Carnival Cruise Analysis

. 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 Carnival’s 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 doesn’t 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