and larger with the new vessels between 2300-3200 passengers. The
expansion in ship capacity will have a negative effect on the overall quality if the cruise
experience.
Economic forces play a crucial role in leisure activities. As a non-essential item, a cruise is
one of the first expenses to be eliminated in a consumer budget. Demand is expected to
soften and become more price sensitive since the current economic situation is uncertain.
There is some question if the economy is leveling off, going into recession or a temporary
stall that will rebound shortly. Since a cruise is all-inclusive it can be marketed as a
package price, meaning the consumer knows up front the approximate cost of the vacation.
In times of uncertainty this is a definite advantage for the industry. Peak demand occurs
during a healthy robust economy.
The unsteady supply of oil has a direct impact in the cost of ship operations as well as cost
of airfare, a major cost factor in selecting a cruise as a vacation. The cost of airfare can be
as much as the cruise itself. Arrangements should be made to attempt to mitigate the price
