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Carnival Corporation

Carnival Corporation

3655 N.W. 87th Avenue
Miami, Florida 33178-2428
U.S.A.
Telephone: (305) 599-2600
Fax: (305) 406-4700
Web site: http://www.carnivalcorp.com

Public Company
Incorporated:
1972
Employees: 71,200
Sales: $8.7 billion (2005)
Stock Exchanges: New York London
Ticker Symbol: CCL
NAIC: 483112 Deep Sea Passenger Transportation; 487210 Scenic and Sightseeing Transportation, Water

Begun with one ship that ran aground on its maiden voyage, Carnival Corporation has since grown into the most successful and prominent American cruise line. Carnival is the largest cruise company in the world with 12 brands in its arsenal, including Carnival Cruise Lines, Princess Cruises, Holland America Line, Seabourn Cruise Line, Windstar Cruises, Costa Cruises, P&O Cruises, Cunard White Star Line, Swan Hellenic, Ocean Village, Aida, and P&O Cruises Australia. Carnival has combined these cruise lines into an operating fleet of 79 state-of-the-art ships that sail the seven seas. Through innovative vacation packaging and extensive advertising campaigns, the family-operated company has changed the face of the cruise industry by coaxing thousands of middle-class customers aboard its floating resorts. After its purchase of P&O Princess Cruises plc in 2003, Carnival Corporation became a dual-listed company with U.K.-based Carnival plc.

EARLY HISTORY

Carnival was founded in 1972 by Ted Arison, an Israeli immigrant. After serving in World War II with the British Army and in Israel's War of Independence, in the late 1940s Arison founded a cargo line running between Israel and New York, but was put out of business by competition from the Israeli state-run shipping line. In 1954 he moved to the United States, where he took a position as cargo manager for El Al, Israel's national airline. He eventually founded his own air freight company, Trans Air System, which went public in the late 1960s.

In 1968, at the age of 42, Arison moved to Miami to operate a small Israeli-owned cruise ship running between Florida and the Caribbean. When the Israeli government impounded the boat to collect the owners' debt, Arison quickly filled a Norwegian Caribbean Line ship with the customers he had lined up. Convinced that he should own boats rather than operate them for others, in 1972 he entered into a partnership with former schoolmate Meshulam Riklis, who then owned the travel conglomerate American International Travel Service (AITS). They formed Carnival Cruise as a subsidiary of AITS, and for $6.5 million they purchased the ship Empress of Canada, which they renamed the Mardi Gras.

The ship's first voyage was less than spectacular: The Mardi Gras ran aground off the Florida coast with several hundred travel agents on board. Future voyages went more smoothly, however, and in 1974 Arison bought Riklis's share of Carnival for $1, also assuming the company's debt of more than $5 million. To cut costs, Arison sought to reduce fuel consumption by reducing the speed of the Mardi Gras and the number of stops it made. This simple economizing measure was to revolutionize the entire cruise industry. Since passengers would have to spend more time at sea between Caribbean ports of call, Arison added more on-board entertainment features, including a disco, casino, movie theater, and nightclubs. Carnival's marketing staff quickly dubbed the Mardi Gras the "Fun Ship," and other cruise lines soon followed Arison's lead.

GROWTH AND EXPANSION: 197080

In the 1970s the hit television series The Love Boat helped revitalize the cruise industry, bringing people on board ships in larger numbers than ever before: Between 1970 and 1986 the number of people taking cruises soared from 500,000 to 2.1 million. By 1978 Arison had three ships running seven-day cruises from Florida to the Caribbean and in the Caribbean itself: the Mardi Gras ; the Carnivale, which he bought in 1975; and the Festivale, which he bought in 1977. Despite a bad economy and high fuel prices, in 1978 Arison also contracted for a fourth ship, the Tropicale, which was completed in 1982. In 1979 Arison's 30-year-old son, Micky Arison, was named president and chief executive of the company.

The 1980s brought the cruise industry massive expansion: Between 1981 and 1991 the number of berths on North American cruise ships grew from 41,000 to 84,000. Carnival was the chief exponent and beneficiary of the boom. In 1982 Carnival's four boats carried some 200,000 passengers, with the firm earning $40 million on revenues of about $200 million. During the next decade the number of passengers carried per year nearly quintupled. Beginning in 1980, Carnival's revenues grew 30 percent annually, three times faster than the average for the cruise business as a whole. During the recession of the early 1980s, Carnival ordered three more ships, the first from the Danish Aalborg shipyard at a cost of $180 million and two additional ships from the Swedish state shipbuilding company, Svenska Varv, for a total of $262 million. With the completion of these three "superliners"Holiday, Jubilee, and Celebration Carnival had the world's largest cruise line fleet, with seven ships.

198090: AN INNOVATIVE MARKETING CAMPAIGN

To help fill these ships, Carnival adopted aggressive marketing and advertising strategies. In 1984 Carnival initiated the memorable "Fun Ship" advertising campaign, which featured talk show host Kathie Lee Gifford partaking of shipboard amenities and singing "We've Got the Fun." In 1984, for what was then the largest network television advertising campaign in the cruise industry, Carnival spent $10 million to advertise during The Love Boat and network news shows.

To gain support from travel agents, Carnival routinely sent representatives to travel agencies to inquire about vacation options. If the agent recommended a cruise as a first option, the representative would give the agent $10. If the agent's first recommendation was a Carnival cruise, he or she would get $1,000. By the end of 1989 Carnival had given away more than $500,000 with this program.

In an attempt to attract younger, more middle-class customers to cruises, which had traditionally been the preserve of older, upper-class travelers, Carnival offered cheaper, shorter tripsin 1988 the company's low-priced air and sea packages were approximately 20 percent below industry averages. Advertising efforts targeted toward the younger market included a 1988 Fourth of July party on a Carnival ship that was broadcast on MTV. These strategies paid off: In 1989 the annual household income of passengers was between $25,000 and $50,000, and 30 percent of the passengers in the early 1990s were between the ages of 25 and 39. In addition, Carnival's ships were consistently running at full capacity.

COMPANY PERSPECTIVES

Our mission is to deliver exceptional vacation experiences through the world's best-known cruise brands that cater to a variety of different lifestyles and budgets, all at an outstanding value unrivaled on land or at sea.

