In this exercise you will participate in a negotiation about a cruise ship and its rights to visit a tropical island. You will role-play this negotiation as either the director of the cruise ship or the mayor of the island. The issues to be discussed during the negotiation include the number of visits per year that the ship can make, the length of individual visits, and the volume of passengers allowed to disembark from the ship on each day when it visits.
This simulation provides a rich context for a business negotiation in which economic, cultural, and ecological factors all come into play.
The Island Queen is a privately owned and operated luxury cruise ship. Cruise ship passenger demand has steadily fallen over the past few years due to the poor economy, fear of worldwide terrorism, and recurring cases of the Norwalk virus on cruise ships. Norwalk-like viruses, which have afflicted hundreds of passengers on several cruise ships, cause diarrhea, stomach pain, and vomiting.
The Island Queen’s operations department has decided that adding a new exotic destination to the standard 16-day itinerary will help stimulate passenger demand. While many islands in the region are possible candidates, Tropical Island is its first choice due to the island’s reputation as an exotic and pristine locale.
Tropical Island is part of a chain of lush Pacific islands in one of the most remote spots on earth. At 10 miles wide by 38 miles long, the island is not large.
However, it is home to an extensive array or rare and endangered plant and animal species, many found only on Tropical Island. The traditional rural and native culture of the island has remained relatively unchanged over time, earning it the nickname “The Last Unspoiled Island”.
The island is a wonderful combination of rain forests, desert lands, waterfalls, and black-and whitesand beaches. Weather on the island is pleasant year round, with maximum daytime temperatures ranging from 88 degrees Fahrenheit in the summer (May to October) to 80 degrees in the winter (November to April). Night-time temperatures rarely fall below 60 degrees. As a result, the island’s tourism, though considered minimal, remains almost constant year-round, at about 70,000 visitors per year.
Approximately 60 percent of the island’s 7,000 residents have true Pacific Island ancestry. This makes Tropical Island the only one in the region where true natives are the majority. These natives continue to practice the region’s old traditions while trying to minimise the influence of the rampant commercialism found on other islands. The two closest islands are more than 25 miles away and are far more commercialised than Tropical Island.
MGB225 – Negotiation Simulation 3 (Assessed) – Island Cruise
Compared to the other islands in the region, Tropical Island is a quiet and pristine world of breathtaking beauty, where one can easily escape to peaceful solitude or participate in a myriad of outdoor activities. In addition, prices on the island are generally lower than on surrounding islands. As a result, many visitors are actually repeat customers, re-immersing themselves in the idyllic lifestyle they know they will find on the island.
Typical island activities include surfing, kayaking, fishing, and hiking. Snorkeling and scuba diving are especially spectacular due to the abundance of giant sea turtles. The island is also home to the longest barrier reef in the region, which stretches 28 miles. Guided hiking tours of the island’s extensive rain forests allow visitors to learn about the flora and fauna unique to the region. For the less sure-footed, guided mule rides down the highest oceanfront cliffs in the world offer dramatic views of the unspoiled coastline.
With only one movie theatre, one public restroom, and no stoplights, the island takes pride in its lack of development. A weekly Saturday morning farmer’s market offers a vibrant taste of the rich local heritage. In addition, the island’s macadamia nut farm, coffee plantation, and kite factory provide abundant opportunities to explore the island’s unique character. Dining options cover the full spectrum from inexpensive eateries to extravagant gourmet feasts, complete with traditional native entertainment.
In addition to tourism, major industries on the island include fishing, farming, and retail sales. With the collapse of the sugar and pineapple industries in the 1990s, the island has moved to replace these once dominant industries with more diversified aqua-culture and agriculture.
Tropical Island is governed by an autonomous council. Residents elect a mayor, who serves a three-year term with a two-term limit, and an eight-member island council with two-year terms. The island council, with current mayor Gil Egan as its representative, is responsible for making all decisions regarding the island community. Decisions are made by majority vote of the council. The mayor performs the function of “tie-breaker” when necessary. There are five public and two private schools on the island serving 2,000 students from kindergarten through twelfth grade.
Residents seeking a college-level education typically move off the island for the duration of their studies. These students rarely return to live permanently on the island. This has been a major concern of the islanders, who wish to reduce the loss of native residents. Therefore, construction of a local community college is under consideration.
Current means for tourists to access the island include small aircraft and small sea vessels. There are also two inter-island flights per day between Tropical Island and the surrounding islands, with each flight carrying about 50 passengers. On any given day, about 200 tourists arrive or depart Tropical Island, with a total of 500 tourists on the island at any given time. Electric cart rentals are available at the airport for transportation around the island.
