University of Chicago
Type of paper: Thesis/Dissertation Chapter
Carnival Corporation Case Study
Carnival Corporation as the largest cruise line in the world is being a leader and innovator in the cruise line industry. Many of the onboard activities and services were introduced to strengthen the competencies between competitors. The challenges of the Carnival were being overcome by the management with creative and innovative strategies. As a corporate entity, Carnival did not refuse to withdraw money to settle the ocean pollution charged by public. The expansions of cruise line market via acquisition of a few subsidiaries dominate the cruise line in the world.
1. Strengths (internal factors) First, the largest cruise line in the world, as the leader and innovator in the cruise industry (growth from two converted ocean liners into an organization with multiples cruise lines). Second, the belief of management and Board of Directors that the company will grows better. It motivates the employees to work hard. Third, internal grow in term of vessels that approximately ten vessels are under construction. Fourth, employees loyalty (the longest period employees remain in this organization is around eight years) because Carnival management treating well to their employees in terms of wages). Fifth, creative and innovative corporate officers that is ready to face challenges. Sixth, Carnival has operational experience and economic of scales that causing them to have lowest break even point in the same industry. Weaknesses
First, in 1972, the speed of ship was slow. Second, the long-term debt within 1999 and 2001 is increased (the payback of debt may lower the revenue and thus decreasing the dividend payment for shareholders). Third, the expand market (business) of Carnival causing the difficulty in managing the business. Fourth, reducing on net income in 2001 is because of higher costs and expenses.
2. Opportunities (external factors) First, the expansion through acquisition can reduce the competitors in same industry and has the ability to compete with other competitors (lower advertising costs). Second, collaboration with travel agents can promote cruises. Third, the industry is expected to have bright future in passengers, consolidation through mergers, buyout, and smaller cruise operator failure, and the expansion of the industry worldwide. Fourth, expand of target customers from older people to younger people. Fifth, expand of onboard activities (casino, disco, and nightclub). Threats
First, terrorist events that were happen in 11 September 2001. Second, negative publicity in 2002 where Carnival subjected by the ocean pollution charges and “Norwalk-like” virus that affect the cruise industry. Third, the increased of fuel costs and airline costs that affect the industry. Fourth, the failure of Carnival discontinued operations of Fiesta marina Lines that affect the company image. Fifth, Persian Gulf War that was increased competitors in the cruise industry especially in Caribbean area. Sixth, Royal Caribbean Cruise Lines had institute a major shipbuilding program that challenges Carnival. The emergence of Walt Disney Company in the cruise market; and the prospect of new ships on the horizon give impact to the “family” cruise vacation segment.
3. Core competencies Yes, Carnival has core competencies because it is the competency crosses divisional boundaries, Carnival can do exceedingly well, and must continuously reinvest in it: i) Adding diversion onboard – such as disco, nightclubs, casino, and others. Carnival also tries to attract younger cruisers by providing vacation package that included airfare to the port of embarkation and home after the cruise. ii) Product positioning – Carnival believes that cruise market comprised to three segments (contemporary, premium, luxury) with different passenger demographics, characteristics, and growth requirements. iii) Travel agents – collaborate with travel agents to promote cruises. Carnival also training travel agents from nonaffiliated travel firm to sell cruises.
4. Distinctive competencies Yes, Carnival has distinctive competencies because distinctive competency is the superior to those of the competitions and difficult for competitors to compete with Carnival: i) Investment in new ships – Carnival is expanding its internal growth by investing in new ships. The ships under constructions are around 10 vessels. It is difficult for other competitors to invest in these large numbers of ships in same period but Carnival can do. ii) External expansion through acquisitions – Carnival has five subsidiaries that control the major cruise lines in different countries. This causing Carnival becomes as the largest cruise line in the world.
5. What trends are emerging in cruise industry? i) The adding diversion onboard such as planned activities, disco, nightclubs, casino, and other forms of entertainment activities (different kinds of activities that suitable for different ages of target customers). ii) Moderate priced vacation for younger cruisers that included airfare to the port of embarkation and home after the cruise. iii) All inclusive packages that began with bags were tagged for the ship at the airport, air-conditioned bus, meals, onboard activities, house keeping service, until passengers were transported back to airport. iv) Love story movie such as “Titanic” and “Love boat” that promote the romance onboard encouraging couples to join cruise.
6. Marketing strategy i) Price – moderate price (vacation packages) that middle-class clients afford to pay. Prices for different levels of rooms are charged according to the customers needs. ii) Product – vacation package that suitable for the clients aged. Other onboard activities such as casino and disco. The service from picking up the clients at airport to board and dropping clients again at airport. iii) Place – Caribbean ports and other destination such as Walt Disney World, Holland, and Costa, as long as the clients want to go. iv) Promotion – some of the promotions are done by travel agents. The “Fun Ship” cruise that with designated shipboard party and everyone is welcomed by Carnival is another success promotion.
7. The importance of travel agents The travel agents will help Carnival to promote the cruises as an alternative to Disney or European vacation. For people who never take a cruise in their life, or afraid of taking a flight to the destinations will be attracted. Thus, it shows that the important role of travel agents to Carnival. Besides that, not only attracting clients to take a cruise as the core business, selling cruise is also part of the Carnival business. Thus, Carnival is training travel agents from nonaffiliated travel firms to sell cruise. Because of the attractive benefit in term of money provided by Carnival, in year 2000, Carnival took reservations from about 29000 travel agencies to promote the business. And, it proves that this strategy in promoting cruises either to attract clients boarding the cruise or selling the cruise is succeed. 8. Flight or cruise?
