Case Study

Title:
“Carnival Cruise Lines”

Program MSC HTM 544: Strategic Management for Travel and

Tourism Business

Instructor Name: Professor: Ada Lo

Student Name: Zheng Chen Jerry 13105284g

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Table of Content

Vision ＆ Mission ＆ Goals ＆ Strategies ....................................... 3

Vision of Carnival ........................................................................................... 3
Mission Statement of Carnival ........................................................................ 3
Strategies being pursued by Carnival .............................................................. 3
Its Long-term Goals ......................................................................................... 3
Congruence of Mission, vision, goals, strategy and business model of
Carnival............................................................................................................ 4
An internal factor analysis summary .......................................................... 5
External factor analysis summary ............................................................... 6
Strategic Groups within the Cruise industry ................................................ 7
Facing Issues and Solutions .............................................................................. 8
Issues................................................................................................................ 8
Solutions .......................................................................................................... 9
Conclusion ........................................................................................................ 10
Appendix:.......................................................................................................... 10
Cost structure of the cruise industry ............................................................. 10
Close Competitor (Royal Caribbean ) profile ............................................... 11
References ........................................................................................................ 12

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Vision ＆ Mission ＆ Goals ＆ Strategies

Vision of Carnival
“Maintaining a constant focus on providing higher quality vacations at tremendous
value to our customers, while keeping an eye on the bottom line and earning superior
returns for our shareholders.”

Mission Statement of Carnival

“Our Mission is to deliver exceptional vacation experiences through the world’s best-
known cruise brands that cater to a variety of different lifestyles and budgets, all at an
outstanding value-unrivalled on land or at sea.”

Strategies being pursued by Carnival

 Market Development strategy (Plan expansion in Europe, Asia and Australia)
 Growth strategy (10 ships under construction, from 2012 on each year, 2-3 ships
launched)
 Integrated cost leadership and differentiation focus strategy. ( economies of scale,
reducing energy using and each unit cost, special themes created for the ships and
unique accommodation décor designed)

Its Long-term Goals

Financial goal

 Carnival’s financial goal is to preserve liquidity and afforded debt in order to

maintain a strong balance sheet, which improves their financial flexibility and
allows them to return free cash flow to shareholders.

Operating goals

 To continue invest on their existing ships and expending it fleet in order to

strengthen their leadership position in the industry. E.g. More than 100 vessels
deploys around globe—twice as of its closest competitor.

 To continue intensifying cost-containment efforts, e.g. reducing the carbon

footprint by lowering energy use on ships.

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  To continue preserving environment, respecting employees and communities
and returning value to its stakeholders.

Congruence of Mission, vision, goals, strategy and business model of

Carnival
Through evaluating the mission, vision, goals, strategies it can be said that the
different elements are in line with each other. The mission of Carnival is described as
the exceptional experience and is provided by offering different cruises for different
lifestyles and budgets to the guests. When looking at the business model of the
company, the company is indeed offering cruises to different types of passengers.
When looking at the vision, the Corporations strategy and long-term goals are a
perfectly implementation of this vision. The safety and well-environmental
atmosphere is pursued as a constant and long-term goal for benefiting its stakeholders,
such as employees and guests. Besides, the financial goal aims to achieve the
shareholders’ benefits which exactly match the vision of the Carnival Corporation
&PLC. On another hand, the Corporation strategy expansion is also another way to
satisfy its shareholder because it lets them know where the money goes to, which
could bring long-term potential benefits for shareholders. Lastly, when it comes to
strategy being pursued and the business model of Carnival, it can be said that for the
growth strategy, the business model will be adjusted on the point of the distribution
channels. New ships need to be advertised through these different channels. Besides,
for market development strategy, the business model will be used as a platform to
continue delivering the product to the new markets. Finally, for cost saving and
differentiating strategy, is being used to assess daily operations.

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 An internal factor analysis summary
An internal factor analysis is a way to organize company’s internal factors into
strengths and weaknesses. In addition, it helps to analyze how well the management
of a company is responding to these factors in combination with the importance of
these factors. (Wheelen & Hunger, 2008) Table 1 shows the internal factor analysis
summary for Carnival.

Table 1 – Internal Factor Analysis Summary Carnival Corporation

Internal factor Weight Rating Weighted Comments

score

Strengths

Capacity 0.25 4.0 1.00 Carnival has a capacity of 1.4 times more ships than
their closest competitor Royal Caribbean.

Flexibility of deploying 0.12 3.0 0.36 Carnival owns different types of ships, which range
the ships from small to bigger ships. This gives them more
opportunities of deploying their ships to various
destinations.

Strong marketing 0.20 4.0 0.80 Carnival has a marketing mix which effectively with
strategy OTA selling their products

Strong portfolio (E.g 0.11 4.0 0.44 Carnival owns different brands which targets different
fun-ship concept) lifestyles and budgets and groups.