Marine ecological studies performed on Tropical Island by the United Nations’ International Maritime Organization Agency indicate that for each day a cruise ship operates in Tropical Island’s sensitive coastal waters, at least two weeks of undisturbed marine environment must be maintained afterward to avoid permanent ecological damage. Each additional day of operation requires two additional weeks of recovery. The ecosystem, however, is not able to sustain more than five consecutive days of abuse.
These figures assume no intentional damage to the ecosystem, such as removal of coral or wildlife as a result of cruise ship-related tourism. During the time that a cruise ship is anchored near the island, and for four days following its departure, local residents are advised not to fish or swim within a two-mile radius of where the cruise ship had been anchored because of potential health hazards. The island’s only natural harbour is the best location for anchoring cruise ships. Unfortunately, this two-mile-wide bay is also the island’s most productive fishing spot.
At 971 feet in length and weighing 91,000 tonnes, the $400 million Island Queen is the largest cruise ship ever to service the Tropical Island region. It accommodates 2,200 passengers and 1,100 crew members. Operation of the Island Queen is handled through Island Queen, Inc., a private corporation. Captain Stuart (Stu) Bing is the director of cruise ship operations for the Island Queen. While he has sole responsibility for negotiating all contracts governing the vessel’s operation, he ultimately answers to the CEO and the board of directors of Island Queen, Inc., regarding all corporate matters.
With 10 distinctive restaurants and 14 separate lounges and bars, the Island Queen has a venue for the most discriminating guest. Passengers who desire the excitement of gambling will enjoy the lavish Grand Casino with its glass elevators, floating staircases, stained glass domes, and ocean view windows. The magnificent Riviera Deck, adorned with sparkling pools, bars, hamburger grill, ice cream bar, gymnasium, and spa, is the perfect spot for outdoor activities and food.
The Island Queen sets a new standard for luxury cruise ships with its unique alternative 24-hour dining in the panoramic Horizon Court, two theatres, computerised golf, and a library featuring “listening chairs” for music and audio books. Industry standard venues and amenities such as buffet meals, theatres, and gyms are included in the price of the cruise. Dining in the more exclusive restaurants and some personal services such as massages and beauty treatments are an additional expense billed separately to the passenger.
The standard Island Queen cruise is 16 days and 15 nights. The itinerary consists of five days sailing to the island region, six days visiting various tropical islands, and five days returning to its home port. An island visit generally involves passengers disembarking at 8am and returning to the ship by 8pm. On more popular islands, the ship will remain in port for two days. At these ports, passengers may elect to spend the night on the island, but they must return to the ship by 8pm the following evening when the ship sets sail for the next port.
Island Queen, Inc., has provided luxury cruises to the island region for over 20 years, but Tropical Island has never allowed cruise ships to visit. For economic reasons, Tropical Island is now considering offering exclusive visitation rights to a cruise line company. Though other cruise line companies are vying for the right to add Tropical Island to their itinerary, the Island Queen is the most luxurious prospect. An agreement with the Island Queen is expected to provide greater income per tourist for the island than an agreement with any of the other cruise lines because of the Island Queen’s wealthier clientele.
During one-day port visits, about half of the ship’s passengers typically disembark. As the length of stay increases, fewer passengers disembark per day. Those who remain on the ship are an important revenue source as they continue to patronise onboard facilities including the casino, shops, and restaurants. Island disembarkation agreements are negotiated in increments of 100 passengers. Thus an agreement for 500 passengers per day would include any number of visitors up to 500. There are currently no island visits longer than two days because this would not leave enough time to visit all the other popular ports. However, a visit longer than two days is certainly possible given sufficient demand.
Because there is no suitable deepwater dock on Tropical Island, cruise ships will have to anchor in the ecologically sensitive coastal waters surrounding the island. A smaller vessel must then make multiple trips ferrying passengers back and forth between the ship and the island. The island’s harbour area is considered the best location for anchoring cruise ships due to its proximity to the main island community.
Large cruise ships, like the Island Queen, can severely impact the local marine ecology during their stay. According to one environmental group, typical cruise ships “produce massive volumes of waste, including sewage, nonsewage wastewater or gray water, ballast water, oily bilge water, air pollution, solid waste, and hazardous waste, each of which may harm sensitive marine ecosystems like the island’s through the addition of harmful pathogens and chemicals, or the introduction of alien species.”1 There are, however, international environmental standards under which cruise lines must operate. These standards, set forth in international conventions, create strict guidelines for all commercial vessels, including passenger vessels, to prevent ship-generated pollution for oil, garbage, and waste.2 Still, the island community has strong reservations about allowing cruise-based tourism because of the industry’s dismal record of environmental compliance and poor enforcement of laws regarding ship pollution.
