Competitive Strategies and Government Policies Carnival Cruise Essay

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Competitive Strategies and Government Policies

Carnival Cruise Line:

Carnival Cruise Line is a British-American cruise line headquartered in Florida, United States. It is one of the top ten cruise lines owned by Carnival Corporation & plc -- the largest operator of cruise ships in the world. Carnival Cruise line has the largest fleet size of 24 ships among all other subsidiaries of the Carnival Corporation. These ships provide deep sea cruising as well as coastal or inland cruising of 3 to 18 days to a number of famous and beautiful tourist destinations; including Caribbean, Hawaii, Bermuda, Fiji Islands, Bahamas, Panama Canal, Alaska, Mexican Riviera, South America, New England, Europe, Canada, etc. (Carnival, 2013).

Carnival Cruise Line is famous for its less expensive, short size, and Las Vegas-style decor. There are various on-board facilities for the passengers that make their journey memorable and highly enjoyable. These facilities include restaurants, cinemas, swimming pool, shops, casino, spa, fitness center, club, library, and outdoor games (Carnival, 2013).

The Cruise Line Industry:

The Global cruise line industry is concentrated with a large number of small and large scale cruise ships corporations that provide transportation and recreational voyages to the worldwide customers. The major sources of revenues in this industry are the tickets of passengers, casino games, rentals for equipments, and retail store earnings. Large scale corporations take advantage of their fleet and ship sizes, customer loyalty, and financial position in order to grow in the industry in a competitive and profitable way. On the other hand, small scale corporations enjoy low costs due to their limited scale of operations. The cruise line industry has been showing tremendous growth due to its increasing popularity among general consumers and huge investments in business expansion projects, mergers, and acquisitions (Klein, 2002).

The New Entrants in the Cruise Line Industry:

There are various barriers to entry in the cruise line industry for new companies. A new cruise line company needs minimum $1 billion as initial capital outlay to enter the industry and $400 million to build one cruise ship. In addition, it requires a large workforce consisting of crew members, sailors, technicians, etc. The heavy expenditures on workforce training, business promotion, and licensing are some other important barriers in this industry. Therefore, only existing cruise lines are contributing to the industry growth by opening up new ships.

In the coming 2-3 years, Royal Caribbean, Disney Cruise Lines, Carnival Cruise Lines, Ambassador International, Silver Sea Cruises, Crystal Cruises, and other well-known companies have announced business expansion projects. The new ships which have recently been introduced by the top cruise lines are Carnival Dreams, Carnival Magic, Disney Dream, Divina, Carnival Breeze, Costa Fascinosa, Celebrity Reflection, Disney Fantasy, Quest, Riviera, AIDAmar, L'Austral, etc.

Mergers and Acquisitions:

The global cruise line industry has seen a number of acquisitions and mergers during the last few decades. The strongest purchasing power had always been under possession of the world's largest cruise line corporations like Carnival Corporation, P&O Princess, Royal Caribbean, Star Cruises, etc. These corporations have acquired a number of small cruise line operators in order to grow their fleet size and market share (Gaughan, 2005). Besides acquisitions, nine international associations have also decided to form one unified association which will serve as the advocacy leader for all the cruise line corporations worldwide (Stott, 2012). After a number of mergers and acquisitions, Carnival has become the world's largest corporation in the cruise line industry with respect to fleet size, number of passengers, revenues, and market share. The most famous merger in the history is between P&O's Princess Cruises and Carnival Corporation in 2003 which took the latter to the unbeatable number one position in the industry.

Globalization:

All small and large scale cruise lines provide transportation and recreational voyages for the worldwide customers. Therefore, the cruise line industry is highly exposed to the Globalization factor which has been becoming more and more intensive with the passage of time (Klein, 2002). At present, the cruise line industry consists of hundreds of cruise ships operators from all over the world. The global environment impacts these operators in a number of ways (Dowling, 2006).

