The Leisure-Cruise Industry Porter Paper

The Leisure-Cruise Industry

Abstract

This analysis will evaluate the leisure-cruise industry and if it will be good choice to enter the market. The report will evaluate the industry according to the forces Porter's Approach to Industry Analysis uses. The headings will indicate which force is being reviewed and the strength of each force to allow a new company to enter the market.

1. Threat of New Entrants - LOW

Capital requirements are high when considering entering a leisure cruise industry. The threat of new entrants is low mainly because of the capital an organization would need to have on hand. Royal Caribbean is opening up two more ships in 2014 and 2015. Just in one of the ships Royal Caribbean spent one billion dollars (Cruise News). A new company trying to enter the market will need to have substantial amount of money on hand or financing available. Another barrier that will affect the threat of new entrants is government policy. On June 1st, 2009, federal regulations require a passport or passport card to cross borders; before a simple ID or Birth Certificate was enough (Passport).

2. Rivalry Among Existing Firms - HIGH

Rivalry is high not because there is a threat of new entrants but because the already exisitng cruise lines are expanding their cruise lines to keep up with the industry's growth. "Industry estimates are that 13.5 million people took a cruise vacation in 2009, with a total of 14.3 million passengers forecasted to sail in 2010. (CLIA)" Just in the U.S. there are nine major cruise lines, each with their subsidiary lines: Ambassador International, Carnival Corporation, Crystal Cruises, Disney Cruise Lines, Louis Cruises, Regent Seven Seas Cruise Lines, Royal Caribbean Cruises Ltd., Silversea Cruises and Star Cruises (Cruising). This list might seem like there are a large number of competitors but there aren't. The giants here are Carnival Corporation and Royal Caribbean Ltd. If they want to increase their prices they can and have because drinks are no longer included in the price, of-ship excursions are more expensive and passengers are constantly peddled by the crew.

The product or service characteristics are pretty similar throughout. In general, a passenger can expect the same concept aboard all ships. Since all ships are competing they strive to offer the best accommodations and their prices reflect that. If their accommodations are weaker the fare of the voyage is significantly lower. These ships still have a standard rate they have to request because they have fixed costs, especially fuel to manage the voyage of each ship whether the ship is at full capacity or not.

Rivalry is also strong because the exit of these corporations could sometimes cost more than the operations. When considering the legal, environment and disposal implications of discontinuing service it might be in the best interest of the corporation to remain open so the competition resumes.

3. Threat of Substitute Products or Services - LOW

As mentioned above most cruise lines are comparative in price and quality of accommodation, so it is likely that the cruise lines substitute each other. However, when considering substituting another form of vacation for cruises it is unlikely for other forms of land vacation packages to be cheaper. Cruises have come to understand the appeal of entertaining all members of the family. Cruise lines have become a popular vacation and continue to increase in popularity. "This strong growth has fueled the continuing evolution of the cruise vacation experience. Over the years, cruise lines have expanded itineraries to include more diverse ports of call and convenient embarkation ports and have also introduced innovative onboard amenities and facilities, including cell phone access, Internet cafes and wireless fidelity (Wi-Fi) zones, rock-climbing walls, bowling alleys, surfing pools, multiroom villas, multiple themed restaurants and expansive spas, health and fitness facilities that easily rival land based options. (CLIA)"

4. Bargaining Power of Buyers - LOW

Buyers in the cruise line are the passengers. Last year "Carnival Corp., one of the largest vacation/travel conglomerates in the world with $11.8 billion in revenue and net income of $2.3 billion" (Carnival). Buyers have the ability to have power in the industry but they cannot drive down the prices too low because of fixed costs, however, even with the fixed costs passengers are