The Carnival Corporation & Plc is among the biggest world cruise and vacation business organizations. The company basically carries out its operations in such countries as Australia, the United States of America, Canada, Spain, the United Kingdom, Brazil, New Zealand, and Germany (Wheelen and Hunger, 2006). It has its headquarters in the United Kingdom (London) and in Florida (Miami). Basing on the statistics that were released in the year 2010, Carnival Corporation and Plc has 93 ships under operation (Marketingtercher.com, 2010).
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This company started its operations in the year 1972 and it started as a “subsidiary of the American International Travel service” (Marketingtercher.com, 2010, Para 1). It was set up by Ted Arison. Several acquisitions were carried out beginning form the year 1989 and this went on until the year 2009, bringing up the level the company’s “brand portfolio”.
This includes “Carnival Cruise Lines, Princess Cruises, Holland America Line, ibero Cruises, Costa Cruises, P & O Cruises, Cunard Line, AIDA Cruises, P & O Cruises Australia, Ocean Village and The Yatchs of Seabourn” (Marketingtercher.com, 2010, Para 2).
The strategic positioning of Carnival Corporation & Plc is on the basis of 3 basic divisions which include; luxury, premium and contemporary divisions. Each of these divisions has varying requirements, demographics as well as characteristics. The company has ensured that all these divisions are effectively served which has enabled the company to grow over the years to its current position.
SWOT Analysis and the current strategic position of the company
The Company’s Strengths
One of the company’s strengths is its large size, the company being the biggest cruise operator in the world. It has a huge “fleet capacity” and engages in the operation of eleven cruise brand names which are greatly familiar. The company’s “brand names portfolio” is appealing to closely all niche market (Wheelen and Hunger, 2006). The second strength is that, considering the company’s large size, the company has a substantial cost advantage over other companies competing with it in the industry.
The company gains its strength from the large profitability it realizes, making it to carry out its operations without encountering much difficulty as compared to the competitors. For instance, the company realized an average net income of 18.1 percent between the financial years 2005 to 2009. This level of average net income was far much above the industry figure which is 6.3 percent (Marketingtercher.com, 2010).
Another of the company’s strength is that it engages in aggressive and effective advertising. It invests a large amount of money in the TV media as well as print media. Last but not least, Carnival Corporation & Plc has large market share in some of the major countries such as France, the United Kingdom and Italy, having a market share in each of the countries of more than 45 percent with the market share being as high as 68 percent in Italy (Marketingtercher.com, 2010).
The Company’s Weaknesses
A larger portion of the company’s revenue, which is about 52 percent, comes from the clients in the United States. However, this kind of overdependence makes the company to be susceptible to the economic fluctuations that take place in the economy of the United States, which might negatively affect the company. For instance, in the year 2009, the revenue the company was receiving from the U.S customers went down by two digits because of the economic downturn experienced in the region.
Moreover, another weakness was experienced by the company where the company realized a decline in the net profit in the years 2009. A decline in the net profit was 23.2 percent in comparison with the pervious year (2008). Another of the company’s weaknesses is in regard to the currency it uses to give the financial reports. This company uses the U.S dollar in its financial statements.
However, almost 50 percent of the company’s revenue is earned in the currencies that are not dollars. It was reported that “the value of the dollar against the Euro appreciated from 1.60 in January 2010 to 1.53 by April 2010 against the pound” (Marketingtercher.com, 2010, Para 10). This implies that in case the dollar gains strength, the company records in its financial statements a revenue that is below the actual value of the revenue earned in its over all performance.
More so, as of November 2009, “the company had 13 ships which were being constructed and this was a time of economic uncertainty” Marketingtercher.com (2010). The total cost of this kind of construction was estimated to be about 8.2 U.S dollars. During such a time of economic uncertainty, it is very hard to have an immense cash outflow like that being truly justified.
Carrying out such a move may bring about grave negative outcomes such as large debt burden on the company’s balance sheet as a decline in the company’s profit levels. Another weakness is the high fixed costs of the company. The fixed cost takes up 25 percent of the over all operating expenses of the company.
In the course of more than the last ten years, the cruise industry has realized a significant growth and yet it still takes up a quite small share of the world’s vacation market.
As on one hand there has been realization of a decrease in the cruises revenue in the United States, on the other hand, there has been realization of an increase in the revenue from markets in Asia as well as Europe and this offers an opportunity for the company’s expansion in these markets. The company has also identified an opportunity and has put in place plans to raise “the berth capacity for the European market by 37 percent by 2012” (Marketingtercher.com, 2010, Para 12).
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The growing disposal income among the Chinese consumers offers another opportunity for the company. The disposable income has been growing at an annual rate of 10 percent. The customers in this region are currently seeking luxurious cruises “as vacation option” (Marketingtercher.com, 2010, Para13).
