Case Study of Carnival PDF

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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 1 Jerry, (Zheng Chen) 鄭晨 Table of Content Vision ＆ Mission ＆ Goals ＆ Strategies ...............................

Description

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

1

Jerry, (Zheng Chen) 鄭晨

13105284g

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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Jerry, (Zheng Chen) 鄭晨

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 bestknown 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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Jerry, (Zheng Chen) 鄭晨

 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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Jerry, (Zheng Chen) 鄭晨

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 score

Comments

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 the ships

0.12

3.0

0.36

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

Strong marketing strategy

0.20

4.0

0.80

Carnival has a marketing mix which effectively with OTA selling their products

Strong portfolio (E.g fun-ship concept)

0.11

4.0

0.44

Carnival owns different brands which targets different lifestyles and budgets and groups.

High dependency on the North American Market

0.13

2.0

0.26

50,1% (Financial year 2013) of the total revenue was generated from the North American market

Commitment of the company for ship acquiring

0.10

1.0

0.20

A decline in the company’s revenues will make it harder for the company to pay off these ships,(from 2009 to 2013)

Low current ratio (Liquidity )

0.09

2.0

0.18

Current ratio for financial year 2013 was 0.28, Because of high customers’ deposits in current Liability.

Total scores

1.00

Strengths

Weaknesses

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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Jerry, (Zheng Chen) 鄭晨

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

Weight Rating Weighted Comments Score

Opportunities: .065

1.0

.065

Emerging and Potential markets for Carnival

Concentrate more on Attract more .075 repeat customers (CRM ),customers data management

2.0

.15

Generate brand loyalty, need to do more marketing communications. Access and fully use the customer database

China, India growing

Indian Ocean and west Pacific market

.09

1.0

.09

Potential markets for Carnival to develop. There are 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 curiser (trend)

1.0

.075

Try to adapt to it (potential segments)

Premier and luxury segments outside of north America market

.052

2.0

.104

Potential market segments for Carnival to focus on (Referring: the later Strategic Group of industry outlook).

Increasing industry

.07

2.0

.14

Carnival can continue to expand its capacity.

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 America market

.052

4.0

.28

Should be well positioned on the market and differentiate from competitors.

Royal Caribbean pursuing global market development strategy as well

.085

4.0

.34

Increasing competition outside of north America market for Carnival

Customers can easy switch choices .05 (increasing buying bargaining power)

3.0

.45

Carnival should make barriers of changing choice. (Such as strict cancellation policy) or sell from its own travel agents more)

.07

3.0

.21

Demand will be reduced within uncertain governmental stability ( Such as vacation

Threats:

Political Instability

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destinations like Cuba, Thailand, and Mediterranean areas ) Climate threaten

.06

Total

1.0

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)

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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Jerry, (Zheng Chen) 鄭晨

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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Jerry, (Zheng Chen) 鄭晨

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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Jerry, (Zheng Chen) 鄭晨

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% 10%

Depreciation

7%

Fuel 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 strategies

Global market development 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



Customers motivation, retrieved from www.surveyofbuyingpower.com



Cruise industry website, retrieved fromwww.cruiseing.org



www.cruisemarketwatch.com/financialbreakdown



2011



Strategy. Essex, England: Pearson Educational Limited.



Cruise Industry website : Retrieved from www.cruisemarketwatch.com



Cruise Association, retrieved fromwww.f-cca.com





Cost

structure

of

Cruise

industry,

Retrieved

from

Front page of Carnival , www.carnivalcorp.com Retrieved on 10th of Feb,

Johnson, G., Scholes, K., Whittington, R. (2006). Exploring Corporate

Market Information, Retrieved fromwww.anbc.com Royal

Caribbean

Ltd

prof...