STRATEGIC ACQUISITIONS

In 1987 Ted Arison sold 18 percent of the shares of his private empire, raising nearly $400 million for the company, and Carnival went on a spending spree. The company entered into a contract for the Ecstasy, sister ship to the Fantasy, which had been ordered earlier in the year. In addition, Carnival attempted to buy the cruise ship business of Gotaas-Larsen Shipping Corporation, which owned part of Royal Caribbean and a majority of Admiral Cruise Lines, but the sale did not go through.

In 1988 Carnival purchased the Holland America Line for $625 million. A longstanding company with four cruise ships and about 4,500 berths, Holland America sailed to the Alaska coast in the summer and the eastern Caribbean in the winter. Holland's trips were aimed at higher-income travelersits Caribbean cruises cost 27 percent more than a Carnival cruise of the same length. In addition, as part of the package, Carnival acquired two other companies that Holland America owned: Windstar Sail Cruises and Holland America Westours, which included Westmark Hotels.

The acquisition greatly expanded the company's operations. Windstar Sail Cruises, whose three large passenger sailing ships operated in the South Pacific, Mediterranean, and Caribbean, served the luxury market. Westours operated Westmark's 18 hotels in addition to five dayboats, 240 motor coaches, and eight glass-domed railcars in Alaska and the Canadian Northwest. Already the world's largest cruise operator based on passengers carried, with this single purchase Carnival boosted its number of berths by more than 50 percent. During the year following the acquisition, Carnival carried 579,000 passengers, generating $600 million in revenues and earning profits of $196 million.

In 1989 Carnival completed the Crystal Palace Resort & Casino, a lavish 150-acre resort in the Bahamas, which cost Carnival $250 million to develop. The 1,550-room hotel had many extravagant features, including a $25,000-per-night suite that included a robot that brought bath towels and an aquarium with a stingray. With its 13 restaurants, golf course, tennis courts, and other recreational facilities, the Crystal Palace was the biggest resort in the region. Carnival's 1989 revenues surpassed $1 billion, and the firm earned profits of $193 million while carrying 783,485 passengers.

CHANGE AND GROWTH: 19902000

The following year Ted Arison, at the age of 66, stepped down as chairperson of Carnival and was succeeded by his son Micky. Shortly thereafter, the industry's boom of the previous decade began to taper off. The war in the Persian Gulf brought higher fuel and airline costs and deterred tourists. The effects were reflected in Carnival's stock price, which slid from 25 points in June 1990 to 13 points late in the year. At the same time, it became apparent that the Crystal Palace would be an unprofitable venture. At the end of fiscal year 1990, Carnival incurred a $25.5 million loss from the resort and casino operation and not long after began attempting to sell the Crystal Palace. In 1991, with no prospective buyers, Carnival agreed to turn over a large portion of the resort to the Bahamian government, in exchange for cancellation of some of the debt incurred during construction. Carnival took a $135 million write-down on the Crystal Palace for that year.

Still, in 1991 Carnival enjoyed a 26 percent share of the passengers in the $5 billion cruise ship market, with revenues of $1.4 billion. Its average occupancy level stood at 103 percent, well above the industry's average of 90 percent. In April 1991 Carnival signed a $300 million contract for a ship, the Sensation, to be delivered in 1993. In September of the same year the Fascination, to be ready in late 1994, was ordered at a cost of $315 million. In an effort to gain more working capital, Carnival offered 7.85 million Class A common shares for sale in 1991.

KEY DATES

1972:
Ted Arison and Meshulam Riklis establish Carnival as a subsidiary of American International Travel Service (AITS).
1974:
Arison buys Riklis's stake in Carnival.
1984:
Carnival initiates its "Fun Ship" advertising campaign, which features talk show host Kathie Lee Gifford.
1987:
Carnival goes public.
1988:
The company purchases the Holland America Line for $625 million.
1992:
Carnival agrees to acquire a percentage of Seabourn Cruise Lines.
1997:
The company buys a 50 percent interest in Costa Cruise Lines.
1998:
Carnival gains a controlling interest in the Cunard White Star Line.
2003:
P&O Princess Cruises plc is acquired; its name is changed to Carnival plc.

The company also entered into an agreement in 1991 to acquire Premier Cruise Lines for $372 million. Though smaller than Carnival, Premier had a lucrative contract with Walt Disney Co. to be the official cruise line for Walt Disney World in Orlando, Florida. The deal fell through, however, when a final agreement could not be reached on the price.

In 1992 Carnival agreed to acquire a percentage of Seabourn Cruise Lines. Seabourn, operated in partnership with Atle Byrnestad, served the ultra-luxury market, running tours to locations such as South America, the Baltics, the Mediterranean, and Southeast Asia. The company also signed a contract for a $330 million ship, the Imagination, to be delivered in the fall of 1995. Perhaps the most impressive ship introduced in the modern era was the Carnival Destiny, the largest passenger ship afloat at 101,000 tons and room for 2,640 people. Its maiden voyage was in 1996.

In 1997 Carnival purchased a 50 percent interest in Costa Cruise Lines, in partnership with Airtours, a travel company. These acquisitions strengthened the company's presence around the world, but especially in the Caribbean. Yet the company's most important acquisition came in 1998 when it purchased a controlling interest in the Cunard White Star Line. Cunard's five ships, including the QE2, the Vistafjord, the Royal Viking Sun, and Sea Goddess I and II catapulted Carnival into the super-luxury cruise line business.

By 1998 the company had changed its legal name to Carnival Corporation, to emphasize the growing diversity within its cruise lines. Yet when every indicator seemed to point the way toward uninterrupted and uneventful prosperity for the company, disaster struck. In July 1998, the cruise ship Ecstasy caught fire after leaving the port in Miami, Florida bound for Newport News with 2,575 passengers on board. Although no one was injured during the fire and evacuation, the ship suffered extensive damage to more than 100 cabins, while heat and smoke damaged adjacent sections of the ship. The precise cause of the fire remained unknown, but the Ecstasy was examined meticulously and refitted in drydock; it re-entered cruising service not long afterward.

Carnival did not suffer financially or from a public relations standpoint because of the fire on the Ecstasy, and it continued to look forward to further growth, building on its name recognition, which was the highest in the industry. Since studies showed that only 5 percent of the 70 million Americans who could afford cruises chose that type of vacation, Carnival seemed to have plenty of room for expansion.

