Carnival Corporation & Plc

Carnival Corporation & plc (2010)

Case Study

Summer II- 2019

Carnival Corporation & plc is chaired by Mickey Arison, the son of the original founder Ted Arison.  Mickey serves as the Chairman and Chief Executive Officer of the corporation.  The global company which prides itself on providing “Fun Ship” experiences is headquartered in both Miami, Florida and London, England; however, Carnival Corporation is incorporated in Panama with Carnival plc being incorporated in England and Wales.  As a truly global entity Carnival is “the only company in the world to be included in both the S&P 500 index in the United States and the FTSE 100 index in the United Kingdom.” (Keeffe et al, 2010)  

 Cruising is one of the oldest means of transporting passengers across the waterways; however, during the 1960s travel by air would dent the cruise industry growth.  Ted Arison saw this as an opportunity and seized the moment to offer “all inclusive-packages.”  Trending television shows and changes in the citizens’ economic statuses allowed vacations to be an acceptable desire.  Mr. Arison vision would lead him to partner with American Travel Services Inc. (AITS) to initiate his first ship purchase.  The purchase would lead to profitless end with mounting debt. After three years Mr. Arison and AITS would negotiate the debt and Mr. Arison would acquire the ship for $1 and assume the indebted $5 million from AITS.

Some of the initial challenges of the corporation included limited number of ports for passengers to visit, expensive fuel usage and slow cruising.  All of the aforementioned challenges led to the assumed debt.  In 1974-75, after the buy-out Carnival began to see a turn around, while restructuring the corporate governance of the company, the strategic plan included a specific demographic and aggressive promotion of vacation packaging.  The targeted market in which  Carnival sought was first-time cruisers and young people.  The company at this time enacted its tagline “Fun Ship” (which is still utilized until this day).  So although the ship capacity was predetermined by the fixed number of berths (the ship, like other hospitality businesses were able to increase capacity via temporary means: bunks, rollaway beds, pullout beds, etc), this ultimately increased travel capacity.

In the early 1980s the company was able to continue its growth rate, which was approximately 30%, whereas the industry rate was 10%; this growth translated into real numbers averaging the capacity to 104% until the late eighties. (Keeffe, 2010)  It was during this period that Ted began to reinvest aggressively into the industry.  The expansion plan would include acquiring many new ships, relationships with international ports and merging with existing smaller competitions. The acquisitions and mergers afforded the company the possibility to increase ridership and negotiate for bulk services.  Also, because the company host a 50% plus market share the company was able to minimize its loss during turbulence times, sell off less performing portfolio holders and reevaluate its market shares.  For instance, during the tragic 9/11 period Carnival was able to maintain its market share although cruise liners ended up becoming bankrupt as  public fear grew for international travel.