Case16 87068497 Carnival Corporation

CARNIVAL CORPORATION-2007

STRATEGIC MANAGEMENT CASE STUDY PRESENTATION

Group Members

Hammad Haider

Ibthal Ahmed

Muhammad Naeem

Sohaib Ahmed

Lahore School of Economics

Presented to

Saba Rana


INTRODUCTION AND INTERNAL ASSESSMENT

Carnival corportaion is a British-American owned cruise line, based in the Doral suburb of

Miami, Florida in the United States. Originally an independent company founded in 1972 by Ted

Arison, the company is now one of eleven cruise ship brands owned and operated by Carnival

Corporation & plc. The company has the largest fleet in the group, with twenty three vessels

currently in operation. Executive control of the company is provided by the North American

division of Carnival Corporation, headquartered in Doral, Florida

Carnival was a pioneer in the concept of shorter, less expensive cruises. Its ships are known for

their Las Vegas-style decor and entertainment. The line calls its ships The Fun Ships, and there

are a wide range of activities offered on board. Its trademark is the funnel, which is red, white

and blue and shaped like a whale's tail. The mascot for Carnival is "Fun Ship Freddy", a

character in the shape of Carnival's distinctive funnel.

In 1996 the Carnival Destiny of 101,000 gross tons became the largest passenger ship in the

world at the time. In 2004, Carnival Corporation ordered for a development program for

Carnival's new ships, which was called the Pinnacle Project, which calls for a 200,000-GT

prototype, which would have been the world's largest cruise ship. As of 2009, the latest and

largest ship in the Carnival fleet is the Carnival Dream, a new 128,000 gross ton ship. The

Carnival Dream entered service on 21 September 2009. After several voyages in the

Mediterranean she is set to offer weekly Caribbean cruises from Port Canaveral from 5

December 2009. A sister ship, the Carnival Magic, debuted on May 1, 2011. On December 1,

2009 it was announced that Carnival placed an order for a third Dream-class vessel. It will enter

service in June 2012 and will be homeported in Miami.On May 10, 2010, Carnival selected a

name for their new Dream-class vessel in 2012; the Carnival Breeze.

Mission Statement:

”Our mission is to deliver exceptional vacation experiences through the world’s best known

cruise brands that cater to a variety of different lifestyles and budgets, all at and outstanding

value unrivaled on land and or at sea”


Strengths:

Large ship fleet

Highest market share

Financially strong, high profits

High customer satisfaction

Weaknesses:

Majority of the revenue comes from US customers, subject to uncertainty

Over dependence on travel agents

Lack of market development towards Asia

Inability to dispose of gray and black water properly

IFE Matrix:

Strengths Weights Rating Score

Large ship fleet 0.15 3 0.45

Highest market share 0.2 4 0.8

Financially strong, high profits 0.15 3 0.45

High customer satisfaction 0.2 4 0.8

Weaknesses

Majority of revenues coming only from US 0.1 2 0.2

Overdependence on travel agents 0.05 2 0.1

Lack of market development towards Asia 0.1 1 0.1

Inability of dispose of gray and black water 0.05 2 0.1

1.00 3.00


EXTERNAL ASSESSMENT

Industrial organization view:

1. Economies of Scale: Carnival Corporation benefits from this as they have the largest

fleet in cruise industry hence they offer their customers cheap rates as economies of

scale lowers the average cost per unit through increased production since fixed costs

are shared over an increased number of goods.

2. Entry Barriers: the industry has a relatively a high entry barrier but has a low

penetration level. This is because the cruise industry is at an early stage of development.

Only 17% of the US population has ever taken a cruise.

3. Product Differentiation: Carnival attracts the major chunk by providing them with

service much better than any of its competitor. Cruise industry invests heavily in

innovating new ideas that attract customers. Offers them an experience that none other

can provide them. To do so they make sure all the facilities are provided to them on

board so feel like home. Ex: Spa, Gym, Cinema, Play Grounds etc

4. Level Of Competition: The volume of the cruise ship market is relatively small, with

important barriers both to entry and exit associated with the extremely high cost of

purchasing or selling a single cruise ship, and the high investment needed to maintain

and manage a cruise line, which has a decisive influence on diverse aspects and

strategies related to organizational and management issues.

Economic Forces:

Economic factors play an important role in tourism. This market is very sensitive to changes in

global economy and consumer’s discretionary income. In 2000 the cruise industry suffers

greatly as the result of weak economic conditions. Since 2004 the cruise industry experienced

an increase in both net revenue and capacity due to consumers having more money to spend.

