Term Paper: Future of the Cruise Line

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[. . .] The product of a cruise line is entertainment. A cruise is a highly desirable form of entertainment for many. There are many other forms of entertainment. After the World Trade Tower attacks, the video industry and other forms of domestic entertainment saw an increase, while travel and vacationing saw a drastic drop. However, when confidence in air travel was restored, the cruise line industry went back up to near normal levels quickly. The threat of buyers selecting another form of entertainment is highly tied to consumer confidence. When consumer confidence is high, it is clear that cruises are a preferred mode of entertainment.

SWOT Analysis

The key strengths of the cruise line industry are its high desirability among consumers. Cruises appeal to the American public's sense of adventure. The second strength is that cruise lines have shown a great ability to adapt their product to meet popular social trends and expand into untapped markets. The recent trend to offer a wider variety of entertainments and the recent popularity of "Theme Cruises" has been a valuable asset. The offering of various priced cruises is also evidence of the industry's ability to adapt and as a result expand their market. The expansion into foreign market is further evidence of this strength. The cruise line industry has demonstrated the ability to not only identify new markets, but to capture them as well. A third strength is that the cruise line industry operates at 100% capacity (Farley, 2000). In order to expand their market cruise lines need only to build more ships.

The key weakness of the industry is its high overhead and operating expense. This in combination with their high volatility in reacting to macroeconomic events beyond their control creates their greatest risk. Cruise line companies must constantly adjust prices and try to maintain a buffer against unexpected reductions in revenues. Companies who do not take action to protect against this risk can find themselves in a precarious position rather quickly. The leaders in the industry will be those companies who realize this risk and take measures to protect themselves in any economic environment.

The key opportunities in this industry are in taking advantage of and expanding existing markets both domestically and foreign. The industry knows their customers' buying habits well and adjusts their product to meet their needs. Their ability to take advantage of these opportunities is their key strength.

The key threat is their vulnerability to outside forces. In times that do not favor travel, people choose other forms of entertainment. Their main threat would be a sustained downturn in consumer confidence. They can "sail through" temporary downturns, however a more sustained economic downturn, forcing people to stay home more, could have a drastic ill effect on the industry. The second threat is a constant increase in materials and labor set against a backdrop of fluctuating prices. The third threat is high liability due to the danger of terrorism, fires, and other ocean going disasters. Cruise lines employ more layers of security than any other member of the travel industry in order to minimize these risks. Another "Titanic" could bring the industry to a near end.

This analysis is best illustrated by the words of Robin Farley, Executive Director in the equity research division of UBS Warburg, "2000 brought the cruise stocks a tough pricing environment, which was unexpected, given the fact that the economy in early 2000 was still going strong" (Farley, 2002).


J. Cogan of Banc of America believes, "the cruise line industry is especially positioned to prosper in the next few years. The cruise line sector has been rated by the industry, the #1 group in his travel and leisure coverage" (Banc of America, 1999).

Glenn Curtis of the Street.com agrees. Curtis states, "I believe the industry will recover quite as quickly this time because of overcapacity issues. But given favorable demographics and the average American's penchant for adventure, cruise lines still look favorable in the long run" (Curtis, 2001).

According to Broderick Perkins in an article for American City Business Journals, the attacks on the world Trade Towers hurt the travel industry in general, and the cruise line industry was no exception. The cruise line industry primarily suffered because people fly to meet their ships. The cruise line industry quickly recovered and within three weeks was booked to 65-75% normal capacity (Broderick, 2001).

The cruise industry has seen steady growth over an extended period of time. Although recent economic events have had a negative impact on the industry, they have been making many positive strides in the area of new market expansion. The quick recovery of the industry after the World Trade Tower attack is evidence of the strength of the industry. Individual players may come and go, but on the whole, the industry remains strong. The strongest players will continue to be the ones who can meet the balance between expanding to take advantage of new markets, while hedging against risks at the same time. Over the long-term, the industry will continue to experience healthy growth, even though now it may seem like stormy seas.

Works Cited

Banc of America Securities, PRIVATE

Travel and Leisure companies Poised to Fare Well in 2000 due to Steady Growth in Economy, Hotel Online Special Report. SAN FRANCISCO, Oct. 1, 1999

Curtis, Glenn. Despite Stormy Seas, Cruise Industry Will Rebound. TheStreet.com, Inc.

Merchant of Value. 09/25/2001. http://www.street.com accessed March 2002.

DP Information Network PTE Ltd. 1999.Author Unknown

http://www.dpgroup.com.sg/dpinfo/articles/cruise1.htm accessed March 2002

International Council of Cruise Lines (ICCL). Cruise Industry: A Partner In America's Economic

Growth 1999 Economic Study http://www.iccl.org/resources accessed March 2002

International Council of Cruise Lines (ICCL). 1997 Economic Study the Cruise Industry: A

Partner in America's Economic Growth Impact Of North American Cruise Industry On

U.S. Economy In 1997 http://www.iccl.org/resources accessed March 2002

International Council of Cruise Lines (ICCL). Benefits of North American Cruise Industry To

The U.S. Economy in 2000 http://www.iccl.org/resources accessed March 2002

Molineaux, Charles. Cruise industry predicts record year for passengers. CNN, Financial News

New York. 2000.

Nichols, Katherine A faltering workhorse, tourism slow to regain pace PRIVATE "TYPE=PICT;ALT=Image" Business Outlook.


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