First of all, the political, legal, and governmental structures of different countries require them to complete all legal requirements before entering or operating in their ports. Secondly, the economic conditions, social, cultural, and demographical patterns, and environmental conditions of target countries impact the consumer behavior and costs of operations of these cruise line corporations. In order to survive in the industry and operate in a profitable and competitive fashion, all small and large scale cruise line corporations have to keep themselves abreast of the changes in the global environment (Woodside & Martin, 2008).

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The Type of Merger Activity:

The top market leaders in the cruise line industry do mergers and acquisitions depending upon their business models and kinds of opportunities available in the industry. However, from pricing and sustainability perspective, vertical merger can be the most feasible option for Carnival Cruise Lines as compared to horizontal or conglomerate merger. Reason being, vertical merger can give a competitive advantage of cost control to the merging firms.

By doing merger with its low-end business partners, investors, or suppliers, Carnival Cruise Lines can become more competitive among its industry rivals with respect to cost leadership and profitability. The merger will allow both these firms in sharing costs of operations, marketing expenditures, staff training and development costs, and other operational and administrative costs. At the same time, the vertical merger will combine the core competencies, resources, and capabilities of these firms -- making them operationally stronger and more competitive in the industry. This merger will be a part of business expansion strategy for Carnival Cruise Lines which is highly essential for maintaining market leadership and ensuring a sustainable future in the industry.

Government Policies and Regulations:

Cruise line operators serve customers in all the six operating regions of the world. Therefore, they have to adhere to the laws, regulations, policies, and procedures implemented by the local governments of different countries. The most influencing factor for cruise line corporations is the taxes imposed by governments. Being in the leisure, travel, and hospitality industry, the tax rates for these corporations are comparatively higher than companies in most of the other industries. Currently, the cruise line corporations pay taxes on their voyage and transportation business, casino and restaurant revenues, and earnings from all other luxurious, foods, and retail facilities offered to their passengers during journey (Woodside & Martin, 2008).

These tax rates are expected to increase in the near future due to the rapid growth of this industry. There are some external factors which impact the tax rates and other regulations imposed by governments on cruise line businesses. Firstly, some government charge very high taxes from these companies if they offer casinos, spa, miniature golf, restaurants, and other luxurious services. In order to avoid these taxes, cruise lines offer these services when they are in the sea and far away from ports. Secondly, cruise ships discharge bulks of wastage, toxic material, and pollutants which are highly dangerous for aquatic life in the sea and human life on the earth. Therefore, international communities and governmental bodies strongly oblige the cruise ship operators to maintain the highest standards of quality and maintenance. If these operators fail to do so, the governments impose heavy fines and different types of penalties.

Global Competition:

The global cruise line industry is dominated by a few large scale cruise ship operators. The current market leaders in this industry are Carnival Corporation & plc, Royal Caribbean, Disney Cruise Lines, Ambassador International, Silver Sea Cruises, and Crystal Cruises. The top rated cruise ships with respect to the appreciation by passengers are Celebrity Equinox, Queen Elizabeth 2, Thomson Celebration, Independence of the Seas, Oriana, Qneen Victoria, Celebrity Eclipse, and Queen Mary 2.

There is a perfect competition in the cruise line industry, i.e. there are large number of small scale and large scale corporations that target the same customer segments and offer similar services and add-on facilities. The competition among these corporations is largely shaped by their pricing, promotional, and location strategies. Each and every cruise line corporation claims to be the most economical and affordable option for the customers. At the same time, it uses expensive marketing campaign and promotional tactics to attract potential customers from the market (Klein, 2002).

The cruise line corporations have always been in a quest to win the largest market share in the global cruise line industry. Currently, the crown of market leadership is hold by Carnival Corporation & plc which is the result of a series of vertical and horizontal mergers and acquisitions. The current target market for cruise line corporations is the upper income group of consumers. However, they are designing their pricing strategies in such a fashion that all income groups and social classes can be targeted for greater profitability and competitiveness. For this purpose, they have implemented more efficient quality management and cost control systems in their headquarters and operational units….....

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