Weaknesses

High dependency on the 0.13 2.0 0.26 50,1% (Financial year 2013) of the total revenue was
North American Market generated from the North American market

Commitment of the 0.10 1.0 0.20 A decline in the company’s revenues will make it
company for ship harder for the company to pay off these ships,(from
acquiring 2009 to 2013)

Low current ratio 0.09 2.0 0.18 Current ratio for financial year 2013 was 0.28,
(Liquidity ) Because of high customers’ deposits in current
Liability.

Total scores 1.00 3.24

Note :( a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating
= 3), or a major strength (rating = 4).

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 External factor analysis summary
Table 2 External Factor Analysis Summary of Carnival

External factors Weight Rating Weighted Comments

Score

Opportunities:

China, India growing .065 1.0 .065 Emerging and Potential markets for Carnival

Concentrate more on Attract more .075 2.0 .15 Generate brand loyalty, need to do more marketing
repeat customers communications. Access and fully use the customer
(CRM ),customers data database
management

Indian Ocean and west Pacific .09 1.0 .09 Potential markets for Carnival to develop. There are
market only a few local independent cruise line companies

Aging population(silver segment) .08 2.0 .16 Attract that segment more.(55+ to 65)

Younger passengers and first-time .075 1.0 .075 Try to adapt to it (potential segments)
curiser (trend)

Premier and luxury segments .052 2.0 .104 Potential market segments for Carnival to focus on
outside of north America market (Referring: the later Strategic Group of industry
outlook).

Increasing industry .07 2.0 .14 Carnival can continue to expand its capacity.

Threats:

Increasing price of fuel .07 4.0 .28 Threaten the cost structure of Carnival(operating
cost)

Taxation policy changing .07 3.0 .21 Threaten the net profit margin ( The ship registered
countries’ taxation policy)

Very intensive competition north .052 4.0 .28 Should be well positioned on the market and
America market differentiate from competitors.

Royal Caribbean pursuing global .085 4.0 .34 Increasing competition outside of north America
market development strategy as market for Carnival
well

Customers can easy switch choices .05 3.0 .45 Carnival should make barriers of changing choice.
(increasing buying bargaining (Such as strict cancellation policy) or sell from its
power) own travel agents more)

Political Instability .07 3.0 .21 Demand will be reduced within uncertain
governmental stability ( Such as vacation

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 destinations like Cuba, Thailand, and Mediterranean
areas )

Climate threaten .06 4.0 .24 This is directly influence the safety and security of
employees and passengers on a cruise. Itineraries
will be affected. E.g Tsunami in Japan, Thailand,
Maldives)

Total 1.0 2.80

Note :( a major opportunity (rating = 1), a minor opportunity (rating = 2), a minor threat
(rating = 3), or a major threat (rating = 4).

Strategic Groups within the Cruise industry

Five strategic groups are presented based upon two dimensions which are focused market and
focused segments. The following figure aims to gain a better understanding of how the
various firms in specific segment market within the industry.

Table 3, Mapping strategic groups based on (Marketing place and Price range and Brand
position) within cruise industry

(Based on Source: www.cruisemarketwatch.com)

The table 3 shows that strategic group 1 (blue colour) focuses on North America
market, which focuses on contemporary segment. Among this strategic group

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Carnival Cruises Line has the largest capacity(22ships), next is Royal Caribbean
Cruises (22ships) and Norwegian Cruise(11 ships). The next the strategic group (red
colour) focuses on outside of North America, where four brands of Carnival operating.
Other two are from Royal Caribbean International Ltd. The purple colour represents
the strategic group of North America market and premier segment. Two brands are
from Carnival, one is from Royal Caribbean Ltd and another is an independent cruise
line company from U.S. The strategic group (green colour) focuses on luxury market
of outside of North America. There are two brands which are Canard from Carnival
Corporation &PLC and Hapag-Lloyd from German. The strategic group (orange
colour) mainly focuses on North America luxury market.

Secondly, via strategic group table 3, there is a potential opportunity for Carnival
Corporation & PLC obviously. The area is marked as “ “, which is premier and
luxury segments outside of the North America market.

Facing Issues and Solutions

As all known the Carnival has been a leading cruise corporation in the industry in
years, certainly it leads the industry no matter in capacity or other fields, like being a
cost-leadership corporation in the industry. However, there are many challenges too,
which Carnival is facing.

Issues
As appendix presenting the normal industry cost structure, the net profit margin is
only around 10% of the total revenue. It's a challenge that the Carnival being a leader
of the industry. How to maximizing the profit margin?

Secondly, growth strategy are much relied on the capability of the Carnival, as
concern about financial situation that total revenue is shown a decrease tendency with
current ratio only 0.28 in 2013, several ships are still under construction and there
may be a potential risk for expending too fast. In fact, the close competitor, Royal
Caribbean Cruise Corporation is doing the same strategy as the carnival pursuing.