In the same way, the bargaining power and capability to take advantage of economies of scale

present in the cruise industry are also affected by the size of the market in two different and

contradictory ways: a) the presence of a few shipbuilders and technology developers in the

industry forces the cruise companies to accept the prices and costs offered to them; b) the

large number of suppliers of equipment, fuel and food products allows them to bargain for the

best prices.


Such a reduced number of companies allow them to watch closely for potential commercial

threats in a constant competition for a clientele influenced by general economic conditions and

with other vacation alternatives, such sightseeing vacations, land-based resort hotels, thematic

parks, etc. A situation that has given place to diverse strategies and plans to identify and

specialize in the specific areas within this business framework, resulting in a division of the

cruise industry into well-differentiated sectors or market niches – luxury, premium and

contemporary – that offer diversified and targeted cruise products and services to satisfy both

mass consumer markets, interested in budget packages, and a distinctive clientele seeking the

exclusive environment onboard small ultra-luxury ships.

Marketing, innovation and brand image are therefore vital elements in such a competitive

commercial environment, and key factors to succeed in a sector in a constant effort to find new

sources of income and new strategies to maximize economic performance and profit.

Porter’s Five Forces Model:

1. Threats of entry: the easiest way to enter the cruise industry appears to be through

mergers, acquisitions and take over. Carnival recently purchased Princess Cruise Lines in

a merger deal for 5.67 billion. There are essentially three cruise market segments:

contemporary, premium and luxury. Along with these types of cruise comes varying

level of services and expertise. The high cost of training and maintaining exceptional

employees for their shops, casinos, entertainment, hotel staff, world class chefs and of

course the maritime staff requires a parent company with vast financial resources.

Therefore the threat is low.

2. Threat of substitution: the cruise industry holds a unique position in that the threat of a

substitution by another vacation activity by the current consumer market seems highly

unlikely. Family cruisers are also growing in popularity. In fact, a cruise vacation is

generally cheaper than a traditional vacation package. Many lines offer package airfare

and cruise rates to their customers. An increasing number of lines are expanding their

ports of call and destination to please the demand of today’s diverse cruise market.

Travel agents say demand for Alaskan cruises is high as post spat 11. 10% more

passengers than last year mean more choices for travelers.

3. Power of Suppliers: A rise in fuel prices has been quite costly for the cruise industry who

are not only directly affected by fuel cost for running their own ships but must raise

ticket prices to cover the increase cost of flying due to high fuel prices and a hike in

airfares. Quality, dependable suppliers are viral in order to ensure repeat cruisers. If

food was good on the first cruise, consumers expect it to be up to par each time they


cruise. This goes for advertising too. Carnival was the first cruise line to use television

ads to promote itself. Travel services also pay an important role in promoting and

fulfilling cruise reservations. Many publications also get the word out to first time cruise

vacationers who are curious about what is available

4. Bargaining power of Customers: today cruise vacationers have many different line to

choose from, each offering a slightly different spin on cruising. Most cruise lines target

middle class vacationers with the grand ocean liner experience not found in decades.

Many first time cruisers are lured in by moderately priced air and cruise package rates.

Often one can buy a cruise vacation anywhere from 125-250 dollars per person. Most

hotel stays in major cities are more expensive not including transportation as well as

food. Along with low priced package rates, consumers area also demanding a unique

vacation experience. Now as in the case study cruisers appeal to a younger, hipper

audience and its easy to see why. Modern cruise ships are floating cities with everything

within. Gym, cinema, ice skating, wall climbing etc.

Opportunities:

Market development to Asia where large potential customer base is present

New ships joining the present fleet will provide greater passenger capacity

Implement the forward integration in a better manner in order make it convenient for

the customers

Attract the young generation more towards the cruise industry as they are in large

number and can prove to be highly profitable

Threats:

Royal Caribbean poses a huge threat to the market leadership of Carnival Corporation

Environmental issues

Economic fluctuations

Natural disasters


EFE MATRIX

Opportunities Weight Rating Score

Market development to Asia 0.2 2 0.4

New ships coming in to increase capacity 0.1 4 0.4

Forward integration to increase customer

satisfaction

0.1 3 0.3

Attract youth 0.2 3 0.6

Threats

Royal Caribbean 0.2 3 0.6

Environmental issues 0.05 3 0.15

Economic fluctuations 0.1 2 0.2

Natural disasters 0.05 2 0.1

1.00 2.75

Conclusion:

Carnival Corporations’ EFE score is just above average that show that they are making use of

their opportunities well and curbing threats as well but still there is a need for improvement.

