Cruise Line Industry: Carnival Case Study
A. Financial Performance – The Company had a 26% market share of the cruise line industry. It’s gross profit margin increased by 4.69% from the previous year. Carnival is using its assets effectively. Their sales increased by 10.62% from the previous year. The company is financially strong.
B. Strategic Posture
1. Mission – To consistently exceed guests expectations in all areas of product, service, and support. Carnival’s vision is to consistently provide quality cruise vacations that exceed the expectations of the guests.
2. Objectives – The company wants to keep promoting the “Fun Ship” theme, while adding new activities and entertainment. The company also wants to provide cruises to meet the demands of every vacationer’s budget and expectations. Carnival also hopes to attract a larger percent of the vacationing market and increase their number of repeat customers. Finally, Carnival plans to attract more customers by training travel agents to promote their product.
3. Strategies – To meet their objectives, Carnival uses a variety of strategies. One strategy is acquiring new cruise lines and building new ships. They are particularly interested in Asia and the European markets. Another effective strategy is the high quality of the service. This results in customer satisfaction, which leads to new and repeat customers. Another strategy is the economies of scale. Carnival is trying to increase the size of the company so that they can have the lowest break-even point in the industry.
II. Strategic Managers
A. Board – The board is comprised of fifteen members. Six of the members are directly involved in the Carnival Corporation. The other nine members hold various jobs, such as ambassadors and executives of financial groups. The company has a stable mix of inside and outside directors.
B. Top Management – The management of Carnival Corporation is very strong. The leaders have been responsible for many firsts in the industry. The management team in place has been in place for several years. When the Corporation merges or buys out other companies they often keep on the key players from the new acquisition. The Chief Executive Officer and Chairman of the Board of the Carnival Corporation is Micky Arison, whose father founded the corporation.
III. External Environment (EFAS see Appendix A)
A. Societal environment is strong. This has come about because there are more women in the workplace, which gives households more disposable income.
1. Carnival is now building superliners. These very large ships not only hold more people, but also house more activities and entertainment.
2. The company is catering to many diverse populations. They are doing this by offering a large range of cruises, from 3 days to many weeks, on ships for the middle class to the very wealthy.
3. Higher fuel prices and airfare could cause problems in the industry. They could cause prices to go up, which will keep some people from taking a cruise.
B. Task Environment is very competitive. There are many other companies trying to compete with, or outdo Carnival.
1. Carnival has large economies of scale. This saves them significant cost advantages over their major competitors.
2. There is a threat of substitute products. Many vacationers look at land based vacations instead of cruises.
3. Buyers have the ability to force competitors to lower prices. Many vacationers will choose the package that is less expensive, causing others to lower their prices as well. This can affect the profits for the company.
4. There is a threat of new entrants. This is evidenced by the entrance of Disney cruise lines. This can draw many family vacationers away from Carnival.
C. Main Competitors (List of competitors see Appendix F)
1. Carnival’s main competitors are Royal Caribbean, Princess, and the Disney Cruise Lines. I feel that Disney will be Carnival’s strongest competition in the years to come because of Disney’s deep pockets and popular name.
D. Summary of External Factors
1. At the present time there are three external factors that are critical. They include the more disposable incomes of the public, the competitions between cruise lines, and the ability of the cruise industry to cater to diverse populations.
2. The future factors that are critical to the company are the addition of new and larger ships and the use of travel agencies to increase sales. Another future threat for Carnival is the threat of terrorism. This threat causes people to stay close to home and not plan large vacations.
IV. Internal Environment (IFAS see Appendix B)
A. Corporate Structure
1. Carnival has a divisional structure. It is made up of two cruise divisions and a chain of Alaskan hotels and tour coaches.
2. The current corporate structure is based on a profit center concept. The goal of the company is to make a profit.
3. Each division of the company is responsible for itself. However, all the divisions also report to the CEO of Carnival Corporation.
B. Corporate Culture
1. Executives and workers all share the same goal. They want to provide customers with the highest level of service possible. This will help bring in new customers and keep others coming back.
2. Carnival has a strong cultural intensity. The employees accept the “culture” of the ships. They show this by acting in a uniform way that meets the standards of the company.
3. The company takes the values of different nations and groups into consideration. It does this by providing different types of ships to different areas of the world and for different groups of people.
C. Corporate Resources
a. Carnival places a high priority on marketing. The ships have a “Fun Ship” theme that is promoted through television and print advertising. Carnival wants to think of the boat as the destination, and the ports as secondary.
b. The marketing strategies are consistent with the company’s objectives of bringing in new customers and bringing back repeat customers.
c. The marketing managers are including more varied activities that are marketed towards different lifestyles. This attracts more people who would not have considered a cruise in the past.
d. Carnival has a strong marketing mix. They are trying to make their product unique by using the “Fun Ship” theme. They also offer many promotions that lower the cost of their cruise. The company also offers a large selection of cruise options, with ports located in many countries around the world.