SAILING INTO THE NEW MILLENNIUM

While Carnival dealt with challenges in the early years of the new millennium, it managed to make its largest purchase to date in 2003. Before that, however, the company and its peers found themselves exposed to a slowdown in the travel industry brought on by the terrorist attacks in 2001, the ensuing war in Iraq, and the outbreak of illnesses, including severe acute respiratory syndrome (SARS). At the same time, Carnival's deal to purchase timeshare company Fairfield Communities Inc. fell through as its share price fell and profits waned. The company's venture with Star Cruises to acquire NCL Holding, the parent of the Norwegian cruise line, also was canceled.

To make matters worse, Carnival came under fire for covering up illegal dumping practices. During this time period, the cruise industry as a whole felt pressure from environmental groups to clean up their act. According to these groups, sewage from cruise ships contributed to a host of problems, including contamination of the world's oceans. In April 2002, Carnival pled guilty to dumping pollutants into the ocean. It paid an $18 million fine and faced five years of probation.

Meanwhile, the company was preparing to significantly bolster its holdings. In 2001, Carnival set its sights on P&O Princess Cruises plc. P&O, formed by the demerger of The Peninsular and Oriental Steam Navigation Company in October 2000, had more than 150 years of experience in passenger cruising and had become a leader in the United Kingdom and Australian cruise markets. A bidding war with competitor Royal Caribbean Cruises Ltd. began in 2002. In the end, P&O shareholders accepted Carnival's $5.67 billion bid.

Upon completion of the deal in 2003, Carnival controlled more than 43 percent of the $11 billion cruise market. It had far surpassed Royal Caribbean, which held a 24 percent share of the market. Carnival Corporation became a dual-listed company with U.K.-based Carnival plc; P&O adopted the Carnival name after the deal. Both companies shared the same executive team, with Micky Arison as chairman and CEO.

Carnival's union with Princess showed early signs of paying off. In 2004, the company achieved record financial results with revenues of $7.68 billion and net income of $1.46 billion. The company launched eight new ships that year including the Queen Mary 2, the world's largest cruise ship; Costa Magica ; Carnival's Miracle and Valor ; Princess Cruises' Diamond, Sapphire, and Caribbean Princesses ; and Holland America Line's Westerdam. The company planned to have an additional 12 ships in operation by 2009.

Revenue and profits climbed even higher in 2005, reaching $8.7 billion and $1.78 billion, respectively. The company claimed that with 123,000 berths and almost 55,000 crewmembers, there were roughly 175,000 people at sea with Carnival at any given time. Indeed, travel enthusiasts would no doubt be sailing with Carnival, the world's largest cruise operator, for years to come.

                                       Daniel Gross

              Updated, Thomas Derdak, Christina M. Stansell

PRINCIPAL SUBSIDIARIES

Costa Crociere, S.p.A. (Italy); HAL Antillen N.V. (Netherlands Antilles); Holland America Line N.V. (Netherlands Antilles); Princess Bermuda Holdings Ltd.; Princess Cruise Lines Ltd. (Bermuda); Sitmar International S.R.L. (Panama); Sunshine Shipping Corporation (Bermuda).

PRINCIPAL COMPETITORS

Royal Caribbean Cruises Ltd.; Star Cruises Ltd.; TUI AG.

FURTHER READING

Adams, Marilyn, "Cruise-Ship Dumping Poisons Seas, Frustrates U.S. Enforcers," USA Today, November 8, 2002, p. A1.

Barker, Robert, "Is This a Dream Cruise for Investors?," Business Week, November 25, 2002.

Blum, Ernest, "Carnival Is Expected to Postpone Re-Entry of Ecstasy Beyond July 31," Travel Weekly, July 27, 1998, pp. 1, 45.

Brown, Jerry, "Carnival Corporation Set to Buy Cunard," Travel Weekly, April 9, 1998, pp. 1, 4.

"Carnival Inks Deal with Shipyard to Build Queen Mary 2," Wall Street Journal, November 7, 2000, p. B8.

Fins, Antonio N., "Batten Down the Hatches and Rev Up the Jacuzzis," Business Week, August 19, 1991.

, "Carnival Tries Sailing Upstream," Business Week, September 25, 1989.

Golden, Fran, "New Deals," Travel Weekly, June 4, 1998.

, "Ted Arison Turns Hardship into 'Fun Ship'," Travel Weekly, March 30, 1998, p. 44.

Harris, Nicole, "At Carnival, Cruise Prices Stay Low," Wall Street Journal, June 26, 2003, p. D3.

"Pacesetter for Cruise Industry," New York Times, July 25, 1987.

Perez, Evan, "Carnival, Winning Princess Bid, Is Poised to Expand Dominance," Wall Street Journal, October 28, 2002, p. A3.

Peterson, Iver, "Leading Passengers to Water," New York Times, September 28, 2003.

Rice, Faye, "How Carnival Stacks the Decks," Fortune, January 16, 1989.

20 Years of Fun: A History of Carnival Cruise Lines, Miami: Carnival Cruise Lines, 1992.

Tagliabue, John, "Amid a Glut, the Biggest Ship Ever Rises," New York Times, June 27, 2003.

Wayne, Leslie, "Carnival Cruise's Spending Spree," New York Times, August 28, 1988.

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Carnival Corporation

Carnival Corporation

Carnival Place
MSEO 1000
3655 N.W. 87th Avenue
Miami, Florida 33178-2428
U.S.A.
(305) 599-2600
Fax: (305) 406-4700
Web site: http://www.carnivalcorp.com

Public Company
Incorporated: 1972
Employees: 18,000
Sales: $2.4 billion
Stock Exchanges: New York
Ticker Symbol: CCL
SICs: 4481 Deep Sea Transportation of Passengers,Except by Ferry; 4482 Ferries; 4489 Water Transportation of Passengers, Not Elsewhere Classified

Begun with one ship that ran aground on its maiden voyage, Carnival Corporation has since grown into the most successful and prominent American cruise line. Carnival is the largest cruise company in the world and either owns or has purchased interest in seven cruise lines, including Carnival Cruise Lines, Holland America Line, Windstar Cruises, Cunard White Star Line, Seabourn Cruise Line, Costa Crociere S.p.A., and Air-tours Sun Cruises. Carnival has combined these cruise lines into an operating fleet of 43 state-of-the-art ships that sail the seven seas. Through innovative vacation packaging and extensive advertising campaigns, the family-operated company has changed the face of the cruise industry by coaxing thousands of middle-class customers aboard its floating resorts. The firms interest in numerous tour companies that provide air transportation, hotel accommodations, and land excursions makes Carnival the most popular cruise line in the world.