We will choose cruise because we have not travel yet to some where by cruise before. i) In our opinion, although the price for a cruise might be higher a bit than to take a flight to Caribbean island that we can afford to pay. By choosing a package for the cruising is worth because there will be variety of services that suitable for us as active younger cruisers rather than just to sit in the flight and we have nothing to do. ii) Even though cruise may take a longer time to reach Caribbean island, the final destination that we will reach is Caribbean island no matter we take a cruise or flight. Thus, we can enjoy the onboard facilities that we have paid for. Disco, nightclubs, gym room, cinema, and casino are the places that we seldom go for but we can enjoy if we take a cruise for this vacation. iii) Cruise is a place that we can relax ourselves since the purpose of travel is to relax our mind. The sea view from a ship can make us happy and reduce our stress. On the other hand, we can also meet some new friends through this trip. iv) Besides, we can experience some exotic destinations when the cruise will sail in the ports. The cruisers can come down from the vessel and visit some famous spots. Adversely, if we take flight, we can’t visit anywhere except just transit in airport.
9. Evaluation of Carnival’s targeting to specific target market i) Contemporary segment – served by Carnival ships, featured a casual ambiance. ii) Premium segment — served by Holland America, for longer market and appealed to more affluent consumers iii) Luxury segment – served by Seabourn and Cunard, catered to experience cruisers. The above are the target market for Carnival. Each segment has different types of costs to be charged to consumers. For the contemporary segment, it is more suitable for family and people who need relaxing during a short period of holidays. The price is cheaper than premium or luxury segment. For the premium segment, it is more suitable for affluent consumers, who need a longer period to relax.
It normally targets an older people to board because the facilities in the ship are more suitable for their ages. This segment of cruise will have more cabin or public space per person. In term of price, it is the most expensive and little people can afford to pay. The price for this segment is higher than contemporary segment. Not everyone will prefer this segment of cruise because they need to consider the available time for taking the cruise. The luxury segment targets for extremely rich consumers where they were served as “king” and “queen” in the ship. The consumers who taking this segment of cruise can show that they have a higher social status and prestige is the main consider by consumers.
10. Strategic management in Carnival Carnival has a very unique and successful strategic management in cruise industry. During terrorist events in 2001, the world cruise industry was negatively impact by it. However, to overcome this problem, Carnival offered a deep discount to lure back the passengers. In year 2002, Carnival was subjected to the ocean pollution charges. The company was withdrawing $18 million to overcome this issue. This strategy is not only to overcome the issue ethically but also to maintain the company image. Carnival is doing well in pricing strategy where they offer different kinds of packages with moderate price for different kinds of customers.
To improve the core competency of the company, Carnival tried to increase the services onboard and adding diversions onboard. Even though other cruise company can imitate this strategy but Carnival is the first to invent the same strategy that succeeds to gain revenue from it. Carnival tried to introduce new strategy to make more convenience to consumers such as the “all-inclusive package”. The main purpose of this strategy is to maximize the satisfaction of consumers on Carnival services. Finally, to reduce the competition in cruise industry and to compete with other competitors in the same industry, Carnival did acquisition on many cruise lines as subsidiaries. The expansion of Carnival in cruise line market through acquisition can tighten the status of Carnival in cruise industry.
11. The advantage of being a CFC The individuals (foreigners or locals) who held the stocks of Carnival under the CFC status are incorporation exempt shipping operations of United States persons from income tax. Carnival with all of its income (except of United State source of income from transportation, hotel and tour business of Holland America) would be exempt from United State federal income taxes at the corporate level. This exemption not only can increase the revenue of Carnival, it also allows the company to have more funds (liquidation assets) to run more projects or activities for the company. The reason of government to give exemption to Carnival is because to encourage this industry to growth and attract more passengers boarding on ship, especially the ship with casino. It will increase the government sources of money.
12. How to maintain low costs, high level of service? i) Vertical integration or outsourcing – Carnival can try to produce in-house or outsource the products or services in related industries such as shipbuilding, meal preparation industry, and transportation (bus). This is because either vertical integration or outsourcing, which contributes the lowest cost, will be the choice of Carnival to either produce in-house or to outsource the needs. The good relation with suppliers can guarantee the best quality of the products or services. The in-house produce (vertical integration) can guarantee for the high level of products and services quality. ii) Maintain employees – Experienced employees can be the senior for the new comers. They can train and guide the new workers while doing a task rather than the company to send them for training course. Thus, maintaining experienced employees can save the labor cost and maintain the service quality to passengers. iii) Maintain cruise standard (such as sanitary standard) by periodically checking to avoid break down during cruising and it may need higher cost to repair and bring inconvenience to passengers.
Conclusion The success of Carnival is depends on the innovative Board of Directors and management. The growth of cruise market becomes more significant because of the low fares high quality of service. Carnival is dominating the cruise line market but they still do investment in improving the services so that to avoid the core competencies become the weaknesses of the company. Even though the net profit of year 2001 is decreased but it did not mean that they have weak internal control. External factors such as increased in fuel cost also are considered the factor in the declining profit. Finally, Carnival has the potential to grow in cruise line market because they already gained the experience in cruise line and they have strong financial to support many cruise activities.