Cruise Line Industry Term Paper

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Cruise Line Industry

The objective of this work is to evaluate the cruise industry, specifically Carnival Cruise, Norwegian Cruise and Royal Caribbean. The evaluation will be through use of Porter's Five Forces as to competition in the industry, the bargaining power of suppliers, the bargaining power of consumers and will answer the questions of whether the industry has substitute products and whether there are new entrants into the industry. Also this work will answer the question of 'how intense is the rivalry' and is there a forecasting method that can be used to predict where the industry is going.

According to an Executive Summary published by the Cruise Lines International Association: "The cruise industry is the most exciting growth category in the entire leisure market. Since 1980 the industry has had an average annual passenger growth rate of 8.1% annum." (2006) Further stated is that: Since 1980 nearly 100 million passengers have taken a deep-water cruise (2+ days). Of this number, 61% of the total passengers have been generated in the past 10 years. Thirty seven percent of total passengers have been generated in the past five years alone." (2006) the cruise industry states expectations that over the "next three years, over 48 million North Americans indicate an intent to cruise. To date, approximately 16% of the U.S. population target market have ever cruised. By maintaining historical occupancy levels, the cruise industry could welcome over 10 million guests in 2004." (2006)

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I. PORTER'S FIVE FORCE ANALYSIS (Competitive Rivalry; Threat of New Entrants; Threat of Substitute Products; Bargaining Power of Suppliers; and Bargaining Power of Buyers)

Term Paper on Cruise Line Industry Assignment

In an April 27, 2006 report entitled: "Cabin Fever - Smooth Times Ahead for the Cruise Industry" John Zamora writes that:."..there's plenty of room for growth in the cruise industry. Currently the number of tourists worldwide who book cruise vacations stands at around 13.4 million, representing about 1.8% of the total world travel market, as estimated by the World Tourism Organization." (2006) Zamora also writes that: "Far from being disappointed at this current level of market share, the industry fully recognizes the opportunities ahead as operators expand into new types of cruises (including the niche budget option); set their targets on different demographic groups; and, head for new waters." (2006) in a November 14, 2005 report entitled: "Which Way is the Travel Industry Headed?" It is stated that a Senior Analyst at eMarketer and author of the Online Travel Worldwide report, Jeffery Grau states: Without question, the Internet has shake up the status quo in the travel industry...Traditional travel agencies are struggling to stay relevant, online travel agencies are trying to instill loyalty among their customers,. travel search engines are the new upstarts, travel suppliers are flexing their muscles and global distributions systems are looking for way to recover their waning influence." (2005) in a report entitled: "Cruise Line Industry: Trends Opportunities for Canadian Exporters 2005" reported is a case study in which the researchers conducted interviews with 21 cruise line purchasers, chandlers, distributors and brokers findings stated in the report include the facts for Worldwide per Segment Forecasts including the cruise lines shown on the chart in Figure 1.

Figure 1 - Forecasted Value Worldwide per Segment, Hotels, Resorts and Cruise Lines (in billion dollars) 2003-2008

2003 2004-2005-2006-2007-2008

Cruise Lines 16.2-16.8-17.4-18.2-19.0-19.7

Hotels & Resorts 298.3-306.6-318.1-332.4-345.7-359.5

Global Sector 314.5-323.4-335.5-350.6-364.7-379.2

Source: Calculations made from data in Datamonitor (2004)

The following table labeled Figure 2 illustrates the 'Average growth rate' between the years of 1980 and 2004 in the Cruise Line Industry.

Average Growth Rate 1980-2004

Source: Cruise Line Industry: Trends Opportunities for Canadian Exporters 2005

The following chart labeled Figure 3 illustrates the percentage change in passengers for the years 1974-2004 in the Cruise Line Industry

Passengers Percentage Change 1974 -2004

Source: Cruise Line Industry (2005)

The following table labeled Figure 4 illustrates the number of vessels, lower berth passengers, maximum passengers and average passengers per vessel for the three cruise lines that are the focus of this analysis.

No, of Vessels

Lower Berth Passengers

Max, Passengers Ave. per vessel

Royal Caribbean 18-24,070-50,556

Carnival Cruises 19-41,134-52,049-2,165

Norwegian 9-16,052-21,007-1,784

Source: ShipPax Information (Cruise Industry in Figures; Ebersold, 2005)

According to the report of Ebersold (2005) the largest cruise vessel; owner groups' Fleets serving the United States are those of Carnival Cruise, Royal Caribbean and Star/NCL. The following chart labeled Figure 5 illustrates the 'Cruise ship order book as of January 1, 2004.

