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Cruise Line Industry
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Transcript of Cruise Line Industry
Cruise Line Industry
By: Daniel Novick, Spencer Roane,
Vinamra Laddha and Wazir Browne
Industry Background
Value of industryValue of industry
2012 Gross Revenue Forecast: $29 billion2012 Gross Revenue Forecast: $29 billion
Barriers to EntryBarriers to Entry
Capital IntensiveCapital Intensive
““Big Five” and OthersBig Five” and Others
Market ShareMarket Share
Growth/TrendsGrowth/Trends
Barriers to Entry
High cost of acquiring shipsHigh cost of acquiring ships
Necessity of place of portNecessity of place of port
Finding and hiring qualified crewFinding and hiring qualified crew
Captain, Chefs, etc.Captain, Chefs, etc.
Government regulations and international Government regulations and international tariffstariffs
High price of oil and energy to power shipHigh price of oil and energy to power ship
Legal Hurdles
Each cruise ship must be registered to a specific countryEach cruise ship must be registered to a specific country
Creates issues for staffing (union vs. non-union)Creates issues for staffing (union vs. non-union)
US law requires the ship to be built and staffed by US law requires the ship to be built and staffed by Americans for it to be “flagged” to the USAmericans for it to be “flagged” to the US
Ships are safety-inspected four times per yearShips are safety-inspected four times per year
Captain has ultimate authority to enforce laws and Captain has ultimate authority to enforce laws and policiespolicies
Flags of Convenience Flags of Convenience
High Fuel Usage
Cruise Ship Weight (tons)Passenger Capacity Feet/Gallon
Queen Mary II 148,528 2,620 40
MS Noordam 85,200 1,918 52
Queen Elizabeth 2 70,327 1,892 50
RC Mariner of the Seas 138,279 3,114 52
Disney Magic 83,000 2,400 57
Disney Wonder 83,000 2,400 57
Oasis of the Seas 225,282 5,400 19
Navigator of the Seas 138,279 3,114 51
RC Freedom of the Seas 154,407 3,634 34
Allure of the Seas 225,000 6,296 31
Fuel Usage by Capacity
Fuel Usage by Weight
Industry Functions
TransportationTransportation
Sleeping accommodationsSleeping accommodations
Dining accommodationsDining accommodations
AmenitiesAmenities
EntertainmentEntertainment
Off-ship excursionsOff-ship excursions
Major Players: “Big Five”What is the Big Five?What is the Big Five?
CarnivalCarnival
Royal CaribbeanRoyal Caribbean
NorwegianNorwegian
MSC CruisesMSC Cruises
DisneyDisney
Nights sold for each in 2007 (in millions):Nights sold for each in 2007 (in millions):
Carnival: 36.32Carnival: 36.32
Royal Caribbean: 19.66Royal Caribbean: 19.66
Norwegian: 8.44Norwegian: 8.44
Disney: 1.66Disney: 1.66
Company Profile: Carnival Corporation
Founded: 1972Founded: 1972
Based in: US and UKBased in: US and UK
Brands: Carnival Cruise, Costa Cruise, Cunard Line, Holland America, Princess Brands: Carnival Cruise, Costa Cruise, Cunard Line, Holland America, Princess Cruises, Seabourn CruiseCruises, Seabourn Cruise
Revenues: $15.8B in 2011Revenues: $15.8B in 2011
Employees: 10,200 employees & 75,000 crew Employees: 10,200 employees & 75,000 crew
Size of Fleet – 103 Cruise Ships (209,420 passengers)Size of Fleet – 103 Cruise Ships (209,420 passengers)
Key facts:Key facts:
Ticker symbol: CCLTicker symbol: CCL
1.4 times the fleet of closest competitor1.4 times the fleet of closest competitor
Company Profile: Royal Caribbean
Founded: 1968Founded: 1968
Based in: Florida, USBased in: Florida, US
Brands: Celebrity Cruise, Royal CaribbeanBrands: Celebrity Cruise, Royal Caribbean
Revenues: $5.21B in 2011Revenues: $5.21B in 2011
Employees: 5,700Employees: 5,700
Size of Fleet – 40 Cruise Ships (96,270 passengers)Size of Fleet – 40 Cruise Ships (96,270 passengers)
Key facts:Key facts:
Ticker symbol: RCLTicker symbol: RCL
Operates 40 cruise ships to 400 destinationsOperates 40 cruise ships to 400 destinations
Company Profile: MSC Cruises
Founded: 1987Founded: 1987
Based in: Geneva, SwitzerlandBased in: Geneva, Switzerland
Brands: NoneBrands: None
Revenues: $1.98B in 2011Revenues: $1.98B in 2011
Size of Fleet – 12 Cruise Ships (27,750 passengers)Size of Fleet – 12 Cruise Ships (27,750 passengers)
Key facts:Key facts:
Fleet of 12 cruise ships increasing to 14 by 2013Fleet of 12 cruise ships increasing to 14 by 2013
5.8% world market share5.8% world market share
Company Profile: Norwegian Cruise
Founded: 1966Founded: 1966
Based in: Florida, USBased in: Florida, US
Brands: NoneBrands: None
Revenues: $2.31B in 2011Revenues: $2.31B in 2011
Size of Fleet – 11 Cruise Ships (25,280 passengers)Size of Fleet – 11 Cruise Ships (25,280 passengers)
Key facts:Key facts:
Filed with SEC for up to $250M IPO in July, 2011Filed with SEC for up to $250M IPO in July, 2011
11 ships in current fleet, two more to join over ‘13-1411 ships in current fleet, two more to join over ‘13-14
Company Profile: Disney Cruise