Early History

Carnival was founded in 1972 by Ted Arison, an Israeli immigrant. After serving in World War II with the British Army and in Israels War of Independence, in the late 1940s Arison founded a cargo line running between Israel and New York, but was put out of business by competition from the Israeli state-run shipping line. In 1954 he moved to the United States, where he took a position as cargo manager for El Al, Israels national airline. He eventually founded his own air freight company, Trans Air System, which went public in the late 1960s.

In 1968, at the age of 42, Arison moved to Miami to operate a small Israeli-owned cruise ship running between Florida and the Caribbean. When the Israeli government impounded the boat to collect the owners debt, Arison quickly filled a Norwegian Caribbean Line ship with the customers he had lined up. Convinced that he should own boats rather than operate them for others, in 1972 he entered into a partnership with former schoolmate Meshulam Riklis, who then owned the travel conglomerate American International Travel Service (AITS). They formed Carnival Cruise as a subsidiary of AITS, and for $6.5 million they purchased the ship Empress of Canada, which they renamed the Mardi Gras.

The ships first voyage was less than spectacular: the Mardi Gras ran aground off the Florida coast with several hundred travel agents on board. Future voyages went more smoothly, however, and in 1974 Arison bought Rikliss share of Carnival for $1, also assuming the companys debt of more than $5 million. To cut costs, Arison sought to reduce fuel consumption by reducing the speed of the Mardi Gras and the number of stops it made. This simple economizing measure was to revolutionize the entire cruise industry. Since passengers would have to spend more time at sea between Caribbean ports of call, Arison added more on-board entertainment features, including a disco, casino, movie theater, and nightclubs. Carnivals marketing staff quickly dubbed the Mardi Gras the Fun Ship, and other cruise lines soon followed Arisons lead.

Growth and Expansion in the 1970s

In the 1970s the hit television series The Love Boat helped revitalize the cruise industry, bringing people on board ships in larger numbers than ever before: between 1970 and 1986 the number of people taking cruises soared from 500,000 to 2.1 million. By 1978 Arison had three ships running seven-day cruises from Florida to the Caribbean and in the Caribbean itself: the Mardi Gras; the Carnivale, which he bought in 1975; and the Festivale, which he bought in 1977. Despite a bad economy and high fuel prices, in 1978 Arison also contracted for a fourth ship, the Tropicale, which was completed in 1982. In 1979 Arisons 30-year-old son, Micky Arison, was named president and chief executive of the company.

The 1980s brought the cruise industry massive expansion: between 1981 and 1991 the number of berths on North American cruise ships grew from 41,000 to 84,000. Carnival was the chief exponent and beneficiary of the boom. In 1982 Carnivals four boats carried some 200,000 passengers, with the firm earning $40 million on revenues of about $200 million. During the next decade the number of passengers carried per year nearly quintupled. Beginning in 1980, Carnivals revenues grew 30 percent annually, three times faster than the average for the cruise business as a whole.

During the recession of the early 1980s, Carnival ordered three more ships, the first from the Danish Aalborg shipyard at a cost of $180 million and two additional ships from the Swedish state shipbuilding company, Svenska Varv, for a total of $262 million. With the completion of these three superliners Holiday, Jubilee, and Celebration Carnival had the worlds largest cruise line fleet, with seven ships.

The 1980s and an Innovative Marketing Campaign

To help fill these ships, Carnival adopted aggressive marketing and advertising strategies. In 1984 Carnival initiated the memorable Fun Ship advertising campaign, which featured talk show host Kathie Lee Gifford partaking of shipboard amenities and singing Weve Got the Fun. In 1984, for what was then the largest network television advertising campaign in the cruise industry, Carnival spent $10 million to advertise during The Love Boat and network news shows.

To gain support from travel agents, Carnival routinely sent representatives to travel agencies to inquire about vacation options. If the agent recommended a cruise as a first option, the representative would give the agent $10. If the agents first recommendation was a Carnival cruise, he or she would get $1,000. By the end of 1989 Carnival had given away more than $500,000 with this program.

In an attempt to attract younger, more middle-class customers to cruises, which had traditionally been the preserve of older, upper-class travelers, Carnival offered cheaper, shorter tripsin 1988 the companys low-priced air and sea packages were approximately 20 percent below industry averages. Advertising efforts targeted toward the younger market included a 1988 Fourth of July party on a Carnival ship that was broadcast on MTV. These strategies paid off: in 1989 the annual household income of passengers was between $25,000 and $50,000, while 30 percent of the passengers in the early 1990s were between the ages of 25 and 39. In addition, Carnivals ships were consistently running at full capacity.

Strategic Acquisitions

In 1987 Ted Arison sold 18 percent of the shares of his private empire, raising nearly $400 million for the company, and Carnival went on a spending spree. The company entered into a contract for the Ecstasy, sister ship to the Fantasy, which had been ordered earlier in the year. In addition Carnival attempted to buy the cruise ship business of Gotaas-Larsen Shipping Corp., which owned part of Royal Caribbean and a majority of Admiral Cruise Lines, but the sale did not go through.

In 1988 Carnival purchased the Holland America Line for $625 million. A long-standing company with four cruise ships and about 4,500 berths, Holland America sailed to the Alaska coast in the summer and the Eastern Caribbean in the winter. Hollands trips were aimed at higher-income travelersits Caribbean cruises cost 27 percent more than a Carnival cruise of the same length. In addition, as part of the package, Carnival acquired two other companies that Holland America owned: Windstar Sail Cruises and Holland America Westours, which included Westmark Hotels.

The acquisition greatly expanded the companys operations. Windstar Sail Cruises, whose three large passenger sailing ships operated in the South Pacific, Mediterranean, and Caribbean, served the luxury market. Westours operated Westmarks 18 hotels in addition to five dayboats, 240 motor coaches, and eight glass-domed railcars in Alaska and the Canadian Northwest. Already the worlds largest cruise operator based on passengers carried, with this single purchase Carnival boosted its number of berths by more than 50 percent. During the year following the acquisition, Carnival carried 579,000 passengers, generating $600 million in revenues and earning profits of $196 million.

