Carnival Corporation PLC

Carnival Corporation PLC (Carnival Cruise Line) is an international cruise company and one of the largest vacation firms worldwide. It has two headquarters: one in Miami, Florida and another one in London, United Kingdom. Carnival primarily operates in the United Kingdom, Australia, Brazil, Spain, New Zealand, Germany and North America. This report will investigate the corporation by analyzing its strength, weaknesses, opportunities and threats. After conducting the SWOT analysis, the paper will evaluate the industry by applying porter’s five forces to identify the company’s competitive position. A GAP analysis is also presented.

SWOT Analysis

Strengths

Carnival Corporation presents numerous strengths. One of them is strong financial position. The company is known as one of the most profitable organizations within the cruising industry. As of 2010, its average net income amounted to 20% compared to the 6% industry standard (Conrady et al. 2009). The corporation is dual listed on the London Stock Exchange and the New York Stock Exchange. Due to this dual listing, it boasts of an unrivalled ability to raise funds from investors than competitors. Another source of strength is the dominant market share. One major strength of Carnival is its huge scope and scale (Zacks, 2016). This company is double the size of its immediate competitor and competes in almost every segment and market globally. This serves the company a unique power over other industry players. It gives Carnival a platform for continued mergers, acquisitions and ability to undertake projects that expand the industry. Also, it gives the company a tremendous power to negotiate with key manufacturers in the cruise industry.

Weaknesses

With these strengths, there are also some weaknesses which may affect Carnival’s business success. Key among them is poor safety record and over dependence on the United States (US) market. Carnival has a bad history of poor safety compared to any other cruise companies. The recent Costa Concordia tragedy exacerbated the company’s safety woes (Carollo, 2012). This incident was followed soon by the Costa Allegra disaster where there was an engine fire in the Indian Ocean. Such terrible and visible accidents require that the ships should be scrapped and dry-docked for months. Worse still, they generate massive negative publicity that hurt the company and the entire cruise industry. Nearly 50% of Carnival’s revenue derives from the US market (Conrady et al. 2009). In fact, as of 2010, the revenue from North American segment experienced a double digit drop. Carnival largely depends on customers’ disposable income and such over-reliance on the US market renders Carnival highly vulnerable to the economic fluctuations of foreign economies.

Opportunities

The exploding Asian market presents a unique opportunity for Carnival. Currently, the Asian consumers generate roughly 10% of the cruise revenues globally (Conrady et al. 2009).  But, this market segment has been growing significantly, driven by the aging demographics and the emerging, affluent class throughout the Asian region. If Carnival properly taps this niche, then the Asia-Pacific region may be an important market for the company in the coming years. The company could consider three key strategies to respond to this perfect opportunity. For one, it may choose to continue to neglect the Asian consumers (Fabbi, 2013). There is absolutely nothing wrong if Carnival ignores these customers because it is historically known to concentrate on the Western customers. Therefore, success is never guaranteed in the Asian market. Secondly, the company could expand into Asia by incorporating the Asian ports of destination and Asian language service or even introduce new products and services into the region. And the final option for Carnival is to consider a merger and acquisition with the Star Cruise Line (Zacks, 2016).

Threats

There are some significant threats that could affect the success of Carnival. The company should not ignore the threat of geopolitical instability. For instance, things such as the Arab Spring revolution and the US vs Iran war may cause significant upheavals across the affected regions (Butler et al. 2010). Such types of disruptions are likely to shut down cruise businesses. Therefore, Carnival should always watch threats and respond appropriately. Though most geopolitical threats are often unavoidable, cruisers would not be wedded to certain destinations.

Porter’s five force analysis

Supplier bargaining power

There is a moderately strong supplier power within the global cruise industry (Carollo, 2012). Here, most of the supplies are purchases in an open and competitive market. There is a very low threat of supplier integration. The only exception is Carnival’s new builds. Though 6 major ship yards have successfully managed to build cruise ships, they still suffer limited capability and capacity (Fabbi, 2013). Therefore, Carnival depends on a limited number of suppliers for its new builds (Butler et al. 2010). The symmetrical relationship has served to weaken the high supplier bargaining power within this industry. Moreover, cruise ship corporations like Carnival experience massive switching costs in terms of building and operating a ship. Typically, switching from one ship manufacturer to another is hugely costly because the ship owners hold the right over the ship’s design (Conrady et al. 2009). This implies that for Carnival to switch a manufacture, it must incur high time and financial costs in redesigning the ship. This could cost Carnival millions in dollars.

Buyer bargaining power

There is a relatively low buyer power within the cruise line business (Fabbi, 2013). Compared to other vacations, majority of cruisers are booked via travel agents. In fact, a review of Carnival’s reports showcases that none of its travel firms generates more than 10% of their business (Zacks, 2016). This signals a very low buyer concentration that serves to reduce buyer power. Moreover, Carnival is a global company and has customers spread across the world. These customers lack a collective means of exerting their voice which then leaves them minimal control and power.

Threat of new entrants

The risk of new entrants is generally low. Carnival Corporation operates in a high-end cruise line and entry into such a market requires huge capital (Conrady et al. 2009).  Moreover, large cruise firms like Carnival are already established brands that employ hundreds of trained crew and sailors. This implies that for a new entrant to be successful, it must have employees who have particular skills and knowledge sets which necessitate training. This leads to additional substantial costs. This is a major barrier for any entrepreneur wanting to venture into the cruise line business. Moreover, in this industry, brand recognition is an important factor. For a new entrant to build reputation and identity it will need time; this may slow its ability to compete with already established brands like Carnival. However, in the Asia Pacific region, Carnival must watch out for new entrants. This is because the Asian customers, markets and operators are less defined compared to Europe and America. In fact, in Asian, the expectation of cruise quality is much lower. Therefore, various Asian companies and entrepreneurs may successfully tap into this fast growing market (Fabbi, 2013).

Threat of substitute products

Customers have many options like the Club Med and others that offer an all-inclusive vacation package (Butler et al. 2010). But, according to our market research, cruise companies deliver greater customer satisfaction compared to land based packages. There are very many easy substitutes to any kind of vacation. Also, there is also a very low cost incurred in changing which leads to a very high threat of substitution. But, even though there are numerous substitutes to the cruise market, they cannot be compared to the cruise experience.

Industry rivalry

Carnival is currently the industry leader due to its significant global presence and multiple fleets. The cruise industry is characterized by significant entry and exit barriers that have led to a high concentration ratio. This industry is basically an oligopoly market; various cruise companies constitute 90% of the market share (Carollo, 2012). Consequently, Carnival is constantly involved in pricing and marketing wars with these rivals which makes internal rivalry central to the market.   

Conclusion

Overall, Carnival is a strong brand not only within its industry but also within its contemporary market category. When compared to the current competitors, the brand is expected to remain a formidable force within the international cruise market.

References

Butler, M., World Tourism Organization., & World Tourism Organization. (2010). Cruise tourism: Current situation and trends. Madrid: World Tourism Organization.

Carollo, B. (2012). The World’s Most Popular Cruise Line: Carnival Corporation & plc. Munich: GRIN Verlag.

Conrady, R., Buck, M. & ITB Convention Market Trends & Innovations (2009). Trends and issues in global tourism 2009. Berlin: Springer.

Fabbi, M. (2013). Royal caribbean cruise line (rccl) – a brandportfolio analysis. Place of publication not identified: Grin Verlag Ohg.

Zacks, I. R. (April 05, 2016). Carnival Seals Deal with Fincantieri to Build 5 Ships. Zacks Investment Research, 2016-4.

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