Founded: 1998Founded: 1998
Based in: Florida, USBased in: Florida, US
Brands: NoneBrands: None
Revenues: Up 4% from 2010Revenues: Up 4% from 2010
Size of Fleet – 4 Cruise Ships(8,510 passengers)Size of Fleet – 4 Cruise Ships(8,510 passengers)
Key facts:Key facts:
Disney Cruise Line is considered a segment of Disney Parks Disney Cruise Line is considered a segment of Disney Parks and Resortsand Resorts
Fleet includes only four shipsFleet includes only four ships
Industry Competition – Solo Traveler
Fred OlsenFred Olsen
Spirit of AdventureSpirit of Adventure
P&O CruisesP&O Cruises
Hebridean Island CruisesHebridean Island Cruises
Costa CruisesCosta Cruises
Competition and Structure
We can study the HHI by combining We can study the HHI by combining subsidiaries or by looking at individual cruise subsidiaries or by looking at individual cruise lineslines
HHI with subsidiaries: 998HHI with subsidiaries: 998
HHI without subsidiaries: 3091HHI without subsidiaries: 3091
Market Share by Number of Passengers
Market Share by Total Revenue
Royal Caribbean
Carnival
2012 World Wide Market Share
Growth of Industry/Trends
Increase in Increase in number of number of passengers passengers
(in thousands)(in thousands)
Capacity of the Major Markets in 2011
Age Demographics of U.S. Passengers
Income Demographics of U.S. Passengers
Race Demographics of U.S. Passengers
Customer Employment Status
U.S. Market Psychographic
Pricey Inexpensive
Formal
Relaxed
Perceptual Map
Industry-wide price elasticity
Lerner Index = (1663 - 612)/1663 = .63199Lerner Index = (1663 - 612)/1663 = .63199
(1/.63199) = 1.58 = elasticity(1/.63199) = 1.58 = elasticity
Pricing Strategies
Temporal PricingTemporal Pricing
Time of PurchaseTime of Purchase
Seasonal PricingSeasonal Pricing
Third-Degree DiscriminationThird-Degree Discrimination
Second-Degree DiscriminationSecond-Degree Discrimination
OverbookingOverbooking
Loyalty ProgramsLoyalty Programs
Temporal Pricing
Inter-temporal PricingInter-temporal Pricing
Similar to airline IndustrySimilar to airline Industry
Last minute discountsLast minute discounts
Seasonal PricingSeasonal Pricing
Price spikes in summer months and DecemberPrice spikes in summer months and December
Temporal Pricing – Time of
PurchaseAs the sail date approaches the price of tickets As the sail date approaches the price of tickets increases due to the increase in demand at increases due to the increase in demand at the last momentthe last moment
However, within the last week it is possible to However, within the last week it is possible to get cruise ticket discounts because Cruise get cruise ticket discounts because Cruise Liners want to leave with full capacity and Liners want to leave with full capacity and minimize the fixed cost/personminimize the fixed cost/person
Third-Degree Price Discrimination
Different prices for ships Different prices for ships
Carnival Imagination 4 day trip 350Carnival Imagination 4 day trip 350
Carnival Victory 4 day trip 480Carnival Victory 4 day trip 480
Room prices Room prices
7 day trip to Caribbean from Miami 7 day trip to Caribbean from Miami
Interior 670Interior 670
Suite 1,679Suite 1,679
Early Saver plan Early Saver plan
Second-Degree Discrimination
Two-Part TariffTwo-Part Tariff
Ticket Price to get on the shipTicket Price to get on the ship
Shopping on the boatShopping on the boat
For exampleFor example
Carnival Cruise ExcursionsCarnival Cruise ExcursionsLobster Champaign and beach Excursion Lobster Champaign and beach Excursion
$120 $120
Island Safari 4x4 Adventure Island Safari 4x4 Adventure
$80$80
Overbooking Strategy
Better than Hotels? Why?Better than Hotels? Why?
Captive AudienceCaptive Audience
No business travelersNo business travelers
No holdovers or early departuresNo holdovers or early departures
Packed ship important to the cruise ambiencePacked ship important to the cruise ambience
Cruises have big-time repeat customersCruises have big-time repeat customers
Great package for less than $100 a dayGreat package for less than $100 a day
Great ties with travel agentsGreat ties with travel agents
Long booking periodsLong booking periods
Loyalty Programs
Many cruise lines have themMany cruise lines have them
However, they are not very publicizedHowever, they are not very publicized
Have very limited benefitsHave very limited benefits
Recommendations?
Differentiate based on brand and ship experienceDifferentiate based on brand and ship experience
Encourage citizens of all ports to tour the cruise Encourage citizens of all ports to tour the cruise ship ship
Improve loyalty programs and market them moreImprove loyalty programs and market them more
Allow passengers to stay at a destination and Allow passengers to stay at a destination and come back on another cruisecome back on another cruise
Works for cruise destinations that are visited Works for cruise destinations that are visited routinelyroutinely