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 the 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 dully listed on the London Stock Exchange and the New York Stock Exchange. With this dual listing, it boasts of an unrivaled 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. Moreover, it gives the company a tremendous power to negotiate with key manufacturers in the cruise industry.
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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 the 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). However, 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 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. The final option for Carnival is to consider a merger and acquisition with the Star Cruise Line (Zacks, 2016).
Threats
Some significant threats 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 purchased in an open and competitive market. There is a very low threat of supplier integration. The only exception is Carnival’s new builds. Although six major shipyards 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 regarding 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 manufacture, it must incur the high time and financial costs in redesigning the ship and 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, the 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 with minimal control and power.
The 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 have already established brands that employ hundreds of trained crew and sailors. Therefore, it must have employees who have particular skills and knowledge sets that necessitate training resulting in substantial additional costs for a new entrant to be successful. This is a major barrier for any entrepreneur wanting to venture into the cruise line business. Moreover, brand recognition is an important factor in this industry. 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, Carnival must watch out for new entrants in the Asia Pacific region because 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).
The 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). However, according to our market research, cruise companies deliver greater customer satisfaction compared to land-based packages. There are very many easy substitutes for any vacation. There is also a very low cost incurred in changing which leads to a very high threat of substitution. Although there are numerous substitutes for 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. Significant entry and exit barriers that have led to a high concentration ratio characterize the cruise industry. With the oligopoly, 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 brand portfolio analysis . Place of publication not identified: Grin Verlag Ohg.
Zacks, I. R. (April 05, 2016). Carnival Seals Deal with Fincantieri to Build five Ships. Zacks Investment Research, 2016-4.
