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Carnival Corporation Case Study

1337 words - 6 pages

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

vacation.

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

Corporation.

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...

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