Carnival Corporation
Marketing Management 445-02
April 12th, 2006
Team # 1 Presenter Team
Ellie Guptill
Angela Marino
Michael Clemens
Colin Wheat
Meghan Dolan
Presenter Team, 445 – 02, Spring 2006
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Table of Contents
Executive Summary
3
Introduction
4
Evolution of Cruising
4
Carnival History
5
The Cruise Product
6
Carnival Operations
7
Financial Performance
8
Principal Subsidiaries
8
Future Considerations
11
S.W.O.T Analysis
12
Work Cited
13
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Executive Summary
Problem
Carnival needs to find a way to stay ahead of their competitor cruise lines (Royal Caribbean and
Disney), while also capturing the attention and interest of the 95% of Americans who have not
yet taken a cruise.
Background
Carnival began in 1972 when Mr. Ted Arison bought an ocean linear from Canadian Pacific
Empress Lines. Ever since then Carnival has made a majority of business decisions that have
worked in their favor. By purchasing a number of ships and acquiring percentages of different
cruise line companies, Carnival was able to stay ahead of the game. They focused attention on
their ships instead of the ports being visited and aimed for a younger (25-39) target market.
Carnival has experienced incredible growth and profit over the years.
Discussion
Carnival has captured a couple of firsts in the cruise line industry. They were the first to carry
over 750,000 passengers in one year. Carnival was also the first to use television to reach out to a
larger market, instead of print. It is because of these things and others that Carnival has been a
leader in the Cruise line industry since the 1980’s. With all this success, at a point and time there
comes competition. Royal Caribbean is an up and coming leader in the cruise line industry and is
a major competitor for Carnival. Disney and their ideas for a new ocean liner are also going to
take away from Carnival’s family market. This area of competition needs to be a focus of
Carnival in order for them to stay on top.
Recommendations

