Carnival Cruise Lines: Exploiting a

Sea of Global Opportunity

Answers of the Case Study

Q.1: What global forces have contributed to the growth

of the cruise-line industry?
The cruise-line industry growth has been contributed, largely by the following

factors:
i. Technological Development: Advent of Transoceanic Air line Service made line
travel less attractive to business people due to the cost and time factor. The decline
in the demand for the liner had resulted in the birth of cruise line industry that offer
pleasure sea travel to the growing middle class who are looking for alternative and
more interesting excursion.
ii. Economic Factor: The growing income among the middle class in many countries,
particularly in the emerging market, contribute to the increase in discretionary
incomes that could be spent on tourism.
iii. Geographic /Political Factors: international agreements make it easy for cruise lines
to hire from all over the world, resulting in most registered seamen working for
cruise lines being from countries with lower labor cost
These are the opportunities that can be tapped by the cruise industry that will
contribute to the growth.

Q.2: What specific steps has Carnival Cruise Lines take to

benefit from global societal changes?

With the emergence of globalization, businesses have gain advantages by expanding

the business around the world. Globalization has made companies to gain greater
businesses, economic and social impact as well compared to before. As for Carnival
Cruise Lines, they have taken following steps from to maximize the profit.
i. Globalization: Recruiting oversea therefore reducing labor cost significantly.
ii. Social Trend: new entertainment Services (e.g. Casino and shopping)
iii. Economic Recession: Carnival has dealt with economic recession by offering
shorter cruises that embark closer to home and with times of economic prosperity
by offering longer cruises that incorporate more exotic destinations
iv. Strict Security Measures: Since a ship is highly vulnerable to terrorist attack,
therefore Carnival introduced strict health and safety measures to ensure secure
trip.

Q.3: What are some of the differences by country that

affect the operations of cruise lines?

There are many kinds of legal, economic , geographic and socio-cultural difference

which may effect the operations of a cruise lines

Legal:
Most of shipping lines choose to flag their vessels in countries such as Liberia
Mongolia, or Panama because of the lower taxes and less rigid employment
practices required by the laws of those countries
Economic:
Relatively few countries
(Finland, France, Germany, Italy, Japan, and South Korea, for example) have
shipyards capable of building cruise ships. Consequently, governments (e.g.,
Italy) may choose to subsidize the shipbuilding industry in order to secure
contracts for their domestic firms.
Geographic:
The favorable location of the
Caribbean/Bahamas and the Hawaiian Islands makes them busy destinations year
round, while Alaska is strictly a seasonal favorite.

Continued..
Socio-Cultural: Because of their professional

skills and fluency in English, Philippine workers comprise

nearly a third of the
seamen worldwide. Yet many other crew members also co
me from Eastern
Europe, Vietnam, and China. Finally, in addition to the fac
t that many ships are
designed to accommodate the economic realities of the mas
s market, others are specifically designed to appeal to the c
ultural preferences of their clientele (e.g., Costa,
based in Italy, offers a distinctive Italian flavor).

Q.4: Although most cruise line passengers are from the United States, the average
number of vacation days taken by U.S. residents is lower than in most other highincome countries. For instance, the number is 13 days per year in the United
States as compared to 42 days in Italy, 37 in France, 35 in Germany, and 25 in
Japan. How might the cruise lines increase sales to people outside the United
States?

Given that the majority of people in the targeted income segment ($20,000$

60,000 per year) have yet to take a cruise, the major task confronting the cr
uise line industry is one of marketing. In addition to promoting the many a
ppealing features of its various cruises and lines throughout the developed
world and selected developing countries, Carnival could partner with foreig
n airlines and travel agents in order to get foreign vacationers to its many po
rts of embarkation.

Q.5: What threats exist for the future performance of the cruise line industry and
specifically Carnival Cruise Lines? If you were in charge of Carnival Cruise
Lines, how would you (a) try to prevent these threats from becoming a reality,
and (b) deal with them if they were realized?
1. Millions of dollars(on average) are required in order to train and maintain

employees (for the casinos and entertainment, hotel staff, world class
chefs, and the maritime staff). Besides that, the start-up capital of a cruise
line company is very huge that it discourages and limits the number of
potential entrants. It creates an oligopoly market dominated by a few
giants.
2. It is not easy for new entrants with low brand equity to compete with the
established cruise-line companies in the industry. These new entrants adapt
the techniques of giving away discounted tickets in order to capture more
customers. It would normally take a long time for new cruise line
companies to develop their identity in the industry.
3. Although cruise lines cater for people from various demographic
populations, a typical cruise-line customer is characterized as someone
from a middle-class aged at 46 with annual household income of USD
$93,000. The average cost of a cruise line ticket, which is about USD
$1,500, is low relative to the customers annual income. Therefore, the
price sensitivity of the customers is low.

Continued..
4. The availability of diversified substitutes (within the leisure

industry) adds to the competitiveness of the cruise-line

industry. There are always alternative forms of leisure and
cheaper accommodation such as traveling via air or land,
hotels and resorts, as well as informal accommodations at
friends and families.
5. During economic downturn, the cruise-liners will face
challenges of continuously attracting customers even during
times of unemployment and reduced disposable income. The
cruise companies must provide aggressive pricing to retain
the customers stands a better chance of survival.
6. The price of fuel which fluctuates also causes strain to the
cruise-line industry.

Continued
To proactively deal with the possibility of a downturn, Carnival should

invest heavily in research and development in order to continually

minimize the environmental impact of its ships and their operation. It
must also carefully develop its global cruise structure in a way that
complements existing capacityor else work with ports to provide
additional capacity. If Carnival finds that it must react to a
downturn, it should always think in terms of all of its stakeholders, not
just its stockholders. Of course, it will want to minimize any damage
to its operations and profits. However, given the immense size of the
firm, it may also be possible for Carnival to reach out to others (such
as providing liners to be used as housing for workers, as in the case of
Hurricane Katrina). Carnival will be better served by a long-term
rather than a short-term orientation.

Q.6: Discuss the ethics of cruise lines regarding the avoidance of

almost all taxes while simultaneously buying ships built with
governmental subsidies.
This is definitely a complex issue. While cruise lines avoid most taxes by

flying flags of convenience, they argue that they must do so for

competitive (cost-savings) reasonsand that other governments could
choose to offer the same benefits. Their supporters also argue that the lost
taxes are at least to some extent indirectly offset by port fees and
passenger spending, and that the taxes realized by less developed
countries are important contributions to their economies. However, others
argue that the less restrictive staffing, safety, and operating requirements
associated with flags of convenience are intolerable. They argue that
lesser standards pose both safety and environmental hazards and that in
the long-run, the costs to society are high. They feel strongly that if
shipping lines receive government subsidies on the one hand, it is immoral
and should be illegal for them to avoid paying taxes on the other.