Carnival Corporation Marketing Management Dr. Mattson November 15, 2005




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Carnival Corporation

Marketing Management

Dr. Mattson

November 15, 2005


Team 3

Robert Fleming

Lindsey Johnson

Steve Mignogna

Nick Paradise

Janelle Wolfe



Table of Contents
Executive Summary 3
Introduction 4
Carnival History 5
The Cruise Product 7
Carnival Operations 8
Financial Overview 9
Cruise Line Sectors 9
SWOT Analysis 12
Works Cited 14

Executive Summary

Problem Statement

Carnival Corporation plans to entice the unattained portion of the North American market who has not yet ventured on a cruise.



Background

Carnival Corporation dominates in the cruise line industry. This is a fast growing industry and Carnival seems to stay one step ahead of the competition. Carnival has done exceptionally well with their marketing strategies. Although the company seems to be dominating it still needs to acquire the non-attracted customers.



Discussion

Carnival Corporation is looking to enter the North American market and influence its non-customers to travel on its cruise line. Carnival can achieve this by strategically implementing new marketing strategies specifically targeting the North American market. Carnival should push for an increase in attendance, but also realize that it may need to make change in cruise operations to accommodate the new travelers.



Recommendations

Carnival Corporations should keep its eye open for profitable mergers with other companies to attract more of the North American market. Another suggestion is to increase marketing to reach the potential customers in the North American market. Finally, keep an eye on the market and be prepared for operational restructure because of an increase in cruise demand.



Introduction
The leader of the cruise line industry, otherwise known as Carnival Corporation produces the most revenues and has the highest available capacity. Starting out with only two ocean liners, Carnival has continued to grow and become the most dominant players in its industry. Carnival has set several benchmarks in the industry, such as being the first cruise line to carry over one million passengers in a single year. Carnival eventually surpassed this great accomplishment and carried over five million passengers by the end of 1994. “Carnival Corporation seems to have made the right moves at the right time, sometimes in direct contradiction to industry analysts and cruise trends.”(Keeffe) This company remains superior in the industry by following its innovative and leadership style of operating.

For over 25 years, Cruise Line International Association (CLIA) has monitored the progress of the cruise line industry and reported that in 1970 approximately 500,000 passengers got on board one of Carnival’s many cruisers.(Keeffe) While expecting an increase in passengers and more advanced and entertaining cruise ships. CLIA forecasts that the number of cruise line patrons will increase to 5.3 million in 1998. Upon the delivery of new vessels to the corporation this will allow North America to attain close to 144 vessels with an average capacity of 32,000 berths. (Keeffe) The problem is that even with all the growth going on in the industry pertaining to North America, Carnival believes that only a few percent of the North American market travel on a cruise. In result of this, Carnival plans to increase its capital expenditures to entice the rest of the cruise line market or at least gain interest from new and potential customers.



Carnival History

The cruise industry was largely started because of the substitute of ocean liners and ferry’s to airplanes and other aerial transportation during the 1960’s. This was appealing to wealthy investors who were looking for a ship to travel on for new vacation options. For many years people viewed the option of leisurely boat ventures for only the elite class, but now this was a choice among the middle class. Carnival and other Cruise line competitors initially had a hard time appealing to the cost conscious consumers because of the past reputation of high ferry costs. It was not until the show Love Boat aired on television that consumers canceled out their fear of traveling on a cruise ship, and because of this program people view cruises as fun and enjoyable for everyone. The other reason for the increase in cruise interests was the impact of women in the workforce. With the addition of extra income in households families began to embark on exotic vacations like cruises. Given that these two reasons were introduced, it made it easier for consumers to understand more about cruises and eventually led to a bigger market.

Carnival Cruise Lines was formed in 1972 by cruise industry pioneer Ted Arison, when he purchased an ocean liner from Canadian pacific Empress Lines for 6.5 million. (Keeffe) He then named it Mardi Gras to make the cruise ship attractive and seem like it would be a fun party. He then bought a few more vessels to compliment the existing ones. The problem was that these carriers consumed outrageous amounts of fuel, which became costly. For Arison’s dream to come true he knew that he would have to think of up beat and up to date ideas to bring passengers aboard, so he invested in casinos, nightclubs, and other types of entertaining activities to add to the cruise experience. Two years later Arison purchased AITS Inc. for one dollar, in turn he acquired their five million dollar debt. He decided to change core marketing aspects by targeting young first time cruise passengers, and using multimedia advertising which established a “Fun Ship.” The “Fun Ship” is still the marketing strategy used to bring customers aboard today. (Keeffe)

Carnival dominated the industry in the 1980’s with an annual growth rate of 30 percent, which was nearly three times that of the industry as a whole. Between 1982 and 1988 the ships operated at a capacity of 104 and 105 percent. Carnival was able to achieve this success by targeting younger first time passengers. Carnival portrayed the ship as a destination location. In 1987, Carnival deemed their marketing strategy true when the customer profile revealed that 30 percent of the passengers were between the ages of 25 and 39 and had a household income of $25,000 to $50,000. (Keeffe)

Expansion began for carnival when Arison sold 20 percent of his shares, which generated $400 million dollars. With this capital Arison was able to obtain Holland America Line which already had four cruise ships. “The deal also included two Holland America subsidiaries, Windstar Sail Cruises, and Holland America Westours.” (Keeffe) By 1989 Carnival did something no other company had done before and carried 750,000 people in one year. Ted Arison’s son Micky took over his father’s job as chairman in 1990.

