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By: Daniel Novick, Spencer Roane, Vinamra Laddha and Wazir Browne

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1 By: Daniel Novick, Spencer Roane, Vinamra Laddha and Wazir Browne
Cruise Line Industry By: Daniel Novick, Spencer Roane, Vinamra Laddha and Wazir Browne

2 Industry Background Value of industry Barriers to Entry
2012 Gross Revenue Forecast: $29 billion Barriers to Entry Capital Intensive “Big Five” and Others Market Share Growth/Trends

3 Barriers to Entry High cost of acquiring ships
Necessity of place of port Finding and hiring qualified crew Captain, Chefs, etc. Government regulations and international tariffs High price of oil and energy to power ship

4 Legal Hurdles Each cruise ship must be registered to a specific country Creates issues for staffing (union vs. non-union) US law requires the ship to be built and staffed by Americans for it to be “flagged” to the US Ships are safety-inspected four times per year Captain has ultimate authority to enforce laws and policies Flags of Convenience

5 High Fuel Usage Cruise Ship Weight (tons) Passenger Capacity
Feet/Gallon Queen Mary II 148,528 2,620 40 MS Noordam 85,200 1,918 52 Queen Elizabeth 2 70,327 1,892 50 RC Mariner of the Seas 138,279 3,114 Disney Magic 83,000 2,400 57 Disney Wonder Oasis of the Seas 225,282 5,400 19 Navigator of the Seas 51 RC Freedom of the Seas 154,407 3,634 34 Allure of the Seas 225,000 6,296 31

6 Fuel Usage by Capacity

7 Fuel Usage by Weight

8 Industry Functions Transportation Sleeping accommodations
Dining accommodations Amenities Entertainment Off-ship excursions

9 Major Players: “Big Five”
What is the Big Five? Carnival Royal Caribbean Norwegian MSC Cruises Disney Nights sold for each in 2007 (in millions): Carnival: 36.32 Royal Caribbean: 19.66 Norwegian: 8.44 Disney: 1.66

10 Company Profile: Carnival Corporation
Founded: 1972 Based in: US and UK Brands: Carnival Cruise, Costa Cruise, Cunard Line, Holland America, Princess Cruises, Seabourn Cruise Revenues: $15.8B in 2011 Employees: 10,200 employees & 75,000 crew Size of Fleet – 103 Cruise Ships (209,420 passengers) Key facts: Ticker symbol: CCL 1.4 times the fleet of closest competitor

11 Company Profile: Royal Caribbean
Founded: 1968 Based in: Florida, US Brands: Celebrity Cruise, Royal Caribbean Revenues: $5.21B in 2011 Employees: 5,700 Size of Fleet – 40 Cruise Ships (96,270 passengers) Key facts: Ticker symbol: RCL Operates 40 cruise ships to 400 destinations

12 Company Profile: MSC Cruises
Founded: 1987 Based in: Geneva, Switzerland Brands: None Revenues: $1.98B in 2011 Size of Fleet – 12 Cruise Ships (27,750 passengers) Key facts: Fleet of 12 cruise ships increasing to 14 by 2013 5.8% world market share

13 Company Profile: Norwegian Cruise
Founded: 1966 Based in: Florida, US Brands: None Revenues: $2.31B in 2011 Size of Fleet – 11 Cruise Ships (25,280 passengers) Key facts: Filed with SEC for up to $250M IPO in July, 2011 11 ships in current fleet, two more to join over ‘13-14

14 Company Profile: Disney Cruise
Founded: 1998 Based in: Florida, US Brands: None Revenues: Up 4% from 2010 Size of Fleet – 4 Cruise Ships(8,510 passengers) Key facts: Disney Cruise Line is considered a segment of Disney Parks and Resorts Fleet includes only four ships

15 Industry Competition – Solo Traveler
Fred Olsen Spirit of Adventure P&O Cruises Hebridean Island Cruises Costa Cruises

16 Competition and Structure
We can study the HHI by combining subsidiaries or by looking at individual cruise lines HHI with subsidiaries: 998 HHI without subsidiaries: 3091

17 Market Share by Number of Passengers

18 Market Share by Total Revenue

19 2012 World Wide Market Share
Royal Caribbean Carnival



22 Growth of Industry/Trends
Increase in number of passengers (in thousands) Graph from

23 Capacity of the Major Markets in 2011

24 Age Demographics of U.S. Passengers

25 Income Demographics of U.S. Passengers

26 Race Demographics of U.S. Passengers

27 Customer Employment Status

28 U.S. Market Psychographic

29 Perceptual Map Formal Inexpensive Pricey Relaxed

30 Industry-wide price elasticity
Lerner Index = ( )/1663 = (1/.63199) = 1.58 = elasticity

31 Pricing Strategies Temporal Pricing Third-Degree Discrimination
Time of Purchase Seasonal Pricing Third-Degree Discrimination Second-Degree Discrimination Overbooking Loyalty Programs

32 Temporal Pricing Inter-temporal Pricing Seasonal Pricing
Similar to airline Industry Last minute discounts Seasonal Pricing Price spikes in summer months and December

33 Temporal Pricing – Time of Purchase
As the sail date approaches the price of tickets increases due to the increase in demand at the last moment However, within the last week it is possible to get cruise ticket discounts because Cruise Liners want to leave with full capacity and minimize the fixed cost/person






39 Third-Degree Price Discrimination
Different prices for ships Carnival Imagination 4 day trip 350 Carnival Victory 4 day trip 480 Room prices 7 day trip to Caribbean from Miami Interior 670 Suite 1,679 Early Saver plan



42 Second-Degree Discrimination
Two-Part Tariff Ticket Price to get on the ship Shopping on the boat For example Carnival Cruise Excursions Lobster Champaign and beach Excursion $120 Island Safari 4x4 Adventure $80

43 Overbooking Strategy Better than Hotels? Why? Captive Audience
No business travelers No holdovers or early departures Packed ship important to the cruise ambience Cruises have big-time repeat customers Great package for less than $100 a day Great ties with travel agents Long booking periods

44 Loyalty Programs Many cruise lines have them
However, they are not very publicized Have very limited benefits

45 Recommendations? Differentiate based on brand and ship experience
Encourage citizens of all ports to tour the cruise ship Improve loyalty programs and market them more Allow passengers to stay at a destination and come back on another cruise Works for cruise destinations that are visited routinely

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