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
2
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.
3
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.
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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
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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
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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.
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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.
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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
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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
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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
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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

Growth rate of the industry is declining

Lack of foreign countries interest in cruising

Only appeal to specific markets
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
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
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
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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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