Company Perspectives:

Our goal is to use our brands to reach every tier of the cruise market. Regardless of customer budget, itinerary, geography, demographics or psycho graphics, our brands really do cover the waterfront. That makes us unique in the North American cruise market, if not in the world More than anything else, these vacationers want to have fun, and they recognize that Carnival offers them the ultimate fun experience. We also meet the needs of vacationers seeking luxury, elegance, shorter vacations, exotic destinations or land/sea packages. Within our other brandsHolland America, Windstar, Seabourn, Costa andAirtours Sun Cruiseswe have vacations that appeal to virtually every potential cruise customer, a strategy that has made us a leader in every market and the most popular choice among consumers considering a cruise vacation.

Interview with the Chairman, Micky Arison, 1997 Annual Report

In 1989 Carnival completed the Crystal Palace Resort & Casino, a lavish 150-acre resort in the Bahamas, which cost Carnival $250 million to develop. The 1,550 room hotel had many extravagant features, including a $25,000 per night suite that included a robot that brought bath towels and an aquarium with a stingray. With its 13 restaurants, golf course, tennis courts, and other recreational facilities, the Crystal Palace was the biggest resort in the region. Carnivals 1989 revenues surpassed $1 billion, and the firm earned profits of $193 million while carrying 783,485 passengers.

Change and Growth in the 1990s

The following year Ted Arison, at the age of 66, stepped down as chairperson of Carnival and was succeeded by his son Micky. Shortly thereafter, the industrys boom of the previous decade began to taper off. The war in the Persian Gulf brought higher fuel and airline costs and deterred tourists. The effects were reflected in Carnivals stock price, which slid from 25 points in June of 1990 to 13 points late in the year. At the same time, it became apparent that the Crystal Palace would be an unprofitable venture. At the end of fiscal year 1990, Carnival incurred a $25.5 million loss from the resort and casino operation and not long after began attempting to sell the Crystal Palace. In 1991, with no prospective buyers, Carnival agreed to turn over a large portion of the resort to the Bahamian government, in exchange for cancellation of some of the debt incurred during construction. Carnival took a $135 million write-down on the Crystal Palace for that year.

Still, in 1991 Carnival enjoyed a 26 percent share of the passengers in the $5 billion cruise-ship market, with revenues of $1.4 billion. Its average occupancy level stood at 103 percent, well above the industrys average of 90 percent. In April of 1991 Carnival signed a $300 million contract for a ship, the Sensation, to be delivered in 1993. In September of the same year the Fascination, to be ready in late 1994, was ordered at a cost of $315 million. In an effort to gain more working capital, Carnival offered 7.85 million Class A common shares for sale in 1991.

The company also entered into an agreement in 1991 to acquire Premier Cruise Lines for $372 million. Though smaller than Carnival, Premier had a lucrative contract with Walt Disney Co. to be the official cruise line for Walt Disney World in Orlando, Florida. The deal fell through, however, when a final agreement could not be reached on the price.

In 1992 Carnival agreed to acquire a percentage of Seabourn Cruise Lines. Seabourn, operated in partnership with Atle Byrnestad, served the ultra-luxury market, running tours to such locations as South America, the Baltics, the Mediterranean, and Southeast Asia. The company also signed a contract for a $330 million ship, the Imagination, to be delivered in the fall of 1995. Perhaps the most impressive ship introduced in the modern era was the Carnival Destiny, the largest passenger ship afloat at 101,000 tons and room for 2,640 people. Its maiden voyage was in 1996.

In 1997 Carnival purchased a 50 percent interest in Costa Cruise Lines, in partnership with Airtours, a travel company. These acquisitions strengthened the companys presence around the world, but especially in the Caribbean. Yet the companys most important acquisition came in 1998 when it purchased a controlling interest in Cunard White Star Line. Cunards five ships, including the QE2, the Vistafjord, the Royal Viking Sun, and Sea Goddess I and II catapulted Carnival into the super-luxury cruise line business.

By 1998 the company had changed its legal name to Carnival Corporation, to emphasize the growing diversity within its cruise lines. Yet when every indicator seemed to point the way toward uninterrupted and uneventful prosperity for the company, disaster struck. In July of 1998, the cruise ship Ecstasy caught fire after leaving the port in Miami, Florida bound for Newport News with 2,575 passengers on board. Although no one was injured during the fire and evacuation, the ship suffered extensive damage to more than 100 cabins, while heat and smoke damaged adjacent sections of the ship. The precise cause of the fire remains unknown, but the Ecstasy was examined meticulously and refitted in drydock; it re-entered cruising service not long afterward.

Carnival did not suffer financially or from a public relations standpoint because of the fire on the Ecstasy, and it continues to look forward to further growth, building on its name recognition, which is presently the highest in the industry. Since studies show that only five percent of the 70 million Americans who can afford cruises choose that type of vacation, Carnival seemed to have plenty of room for expansion.

Principal Subsidiaries

Carnival Cruise Lines; Holland America Line; Windstar Cruises; Holland America Westours; Cunard White Star Line (68%); Seabourn Cruise Line (68%); Costa Creciere S.p.A. (63%); Airtours Sun Cruises (26%).

Further Reading

Blum, Ernest, Carnival Is Expected to Postpone Re-Entry of Ecstasy Beyond July 31, Travel Weekly, July 27, 1998, pp. 1, 45.

Brown, Jerry, Carnival Corporation Set to Buy Cunard, Travel Weekly, April 9, 1998, pp. 1, 4.

Fins, Antonio N., Batten Down the Hatches and Rev Up the Jacuzzis, Business Week, August 19, 1991.

_____, Carnival Tries Sailing Upstream, Business Week, September 25, 1989.

Golden, Fran, New Deals, Travel Weekly, June 4, 1998.

_____, Ted Arison Turns Hardship into Fun Ship, Travel Weekly, March 30, 1998, p. 44.

Pacesetter for Cruise Industry, New York Times, July 25, 1987.

Rice, Faye, How Carnival Stacks the Decks, Fortune, January 16, 1989.

20 Years of Fun: A History of Carnival Cruise Lines, Miami: Carnival Cruise Lines, 1992.

Wayne, Leslie, Carnival Cruises Spending Spree, New York Times, August 28, 1988.