2. Finance (Financial Analysis see Appendix E)
a. Revenues have increased by 57.20% and the net income of the company has increased by 105% since 1993. The company’s liquidity ratios are weak and need attention. Carnival has high profitability ratios and has decreased their current and long-term debt by using more liquidity.
3. Research and Development
a. The company is constantly trying to upgrade their product. They do this by building new and larger ships. They offer more entertainment and activities on these ships. They are also trying to expand their ports of call to new places around the world. This helps the company meet the vacation expectations of more and more people.
4. Operations and Logistics
a. Carnival’s operational experience in the industry allows them to have the lowest break-even point in the industry. As a result of this, the company shows a higher profit margin when compared with its competitors.
5. Human Resources
a. Carnival employees stay with the company on an average of eight years. This shows that the company has a low turn over rate. Human Resources effectively hire qualified employees who remain loyal to the company. They also report that applications for all positions greatly exceed the need.
b. The American Maritime Union has cited Carnival several times for exploitation of their employees. The employees are expected to work 10-hour shifts with one day off per week.
6. Information Systems
a. Carnival cruise lines are constantly upgrading the technology used in their ships. The Windstar cruise lines offers three ships that are computer controlled.
b. Carnival should try to make more use of the Internet. They could advertise and allow people to plan and book their cruises online.
D. Summary of Internal Factors
1. At the present time customer service and reputation are very important to the company. Another important internal factor is the ability of competitors to duplicate Carnival’s success. Other companies are building larger ships, expanding their ports of call, and offering high quality service to their customers.
2. Future factors to be considered include the marketing strategies of the company and the ability of Carnival to expand into new markets.
V. Analysis of Strategic Factors (SFAS see Appendix C)
A. Key strategic factors are:
1. Carnival expands its capacity through the merging and buying of other companies. Chairman, Micky Arison stated in a 1997 interview, “Our strategy is to move into promising markets in a careful deliberate manner through acquisitions of, or alliances with, established leaders that share our views on growth” (Carnival Corporation 1997 Annual Report).
2. Carnival caters to a very diverse population. They offer cruises that last only a few days and up to weeks. They also try to offer cruises to meet every budget. Finally, they offer cruises to many different geographic locations.
3. Land based vacations are a big threat to Carnival. Many vacationers do not think of cruises when planning trips. At this time cruises are only 7% of the North American vacation market.
4. Carnival strives to provide the highest quality service to all customers. They achieve this goal by hiring and training efficient and hardworking employees.
5. Carnival’s biggest weakness has been their failure to develop the Asian market. This market will be important for future expansion of the company.
B. Current Mission and Objectives
1. The current mission is still relevant to the company. It still states what the company is working to accomplish.
2. The objectives are still appropriate because they focus on diversification and expansion of the company, while meeting the customer’s needs and expectations.
VI. Strategic Alternatives and Recommended Strategy (SWOT see Appendix D)
A. Strategic Alternatives
1. Differentiation Strategy: Carnival could make their cruises more unique and luxurious then other cruise lines.
a. Pros: The product would draw in vacationers who are looking for a new and unique experience.
b. Cons: Carnival might have to charge a higher price, which could cause more customers going to our competitors.
2. Encirclement Strategy: The Company could use their superior service, reputation, and diversification to take competitor’s clients away.
a. Pros: Carnival would gain a larger market share of the vacation industry.
b. Cons: Competitors might reduce costs, which would cause Carnival to have to reduce prices. This would cause a lower profit margin for the company.
3. Growth with Concentric Diversification: The Company could expand into the airplane, hotel, or theme park industry.
a. Pros: This would help them enter new markets and therefore, raise their profit potential.
b. Cons: There could be too much existing competition in those markets.
4. Market Development Strategy: Only 5-7% of North American population take cruises each year.
a. Pros: Increase Company’s share of existing market.
b. Cons: This plan would need considerable finances up front.
B. Recommended Strategy
1. I recommend the Encirclement strategy, so that Carnival can capture a larger share of the cruise line industry.
2. Carnival should continue to build new and larger ships. They should also try to increase ports of calls and enter other markets. They need to offer more of a selection then their competitors.
3. They company should maintain high quality service expected by customers.
1. Top management should continue to merge with other companies and build new and larger ships. They should increase their efforts to expand into other ports, particularly the Asian market.
2. The company should increase their marketing campaign. They should focus on the different price ranges available, the many ports-of-call, and the high quality superior service that is found on every Carnival cruises.
3. They need to develop a budget more concentrated on marketing and improvement of services. This will make their product seem more unique.
VIII. Evaluation and Control
1. A system should be developed to measure how quickly and satisfactorily customer needs are being met. The system should also look at how the services can be expanded and improved.
2. Carnival must be sure that all the companies they merge with or purchase, share the same vision of customer satisfaction and service.
3. They should evaluate their financial performance and be sure that they are still operating at their high performance level
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