Carnival Cruise Case Essay Example

the Caribbean during the fall and winter and has 11 ships with a total of 13,348 berths. The 1989 acquisition also included Holland America Westours, the largest tour operation in Alaska and Canadian Rockies; Westmark Hotels, which owns 16 hotels in Alaska and the Yukon Territories; and Windstar Sail Cruises, which operates three computer-controlled sailing vessels primarily in the Mediterranean and the South Pacific. Seaborne Cruise Lines, targeting the luxury market, owns three ships that can accommodate 208 passengers per ship. Costa Crociere was purchased by Carnival and Airtours for $141 million in 1997 and is considered Europe’s largest cruise line with seven ships and 10,000 berths. In 1998, Cunard Line was purchased and merged its two ships with Seaborne. The industry is characterized by intense competition, overcapacity, and the introduction of larger new ships.

The current issues faced by the industry are expected to worsen in the future due to foreign corporations. Carnival Lines enjoys almost tax exempt status, benefiting from the majority of passengers boarding in U.S. ports.

Decision Date: 2002 2001 Revenues (6 months):$4,535,751,000 2001 Net Revenues (6 months): $926,200,000.

Current Strategy
Corporate strategy at present is one of growth through horizontal integration (Holland America acquisition of Princess Lines and Seaborne joint venture), internal development, the pursuit of shipbuilding, and the utilization of aggressive advertising/marketing campaigns. Carnival's business strategy is essentially one of differentiation in all segments. Such is being accomplished by featuring the short, fun, and affordable cruise vacations available to the masses (Carnival), service and scenery for experienced cruisers (Holland America), and ultra-luxury cruises for the upscale vacationer (Seaborne).

Princess Cruise Line was acquired by Performance for 5%. The executives involved in

this acquisition include Conover, President and COO of Cunrad Lines; Pier Luigi Foschi, Chairman and CEO of Costa Cruise Lines; Gerald Cahill, Senior VP Finance and CFO of Carnival Corporation; Lowell Zemnick, VP and Treasurer of Carnival Corporation; Kenneth Dubbin, VP Corporate Development; Arnaldo Perez, VP General Counsel, and Secretary; and Howard S. Frank, Vice Chairman and COO. It is worth mentioning that one of these executives is female. Additionally, it should be noted that Carnival Corporation is a family business handed down from founder Ted Arison to his son Micky, who currently serves as CEO and Chairman. Micky Arison and Bob Dickinson are the key decision-makers in the company's strategic plans.

The bargaining power of shipbuilders as suppliers is moderate because shipbuilding requires a significant investment of money and time. If a shipbuilder fails to fulfill a contract, Carnival will have difficulty finding a replacement ship. The bargaining power of buyers may increase in the future due to both the growth in berth capacity and the decrease in demand. These factors would result in cruise operators offering large discounts, giving customers more affordable options when choosing a cruise. The threat of substitutes is on the rise, especially with the introduction of all-inclusive combination cruise and land packages like Disney's Big Red Boat vacations. Other stakeholders, such as the American Maritime Union, also pose a threat to Carnival and other operators by lodging complaints about the exploitation of cruise employees.

The corporate structure of Carnival Corporation consists of various major market segments including Premium, Holland American, Costa Cruises, Luxury, Seabourn, Cunard, Contemporary, Carnival Specialty, Westours, WindSail, and Gray Lines of Alaska and Seattle. The organizational structure is

comprised of Carnival Lines, Holland American, Costa Cruise Lines, and Cunard Lines (see Exhibit 2 in case). Decision making is centralized with top management and the Board of Directors having control over all strategic decisions. The corporation aims to standardize shipboard operations in order to reduce routine decision making.

In terms of corporate culture at Carnival Corporation, the main focus is on prioritizing customer satisfaction by providing them with the highest level of service while also controlling costs. The company aspires to be a leader and innovator within the industry.

Corporate resources encompass various factors that contribute to the overall functioning of the company.

Carnival Corporation aims to maintain its dominant market share in the cruise industry following the events of 9/11/01. To achieve this, it intends to implement intensive marketing strategies that focus on retaining the loyalty of previous cruisers and introducing innovative shipboard activities and operations. Carnival's cruise offerings are specifically designed to cater to three key markets: contemporary, premium, and luxury.

Carnival Cruise Lines (contemporary) caters to younger and first-time cruisers by offering reasonably priced packages that include airfare and a variety of amenities on board. Their prices are competitive with other similar cruise and land-based packages. They have created a unique cruise theme called "Fun Ship," which promotes the ship itself as the primary vacation destination, with the ports-of-call being of secondary importance. On the other hand, Holland America Lines (premium) targets wealthier travelers by offering cruises that are, on average, 25-35 percent more expensive than Carnival Cruises. HAL serves an older and more established clientele. In addition to cruises, Carnival provides further vacation opportunities through Westmark Hotels, Westours, Gray Line Tours, and the McKinley

Explorer railroad coaches in Alaska.

These auxiliary tours and hotels are primarily marketed to meet the increasing demand for land vacations in Alaska that complement Carnival's Alaskan cruises. Seaborne caters to the luxury market, offering cruises to South American, Mediterranean, Southeast Asian, and Baltic destinations. Their clientele consists of extremely affluent individuals who embark on worldwide cruises lasting up to 98 days. Windstar Sail Cruises specializes in niche cruises on small-capacity ships (less than 150 guests), allowing access to smaller and less frequented ports-of-call. Carnival Corporation holds the distinction of being the first cruise operator to promote their services through television advertising. The majority (99 percent) of Carnival cruises are booked via travel agents, and the company has implemented an incentive program to reward agents who prioritize suggesting a Carnival cruise over other vacation options.

Internet booking has had an impact on travel agents. Additionally, the financial situation involving a $5 billion acquisition of Princess Line in 2002 led to a decrease in bookings by 9%. Furthermore, a $6 billion ship construction program is planned through 2005. This suggests that berths may be increasing at a faster rate than demand. However, revenues have seen an increase of $757,208,000, which is a 20% growth.

0%) (S) Net Income down $39,258,000 (4. 07%) (W) Cash up $1,232,018,000 LT Debt up $855,777,000 (40. 7%) (W) Major expenses costs are airfares (25-30%), travel agents (10%), and labor (13-15%) Fixed costs are 33% of operating costs. CFC (Controlled Foreign Corporation) most all income tax exempt NOTE: Students should research CFC. 3.

Research and Development Carnival depends on shipbuilders' R&D efforts to create faster, more fuel-efficient, and technologically advanced ships. Carnival also utilizes service R&D

to enhance and refine shipboard entertainment and activities, catering to the diverse needs of the three market segments they cater to. (S) 4. Operations face an $18 million fine for pollution. (W) Princess Lines is integrated into Carnival operations. The primary operations involve the three cruise lines and the additional tours and hotels discussed in the marketing analysis.

The new ship program, costing $6.0 billion, is expected to be completed by 2005. This expansion will allow Carnival to remain competitive with its rivals, who are also expanding. However, if future demand remains low, this additional capacity could impact future profitability negatively. One of Carnival's key strengths is that its operations are highly efficient, with a break-even point of 60%, the lowest in the cruise industry.

Furthermore, a considerable reduction in costs has been accomplished by standardizing layout and shipboard operations on its ships.