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The immature CRM (customer relation management) system is equipped just not long
time ago. To fully utilize the customer database for its business development is a key
field that would becomes the one of competencies for a cruise line company very soon.

To explore new market and stimulate the demand in the new market by using proper
marketing mix tool, is also the key to strengthen carnival leading position in the
industry nowadays. Such as the call centres already building up by years, however,
customers are still assigned to different internet travel agent to book the itineraries,
which is cost a lot commission (as the cost allocation shown 10.6%) for Carnival.

Proposed Solutions
New market exploring with localized products for entering the new market, like India
and China, with local strong labor forces, by that to those itineraries in that region, it
could fully take the low cost of labor force as an vantage to turn down operational
cost to maximize the profit margin.

With mature market, like North-America, Europe, the brand awareness is

recognizable, would be a solution to cut down commission cost by promoting and
marketing via direct marketing forces as a main distribution channel. With more
incentives to customers to book via direct channel than other travel agents, that would
work only under the more mature market and strong branding regions , but there is
still risky that competitor would take vantage from the travel agents.

To targeting the silver segment, that actually direct competitor is doing that. To target
first-timer cruiser could be the new behavioral segmentation strategy for Carnival to
forecasting the demand and designing best suitable products for that segment.

Last but not least, upgrading the loyalty program is becoming the key capability that
carnival can be best usage of as its one of future distinctive competencies that is
delivery the best and various cruise travel experience, to deliver the better offer to
repeating customers and cultivating the customers’ interests of cruise travel
experience. Current one is a traditional and ordinary loyalty program, like redeem the
tickets and miles etc, are so traditional and easy-copy by others. More creative and
innovative ideas for programs are needed, such as working with credit card company,
credits can be redeemed by cruise ticket or encourage to have a corporate meeting and

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 retreat event on cruise if the corporation becomes one of members of the loyalty
program instead of the only single individual as a traditional model of loyalty
program does.

Conclusion
The Carnival can still work on North America Market to attract the people who show
desires to cruise and concentrate to create repeat customer. The close competitor of
Carnival, Royal Caribbean Ltd, is also pursuing growth strategy and market
development strategy, which is perceived as the top threat. The whole industry facing
the low profit margin, so as the leading corporation, the Carnival may adopt various
functional strategies to cut down the cost, such as hire local labour, like in China and
India, providing incentives to promoting direct channel to save commission cost. Be
aware of the financial conditions to do expansion like building the ships.

Appendix:

Cost structure of the cruise industry

Total revenue 100%

Operating expenses 31%

Shipboard payroll 11%

Travel agent commission 10.6%

Depreciation 10%

Fuel 7%

Victual cost 6.3%

Port fee 4.5%

Other on board expenses 4.4%

Gross profit 10.3%

(Source: www.cruisemarketwatch.com/financialbreakdown)

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 Close Competitor (Royal Caribbean ) profile
Market share: 27.6% in North America Market, 25.6% in outside of North America market

Capacity 42 ships( 4 ships under construction)

Brands Contemporary: CDF, Pullmantur, Royal Caribbean

Premier: Celebrity cruise

Luxury: Azamara

Strengths Robust market Presence (such as Pullmantur is very famous in Span, Portugal and Latin America.

The Largest ship in the world they have (Oasis of the Seas)

Weaknesses Increasing debt

Decreasing profit over last two years

Pursuing Global market development

strategies
Growth strategy( enlarge its fleet 4 ships under construction)

Cost-control within operations

Safety, Security and protecting-environment focused.

(Source: Royal Caribbean Ltd profile from the Marketline)

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References
 Carnival Annual Report, (2013), retrieved from http://phx.corporate-
ir.net/phoenix.zhtml?c=140690&p=irol-reportsother2
 Cruise Industry website : Retrieved from www.cruisemarketwatch.com
 Customers motivation, retrieved from www.surveyofbuyingpower.com
 Cruise Association, retrieved fromwww.f-cca.com
 Cruise industry website, retrieved fromwww.cruiseing.org
 Cost structure of Cruise industry, Retrieved from
www.cruisemarketwatch.com/financialbreakdown
 Front page of Carnival , www.carnivalcorp.com Retrieved on 10th of Feb,
2011
 Johnson, G., Scholes, K., Whittington, R. (2006). Exploring Corporate
Strategy. Essex, England: Pearson Educational Limited.
 Market Information, Retrieved fromwww.anbc.com
 Royal Caribbean Ltd profile from the Market-line, retrieved from
http://www.marketline.com/
 Schmidgall, R.C., (2006), Hospitality Industry Financial Accounting, 6th
edition, East Lansing, ML: education Institute of the Americal Hotel & Motel
Association.
 Travel information, retrieved from www.travelindustrywire.com
 Wheelen, T. L, Hunger, D.J. (2008). Strategic Management & Business Policy.
11th edition. Upper Saddle River, NJ: Pearson.

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