Major Case Analysis

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Major Case Analysis

• Presented By
• Shannon Carlson
• John Wojtowicz
• Matt Garten
• Neil Zimmerman

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History

• In 1972 Ted Arison and American Travel Services
  (AITS) started Carnival Cruises
• Purchase of first ocean liners
• Mardi Gras
• Carnivale
• In 1974 Arison bought Carnival Cruises from AITS
  for 1, while assuming 5 million in debt
• All-inclusive packages became available
• Included airfare, array of port destinations,
  meals, entertainment, and activities

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History

• Between 1988-1998 Carnival Cruises expanded
  nationally and internationally with purchases or
  joint ventures with companies such as
• Holland America Cruise Lines
• Holland America Westours
• Windstar Sail Cruises
• Seabourn Cruise Lines (joint venture)
• Airtours Corporation (joint venture)
• Costa Cruise Lines
• Hyundai Merchant Marine Co. Ltd.. (joint venture)
• Cunard Cruise Lines (joint venture)
• International Markets
• Continents of North America, South America, Asia,
  Australia, Africa, Europe and the Middle East
• Carnival is 1 in the industry, with 6 different
  cruise lines, 458 destinations, in 87 countries

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Mission Statement

• To provide quality cruise vacations that exceed
• the expectations of our guests
• Presidents Message
• We (Carnival) strive each day to provide great
  service, whether youre vacationed aboard a Fun
  Ship or interacting with our shoreside team
  prior to or after your voyage. We recognize that
  your vacation is very important to you - an
  investment in time and money that must be truly
  rewarding - so we want to do everything possible
  to ensure that it is enjoyable and, most of all,
  fun!

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Ethics

• Ethical Statement
• Carnival strives to treat the customer with the
  utmost respect, thereby promoting an enjoyable
  vacation. Carnival Corporation also prides
  itself in environmental awareness, understanding
  the importance of a clean and safe environment
  both on and off the cruise ship.
• Environmental Policy
• Dumping in Alaska

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Corporate Culture

• Decentralized decision making
• Relaxed working environment
• Open door policy of communication
• Loyal employees
• promote from within advancement strategy
• Friendly, family-like working environment
• Carnival College
• Facilities Fitness center and professional child
  care located in 225,000 sq. ft. office
  headquarters in Miami, Florida
• Competitive salary structure
• Extensive Benefits package

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Organizational Objectives

• Increase awareness of amenities offered on
  cruises to North American consumer population
• Capture part of the 93-95 percent of the North
  American population that has never cruised
• By 2002, 3 billion will be invested in new ships
• Remain the leader and innovator in the cruise
  industry
• Offer competitive pricing
• Build 14 ships by 2006
• Expand international presence through joint
  ventures and future acquisitions
• Build the worlds largest ocean liner the Queen
  Mary 2 by 2006

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Corporate Level Strategy

• Differentiation Strategy
• Market position - Leader and innovator in the
  industry
• Segmentation of cruise market
• Contemporary
• Premium
• Luxury
• Joint ventures airplanes and hotels
• Maintain long-term profitability by operating at
  full capacity
• Build on fun ship theme
• Expanding ports and shipbuilding

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Internal Strengths and Weaknesses

• Operations/Manufacturing
• Strengths
• Operate at over 100 capacity
• Expanding fleet
• Offer entertainment
• Hold many passengers at one time
• Many varieties of boats to choose from
• Worlds largest multiple night cruise company

• Make the ship into the vacation not just the port
  of destination
• Own 6 different cruise lines
• Luggage is delivered by the cruise ship staff to
  the passengers cabin
• Two engines one for propulsion and one for power
  generation

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Internal Strengths and Weaknesses

• Operations/Manufacturing
• Weaknesses
• Operational costs need to remain profitable,
  otherwise quality of service to customers will be
  compromised
• Depreciation, fuel, insurance, port charges, and
  crew costs cannot be reduced because they are
  fixed costs
• Boats tend to be slow
• Limited ports due to size of boats

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Internal Strengths and Weaknesses

• Human Resource Management/Management/Organization
• Strengths
• Diverse workforce
• Employs help from 51 nations
• Good retention rate employees stay for 8 years
  on average
• Have overseers to monitor ships for environmental
  pollution and human rights violations
• Enthusiastic crew
• Camp Carnival
• Vacation Guarantee
• Vacation Protection Plan
• Many Awards earned

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Internal Strengths and Weaknesses

• Human Resource Management/Management/Organization
• Weaknesses
• Lawsuit in 1996 claimed that a woman had been
  sexually assaulted on one of Carnivals ships
• More than 100 of these claims were reported
  before 1995
• Employees cannot speak English
• Carnival has been sited many times by the
  American Maritime Union for exploiting employees

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Internal Strengths and Weaknesses