Cruise Ship Order Book as of January 1, 2004

Vessels Gross Tons Lower Berth Capacity

In thousands)

Carnival Cruise Line: 3-309 8,098

Norwegian Cruise Line 3-258 6,800

Royal Caribbean 2-248 5,600

Quite clearly as evidenced by the following chart the internet has had an impact on the way that travelers are booking their cruises.

Ebersold (2005) states that the 21 member lines of the Cruise Line International Association (CLIA) reported 9.5 million passengers carried worldwide in 2003 and expect an 11.5% increase in 2004, to 10.6 million passengers. According to CLIA, the industry has experience annual growth of 8.4% since 1980." Additionally stated by Ebersold (2005) is: "Two companies dominate the industry: Carnival Corporation and Royal Caribbean Cruises. Carnival is the largest in the industry with 47% of the market. It owns six cruise brands: Carnival Cruise Line; Holland America Line; Windstar Cruises; Seabourn Cruise Line; P&O Princess Cruise Lines; Costa Cruise Lines; and Cunard Cruise Lines. Royal Caribbean operates two brands: Royal Caribbean Cruises; and Celebrity Cruises. Together, they own 70% of the market. Both companies are involved in cruises and on-board casinos but Carnival also reports revenue from tour operators and resort hotels. Royal Caribbean identifies land excursions as a revenue source."

According to a February 25, 2006 report entitled: "A New Breed of Travelers" during August of 2005 "total bookings on the Intra-Asia Abacus system increased by 19% over the corresponding period in 2004 to more than 4.41 million." The important findings stated in this report are that: as more women enter the workforce, they enjoy greater spending power and thus travel more often. According to recent research conducted by MasterCard International, the ratio of male to female travelers has changed from 90:10 in 1980 to 60:40 in 2004. MasterCard noticed three distinctive groups among the female travelers - young single women traveling in self-organized groups; mother-daughter travelers; and older singles traveling in groups. Whether it's shopping in cities or relaxing at beach resorts and spas, they all spend good money. In fact, MasterCard predicts that retail spending in Hong Kong, Seoul, Bangkok and Singapore will hit U.S.$13.4 billion in 2011." (2005) the Caribbean Cruise Line which accounts for "50% of capacity in 1999, is the most popular cruise ship destinati8on." (Cruise Ship Tourism Industry, 2006) Stated as "an important part of the strategy of the mass-market cruise companies has been to define land-based resorts such as Orlando and Las Vegas as their competition and to market their ships themselves as resort destinations." (Cruise Ship Tourism Industry, 2006) in terms of "the rhetoric of globalization" stated is that "Cruise ships represent the ultimate in globalization, physically mobile, chunks of multinational capital; capable of being repositioned anywhere in the world at any time, crewed with labor immigrants from up to 50 countries on a single ship, essentially unfettered by national or international regulations." (Cruise Ship Tourism Industry, 2006) the cruise sector is experiencing increased "internationalization of ownership and further concentration in the business, with a massive shakeout reducing the number of players. The pace of mergers, acquisitions and bankruptcies haws been dizzying over the past two decades." (Cruise Ship Tourism Industry, 2006) Troubling the cruise industry are the impacts due to "The Bluewater Network" campaign which was successful in lobbying lawmakers to introduce bills "that would require cruise ships to monitor and report regularly" to state environmental agencies "on all pollutants discharged into the waters as well as wastes offloaded at each and every port. (Cruise Ship Tourism Industry, 2006) Caribbean Cruise Line has developed 'Fantasy Island' theming at their port-of-calls and created private clubs for passengers in Caribbean ports of call as well. (Ibid) Younger consumers are being targeted with 'budget cruises' which are pushed forth to consumers through different marketing techniques such as "direct mail and private local and regional media." (Smooth Times Ahead for the Cruise Industry,2006) Concerns include the rising fuel costs which are stated to be the industry's "biggest threat" which is "due to a combination of factors, including market conditions, economic instability in the oil-producing regions of the world and the natural disasters" (Ibid) that have been occurring. Stated as well is that 'forward curves for the type of fuel used by many of the cruise operators have risen in the past few months" (Ibid) which leads forecasters to believe that "operating margins and profitability in the cruise industry will be hit." (Ibid) Other factors affecting the cruise line industry are the new rules for obtaining passports. Stated in the same report is that those previously not needing passports, due to the new rules governing travel in… [END OF PREVIEW] . . . READ MORE

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