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 clear expansion strategy must be developed with acquisitions made that can reinforce the economies of scale Carnival has built. It will also create an opportunity to further diversify the company and allow it to take advantage of growth in segments where Carnival is currently weak. In addition, Carnival must reinforce dominance in the Caribbean market and further expand other markets including Alaska and the Mediterranean. Being dependent on the mercy of Mother Nature in the Caribbean is too big a risk.

Carnival's dominance can grow to new heights in this environment; we will also see many companies fail because of poor planning and the lack of foresight in the rapidly changing business environment of the cruise industry.

II. Mission Statement

Currently Carnival has no mission statement. Let me give a brief explanation of what a mission statement is according to Peter Drucker:

What is a mission statement? An enduring statement of purpose that distinguishes one organization form other similar enterprises, the mission statement is a declaration of an organizations reason for being. It answers the pivotal question, What is our business?

Based on the overall profile of Carnival, a suggested mission statement might contain the following:

Carnival Corporation is the world leader and innovator in quality and value in the cruise travel industry. We commit to high standards and strive to provide the ultimate entertainment experience in a floating resort environment. The company owns and operates a modern fleet of cruise ships that sail to exciting destinations around the world.

At Carnival Corporation we work to excel at:

VALUE - by being fiscally responsible and cost effective managers; we provide our customers with the highest quality and luxury, supplying ultimate customer satisfaction and value.

VARIETY- Carnival Corporation offers cruises designed to cover the entire market.

GROWTH- Carnival Corporation will pursue growth strategies to maximize investor return. These will be done in accordance with sound management, strategic expansion and ethical business practices.

ENVIRONMENT-Carnival Corporation will pursue sound environmental policies and be a faithful guardian of the environment.

EMPLOYEES-Carnival Corporation is committed to hiring, developing and motivating high caliber employees. We seek to offer our employees job security by making sound business decisions and expanding the horizons of the organization

III. Opportunities and Threats (External)

The external environment contains forces that the company cannot control. The company must adopt policies to adapt to these conditions. The goal is to maximize the opportunities and minimize exposure to threats.

A. Economic Forces

Threats

§ Economic uncertainty, US and European economies are stalling as growth declines.

§ Employment and under-employment on the rise.

§ Stock market in decline

§ Increase in cost of oil translates into higher airfares and increased fuel cost

§ Adverse weather or natural disasters in the Caribbean

Opportunities

q Prime interest rate very low

q As money tightens vacationers looking for value, package cruises become more appealing

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