The Cruise Line Industry

1. The Cruise Line Industry By The Strategic Pricers: Davis Austin Ty Bostain Nick Baccile Daniel Weisen

2. Game Plan

3. 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.

4. 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

5. 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

6. 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

7. Actual Industry Growth

8. Estimated Growth of Passengers by Continent

9. Cruise Passengers by Continent

10. Cruise Industry Functions • Transportation • Rooming accommodations • Dining • Guest Entertainment • Shows • Teen/Children activities • Casino (not always but common) • On-shore activities (Excursions)

11. Market Share by Number of Passengers HHI = 48^2+23^2+8^2+7^2+3^2=2,955

12. Carnival Cruise Lines • 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

13. Stock Chart

14. Royal Caribbean • 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

15. Stock Chart

16. Star Cruises • 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

17. MSC Cruises • Founded- 1987 • Headquarters- Geneva, Switzerland • 12 ships – 12,000 employees • Big presence in Mediterranean cruise market

18. Disney Cruises • Founded- 1996 • Headquarters- Celebration, FL & London, U.K. • 4 boats (Dream, Fantasy, Magic, Wonder) • Subsidiary of The Walt Disney Company

19. Perceptual Map Luxurious Inexpensive Expensive Family

20. Age Demographic of Passengers

21. Income Demographics

22. Race Demographic

23. Result

24. Pricing Strategies • Second Degree Price Discrimination • Third Degree Price Discrimination • Temporal Pricing • Seasonality • Overbooking • Max Capacity

25. Willingness to Pay • The Cruise Experience • Tourist’s perception of cruising as safe, social, service-oriented, 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.

26. 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

27. 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

28. On-Board Sales • Top 3 most profitable areas • Casino & Bar – 53% • Shore Excursions – 19% • Spa – 10%

29. Ticket and On-Board Revenue

30. 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

31. Room Class Price Discrimination

32. Temporal Pricing • Seasonality • Pricing jumps in the summer months and Christmas week • Vacation time • Travel during warmer summer months and colder winter months

33. Seasonality

34. 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.

35. Inter-Temporal Pricing Between Ships

36. Inter-Temporal Pricing Between Rooms

37. 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)

38. Recommendations • Considerations? • Atmosphere? • Amenities? • Brand? • Room Class? • Season? • When to book your next cruise? • Take the risk! Closer to departure date

39. The End • Questions?