• Financial Accounting
• Strengths
• Consumers must pay in full, 60 days in advance
• Exempt from federal income tax at corporate level
  because of Controlled Foreign Corporation (CFC)
  status
• Very cost-conscious to achieve various economies
  of scale
• No cash is used on the boats, only in the gaming
  area (card is used)
• Financing plans available
• Offer Carnival MasterCard Allows cruisers to
  earn a seven day cruise with reward program

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Internal Strengths and Weaknesses

• Financial Accounting
• Weaknesses
• Spend a lot of money on ships, regardless of
  demand
• Outstanding long-term debt of 1.55 billion
• 33 of operating expenses cannot be reduced
  because of fixed costs

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Internal Strengths and Weaknesses

• Marketing/Sales
• Strengths
• High priority on marketing in an attempt to
  promote cruises as an alternative to land base
  destinations
• Leader in the industry
• First cruise line to break away from print media
  and use television
• Lead all cruise lines in advertising and
  marketing expenditures

• Customers can book their own vacation packages
  several ways
• Customer focus
• Convenience
• All inclusive packages
• Brand recognition
• First in market
• Smoke free ships
• 14 of corporate revenue generated from shipboard
  activities

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Internal Strengths and Weaknesses

• Marketing/Sales
• Weaknesses
• Carnival must pay travel agents commissions for
  bookings
• 90 of American adults have never been on a
  cruise
• Being in a concentrated area with a lot of people
  (terrorist threat)

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Internal Strengths and Weaknesses

• Innovation and Technology
• Strengths
• Variety of cruise ships to choose from
• Offer dance clubs, casinos, live music, pools,
  and movie theaters
• Management can build on the theme of the ships
• Expansion in innovation with building new ships
  is always growing

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Internal Strengths and Weaknesses

• Innovation and Technology
• Weaknesses
• Timely boat construction
• Takes time to update technology on the boats

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Environmental Scan

• Economic
• Opportunities
• Decreasing fuel prices
• Offer all inclusive packages
• Threats
• Rising cost of shipbuilding
• Fuel prices high
• Increased airline costs effect industry as a
  whole

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Environmental Scan

• Social
• Opportunities
• Increase in two income families therefore
  having a disposable income
• 90 of American adults have never cruised
• Family cruisers are able to purchase packages
  to allow for family vacations
• More socially accepted entertainment amenities
• Growing elderly population
• Consumers will feel safe and confident to have
  the opportunity to take out insurance
• Increase in people taking cruises because more
  people will be able to afford packages through
  financing

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Environmental Scan

• Social
• Threats
• Being confined to a certain space can cause
  sickness to spread quickly
• Cannot satisfy every customer as far as
  entertainment needs
• Increasing competition
• Prices depend on season
• Consumers are more aware of what sexual
  harassment means and can file a lawsuit

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Environmental Scan

• Government/Political
• Opportunity
• Profitability increased due to exemption of
  federal income tax
• Threats
• Increased supervision by government, due to
  sexual harassment cases filed against Carnival
  employees
• Security of passengers
• Dumping laws have become strictly implemented due
  to past violations
• Regulations with U.S. Coast Guard for compliance
  with the Convention of Safety of Life at Sea
  (SOLAS), U.S Public Health Service for sanitary
  standards.
• American Maritime Union citing Carnival for
  employee schedules
• Political factors - war

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Environmental Scan

• Technological
• Opportunities
• Online reservations
• Expanding cruise lines
• Building the largest cruise boat in the world
  2006
• Track advertising and web presence
• Threats
• Other cruise companies meeting customers on the
  internet with better prices
• Extensive time needed for updating technology on
  boats
• Mechanical failure on trips

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Environmental Scan

• Natural
• Opportunities
• Winter getaways
• Caribbean climate
• Threats
• Weather (Hurricanes, Tsunamis, etc.)
• Ice glaciers
• Running aground
• Shark attacks on excursions
• Pirates
• Bermuda Triangle

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Structural Analysis

• Competitors
• Royal Caribbean Cruise Lines
• Disney Cruise Lines
• Alaskan Cruise Lines
• Independent Yacht Vacations
• Princess Cruise Lines
• Carlson Cruise Lines
• Star Cruises
• Royal Olympic Cruise Lines

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Structural Analysis

• Threats to Entry
• Increasing growth rate of cruise market
• International waters are shared
• Only 7 of North Americans have cruised

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Structural Analysis

• Barriers to Entry
• Expense of cruise ship
• Must operate at high capacity
• Regulation on Maritime cruises
• Cost of fuel
• High advertising costs
• Consolidated market
• Consumers use other forms of travel
• Carnival is the worlds leader in the industry

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Structural Analysis

• Bargaining Power of Suppliers
• Food and beverage suppliers do not have very much
  power
• Fuel is a consolidated industry can dictate the
  cost of fuel
• Ports that are available have very little power

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Structural Analysis

• Bargaining Power of Buyers
• Option of other cruise lines
• Comparison shopping on the Internet
• Travel agents play an important role in customer
  choices and purchases
• Word of mouth from past customers

