Although sea voyages have held an aura of mystique for centuries, only in recent decades have the general masses been able to experience open seas and exotic ports of call as a purely recreational activity. Cruises, i.e., sea voyages for pleasure, offer passengers the convenience of an assigned cabin as they sail along a fixed itinerary that concludes at their original point of sea embarkation. Almost everything about the entire cruise industry is international, from the routes traveled to the use of flags of convenience to the locations of shipyards to the staffing of vessels. By far the largest cruise competitor is Carnival Corp., which claims more than 40 percent of the global cruise market and owns more than ten different lines. Because Carnival operates globally, it can treat the entire world as a source of both customers and supplies.
At the same time, its widespread operations also leave Carnival vulnerable to political upheavals, health crises, economic recessions, and natural disasters. Still in all, the future outlook both for the industry and for Carnival is bright as more people the world over choose a holiday cruise.
Questions 1. What global forces have contributed to the growth of the cruise industry? Two major factors that have contributed to the growth of the cruise industry are the change in the competitive environment brought about by the advent of transoceanic airline service and increasing discretionary incomes. As demand for liner travel declined in response to the development of less expensive and much faster air service, shipping lines were forced to respond to the new market conditions by developing sea travel for the middle class, i.e., cruises. In addition, all-inclusive prices, a wide range of on-board and on-shore offerings, and the additional safety and security measures provided by the cruise industry have proven very attractive in light of recent political and socio-economic events.
2. What specific steps have Carnival Cruise Lines taken to benefit from global societal changes? Carnival has responded to global environmental changes in a variety of ways. Because a ship is highly vulnerable to terrorist acts, Carnival has instituted very strict security measures. It has also implemented strict health and safety measures. Carnival has dealt with economic recessions by offering shorter cruises that embark closer to home and with times of economic prosperity by offering longer cruises that incorporate more exotic destinations. It minimizes staffing costs by sourcing employees on a global basis. In addition, across its various lines, Carnival offers a wide variety of themes, classes of service, and destinations.
3. What are some of the differences by country that affect the operations of cruise lines? Political/legal, geographic, economic, and sociocultural differences all affect the operations of cruise lines, which are truly international in nature. For example, most shipping lines choose to flag their vessels in countries such as Liberia, Mongolia, or Panama because of the lower taxes and less stringent employmentpractices required by the laws of those countries. Relatively few countries (Finland, France, Germany, Italy, Japan, and South Korea, for example) have shipyards capable of building cruise ships. Consequently, governments (e.g., Italy) may choose to subsidize the ship-building industry in order to secure contracts for their domestic firms.
The favorable location of the Caribbean/Bahamas and the Hawaiian Islands makes them busy destinations year round, while Alaska is strictly a seasonal favorite. Because of their professional skills and fluency in English, Philippine workers comprise nearly a third of the seamen worldwide. Yet many other crew members also come from Eastern Europe, Vietnam, and China. Finally, in addition to the fact that many ships are designed to accommodate the economic realities of the mass market, others are specifically designed to appeal to the cultural preferences of their clientele (e.g., Costa, based in Italy, offers a distinctive Italian flavor).
4. Although most cruise line passengers are from the United States, the average number of vacation days taken by U.S. residents is lower than in most other high-income countries. For instance, the number is 13 days per year in the United States as compared to 42 days in Italy, 37 in France, 35 in Germany, and 25 in Japan. How might the cruise lines increase sales to people outside the United States? Given that the majority of people in the targeted income segment ($20,000-$60,000 per year) have yet to take a cruise, the major task confronting the cruise line industry is one of marketing. In addition to promoting the many appealing features of its various cruises and lines throughout the developed world and selected developing countries, Carnival could partner with foreign airlines and travel agents in order to get foreign vacationers to its many ports of embarkation.
5. What threats exist for the future performance of the cruise line industry and specifically Carnival Cruise Lines? If you were in charge of Carnival Cruise Lines, how would you (a) try to prevent these threats from becoming a reality, and (b) deal with them if they do become a reality? While the potential market for Carnival seems very attractive, port capacity could well become an issue. The deep water and the massive facilities required to dock a liner in any port are limited. In addition, there are passionate cries from environmentalists regarding the damage (pollution of the seas, disorientation of sea mammals caused by the noise of the propellers, etc.) being caused by liners both in port and at sea. Should there be a major global economic disaster or a global health pandemic, the cruise line industry will surely suffer.
To proactively deal with the possibility of a downturn, Carnival should invest heavily in research and development in order to continually minimize the environmental impact of its ships and their operation. It must also carefully develop its global cruise structure in a way that complements existing capacity—or else work with ports to provide additional capacity. If Carnival finds that it must react to a downturn, it should always think in terms of all of its stakeholders, not just its stockholders. Of course, it will want to minimize any damage to its operations and profits. However, given the immense size of the firm, it may also be possible for Carnival to reach out to others (such as providing liners to be used as housing for workers, as in the case of HurricaneKatrina). Carnival will be better served by a long-term rather than a short-term orientation.
6. Discuss the ethics of cruise lines regarding the avoidance of almost all taxes while simultaneously buying ships built with governmental subsidies. This is definitely a complex issue. While cruise lines avoid most taxes by flying flags of convenience, they argue that they must do so for competitive (cost-savings) reasons—and that other governments could choose to offer the same benefits. Their supporters also argue that the lost taxes are at least to some extent indirectly offset by port fees and passenger spending, and that the taxes realized by less developed countries are important contributions to their economies. However, others argue that the less restrictive staffing, safety, and operating requirements associated with flags of convenience are intolerable. They argue that lesser standards pose both safety and environmental hazards and that in the long-run, the costs to society are high.