In 1968, Royal Caribbean Cruise Line was founded with one ship. Over the next twenty-five years RCCL has expanded its fleet to 29 ships, with 2 more ships being built. RCCL has made its way in the cruise industry as one of the top three cruise lines. Over the past 5-7 years RCCL has experienced some problems with the external environment. These and other factors have placed RCCL in a situation of future organizational uncertainty. The time of this case is 2004.
Current Mission, Goals, & Strategy:
RCCL markets 3-17 day cruise vacations to over 160 destinations. Their current #1 goal is to provide the highest level of service and the best vacation experience on land and sea. RCCL is currently engaged in a capital expansion program, by drawing revenue growth through the purchase of new and larger ships. These new and larger ships will be the largest cruise ships in service. Each ship will have a new variety of innovative design features. RCCL’s international marketing team is focused on active adults and families interested in exploring new destinations. “Get Out There” campaign was launched in 2000. This campaign was designed to reposition the brand dispel consumer misperceptions of cruising and generate increased demand for Royal Caribbean.
RCCL is weak financially. This is due to the experience in weaker margins due to the pricing pressures caused by a weak U.S. economy, traveler safety concerns, and increasing capacity. RCCL has a LT debt-to-equity ratio of 1.31, which is much higher than the industry average of 0.69. Assuming no significant changes in interest rates RCCL net interest expense is expected to fall in the range of $290-$310 million.
While the overall financial situation of RCCL is weak, factors that boost their overall appearance are the strategic decisions that have been made by management. RCCL has maintained one of the youngest fleets on sea. RCCL’s capacity continues to grow. It represents a capacity increase of 65% since the beginning of 2001. RCCL has begun tackling passenger’s safety concerns by implementing a 100% screening policy on all passengers, crew, luggage and carry-ons. RCCL has also had an impact on international travelers through fleet deployment and expanding itineraries. The response to these management decisions have been a positive one. If these intelligent management decisions continue, RCCL will maintain its positions as one of the top players in the cruise industry.
Research and Development:
RCCL has continued to grow and succeed in a tough market place. Through the Capital Expansion Program RCCL will be driving revenue growth through the purchase of new and larger ships. These will be the largest ships in service. The increase in its fleet size will also provide a larger revenue base to absorb marketing, selling, and administrative expenses.
RCCL has kept up with the changes, and advancements in technology. They have the convenience of website booking, which includes all the boarding papers. This is a huge advantage to its potential passengers. RCCL has implemented software that enables them to manage their operations more efficiently. RCCL knows that the majority of their bookings come from travel agencies, so they created “CruiseMatch 2000”. This gives travel agents direct access into to RCCL’s reservation system.
In summary the company is not in the ideal financial situation, but RCCL hascontinued to do well and maintain their leadership in the cruise industry. This has been done through their keen management decisions, their risky, but beneficial research & development moves and their continuous technological growth.
External Analysis: See Attached EFEM
RCCL appears to be competing in a MODERATE environment as indicated by the EFEM score of 2.45.
The impact of the recession; rise of unemployment rates, and the increase in fuel costs, has limited the amount of disposable income in the hands of potential travelers. The economy currently seems to be in an upward climb. This will help the amount of negative impact this external factor has on the cruise industry.
Post 9/11 has left many Americans and International travelers questioning their safety, at home and abroad. The Government continues to assure individuals to go on with their daily lives. As the Government continues to implement more stringent security measures, this external factor will not be a dominant factor as it is today. The disregard for the protection of the oceans’ water, and sea life is not as common today as it was sometime ago. The Government continues to create laws and regulations with regards to the dumping of sewage from cruise liners. Environmental Protection Agencies will always be an external threat to the cruise industry.
The majority of the bookings for cruise vacations come from travel agencies. It is imperative that the cruise lines maintain an excellent relationship with the travel agents. This is done through giving the agents easyaccessibility to information on prices, dates of cruises, itineraries, and space availability.
There are really only three key players in the cruise line industry that pose a threat to one another. Carnival Cruise Line offers better berthing facilities in various ports. Carnival also has a larger market share than RCCL; 52% compared to RCCL @ 33%. Carnival has greater access to capital markets. Even though there are really only two close competitors to RCCL, there are many smaller lingering potentials.
Overall the external environment is not all that bad. At this point the economy is getting better. Individuals are beginning to travel in larger numbers. The industry is keeping up with technical time and are allowing for the convenience of booking reservations from the convenience of your own personal home computer, or that of a travel agency.
Recommended Strategic Thrust:
RCCL should adapt to a strategic thrust which is aimed at making them more of a dominant leader in the industry. RCCL should try to break away from the close competitiveness of Carnival Cruise Line. They would do this by continuing to expand their fleet and add new destinations to their itineraries.