Micky took over at a time when the explosive growth rate of the 1980’s began to collapse mainly because of higher fuel costs and increase airline costs. There were also a number of ships directly competing with Carnival in the Caribbean area because of the Persian Gulf War which routed European Indian ported companies to the Caribbean’s. In the 1990’s Carnival took a huge hit, the company had to raise its rates, which in turn made the stock prices plunge from $25 to $13. “The company also incurred a 25.5 million dollar loss during fiscal 1990 for the operation of the Crystal Palace Resort and Casino.” (Keeffe) In exchange for the debt sustained from the construction and development of the Riveria Towers resort to the Hotel Corporation of the Bahamas, Carnival reached a settlement with the Bahamian government for the resort. Even though the industry seemed slow, Carnival unveiled the first four “superliners”.

In 1992, Carnival acquired 50 percent of Seabourn, who serves the ultra luxury market. In 1994 and 1995 Carnival discontinued two of the international cruise lines Fiestamarina Lines and Epirotiki Line. The company then purchased Kloster Cruise Limited, a competitor for the Norwegian Cruise Lines, for $81 million. Also, the company purchased Costa, a European Cruise Line, for $141 million. Carnival seemed to expand when there were right opportunities to make bids on ships or companies that were in hard times, which allowed it to acquire high valued ships for an extremely low price. In 1998 Carnival announced the acquisition of Cunard Line for $500 million; Cunard was then merged with Seabourn which gave Carnival 68 percent ownership of Seabourn. Although the company experienced downfall it still remains one of the largest cruise companies in the world while continuing to attract new customers.

The Cruise Product

The Arison’s wanted to offer a product that was price comparable to land base vacation packages sold by travel agents. Carnival’s packages included activities, entertainment and meals which were often priced below resorts or theme parks. Customers enjoyed the feeling of packages being all inclusive and hassle free experience. Guests who choose the cruise experience indulge in being pampered by the cruise staff. Carnival services include everything from dining to housekeeping and the top of the line staff is available 24 hours a day. Carnival’s dinners are exquisite, offered in the dinner are the finest wines and often serve eight separate meals per day. Also, Carnival offers nightly entertainment including live music, dancing, gambling in the night club.



Carnival Operations

Carnival Corporation is composed of Carnival Cruise Lines, Holland America Lines, which includes Winstar Sail Cruises as a subsidiary, Holland America Westours, Westmark Hotels, Airtours, and the newly created Cunard Line Limited. These subsidiaries can be found in Panama, the Netherlands Antilles, the British Virgin Islands, Bahamas, and Liberia. “The company’s product positioning stems from its belief that the cruise market is actually comprised of three primary segments with different passenger demographics, passenger characteristics, and growth requirements.” (Keeffe) These three segments are divided into contemporary, premium, and luxury segments.

“Carnival was the first cruise line to successfully break away from traditional print media and use television to reach a broader market.” Carnival is not worried about the price of sophisticated promotional effort, but instead gaining loyalty of cruisers. Carnival insists on remaining the leader and innovator in the cruise line industry. Carnivals advertising expense totaled $112 million in 1997, $109 million in 1996, $98 million in 1995, and $85 million in 1994.

Financial Overview

“After achieving its position as the world’s most popular cruise line, Carnival made an initial public offering of 20 percent of its common stock in 1987, which provided the influx of capital that allowed the company to begin expanding through acquisition.” (Carnival History). Carnival in regards to its financial statements is an impressive company. Even thought the company was involved with a bankruptcy; in the end carnival came out on top and gained $32 million in income from its agreement with Wartsila. Carnival continues to grow as a company and along with its growth the company realizes it must forward a lot of money towards advertising to continue its outstanding growth. As of 1997 $109 million is put up for advertising, which is an 11 percent increase from the previous year. While the costs and expenses continue to grow at a small rate, as most companies do, Carnival’s revenues grow at a constant increase of about 200,000 a year. In 1997 the company finally made over one million dollars in profits. Carnival is constantly working on ways to increase profits while decreasing expenses, which is a very hard task. In actuality it did so in 1997 by dropping expenses from around $860,000 to $500,000, while keeping profits and revenues persistently increasing. Also, Carnival has the lowest break even point of any other company in this industry, considering all the fuel, port charges, crew costs and etc. (Keeffe)



