Forces Scale Comments
Rivalry | High | 1 |
Suppliers | Moderate | 2 |
Buyers | Low | 3 |
Entry & Exit Barriers | Low | 4 |
Substitutes | High | 5 |
1. The cruise line industry is effectively an oligopoly market, where several major cruise
liners make up more than 90% of the market shares. Carnival is constantly engaged in
marketing and pricing battles with these competitors, making internal rivalry central to
the industry. Additionally, cruise lines have historically been subject to heavy M&A
activity, and Carnival sometimes competes to acquire even more share. The cruise line
industry has relatively high competitor diversity and a ...view middle of the document...
Most of a cruise
ship’s supplies are bought on an open, competitive market. Carnival Corporation stated
in its most recent Annual Report that its “largest purchases are for fuel, travel agency
services, food and beverages, air transportation services, port facility utilization, repairs
and maintenance, including dry-docking, advertising and marketing, hotel and
restaurant products and supplies, communication services, and the construction and
refurbishment of our ships”. The threat of integration by these suppliers is very low.
3. Buyer power within the cruise line industry is relatively low. By contrast to most other
vacations, more than two thirds of cruises are still booked through travel agents.
Carnival states that no one group of travel companies makes up more than 10% of their
business, signaling that buyer concentration is low, which reduces their power. Further,
customers are spread around the world and do not have any mechanisms through
which they can express a collective voice or exert collective power, leaving them with
minimal control. Additionally, customers do not have the ability or resources to create
the cruise experience by themselves – it is, by nature, a highly packaged deal. This
prevents the fragmentation of the cruise in the way that other types of vacation
packages have fragmented as mechanisms and companies have emerged through
which customers can more cheaply book and customize individual pieces of their
4. The risk of entry of new competitors to the cruise line industry that could provide a
plausible threat to Carnival Corporation in core markets is low. Entry into the high-end
cruise line industry requires capital of approximately $1 billion since it costs, on
average, $400 million to build a ship. Further, large cruise ships employ hundreds of
sailors and crew that are trained for sea duty. This means that, in order for a cruise to be
successful, its employees need to have specific knowledge and skill sets, which
necessitates training, creating substantial additional costs and. This is a significant
barrier to entry for any new competitor wanting to build a new cruise line from scratch..
Lastly, brand recognition is very important in the cruise line industry, which means that
it would take time for a new competitor to build an identity and reputation, slowing or
preventing their ability to compete with an established company such as Carnival
5. Considering that a cruise is a vacation for most customers, the cruise line industry faces
a significant threat of substitution from other types of vacations. Traveling by air/land
has traditionally been less expensive than cruises. Any vacation can be substituted and
there is not a high cost to change, which makes the threat of substitution seem very high.
Customers who are apt to go on a cruise might instead...