There is also concern that a sudden increase in tourism will adversely affect the social makeup of the quiet rural island. Environmentalists point to small islands and towns in Alaska and the Caribbean whose local lifestyle, culture, and economy become crowded out by foreign visitors. The island council’s community plan defines its primary economic focus as agricultural industries. Tourism is to be limited to a level that will not adversely affect the community’s traditional, social, economic, and environmental characteristics. An agreement between the Island Queen and Tropical Island must take into account the impact it will have on the traditional lifestyle and customary rights of the native inhabitants.
The main reason cruise ship companies have been hesitant to add Tropical Island to their itinerary has been the lack of island infrastructure to support the needs of a typical cruise ship visit. Too many cruise tourists descending upon the island all at once may overwhelm existing island facilities, resulting in an unpleasant experience for everyone. The fact that there is only one public restroom on the island is enough to dissuade even the most optimistic tour operator. Limiting the number of tourists disembarking will help preserve the island’s natural character and benefit the cruise ship since remaining passengers will spend their money on board the ship.
Traditional island culture and mores, as well as island law, forbid council members, and Mayor Gil Egan as their representative, from accepting any form of financial incentives, such as bribes, from the cruise lines to gain commercial access to Tropical Island. A respectful and mutually beneficial relationship between Tropical Island and the Island Queen is desirable.
Any agreement between Tropical Island and the Island Queen should take into account the current economic environment, existing resources and infrastructure, expected tourism income for both parties, and any damage to local ecology and native culture resulting from added cruise line tourism. International maritime law requires that any agreement between the parties remain in force for six years following its adoption, so it is important to consider anticipated trends with any agreement since renegotiating in the near term will be very difficult, if not impossible.
(From the Island Queen, Inc. Board of Directors)
As the director of cruise ship operations for Island Queen, Inc., the Board of Directors has authorised you to negotiate with the mayor of Tropical Island, Gil Egan, to secure exclusive anchoring and disembarkation rights to the island.
In order to add Tropical Island to the standard 16-day Island Queen cruise, you must remove a current port from the itinerary. This is not a problem because one port is no longer popular among passengers due to recurring outbreaks of a particularly virulent strain of Hansen’s Disease (Leprosy) on the island, which has afflicted a number of previous passengers.
You are aware that one of your competitors, Island Maid, Inc., has made inquiries to Mayor Egan regarding access to Tropical Island. However, this is a smaller company with an older, less luxurious ship. More importantly, its clientele are mostly middle-class retirees on fixed incomes, who would typically generate less revenue per tourist for the island. On 16-day cruises, an island visit typically lasts only one day. The ship anchors by 8 am, and leaves the same day at 8 pm. Visits to especially popular islands may last two days. Since Tropical Island will be new and unexploited, it is expected to quickly become very popular. An island visit of more than two days is quite rare, but would be a valuable option for the future. While not the most important consideration, you want to be sure people have enough time to really appreciate this beautiful island and feel the cruise was unique and worthwhile.
Regardless of the length of a port visit, at most only half of the passengers disembark per day. Remaining passengers are an important revenue source for the ship because they continue to patronise the ship’s casino, shops and exclusive restaurants. This is fortunate, because the ferry to the island can only accommodate about 1,100 passengers per day. Thus, there is little value in negotiating daily disembarkation rights for more than this quantity. If a port does not draw more than 200 passengers per day, it is removed from the itinerary in favor of a more popular destination. It is critical for you to negotiate a deal that allows you to have the ideal number of passengers disembark – not too many, nor too few. In fact, this is the most important issue for you.
The Island Queen is the only one of Island Queen, Inc.’s vessels licensed to operate in the Tropical Island region. Because it takes about two weeks to prepare the ship for another voyage after a two-week cruise, the maximum trip rate is 12 trips per year. Therefore, there is no benefit to negotiating an agreement for more than 12 visits per year. Because demand fluctuates based on the season, economy, and travel fads, the number of visits to the island per year is not that important to you. As long as each trip is profitable (which it will be if the right number of passengers disembark) you will be satisfied with your agreement.