COMPETITORS PROFILE MATRIX

Carnival Corporation Royal Caribbean

Critical Success Factors Weight Rating Score Rating Score

Break Even Cost 0.1 3 0.3 2 0.2

Market Share 0.1 3 0.3 2 0.2

Customer Loyalty 0.2 4 0.8 3 0.6

Size of fleet 0.2 4 0.8 3 0.6

Age of fleet 0.05 3 0.15 3 0.15

Coverage Area 0.05 2 0.1 3 0.15


Reputation 0.1 3 0.3 3 0.3

Advertising 0.05 3 0.15 2 0.1

Market development 0.1 2 0.2 4 0.4

Online booking and purchasing 0.05 2 0.1 3 0.15

3.2 2.95

Break even cost:

It takes 60% of the total revenue to cover costs for CC while for RC it is 68%.

Market Share:

CC has 47% market share while RC has 31%.

Customer Loyalty:

Market share is a clear reflection of customer loyalty and satisfaction.

Size of fleet:

CC has the biggest fleet size of 81 while RC has 42.

Age of fleet:

CC has the latest fleet with 20 ships inducted recently that is better as compared to RC.

Coverage Area:

CC covers mostly North America and Australia while RC covers North America, Australia and

also Asia.

Reputation:

Both have great reputation in the cruise industry.

Advertising:

CC pays more emphasis on advertisements; it uses various mediums such as radio, newspapers,

TV and internet. On the other hand RC also advertises but not this extensively.


Market development:

RC has expanded its market to Asia while CC has not. Asia represents a huge potential customer

base.

Online booking and purchasing:

RC has a better system when it comes to online booking and purchasing although CC is not

lacking far behind.

STRATEGY FORMULATION

Following strategies are implemented at Carnival Corporation:

Forward Integration:

Carnival Corporation has exercised forward integration by having greater control over the

booking and selling of tickets as compared to the past. They have set up a highly interactive

website that enables the customers to book tickets online instead of going to the travel agents.

Moreover, they have also coordinated with Galileo, SABRE and Amadeus that helps in easy

booking and purchasing of tickets.

Horizontal Integration:

Horizontal Integration is defined as the taking over of the competitors or having a control over

them. Carnival Corporation acquired companies who were serving various market segments of

the cruise industry and thus made its own position stronger than before. Those companies that

were acquired have been mentioned below:

Holland America Line

Windstar Cruises

Alaskan/Canadian tour operator

Seabourn Cruise Line


Costa Cruises

Cunard Line

P&O Princess Cruises

In this way Carnival Corporation decreased the overall competition in the industry and started

various segments of the market that it did not target before. Such segments included people

not so high income levels. Providing them with cruise facility was a big factor in making Carnival

Corporation a success.

Market Penetration:

Seeking greater market share for present services and products with increased marketing

efforts is called market penetration. Carnival Corporation penetrated the market in the

following ways:

Investing heavily in customer service by making it convenient for the customers to book

their tickets through websites, telephone, wholesalers, and travel agents.

They also advertised themselves using various mediums such radio, television,

magazines and newspapers. In this way more and more customers were attracted by

Carnival Corporation.

Discounted offers were also given to the customers.

All these efforts allowed Carnival Corporation to increase its customer base, as a result their

market share also increased and soon they became market leader in the cruise industry.

Market development:

Initially the Carnival Corporation provided cruise facilities to its customers travelling to

Caribbean only from USA. But as they progressed and blossomed they started their started

cruise facilities for Europe that included countries like, Greece, Turkey. Moreover, they also

spread to Northern Europe and towards the Australian Continent.

They also have a chance to serve the huge potential market of Asia. In doing so, they can

expand a lot and become stronger than ever before.


PORTER’S GENERIC STRATEGIES

Out of the five generic strategies that have been presented by Michael Porter, two are applied

on Carnival Corporation. Those two are

Cost Leadership- Low Cost

Cost Leadership- Best Value

Low Cost:

One of the main objectives of Carnival Corporation is to provide cruise services to travelers

regardless of their budgets or income. In order to fulfill this objective they have set up their

sub-brands such as Holland America, Windstar and Seabourn that provide low cost cruise to its

travellers.