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Structural Analysis

• Substitutes
• Air travel
• Beach vacations
• Theme parks
• Automotive travel
• Bus travel
• Train travel
• Camping
• Land vacations (beach, landmarks, attractions,
  etc)

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Financial Ratios/Industry Averages
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Problem Statement

• Cruises only represent two percent of the overall
  vacation market
• The cruise business is still not considered a
  vacation alternative
• Problems of limited growth and lack of first time
  cruise customers have plagued Carnival
• Cruises considered a high status vacation
• Carnival must become proficient at competing in
  the vacation market against typical vacation
  destinations like the beach or theme parks

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Problem Statement

• Competition from other cruise lines
• First in the cruise market but quickly imitated
• Must compete by having lower prices than rival
  cruise companies
• Must provide customers with a cruise experience
  that surpasses their competition

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Problem Statement

• Experienced a two-percent drop in growth rate per
  year
• Cruise market was new when Carnival entered
• People were wary of cruises as a vacation medium
  when introduced
• Carnival was forced to increase advertising

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Strategies

• Cost Competitiveness
• Carnival must continue to maintain competitive
  pricing in the cruise industry
• Purchase used ships rather than build ships
• Purchase fuel while prices are low
• Practice Total Quality Management
• Strategy 1. Practice TQM, closely monitor fuel
  prices, and reduce shipbuilding to decrease
  costs, because the customer count is not
  increased by building new ships.

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Strategies

• Differentiation Strategy through innovation, and
  new service offerings
• Full-size shopping mall onboard a ship
• Wireless computer network allowing internet
  access and communication anywhere on board
• Radio or television station on board
• Providing cruises to new locations
• Strategy 2. Add new product or service offerings
  and provide easier access to information for both
  customers and crew to maintain Carnivals status
  as the leader and innovator in the cruise
  industry.

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Strategies

• Differentiation by Innovation in Safety
• Faster luggage checking
• Increased onboard security
• Advanced surveillance
• Electronic ID cards for passengers
• Strategy 3. Become the innovator in passenger
  safety and maintain sufficient safety standards
  for customers.

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Strategies

• Core Competencies differentiate by stressing the
  cleanliness of the facilities and quality of
  service.
• Clean facilities
• Friendly service
• Strategy 4. Carnival should differentiate its
  service to customers by stressing the quality of
  the service and the facilities.

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Strategies

• Focus Strategy currently Carnival focuses on all
  customer groups
• Broaden the demographic appeal
• Carnival can appeal to different cultures and age
  groups specifically
• Strategy 5. Continue to appeal to all customers
  by providing an array of choices through
  Carnivals different cruise line divisions.

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Strategies

• Horizontal Merger
• Examine the market for land-based vacations
• Land tours on busses, trains, airplanes
• Examine the hotel/motel business more in detail
  to determine whether to enter the market
• Strategy 6. Examine new vacation markets,
  including land-based vacations, and the
  hotel/motel business.

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Strategies

• Internet Carnival should use the internet to
  advertise
• Continue use of the website for vacation booking
• Add a discussion forum for customers on the
  website
• Use pop-up advertisements
• Use e-mail to keep customers informed and
  up-to-date
• Strategy 7. Continue to maintain services
  provided on the website and use e-mail strategies
  to keep customers informed of special offers,
  sales, and updates.

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Strategies

• Strategic Alliances
• Carnival can form strategic alliances with
  governments in areas where the ports are too
  small for Carnivals ships and expand the ports
• Provide new cruise locations and increase
  marketing
• Strategy 8. Pursue strategic alliances with
  governments of countries that do not have the
  port capacity to hold Carnival ships.

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Strategies

• International
• Carnival can penetrate new international markets
• Taylor each ship to meet the desires of different
  markets (For example, China)
• Strategy 9. Appeal to international markets by
  achieving different themes and providing cultural
  activities.

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Implementations

• Cost Competitiveness
• Building ships is expensive, Carnival should
  purchase ships instead of building them
• Carnival can maintain cost competitiveness by
  practicing TQM to improve smaller aspects of the
  cruise.
• Carnival can purchase fuel and store it (if
  storage costs are low) when fuel costs are low

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Implementations

• Differentiation and Innovation
• Carnival can differentiate its service by new
  product offerings like a full-size shopping mall
  on one of the boats
• Existing technology is available to allow
  wireless internet and network access to a laptop
  computer anywhere on the ship
• Existing technology is also available to create a
  radio or television station on board

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Implementations

• Differentiate through innovation in passenger
  safety
• Carnival can invest in new luggage screening
  technology
• Carnival can increase onboard surveillance such
  as plain-dressed security guards, cameras, etc.
• Electronic ID cards can be supplied to each
  passenger for passenger tracking

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Implementations

• Strategic Alliances
• Some ports are too small for Carnival ships
• Carnival can form strategic alliances with
  governments in the areas and try to expand the
  ports
• Expanding ports would create new cruise
  opportunities and increase the marketing
  possibilities for Carnival

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The EndAny Questions?