Cruise Liners

Report
THE CRUISE LINE INDUSTRY
By The Strategic Pricers:
Davis Austin
Ty Bostain
Nick Baccile
Daniel Weisen
GAME PLAN
Introduction
Industry
Overview
Demographics
Pricing
Strategies
Recommendations
Introduction
• Why did we choose the cruise line industry?
– Personal Interests and experience in the industry.
– Lots of current news events.
– Unique and interesting pricing strategies.
– Few number of large players.
Cruise Industry Overview
• Projected $36.2 billion dollar industry for
2013
• Projected 20.9 million passengers for 2013
• Highly concentrated market
• High barriers of entry mostly due to the sunk
costs it takes to build a cruise ship
Barriers to Entry
• Cost of ships
– RCL just built $1.4 B Oasis of the Seas
• Access to ports
• Large crew – willing to travel away from
families
• Government Regulations/Traveling
Internationally
Recent News Stories
• Concordia operated by Costa Cruises a subsidiary of
Carnival wrecked of the cost of Italy in January of
2012.
• 30 people killed
Actual Industry Growth
Estimated Growth of Passengers
by Continent
16,000,000
14,000,000
12,000,000
10,000,000
$
8,000,000
North America
6,000,000
Europe
4,000,000
Other
2,000,000
2013
2014
2015
Date
2016
2017
Cruise Passengers by Continent
2.9%
6.5%
2.9%
0.2%
North America
Europe
27.0%
60.5%
Asia
South America
Australia
Middle East/Africa
Cruise Industry Functions
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•
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Transportation
Rooming accommodations
Dining
Guest Entertainment
– Shows
– Teen/Children activities
– Casino (not always but common)
• On-shore activities (Excursions)
Market Share by Number of
Passengers
7%
3%
11%
Carnival
48%
8%
Royal Caribbean
Norwegain
23%
MSC Cruises
Disney
Other
HHI = 48^2+23^2+8^2+7^2+3^2=2,955
Carnival Cruise Lines
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Founded- 1972
Headquarters- Doral, Florida
World’s largest cruise operator
2012 Full Year Net Income- $1.3 billion
Own 11 different cruise line brands including
Holland America & Princess Cruises
• 100 cruise ships in fleet – 86,800 employees
Stock Chart
Royal Caribbean
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Founded- 1997
Headquarters- Miami, Florida
World’s second largest cruise operator
2012 Full Year Net Income- $432 million
Royal Caribbean owns five cruise lines
including Celebrity Cruises
• 41 cruise ships – 60,300 employees
Stock Chart
Star Cruises
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Founded- 1993
Headquarters- Hong Kong, Asia
Full year Net Income 2011- $185 million
Dominates market share in the Asia-Pacific
destinations
• 18 ships – 18,000 employees
MSC Cruises
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Founded- 1987
Headquarters- Geneva, Switzerland
12 ships – 12,000 employees
Big presence in Mediterranean cruise market
Disney Cruises
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Founded- 1996
Headquarters- Celebration, FL & London, U.K.
4 boats (Dream, Fantasy, Magic, Wonder)
Subsidiary of The Walt Disney Company
Perceptual Map
Luxurious
Inexpensive
Expensive
Family
Age Demographic of Passengers
26%
7%
18%
20's
30's
40's
22%
26%
50's
60+
Income Demographics
1%
7%
9%
$39-50k
10%
$50-60k
16%
39%
$60-75k
$75-100k
19%
$100-200k
$200-300k
$300+
Race Demographic
3%
6%
White
Black
Other
91%
Result
North
American
40 +
years
old
White
Income
$100-$200k
Pricing Strategies
• Second Degree Price Discrimination
• Third Degree Price Discrimination
• Temporal Pricing
– Seasonality
– Overbooking
• Max Capacity
Willingness to Pay
• The Cruise Experience
– Tourist’s perception of cruising as safe, social, serviceoriented, and customer friendly.
– Some travelers perceive cruising as expensive,
claustrophobic, elitist, seasickness-inducing, and reserved
for older couples only.
• Branding
– Cruise brands take great care when it comes to their
reputations because it implies a certain standard.
– Branding is essential for garnering new business,
encouraging repeat customers, creating brand recognition
and defining the company’s approach to operations and
marketing.
The Product
• Cruises have three different economic features:
– Inelasticity - a cruise ship is “perishable” because it
can’t be stored
– Heterogeneity - the product consists of a variety of
components that make the cruise experience
different for each customer
– Complementary - the cruise is not one single
experience but a host of elements that combine to
form the cruise experience
Second Degree Price Discrimination
• Two-tier pricing system
• First purchase-ticket to get on the boat
• Additional purchases during the vacation
– Cruise Line Excursions
– Alcoholic/Soft Drink Beverage Packages
• Classic Beverage Package (beers, wines and soft
drinks) $45
• Premium Beverage Package (addition of premium
alcoholic cocktails) $55
On-Board Sales
• Top 3 most profitable areas
– Casino & Bar – 53%
– Shore Excursions – 19%
– Spa – 10%
Ticket and On-Board Revenue
Ticket
$1,311
$417
Onboard Spending
Casino & Bar
$222
Shore Excursions
$81
Spa
$41
All other onboard spending
$73
Total Spending
$1,728
Third Degree Price Discrimination
• Allows consumers to self-select into their
desired price range
– Different classes of boats within a cruise liner
• Larger/Newer the ship, more “luxurious”
– Different classes of room choice
• Interior, Ocean View, Balcony, Suite
Room Class Price Discrimination
Ticket Price per Night Sale Date - April 14
$600
$512
Price per Night $
$500
$400
Inside
$289
$300
Ocean
Balcony
$200
$162
$126
$100
$0
Allure of the Seas
Suite
Temporal Pricing
• Seasonality
– Pricing jumps in the summer months and
Christmas week
– Vacation time
– Travel during warmer summer months and colder
winter months
Seasonality
Inter-Temporal Pricing
• As cruise approaches, consumer demand
becomes increasingly more inelastic, allowing
cruise lines to raise prices.
• However, immediately before the departure
date, cruise lines attempt to maximize capacity,
leading to last-minute price decreases.
• Brochures are carefully designed to encourage
advance booking, through such strategies as
making off-season prices look dramatically lower
than their on-season counterparts and
promising discounts for booking early.
Inter-Temporal Pricing Between Ships
Ticket Price per Night Sail Date - April 14
400
Price per Night $
350
300
250
Dream
200
Fantasy
150
Magic
Mariner of the Seas
100
Oasis of the Seas
50
0
2-Apr
3-Apr
4-Apr
5-Apr
Date
6-Apr
7-Apr
8-Apr
Inter-Temporal Pricing Between Rooms
Ticket Price per Night Sale Date - April 28
Ticket Price per Night Sale Date - April 14
$700
$600
$626
$512
$600
$500
$500
$400
Inside
$320
Ocean
Balcony
$300
$240
$254
Suite
Price per Night $
Price per Night $
$400
Inside
$289
$300
Balcony
Suite
$200
$162
$200
$126
$100
$100
$0
$0
Allure of the Seas
Ocean
Allure of the Seas
Overbooking Strategy
• Customers can’t leave once on the vacation
• The more crowded the ship, the seemingly
more enjoyable the environment/ambiance
• Repeat customers
• No business travelers
• Long booking periods with large amounts of
third party bookers (expedia, travel agents)
Recommendations
• Considerations?
– Atmosphere?
– Amenities?
– Brand?
– Room Class?
– Season?
• When to book your next cruise?
– Take the risk! Closer to departure date
The End
• Questions?

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