Normally the cruise is regarded as very expensive and that only the elite can afford it but

Carnival Corporation has made it feasible for the travellers with no so high incomes. In this way

they have low cost leadership over their competitors.

Best Value:

While sub-brands like Holland America provide low cost trips, other sub-brands like Carnival

Cruise lines and Costa Crociere provide luxurious cruise facilities to the elite class of people who

can afford expensive trips. But Carnival Corporation makes sure that the facilities being

provided to the highly paying customers is of the top most quality in the entire industry.

Facilities like on-ship golf courses, skating rinks, beauty salons, spa facilities etc are provided to

the on-board customers. They serve their customers better than their competitors even though

the ticket prices might be similar.

MEANS FOR ACHIEVING STRATEGIES


Every organization applies various means to achieve the strategies set by it. Two means that the

Carnival Corporation has applied are mentioned below:

Joint Venture/Partnering:

In order to achieve the strategies of market penetration and forward integration mentioned

above, Carnival Corporation has created a partnership with the leading airline computer

reservation system. Those systems include:

SABRE

Galileo

Amadeus

Worldspan

All these systems enable the customers of Carnival Corporation to book and purchase their

tickets either on telephone or through the internet. This excludes the role of travel agent which

is lengthy and also expensive.

Acquisition:

When a larger organization purchases a smaller firm we say that an acquisition has taken place.

Carnival Corporation has implemented the strategy of horizontal integration so that it can

exercise greater control over its competitors. In order to achieve this strategy CC has used the

process of acquisition and with time has acquired competing firms that were smaller in size.

Holland America Line

Windstar Cruises

Alaskan/Canadian tour operator

Seabourn Cruise Line

Costa Cruises

Cunard Line

P&O Princess Cruises


SWOT MATRIX

Strength-Opportunity (SO) Strategy:

One of the strengths of Carnival Corporation is that they have a large fleet size and have

ordered further ship that will be added in their fleet very soon.

As we have mentioned that there exists a huge opportunity in form of large potential customer

base in Asia. Carnival Corporation can utilize their large fleet size in catering the potential

customers of Asia and as a result expand their customer base.

Weakness-Opportunity (WO) Strategy:

Over dependence on travel agents for booking and purchasing of tickets often leads to

inconvenience for the customers as the entire procedure is lengthy and sometime expensive as

well. This has been one of Carnival Corporations’ weaknesses.

They have an opportunity to increase customer satisfaction by implementing forward

integration i.e. exercising greater control over distribution of tickets. In this way they can

minimize the role of travel agents and allow the customers to book and purchase tickets

through sources like telephone and the internet.

Strength-Threat (ST) Strategy:

The strength that the Carnival Corporation has in the form of large fleet size can be used to

curb the threat posed by its biggest competitor which is Royal Caribbean. Royal Caribbean has

expanded to places like Asia and is threatening to overtake Carnival. If Carnival uses its large

fleet size in the proper manner and spreads to Asia and other untapped regions, they can

maintain their supremacy in the cruise industry.

Weakness-Threat (WT) Strategy:

The inability of Carnival Corporation to deal with the wastes produced by its ships is posing a

huge threat to them as the world moves towards more environmental friendly laws and

regulations.


Carnival should set up proper recycling units in their ships in order to recycle the gray water and

make it feasible for use again and also decrease the toxicity of black water so that it is safely

disposed of in the ocean.

QSPM FOR CARNIVAL CORPORATION

STRATEGIC ALTERNATIVES

KEY FACTORS Weight AS TAS AS TAS

Stre*ngths

Large ship fleet 0.15 4 0.6

Highest market share 0.2 3 0.6

Financially strong, high profits 0.15 3 0.45 3 0.45

High customer satisfaction 0.2 4 0.8

Weaknesses

Majority of revenues coming only from US 0.1 3 0.3

Overdependence on travel agents 0.05 4 0.2

Lack of market development towards Asia 0.1 4 0.4

Inability of dispose of gray and black water 0.05

1.00

Opportunities

Market development to Asia 0.2 4 0.8

New ships coming in to increase capacity 0.1 3 0.3

Forward integration to increase customer

satisfaction

0.1 4 0.4

Attract youth 0.2

Market

Development to

Asia using the

fleet Size

Forward Int to

add to

customer

satisfaction


Threats

Royal Caribbean 0.2 3 0.6 3 0.6

Environmental issues 0.05

Economic fluctuations 0.1 3 0.3

Natural disasters 0.05

1.00 3.75 3.05

Documents

Case16 87068497 Carnival Corporation