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Cruise Line Industry

Cruise Line Industry. By: Daniel Novick, Spencer Roane, Vinamra Laddha and Wazir Browne. Industry Background. Value of industry 2012 Gross Revenue Forecast: $29 billion Barriers to Entry Capital Intensive “ Big Five ” and Others Market Share Growth/Trends. Barriers to Entry.

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Cruise Line Industry

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  1. Cruise Line Industry By: Daniel Novick, Spencer Roane, Vinamra Laddha and Wazir Browne

  2. Industry Background • Value of industry • 2012 Gross Revenue Forecast: $29 billion • Barriers to Entry • Capital Intensive • “Big Five” and Others • Market Share • Growth/Trends

  3. Barriers to Entry • High cost of acquiring ships • Necessity of place of port • Finding and hiring qualified crew • Captain, Chefs, etc. • Government regulations and international tariffs • High price of oil and energy to power ship

  4. Legal Hurdles • Each cruise ship must be registered to a specific country • Creates issues for staffing (union vs. non-union) • US law requires the ship to be built and staffed by Americans for it to be “flagged” to the US • Ships are safety-inspected four times per year • Captain has ultimate authority to enforce laws and policies • Flags of Convenience

  5. High Fuel Usage

  6. Fuel Usage by Capacity

  7. Fuel Usage by Weight

  8. Industry Functions • Transportation • Sleeping accommodations • Dining accommodations • Amenities • Entertainment • Off-ship excursions

  9. Major Players: “Big Five” • What is the Big Five? • Carnival • Royal Caribbean • Norwegian • MSC Cruises • Disney • Nights sold for each in 2007 (in millions): • Carnival: 36.32 • Royal Caribbean: 19.66 • Norwegian: 8.44 • Disney: 1.66

  10. Company Profile: Carnival Corporation • Founded: 1972 • Based in: US and UK • Brands: Carnival Cruise, Costa Cruise, Cunard Line, Holland America, Princess Cruises, Seabourn Cruise • Revenues: $15.8B in 2011 • Employees: 10,200 employees & 75,000 crew • Size of Fleet – 103 Cruise Ships (209,420 passengers) • Key facts: • Ticker symbol: CCL • 1.4 times the fleet of closest competitor

  11. Company Profile: Royal Caribbean • Founded: 1968 • Based in: Florida, US • Brands: Celebrity Cruise, Royal Caribbean • Revenues: $5.21B in 2011 • Employees: 5,700 • Size of Fleet – 40 Cruise Ships (96,270 passengers) • Key facts: • Ticker symbol: RCL • Operates 40 cruise ships to 400 destinations

  12. Company Profile: MSC Cruises • Founded: 1987 • Based in: Geneva, Switzerland • Brands: None • Revenues: $1.98B in 2011 • Size of Fleet – 12 Cruise Ships (27,750 passengers) • Key facts: • Fleet of 12 cruise ships increasing to 14 by 2013 • 5.8% world market share

  13. Company Profile: Norwegian Cruise • Founded: 1966 • Based in: Florida, US • Brands: None • Revenues: $2.31B in 2011 • Size of Fleet – 11 Cruise Ships (25,280 passengers) • Key facts: • Filed with SEC for up to $250M IPO in July, 2011 • 11 ships in current fleet, two more to join over ‘13-14

  14. Company Profile: Disney Cruise • Founded: 1998 • Based in: Florida, US • Brands: None • Revenues: Up 4% from 2010 • Size of Fleet – 4 Cruise Ships(8,510 passengers) • Key facts: • Disney Cruise Line is considered a segment of Disney Parks and Resorts • Fleet includes only four ships

  15. Industry Competition – Solo Traveler • Fred Olsen • Spirit of Adventure • P&O Cruises • Hebridean Island Cruises • Costa Cruises

  16. Competition and Structure • We can study the HHI by combining subsidiaries or by looking at individual cruise lines • HHI with subsidiaries: 998 • HHI without subsidiaries: 3091

  17. Market Share by Number of Passengers

  18. Market Share by Total Revenue

  19. 2012 World Wide Market Share Royal Caribbean Carnival

  20. Growth of Industry/Trends • Increase in number of passengers (in thousands)

  21. Capacity of the Major Markets in 2011

  22. Age Demographics of U.S. Passengers

  23. Income Demographics of U.S. Passengers

  24. Race Demographics of U.S. Passengers

  25. Customer Employment Status

  26. U.S. Market Psychographic

  27. Perceptual Map Formal Pricey Inexpensive Relaxed

  28. Industry-wide price elasticity • Lerner Index = (1663 - 612)/1663 = .63199 • (1/.63199) = 1.58 = elasticity

  29. Pricing Strategies • Temporal Pricing • Time of Purchase • Seasonal Pricing • Third-Degree Discrimination • Second-Degree Discrimination • Overbooking • Loyalty Programs

  30. Temporal Pricing • Inter-temporal Pricing • Similar to airline Industry • Last minute discounts • Seasonal Pricing • Price spikes in summer months and December

  31. Temporal Pricing – Time of Purchase • As the sail date approaches the price of tickets increases due to the increase in demand at the last moment • However, within the last week it is possible to get cruise ticket discounts because Cruise Liners want to leave with full capacity and minimize the fixed cost/person

  32. Third-Degree Price Discrimination • Different prices for ships • Carnival Imagination 4 day trip 350 • Carnival Victory 4 day trip 480 • Room prices • 7 day trip to Caribbean from Miami • Interior 670 • Suite 1,679 • Early Saver plan

  33. Second-Degree Discrimination • Two-Part Tariff • Ticket Price to get on the ship • Shopping on the boat • For example • Carnival Cruise Excursions • Lobster Champaign and beach Excursion • $120 • Island Safari 4x4 Adventure • $80

  34. Overbooking Strategy • Better than Hotels? Why? • Captive Audience • No business travelers • No holdovers or early departures • Packed ship important to the cruise ambience • Cruises have big-time repeat customers • Great package for less than $100 a day • Great ties with travel agents • Long booking periods

  35. Loyalty Programs • Many cruise lines have them • However, they are not very publicized • Have very limited benefits

  36. Recommendations? • Differentiate based on brand and ship experience • Encourage citizens of all ports to tour the cruise ship • Improve loyalty programs and market them more • Allow passengers to stay at a destination and come back on another cruise • Works for cruise destinations that are visited routinely

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