Cruise Line Sectors

Carnival operates eleven ships with a total berth capacity of 20,332. Carnival’s principle operation is located in the Caribbean’s and owns an assortment of ships and ports that offer three, four and seven day cruise lines. Nearly fourteen percent of corporate revenue is generated from ship board activities. Having on ship activities has allowed Carnival to see an increase in revenue because passengers stay on board for convenience. Carnival was able to achieve success by cost conscious management and economies of scale. Carnival has begun putting more emphasis in the short cruise market but their main goal is to offer reasonably priced cruises to the middle class. Carnival works directly with travel agents and 99 percent of their cruises were sold through travel agents. The company earned ten percent commission and also earned various other awards. Carnival employees people from 51 nations, most of which are third-world countries, which gives the employees an opportunity to see the world while making money. (Keeffe)

As of 1998, Carnival Corporation owned and operated under multiple different names. The first sector was formed in 1972 called Carnival Cruise Lines. In 1989, Carnival Corporation acquired the Holland America Line. During the acquisition, the company also bought subsidiaries of the Holland America Line, Windstar Cruises and Holland America Westours. In 1992, Carnival acquired the Seabourn Cruise Line. Costa Cruises was purchased in 1997. The company purchased Cunard Line in 1998 which was its final acquisition. (Carnival History).

The Holland America Line is a leader in the premium cruise sector. The company operates nothing but top of the line ships. The line visits 280 ports in its primary destinations which include Alaska, the Caribbean, the Panama Canal, Mexico, South America, Hawaii, Canada, New England and Europe. (Carnival Brands) Holland America’s subsidiary, Windstar Cruises, is said to target older more sophisticated cruisers and offers fewer youth oriented activities. The line operates primarily in the Mediterranean and the South Pacific. (Keeffe).

Seabourn Cruise Lines is Carnival Corporation’s most luxury brand. Its three vessels are comprised of all intimate suites and is considered the Rolls Royce of all cruise ships. The yachts of Seabourn are appointed with one staff member for every guest. (Carnival Brands) “Seabourn has received numerous awards, in the 1992 was awarded “World’s Best Cruise Line” by Conde Naste Traveler’s Fifth Annual Readers Choice.” (Keeffe)

In 1996 Carnival acquired Airtours which is the largest air inclusive tour operator in the world. It provides holiday inclusive packages to the British, Scandinavian, and North America Markets. It operates hotels, cruise ships and aircrafts which offers air tour customers an advantage to inclusively meet all travel demands with one company. (Keeffe)

In 1997 Carnival and Airtours purchased Costa Cruises from Costa family. Costa is Europe’s leading cruise line with headquarters for this company located in Italy. Costa offers guests a multi-ethnic, multi-cultural and multi-lingual atmosphere. (Carnival Brands) Costa ships sail to destinations in Northern Europe, South America, and the Caribbean. (Keeffe)

The Cunard Line is owned and operated by Carnival Cruise Lines, which built the world’s largest ocean liner, the Queen Mary 2. (Carnival History) The Cunard Line is a luxury line with strong brand recognition. (Keeffe) This line offers the only regular transatlantic crossing service aboard the Queen Mary 2. The Queen Elizabeth 2 sails on unique itineraries worldwide, serving both the United States and the United Kingdom (Carnival Brands).


SWOT Analysis

Strengths

  • World’s most popular cruise line

  • Largest cruise line in the world in terms of passengers carried, revenues generated, and available capacity on the ship

  • Considered the leader and innovator in the cruise travel industry

  • Strong quality image of a fun cruise line

  • Received awards for fun cruise line, best cruise line of the year, and best cruise experience

  • Has exceeded the recent industry trends

  • Offers all of the accommodations of a land vacation on a single ship


Weaknesses

Opportunities

  • Expand market into other areas or locations

  • Further acquisitions, mergers, or buyouts can lead to increased market share

  • Offering more cost conscious packages to appeal to lower income sectors

  • Interest in cruising is increasing which allows for a growth in customers

Threats

  • With a decreasing market it may be hard to receive a return on investment

  • More competition from alternative cruise lines


Works Cited

Carnival Brands. Retrieved, November 7, 2005. http://www.carnivalcorp.com/Sections/InvestorOverview/Brands.aspx

Carnival History. Retrieved, November 7, 2005. http://www.carnivalcorp.com/Sections/InvestorOverview/History.aspx

Keeffe, Michael J., John K. Ross III, and Bill J. Middlebrook. “Carnival Corporation: 1998.” Reprinted in Mattson, Melvin R., Marketing Management: Case Analysis by Teams. New York: McGraw-Hill Companies, 2004, pp. 203-219.






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