Daniel Gross

updated by Thomas Derdak

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Carnival Corporation

Carnival Corporation

founded: 1972

Contact Information:

headquarters: carnival pl., mseo 1000
3655 nw 87th ave.
miami, fl 33178-2428 phone: (305)599-2600 fax: (305)406-4700 url: http://www.carnival.com http://www.carnivalcorp.com

OVERVIEW

The Miami-based Carnival Corporation, also known as the "Fun Ships," is the world's largest and most profitable cruise company, holding approximately one-third of the North American cruise market. As a whole, the cruise corporation has interests in seven cruise brands including Carnival Cruise Lines, Holland America Line, Windstar Cruises, Cunard Line, Seabourn Cruise Line, Costa Crociere, SpA, and Airtours' Sun Cruises. Together, these lines operate a total of 42 cruise ships sailing to destinations such as the Caribbean, Bahamas, Mexico, Alaska, South Pacific, and Europe. The corporation has become the most affordable and popular line among families looking for a unique vacation experience. With cruise ships named "Tropicale," Fantasy," and "Sensation," the line focuses on budget minded individuals who are interested in participating in several activities and, at the same time, enjoy a relaxing holiday.

Carnival is the industry leader, with an estimated North American market share of 38 percent, maintaining a solid lead over its nearest competitor, Royal Caribbean, who acquired Celebrity Cruises. This increased Royal's market share to an estimated 27 percent. In addition, in 1998 the Walt Disney Co. entered the cruise market with the introduction of the first of two cruise ships. As reported in Carnival's 1997 Annual Report, "The U.S. Bureau of Economic Analysis predicts that by year 2000 there will be a 30-plus percent growth in the 41-59 age group, a prime demographic group for cruising, and a very positive indication for the cruise industry."

COMPANY FINANCES

Carnival Corporation reported net income of $109.9 million on revenues of $557.8 million for its first quarter 1998, which ended February 28, compared with net income of $85.4 million on revenues of $521.1 million for the same quarter in 1997—a 7.1-percent increase. Net income increased 28.8 percent for the first quarter in 1998, marking the twenty-seventh consecutive quarter in which Carnival has reported year-over-year earnings improvement.

Carnival's Board of Directors approved a two-forone stock split of its Class A common shares. Also, the Board reported a regular quarterly dividend of $.15 per share. In 1997 Carnival stock ranged from a low of $34.38 to a high of $76.50 over a 52-week period. The annual dividend was $2.32 and Carnival's price-earnings ratio was 29.08.

ANALYSTS' OPINIONS

In 1997 William Blair & Co. reported, "the cruise industry will be one of the faster-growing segments of consumer spending over the next 5-10 years, as major demographic changes dramatically shift consumer spending from goods to services, especially leisure." In fact, on March 23, 1998, The Wall Street Journal reported "strong demand for cruises" as Carnival's profits increased by 29 percent. The 1997 Value Line Investment Survey reported that the recreation industry would experience growth in 1998 and, therefore, many shares within the industry are expected to perform well. Some analysts believe Carnival, Princess Cruises, and Royal Caribbean Cruises will control 80 percent of the North American market share by the year 2000.

On April 3, 1998 Standard & Poor's Credit Rating Co. revised the outlook of Carnival Corporation to positive from stable. Standard & Poor's referred to Carnival as "reflecting continued strong operating results, improving credit measures, and favorable industry fundamentals." T. P. Razukas of Duff & Phelps Credit Rating Co. agreed and wrote, "The addition of new ships has driven company's growth and market share gains, as the North American cruise market continues to consolidate." Also, Carnival Corporation's "modern and cost-efficient fleet has enabled the company to attract customers and reduce prices when necessary without a significant adverse impact on earnings." Many analysts believe consolidation within the industry helps to strengthen it by removing the weaker players. In the same way, less competition should reduce price wars and make the industry more profitable for everyone.

HISTORY

Carnival Cruise lines began in 1972 when Ted Arison persuaded his friend, Meshulam Riklis, to lend him $6.5 million to purchase the ship "Empress of Canada." Arison, formerly with Norwegian Cruise Lines, and Riklis, owner of Boston-based American International Travel Service, set up Carnival as a subsidiary of AITS. They renamed the ship the "Mardi Gras," and it unfortunately ran aground on its maiden voyage. This sent the company into the red for the next three years. Arison bought out Riklis in 1974 for $1, and assumed the company's $5-million debt.

Arison wanted to create a cruise line that offered affordable vacations to young, middle-class customers. He invented an innovative way to cruise by offering live entertainment, gambling, and other activities on cruises. Within a month of this creation Carnival was profitable, the debt was paid off, and Arison bought a second ship. A third ship was purchased in 1977.

In 1978 fuel and shipbuilding costs were high, but Arison stunned the industry by announcing that Carnival would be building a ship that would set sail in 1982. In 1979 Arison's son Micky took over as CEO, and it was his motivation and Carnival's success that led the company to build three more ships. Carnival continued to grow and became the number one cruise line, and in 1987 the company went public.

During the course of the company's growth, the line added three- and four-day cruises to the Bahamas. In 1988 Carnival opened the Crystal Palace Resort in the Bahamas, and after purchasing Holland America Line (HAL) in 1989, began offering luxury cruises. HAL offered cruises to Alaska and the Caribbean. Carnival also acquired Windstar Cruises, which offered trips to the Caribbean and the South Pacific. During this time, the corporation also ran Westours and the Westmark hotel chain.

Carnival continued to add new ships in the 1990s, and in 1991 purchased Premier Cruise Lines. That same year the company started a joint venture with Seabourn Cruise Line. They sold one of the Crystal Palace Resort hotels to the government-owned Hotel Corporation of the Bahamas, and put the rest of the resort up for sale in 1992. A total of 82 percent of the resort/casino was sold in Nassau in 1994. That year the company changed its name to Carnival Corporation to distinguish between the entire company and the cruise line of the same name. Carnival also announced that it would merge with Continental Companies to form Carnival Hotels and Casinos, which increased Carnival's land interests. Besides these business endeavors, Carnival and HAL planned to launch seven new ships—three in 1996, one in 1997, and three in 1998.


STRATEGY

The company markets the Carnival Ships as the "Fun Ships" and incorporates themes such as "Carnival's Got the Fun" and "The Most Popular Cruise Line in the World." Carnival's strategic approach to advertising is directed to consumers on network television and through extensive print media. Carnival believes its advertising generates interest in cruise vacations generally and results in a higher degree of consumer awareness of the "Fun Ships" concept and the "Carnival" name in particular.

INFLUENCES

To attract other cultures to Carnival, the company began FiestaMarina cruise line for Latin travelers. This turned out to be a difficult venture because of marketing and equipment problems—the project was discontinued in 1994. Even with this disappointment, Carnival purchased a stake in United Kingdom's Airtours, which consisted of airplanes, cruise ships, hotels, and travel agencies.