Desert Island is another island in the region that you are considering if you cannot negotiate an acceptable agreement with Tropical Island. While Desert Island is not nearly as pristine and breathtaking as Tropical Island, it does have some redeeming qualities. Like Tropical Island, Desert Island is one of the least commercialised islands in the region and there are currently no cruise ships visiting it. Since the mayor of Desert Island wants cruise tourism to play a significant role in the island’s economy, you expect he will be very accommodating regarding the volume of cruise tourism permitted, but he will probably not grant exclusive visitation rights. Unfortunately, Desert
Island has less tourism infrastructure than Tropical Island and few financial resources to remedy this situation. Your business development department has indicated that it is realistic to expect an agreement with Desert Island for monthly two-day visits of 700 passengers. But, the desolate nature of the island will preclude it from ever attracting enough demand to justify more than just a one-day visit.
Since international maritime law makes it nearly impossible to renegotiate agreements for six years from their effective date, you must be careful to ensure that any agreement is flexible enough to accommodate both current and future anticipated passenger demand.
Evaluation: In order to evaluate the viability of adding Tropical Island to the ship’s itinerary, the Board of Directors has developed the following guidelines to help you understand their concerns regarding the various options. Your objective is to negotiate the most beneficial agreement for the company.
Because of the logistics and expense of adding Tropical Island to the ship’s itinerary, it is not viable to schedule less than three visits per year. This would also not provide enough opportunity for expansion should passenger demand exceed expectations. Planning fewer visits per year with more passengers per visit could be a solution. However, the island’s limited infrastructure precludes allowing an excessive number of passengers to disembark per visit.
If enough passengers were permitted extended stays of two or more days on the island, this option might be acceptable, because it could accommodate anticipated passenger demand for the island.
Increasing the number of allowed visits will increase the value of an agreement, because it provides you with greater flexibility to meet current and anticipated passenger disembarkation demands.
The maximum trip rate is 12 trips per year. While current demand may not warrant a trip every month, it is valuable to have this option in order to meet potential future demand.
While most port visits are currently only one day, market research indicates that passenger demand for Tropical Island will probably exceed the capacity that the island can reasonably accommodate in a single day.
The option of a two-day port visit to Tropical Island should meet our anticipated requirements for the next six years considering the island’s limited infrastructure.
While these options provide additional flexibility, they are not especially valuable because we do not expect passenger demand to justify such extended port visits.
Issue #3: Number of passengers on shore per day (in increments of 100 passengers) Passengers Comment
This level of disembarkation is very restrictive and would require a longer visit many more times a year in order to accommodate anticipated demand levels. The idea of many passengers remaining on the ship to provide additional revenue is tempting. However, if passenger demand were this low, we would remove the port from our itinerary since it is obviously not an attractive destination.
While less restrictive, these options are still not ideal considering our anticipated passenger demand. Such a small allocation would require multi-day visits at the expense of other ports. Until we have actual experience with the demand created by Tropical Island, it would be foolish to lock ourselves into such low numbers.
Typically, about 700 passengers disembark per day during a two-day port visit. However, these levels would not support anticipated demand for single-day visits.
This would be the most valuable option because it should be sufficient for all anticipated levels of demand for the foreseeable future.
This level of disembarkation has some value since it provides additional flexibility. However, there is little value in negotiating such a large number at the expense of the other two issues, since it is not realistic to expect we will exercise this right in the foreseeable future. About half of our passengers typically remain on-board during port visits to patronize casinos, spas, restaurants, and other revenue centers. This provides a valuable source of income for the ship and we want to maintain this level of ship-board activity. Also, such a large number of passengers disembarking onto the island will likely degrade the facilities making the port less enjoyable for future passenger visits.
These options provide additional flexibility, yet experience shows it is rare for more than half of our passengers to disembark on a given day for a one-day visit.
The Board of Directors requests that you negotiate an agreement providing a realistic and flexible path to meet anticipated demand, while accounting for current economic conditions, and the island’s lack of infrastructure to support expanded cruise tourism. An acceptable agreement would include monthly two-day visits for 1,100 passengers. Negotiating such an agreement can be expected to ensure your promotion to commodore, and earn you a coveted seat on the Island Queen, Inc. board of directors.
If you are unable to secure an agreement with Mayor Egan that adequately addresses our corporate interests, then you are authorized to pursue a dialog with the mayor of Desert Island in order to secure an agreement more beneficial to Island Queen, Inc.
Note: Negotiations must be based solely upon information provided in this simulation and no external sources. At the completion of your negotiation, please fill out one negotiation summary worksheet per negotiating pair and return it to your instructor for discussion.