In addition, the aging population is seeking to have relaxing vacation. This offers an opportunity for growth for the company. Whereas the size of this population enlarges, this company can capitalize on its “economies of scale” and charge these clients good prices. Another opportunity is the possibility of the Carnival Company to form mergers and acquisitions in order to expand its operations.
One of the threats that Carnival faces and the industry at large is terrorism and pirates. This threat affects negatively the way consumers may perceive cruising. This company experienced such a case in the year 2008 when the Somali Pirates hijacked one of the company’s cruise ships though luckily the passengers were not harmed.
Moreover, the possibility of the company receiving bad press is a big threat and may also bring about negative consumer perception of the company. Such a case came about in the year 2009 when three passengers on the company’s ships fell off.
In addition, another threat is in line with the “compliance regulations” and the laws of the United States. Some of these laws may cause this company to experience higher operating costs. Another of the weaknesses is in line with the issue that Carnival Corporation & Plc has been capitalizing on the “special tax loopholes” to evade paying taxes to the United States (corporation taxes).
Consideration was made by the U.S government in the year 2009 to close such loopholes. In case this is done, there will be a negative effect on the company’s financial statements as well as the bottom line in time to come. Last but not least, another threat is that the rate of growth is slowing.
Carnival’s industry analysis using Porter’s Five Forces Model
According to Wert (2009), in the cruise industry, there is a moderate level of competition and the companies in the industry compete on the basis of differentiation, pricing and distribution or place. He further points out that “the industry contains intimidating barriers of entry with no real potential threats or substitutes from other industries” (Wert, 2009, pg.1).
According to his research, Wert established that; “Carnival holds the strongest position in the industry with highest product differentiation, increasing global outreach, and promotionally offering the lowest price in the industry” (Wert, 2009, p.1).
Threat of New Entry
For a company to enter in the cruise industry, it appears that the easiest means to do this is through the company engaging in acquisitions, mergers and takeovers. There basically exist 3 market segments in the cruise industry. These include the luxury segment, the premium and the contemporary segments (Wheelen and Hunger, 2006).
Each of these segments requires levels of expertise as well as services that are varied. According to DocShare.com (2009), “the high cost of training and maintaining exceptional employees for their shops, casinos, entertainment, hotel staff, world class chefs, and of course the maritime staff requires parent company with vast financial resource” (DocShare.com, 2009, pg 1). This implies that the threat of having new entrants in the industry is quite low.
Threat of substitution
According to DocShare.com (2009), “the cruise industry holds a unique position in that the threat of a substitution by another vacation activity by the current consumer market seems highly unlikely” (Page 2). There is as well an increase in the popularity of the family cruises.
As a matter of fact, in general terms, a cruise vacation is less costly as compared to a traditional “vacation package”. A larger number of lines are making efforts to ensure expansion of ports and destinations in order to meet the customer demands in the current cruise market which now has great diversity. The travelers have more choices at their disposal.
An increase and instability in the price of fuel has greatly affected the cruise industry. The companies operating in this industry have directly experienced high fuel costs for operating their ships. In addition, they have been forced to charge their passengers higher prices following the high fuel costs. This poses a big challenge to these companies and therefore, it is quite important o have suppliers that are of higher quality and that can be depended upon in order to make sure the company has repeat cruisers.
Customer bargaining power
The current day cruise vacations have a large number of lines at their disposal among which to choose from. Each and every line engages in some sort of differentiation that it carries out on cruising to attract customers. The target customers for a large number of companies in this industry are those that belong to the middle class. Those who are cruising for the first time are enticed by fairly priced cruise packages. Alongside the fair prices, the customers demand to be offered a vacation experience that is distinctive.
The company’s competitive advantage and its future direction
The competitive advantage that this company has over its competitors is the wide range of the products that it offers to its customers in each of the three market segments; offering from cheap cruises to luxury ones. More so, it offers long as well as short vacation cruises on big fleet ships providing various activities.
This company can currently be considered to be successful following the expansion of its operations and the high profitability it has been achieving. In order for this company to continue growing in the future, it needs to capitalize on its strengths and opportunities available and look for the best ways to overcome the current weaknesses and threats in order for it to achieve a competitive advantage, which will facilitate further growth.
DocShare.com (2009). 1 Carnival Cruise Lines Marketing Analysis. Web.
Marketingtercher.com. (2010). Carnival Cruises SWOT. Web.
Wert. B. A. (2009). Carnival Corporation. Web.
Wheelen, L. T. and Hunger, J. D. (2006). Strategic Management and Business Policy. New Jersey: Pearson Prentice Hall.