FAST FACTS: About Carnival Corporation


Ownership: Carnival Corporation is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: CCL

Officers: Micky Arison, Chmn. & CEO, 47, 1997 base salary $1,211,000; Gerald R. Cahill, Sr. VP Finance & COO; Howard S. Frank, VC & COO, 56, 1997 base salary $897,000; Roderick K. McLeod, Sr. VP Marketing

Employees: 18,100

Principal Subsidiary Companies: Carnival's principal subsidiaries include Holland America Line West-ours Inc. and Crystal Palace Hotel Corp.

Chief Competitors: Carnival Corp.'s primary competitors include: Accor; Canadian Pacific; Carlson; Club Med; Costa Cruise Lines; Overseas Shipholding; Peninsular and Oriental; Princess Cruises; Royal Caribbean Cruises; Sea Containers; Thomson Corp.; Trafalgar House; Vard; Viad; and Walt Disney.


In 1996 Carnival Corporation announced that it would be participating in a joint venture with Hyundai Merchant Marine to create "Carnival Cruises Asia." This would develop the Asian cruise market and would begin with Carnival Cruises' MS "Tropicale" in the spring of 1998. Initial cruises were to be from Inchon, Korea, to China, and possibly Japan. The "Tropicale" was a 1,022-passenger ship scheduled to undergo a multimillion dollar renovation before entering the Asian service. The 36,674-ton vessel was also set to be repositioned to other ports throughout southeast Asia. Scheduled cruise operations were set for the spring of 1998, however, the joint venture was dissolved in September 1997.

CURRENT TRENDS

From 1995 to 1996 Carnival experienced a slow period, but in 1997 the cruise industry outlook seemed to improve. CEO Micky Arison felt that demand was actually the strongest he had witnessed since he entered the industry in the early 1980s. Some analysts felt that the extensive advertising by Disney Cruise Lines for their spring 1998 launch heightened industry awareness among consumers. Due to the success of the "Rotterdam," introduced in November 1997, Holland America Line announced it had contracted for a sister ship for delivery in the year 2000. The company's confidence in the future led them to undertake the largest passenger shipbuilding program ever, with new ships planned for each of their major cruise brands. Additionally, Carnival was expected to debut the world's first smoke-free cruise ship, the "Paradise," in November 1998.

In 1997 Carnival Cruises announced it would be starting a new advertising campaign to attract individuals who were looking for a fun vacation. The television advertisements focused on a combination of real and animated imagery. The commercials, created by HMS Partners, were 30 seconds long and aired nationally. Both consisted of music and visuals until the end, when television personality Kathie Lee Gifford made an endorsement. (Gifford is a longtime spokesperson for Carnival.) The first spot was entitled "Fish," and contained underwater scenes of different species of fish, swimming around a Caribbean reef. The fish hear Mambo music coming from a nearby Carnival cruise ship, and the fish begin to dance. The voice-over by Gifford begins and the phrase "I guess some vacations are just more fun than others" is heard. The second commercial was similar, but the dancing fish are replaced by dancing palm trees on a deserted Caribbean island.

The intended function of the commercials was to promote an idea of fun. Carnival's president, Bob Dickinson stated, "We were seeking a fresh approach to advertising yet one that continued our efforts to convey the single most outstanding feature of a Carnival cruise vacation-fun." They designed the commercials so the viewer would draw their own conclusions regarding the type of fun they would experience on a Carnival cruise. Many cruise lines showed how they would pamper their guests, but Carnival wanted the spots to induce a personal response. They showed the commercials during "Good Morning America," the "Today" show, "CBS This Morning," and "The Tonight Show." They also showed the commercials during prime time throughout the week.

PRODUCTS

Primarily, the Carnival Corporation offers fun as its most lucrative product. Its ships offer a variety of activities ranging from shuffleboard to swimming and exercising in their famous Nautica Spas. Carnival has 3-, 4, and 7-day cruises to the Bahamas and the Caribbean. There is also a Walt Disney package available that includes lodging at a Disney World Resort, admission to the theme park, and a 5-, 6-, or 7-day cruise. In 1996 Carnival added an 11-day cruise to Hawaii, 10- or 11-day cruises to the southern Caribbean, and 10- or 11-day cruises to the Panama Canal. Seven-day cruises to Alaska are also available. Each cruise ship offers an around-the-clock buffet that includes several different edibles. They also offer 24-hour room service. The chefs are masters at preparing several varieties of international cuisine and traditional favorites. The food is included in the price of the cruise, so the travelers can indulge at no extra cost.

Each ship has live entertainment, dancing, and casinos. Gambling is available throughout the day and evening, and Carnival boasts the world's largest cruise ship jackpot. The ships have Las Vegas-type shows that consist of singing and dancing. Airfare, accommodations, meals, entertainment, ports of call, and activities are all included in the price of the cruise. In 1996, to guarantee satisfaction, Carnival offered a program to passengers who were dissatisfied with their trip. A first in the industry, this program would reimburse those individuals who were unhappy with their cruise. To make it easier for consumers to take a cruise, Carnival incorporated Princess Cruises' policy and started a financing program in 1997. In addition, to attract more business the company launched a new site on the World Wide Web in April 1998.

Carnival also tries to accommodate younger passengers. To do this, they started "Camp Carnival," which offers activities that appeal to children and teens. A children's pool and slide, teen club and video game room, and a special children's menu are some of the items available with "Camp Carnival." This program also offers babysitting at a nominal fee.

CORPORATE CITIZENSHIP

CEO Mickey Arison set up the Arison Foundation under the "corporate umbrella." The foundation contributes heavily to the arts, an area in which he exhibits extreme interest. Through the Carnival Cruise Line, the company set up the Carnival Cruise Foundation, which funds many charitable organizations.

