Carnival Cruise Line's Environmental Threats

     Prior to reading Chapter 3, I naively thought this post would be specifically about environmental threats, meaning issues within the environment. Carnival has a lot, and that is why they try to be focused on sustainability in all that they do (as I discussed in my last post). The oceans, wildlife, and all other areas that Carnival travels to have a lot of eyes focused on them as environmental safety is a major concern for many people today. While I could have a whole post specifically about the environment, I think I will take it in a different direction to discuss threats to Carnival's economical environment, specifically analyzing Carnival using Porter's Five Forces.

     When looking at the five forces framework, there is the threat of entry, the threat of rivalry, threat of suppliers, threat of buyers, and threat of substitutes that directly make up the overall aspect of environmental threats. When looking at Carnival Cruise Line, they sit within an oligopoly as a cruising industry. There are tons of cruise lines out there that sail all over the world. People, however, fail to realize that these lines are all under the same few brands. Carnival Cruise Line is part of Carnival Corporation. Carnival Corporation also owns eight other brands, including Princess and Holland America Cruises as well as other reputable groups. The cruising industry, while large, is often difficult to enter due to cost, international opportunities, and the saturation of the market across the major cruise corporations.

     

Threat of Entry

     The first aspect in Porter's Five Forces is threat of entry. The first major issue in entering the market is cost. Cruise ships and all things that go with cruising are expensive. You must buy or lease a ship for a certain amount of time. You must own the port areas that you land into or be able to pay the substantial fees for the ports. Staffing, food, entertainment costs, and so many other costs come on a ship that could have 6,000 cruisers and 2,500 staff at a time. When looking at entering the market, it's often difficult for new companies to be able to. No company owns their own ships besides Carnival. Therefore, new companies usually have to lease ships from other companies. Many smaller cruise companies lease their ships from old Carnival ships, thus profiting Carnival through their entry. Overall, cost is a huge barrier of entry into the cruise industry. 

     Another issue is product differentiation. As discussed in my last post, Carnival, Norwegian, and Royal Caribbean are the three major cruise lines. They all differ. Carnival is for families. Norwegian is similar pricing but is marketed to adults. Royal Caribbean is the higher-class, more expensive line. Outside of those main three segments, the other smaller cruise companies fit in solely based off of location or variety. For example, Disney Cruise Lines works because they're Disney themed for families. However, if you want a generic family cruise, all cruise lines can allow that experience. Carnival just differentiates themselves as the best for it. Therefore, it is hard to differentiate a cruise product from what is already existing in the market. 

      The last issue with cruising and the threat of entry is government regulation. As a cruise ship is often in international waters and ports at a foreign dock, cruise companies either have to own a majority of foreign ports or agree to rent with other cruise industries. Cruise companies do not have the option to dock just anywhere due to size and regulations of the ship. When cruising, ships have to abide by financial, travel, and other laws in both open waters and on foreign ports. Without a network to be able to both dock elsewhere and know the law, it is difficult to enter the cruise industry. While there are a lot of other cruise companies, it is often hard to enter with a new company due to the reasons stated.

Threat of Rivalry

     While there is a threat of rivalry within this industry, the major cruise lines have their niche market and demographic secured. Therefore, there isn't a huge issue with rivalry taking all of the competition as they all target slightly different travelers. Also, the cruising industry is interesting when it comes to major news. Unlike if a major company like Amazon did something horrendous and consumers went elsewhere for products, issues with cruise lines affects the entire industry. So many things go wrong on cruise ships. People die daily on cruise ships, largely due to old age, or a cruise ship loses it's stabilizer, causing the travelers to feel the waves. Waste can accidentally backup on a ship due to one wrong push of a button. When these things happen to a cruise ship (they happen often), it affects not just that one group but all cruise companies. People don't want to cruise on any ship that has potential to become unstable in the waves. Therefore, they don't cruise at all. This creates a sense of camaraderie across brands that is unlike other industries.

Recent Carnival News from January 2018 (Miami Herald)

Threat of Substitutes

     Similar to rivals, the threat of substitutes is not very high either. All of the major cruise companies have a very specific target demographic that serve different segments of the market. In terms of substitutes, some of the smaller cruise companies meet the same demands of the same target as Carnival. However, companies outside of the major three brands don't have access to as many people in the United States. Carnival, Norwegian, and Royal are almost at every single port access in the United States. If you want to go on another cruise line that may be cheaper and meet the same specifications as Carnival, you will most likely have to travel further, which costs more. The availability of the major three brands create a difficulty for other companies to be direct substitutes.

Threat of Suppliers

     The biggest threat when it comes to cruise line suppliers is the Italian ship makers or the companies that loan ships. Because Carnival Cruise Line owns their own ships and serves as the only company that does, their potential to see any kind of vertical integration into this space is unlikely. If they leased their ships and needed to find them from other companies, this would cause a chance for that integration. The other suppliers on board, including food, beverage, entertainment, and others, are not likely to integrate into the entire cruising industry due to the upfront costs of having a ship. Carnival finds celebrities like Guy Fieri to host burger restaurants on their ships or celebrity comedians to perform. Carnival's brand is in-tune with the demand of customers, so there isn't one single supplier that has the potential to ruin the Carnival economy.

Threat of Buyers

      The threat of buyers is even less with Carnival. Between Carnival, Royal Caribbean, and Norwegian brands, there is more than 20 cruise lines. There are only a little over 50 lines in the world, meaning that these three brands own 40% of all cruising. Therefore, it is very unlikely that any company can afford the price to buy Carnival Cruise Lines and other brands under the Carnival Corporation. The owner, Micky Arison, is worth close to $10 billion in total net worth due to his investments that include Carnival Corporation and the Miami Heat. Therefore, if Carnival were to ever struggle financially, he would have the capital to invest into its success.

Micky Arison, Board Chairman/ Majority Owner of Carnival Corporation

Overall, these are the five threats for Carnival's economic environment. While there is always threats of buyers, suppliers, rivals, new entrants, and substitutes, Carnival's share in the cruising industry has proven to be in a great spot. Therefore, there aren't many threats that Carnival should be worried about.