Stay ahead of their competitors by keeping up with vacation trends and listen to what the
customer is looking for.
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Introduction
Carnival Corporation is the largest cruise line in the world, and is widely
considered the leader and innovator in the cruise industry. (Keeffe) Carnival Corporation
has grown from a small company with only two converted ocean liners, to large
successful corporation with two cruise divisions, a joint venture to operate a third cruise
line, and a chain of Alaskan hotels and tour coaches. (Keeffe) The company continues to
grow with May 1998 revenues up to $100 million over the same quarter 1997 to $1.219
billion net income from operations of $666 million. (Keeffe) Carnival has exceeded
recent industry trends, and the growth rate in the number of passengers carried was 11.2
percent per year over the 1992-1996 periods. (Keeffe) Even with the growth of the cruise
industry the company still believes that cruises represent only a small percent of the
North American vacation market. The company has been basing their expansions and
capital spending programs on the possibility of capturing part of the 95 percent of the
North American population who have not taken a cruise vacation. (Keeffe)
Evolution of Cruising
The opportunity for developing the the modern cruise industry came when ocean
liners, that were once the primary means of transoceanic travel, were replaced by
aircrafts. (Keeffe) Now that ships were no longer ferrying passengers around, investors
had visions of new vacation experiences. Soon “cruising” hit America, first targeted at
the rich, and later targeted at the middle class as well. The popularity of going on a cruise
has grown ever since. According to Robert Meyers, editor of Cruise Travel magazine,
the increasing popularity of taking a cruise as a vacation can be traced to two events.
(Keeffe)
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First, TVs Love Boat series corrected many myths that were associated with taking a
cruise, and depicted people of all ages and backgrounds enjoying the cruise experience.
Secondly, with the increasing affluence of Americans and the increase of families with a
duel income, give them an opportunity to have more money at there discretion to spend.
(Keeffe)
Carnival History
The Carnival Corporation begun in 1972 when Ted Arison, with assistance from
American Travel Services, Inc. bought a aged ocean liner from Canadian Pacific Empress
Lines for $6.5 million. They renovated the entire boat and named it the Mardi
Gras. Mr. Arison then acquired another boat named the Festival and began adding
activities, casinos, nightclubs, discos, and other forms of entertainment to
let passengers have a more enjoyable experience. Ted Arison bought out the
subsidiary of AITS, Inc. He bought them out for $1 cash and 5 million dollars
debt. The cruise line then began to show signs of profit. (Keeffe) Carnival went after
first-timers and young people with a moderately priced vacation package. The
rates were very competitive with other companies. The cruise line varied ports
to increase its attractiveness to potential customers. Being the first cruise
line to use multimedia advertising promotions and give them the name "Fun
Ship," while promoting the ship as the destination, not the ports; they were able
to maintain growth throughout the 1980's. Between 1982 and 1988 they operated at
104 percent capacity. They can operate at more then 100 percent capacity because
of things such as rollaway beds, pullmans and upper bunks. In 1987 Ted Arison sold
20 percent of his shares for 400 million dollars for expansion purposes. (Keeffe) With
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the expansion done by 1989 the cruise segments of Carnival Corporations carried over
750,000 passengers in one year it was a first in the cruise industry. By June of
1990 the Carnival stock price had fallen from $25 to $13 because expensive fuel
and airline tickets, the loss was also because of the Persian Gulf war which
increased the number of competitors since they where now traveling to the
Caribbean. Even after another loss in 1990 of 25.5 million dollars, the company still
pressed forward with the delivery of its first two superliners and later that
year delivered another two superliners. In 1992 Carnival acquired 50 percent of
Seabourn, gaining the cruise operations of K/S Seabourn Cruise Lines and formed
a partnership with Atle Byrnestad. External expansion continued and on May
28, 1998 Carnival announced the acquisition of Cunard Line for $500 million. (Keeffe)
After the merger, Carnival owned 68 percent of the resulting Cunard Line Limited.
Carnival has been and will continue to grow through internally generated growth
as shown by the number of ships on order. Carnival also seems to be continuing
its external expansion through the acquisitions, if the right opportunity is
there. (Keeffe)
The Cruise Product
The product Carnival is involved in selling is the all inclusive
vacation. This vacation begins with passengers being brought to the ship for
boarding by bus, while the luggage is delivered to the passenger’s room and waiters are
serving drinks. Then the passengers are invited to eat dinner at one of the many
restaurants on the ship. After dinner there are many different forms of
entertainment to choose from such as live music, dancing, nightclubs, and movies.
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The cruise provides impeccable service during your stay. After the cruise you are
driven back to the airport. When compared to resorts or a theme park like Disney
World these vacations are often priced lower, and can be purchased by your local
travel agent. (Keeffe)
Carnival Operations
Carnival Corporation consists of five large cruise lines including Carnival Cruise
Lines, Holland America Line, Windstar Cruises, and Seabourn Cruise Line. The
Corporation itself owns twenty-five cruise ships serving thousands of customers
worldwide. They also are considering taking six new ships for their operations. The
corporations’ operations mainly consist of targeting three large markets including:
Contemporary, Premium, and Luxury. Carnival Corporations operates fifteen “fun ships”
with several voyages all operating on different time brackets. Some of these cruise ships
sail to the Bahamas, Caribbean, Mexican Riviera, Alaska, Hawaii, the Panama Canal, and
the Canadian Maritime Provinces. Carnival Corporation wants to be known as “The Most
Popular Cruise Line in the World”. All their ships offer a wide variety of amenities and
accommodations. Carnival also offers their guests exceptional vacation experiences at a
very impressive value. The ongoing reputation of Carnival Corporation ensures their
customers expected value and due to this reputation it has made Carnival the most
profitable company in the leisure industry.
Carnival Corporation headquarters are located in Miami, Florida. They operate
about seventy-five ship, employ over 65,000 employees worldwide, and will eventually
take on board nine new ships hopefully by 2006. “With 123,000 berths and almost 55,000
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crewmembers, there are roughly 175,000 people at sea with Carnival at any given
time”(Florida).
Financial Performance
Carnival Corporation’s revenue increases every year significantly with a net
operating revenue of $446.2 million in 1998.Their earnings per share on their stocks
increase also. Their brokers say that Carnival Corporation stays at a Buy pace on the
market. They have been a very intelligent investment ever since the beginning in 1987
when their stock was priced at $3.875 and it was just adjusted for two-for-one splits
distributed December 14, 1994 and June 12, 1998. Their stock is now sold at about $
47.50 per share so I would say that that is a huge increase compared to the start up of the
company. This stock is offered on both the New York Stock Exchange and the London
Stock Exchange. Their net income for the 1998 quarter was $15.4 million. They are
expecting the next few years to increase due to the over supply of capacity in previous
years. The demand had fallen as a result of significantly reduced oil field development in
some parts of the world and the corporation hopes that this demand will rise. We will see
how the company performs when the oil prices drop and the leisure time in the world
increases so that families have time to enjoy taking these cruises to various locations in
the world. (Yahoo)
Principal Subsidiaries
Carnival Cruise Lines are the main fleet in the Carnival Corporation. As of 1996,
they operated 11 ships under the Carnival Cruise Line name. These lines offer
passengers three, four, and seven day cruises mostly in the Caribbean Sea, that are
reasonably priced to fit the time and budgets of the middle class. According to Carnival;
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30 percent of its passengers are under 35, 40 percent are between the ages of 35-55 and
30 percent are over 55. Carnival is much cost conscious due to the large staff they have
available on their lines. Each ship maintains a full time staff, shopkeepers, casino
operators, entertainers, and a complete hotel staff. It is important to have these amenities
to keep guests entertained and well pampered, but it is also important to keep these costs
reasonable. The service on the ship is labor-intensive so Carnival Corporation, according
to the authors, employs help from 51 countries, mostly third world countries. This allows
Carnival to maintain the lowest prices possible by hiring help from third world countries.
These employees earn approximately $18,000 to $27,000 per year, much greater than
what they would make at their home countries. This explains why applicants exceed
demand for all cruise positions because of the greater opportunity to leave their home
country and make more money. (Carnival)
Carnival Cruises are sold through travel agents who account for 99 percent of all
Carnival Corporations transactions. Travel agents receive the standard commission of 10
percent. Carnival works with their travel agents to promote their vacations as an
alternative to European or Disney vacation. Carnival also has a unique “bonus” system
to offer travel agents. A special group of employees goes around to different travel
agencies as prospective clients. If the travel agent recommends a cruise before anything
else, they receive $100 on the spot. If they specifically mention a Carnival Cruise, they
get $1,000 on the spot. This is a unique promotion because of word of mouth between
travel agencies; the travel agents may also refer to Carnival first because they indeed
could be the ones with $1,000 in their pocket by the end of the day. This is also unique
because many families know they want to go to the Caribbean but not sure exactly where.
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The travel agent may entice them that the Carnival Cruise Lines are the perfect place to
go. (Cruise)
After becoming the world’s most popular cruise line in 1987, Carnival
Corporation decided to issue a public offering of 20 percent of its common stock. This
provided Carnival the assets to expand through acquisition. Due to the access of capital,
Carnival acquired significant stakes in, Holland America Lines, Seabourn Cruise Lines,
Airtours, Costa Crociere S.p.A., and Cunard Line.
In 1989, Carnival acquired all the outstanding stock of HAL Antillen N.V. from
Holland America Lines for $625 million in cash. Holland America has seven cruise ships
with more to be built in the future. Holland America Lines are an upscale line that targets
an older, more sophisticated cruise with fewer youth-oriented activities. This is much
different than Carnival Lines that appeal more to younger/family oriented market. These
ships cruise to Alaska during the summer months, and the Caribbean Sea in the fall and
winter months. Holland America ships have sustained constant growth into the early
90’s. They have accomplished this while giving the Carnival Corporation a presence in
the Alaskan market, where it had none before. Holland America is the largest tour
operator in Alaska and the Canadian Rockies, serving a large market wanting a relaxing
vacation with scenic beauty.
In 1992, Carnival Corporation acquired 23 percent of the capital of Seabourn.
Seabourn, which is considered to be the “Rolls Royce” of the cruise industry, was named
the “World’s Best Cruise Line.” Seabourn targets the luxury market. This is also much
different than the Carnival Cruise Lines. In 1996, the company acquired 29.5 percent
interest in Airtours for approximately $307 million. Airtours is mainly in the hotel
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business, but owns two cruise ships that help serve European market. In 1997, Costa
Crociere S.p.A. was acquired by Carnival and Airtours for $141 million. Costa is
headquartered in Italy and is considered Europe’s largest cruise line. This penetrates
deeper into the European market. In 1998, Carnival acquired the Cunard Line. This line
is a luxury line with strong brand name recognition. Carnival purchased 50 percent of
Cunard for $255 million. Cunard was merged with Seabourn resulting in a luxury only
fleet. Lastly, in 1996, Carnival tried a Joint Venture with Hyundai Merchant Marine Co.
to penetrate the Asian market, but the deal fell through. (Keeffe)
Future Considerations
The Carnival Corporation has many things to consider in the future. First, they
need to stay ahead of competition because of the belief that the industry will consider to
see mergers and buy outs in the future. Another factor of concern is how to reach the
North American market, of which only 5 to 7 percent have taken a cruise. Caribbean
Cruise Lines are stepping into Carnivals Caribbean market while Disney is launching
their own fleets to compete with Carnivals family market. Carnival must avoid using the
“price” weapon in their marketing campaigns. If cruises cannot make a return on
investment, they will have to cut costs, resulting in reduced services. However, since 95
percent of Americans have never taken a cruise, the market is still there to be profitable.
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S.W.O.T. Analysis of Carnival Corporation
Strengths:

Largest cruise line in the world

Considered to be the leader and innovator in the cruise travel industry
Weaknesses:

High fixed costs, including depreciation, fuel, insurance, port charges, and
crew costs represent more then 33% of operation expenses
Opportunities:

The market that needs to be tapped for the 95% of the North American
population who have yet to taken a cruise vacation

Young adult segment need to be targeted with “party” cruises
Threats:

Royal Caribbean Cruise Lines is there largest competition

Walt Disney Company’s cruises taking over the family market

Slow growth in industry demand

Some people are afraid of taking a cruise
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Works Cited
Carnival Corporation Historical Background. Retrieved April 10th, 2006.
http://www.carnivalcorp.com/Sections/InvestorOverview/History.aspx
Cruise Critic. Retrieved April 10th, 2006.
http://www.cruisecritic.com/reviews/cruiseline.cfm?CruiseLineID=8
Florida - Caribbean Cruise Association. Retrieved April 10th, 2006.
http://www.f-cca.com/pages/carnival.html
Keeffe, J. Michael and Middlebrook J. Bill and Ross, K. John. “Carnival Corporation:
1998.” Printed in Melvin R. Mattson, Marketing Management Case Analysis by
Teams. Boston. McGraw-Hill. 2005 pages 196- 212.
Yahoo Finance. Retrieved April 10th, 2006.
http://finance.yahoo.com/q?s=CCL
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