CHRONOLOGY: Key Dates for Carnival Corporation


1972:

Ted Arison borrows $6.5 million from Meshulam Riklis to buy a cruise ship and start a company; Carnival Cruise is formed as a subsidiary of Riklis' company American International Travel Service

1974:

Arison buys Riklis share of Carnival for $1, but also got its debt of $5 million

1979:

Ted Arison's son Micky becomes president and CEO of Carnival

1984:

Carnival initiates the "Fun Ship" advertising campaign featuring Kathy Lee Gifford

1987:

Carnival goes public

1990:

Ted Arison steps down as chairman and Micky takes over

1994:

Carnival Cruise becomes Carnival Corporation and merges with Continental Companies to form Carnival Hotels and Casinos

1997:

A joint venture with Hyundai Merchant Marine to create Carnival Cruises Asia is dissolved


GLOBAL PRESENCE

Originally, Carnival Corporation had a market presence primarily in North America. In 1996 the company began to expand into Europe and partnered with U.K.-based, Airtours. Airtours sells packaged tours in the British, Belgian, French, Dutch, Scandinavian, and North American markets. In 1997 Carnival expanded its global presence with its 50-percent interest in Costa Cruises, headquartered in Italy, which sells most of its cruises in southern Europe, primarily Italy, France, and Spain. In addition, The Holland America Westours offers cruises in the Caribbean, Alaska, Panama Canal, Europe, the Mediterranean, Hawaii, the South Pacific, South America, and the Orient. Carnival hoped to acquire Cunard Line, which operates five luxury cruise ships, by July 1998. Carnival entered this agreement with a group of Norwegian investors, however, Carnival would be the majority shareholder. This acquisition was an attempt to further Carnival's global expansion.

SOURCES OF INFORMATION

Bibliography

anderson, chris. carnival corporation telephone conversation, 26 may 1998.

"carnival corporation." hoover's handbook of american business 1998. austin, tx: the reference press, 1997.

"carnival corporation." hoover's online, may 1998. available at http://www.hoovers.com.

carnival corporation annual report. miami, fl.: carnival corporation, 1997.

"carnival corporation launches web site." pr newswire, 1 april 1998. available at http://www.marketguide.com.

carnival corporation home page, 23 august 1998. available at http://www.carnival.com.

"'carnival cruises asia' selected as name for new carnival/hyundai joint venture company." carnival cruises press release, 25 february 1997.

"carnival cruise lines to introduce new television advertising campaign featuring computerized and special effects." carnival cruise lines press release, 2 january 1997.

"carnival to add loan program." travel weekly, 17 april 1997.

de la cruz, jennifer. carnival corporation telephone conversation, 27 may 1998.

razukas, t.p., et al. "carnival corporation-company report." duff & phelps credit rating co., 29 september 1997.

"recrestion industry." the value line investment survey, 28 november 1997.

simonson, r.j., et al. "carnival corporation-company report." william blair & co., 12 may 1997.

"strong demand for cruises fuels 29% profit increase." the wall street journal, 23 march 1998.

For an annual report:

telephone: (305)599-2600, x-10850

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. carnival corp.'s primary sics are:

3731 ship building and repairing

4481 deep sea transportation of passengers, except by ferry

4724 travel agencies

7011 hotels and motels

7991 physical fitness facilities

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Carnival Corporation

Carnival Corporation

3655 NW 87th Avenue
Miami, Florida 33178-2428
USA
Telephone: (305) 599-2600
Fax: (305) 599-2600
Web site: www.carnivalcorp.com

FUN SHIPS CAMPAIGN

OVERVIEW

Beginning in the mid-1980s Carnival Cruise Lines emerged as a leader in the global market, and within a decade the Miami-based carrier had become the world's leading cruise operator. With a total of more than 30 ships and a broad base of holdings, Carnival Cruise Lines had become Carnival Corporation in 1994. By that time it had long since established a winning ad campaign, with television spots featuring entertainment personality Kathie Lee Gifford. Beginning in early 1997, however, the company took a new approach, using animated figures—most notably dancing fish—in place of human performers, with Gifford retained for the voice-over.

The agency of record, HMS Partners, typically employed a budget of $20 million to present two spots per year for the campaign, which was loosely titled "Fun Ships" and ran through 2000. The individual commercials, featuring their respective "stars"—the computer-generated images—cavorting to a calypso beat while Gifford's voice-over touted Carnival, were part of a continued branding effort in which Carnival sought to present itself as the "Fun Ships" line. "We own fun," senior vice president of marketing Vicki Freed told Jeffery D. Zbar in the Fort Lauderdale Sun-Sentinel. "We've been investing in fun for 20 years now. All the research tells us that our brand is known for fun."

As a result of this campaign and other moves by Carnival—such as the purchase of rival lines, the construction of new ships, and innovative marketing methods—bookings on Carnival ships continued to grow in 1998, 1999, and 2000, as they had grown for many years preceding. With expanded fleet capacity and more ships slated to be finished in the early years of the new century, however, Carnival and other cruise lines were especially vulnerable to the downturn in the larger travel and tourism industry following the terrorist attacks on September 11, 2001.

HISTORICAL CONTEXT

In 1972 Ted Arison, a former executive with Norwegian Caribbean Lines, joined forces with Meshulam Riklis of American International Travel Service (AITS) to form Carnival Cruise Lines. The latter, an AITS subsidiary, launched its first ship, the Mardi Gras, shortly thereafter. Like some farcical version of the Titanic, the Mardi Gras ran aground on its maiden voyage. With this inauspicious start, the nascent line was soon heavily in debt, and in 1974 Arison bought out Riklis for almost nothing.

By 1975, however, Arison had turned a profit by careful positioning with regard to Carnival's target market. He added a second ship in 1976 and a third the following year. In the midst of a market depressed by high inflation during the late 1970s and early 1980s, Carnival prospered under the leadership of Arison and his son Micky, who became CEO in 1979. By 1987, when it went public, Carnival was the leading cruise operator in the world.

In the late 1980s Carnival diversified, adding short cruises to, and a gambling casino in, the Bahamas. There were also land tours, a hotel chain, and—following the 1989 purchase of Holland America Line—luxury cruises. By the mid-1990s the newly renamed Carnival Corporation had established a heavy presence in Europe that culminated with the early 1998 purchase of the upscale Cunard line of Great Britain for half a billion dollars.

TARGET MARKET

From the mid-1970s Ted Arison had shown an ability to recognize the target demographic of Carnival Cruise Lines, and more than 20 years later his son seemed to have inherited the trait. Furthermore, Micky Arison, with his family-controlled 45 percent of the company, continually worked to refine Carnival's focus on its target market.

The elder Arison recognized early that the cruise line's customer base was built around youngish middle-class adults, and he designed the shipboard entertainment—including discos, live music, and gambling—accordingly. Hence the focus on fun, evident in Freed's statement that the line had been "investing in fun" for two decades. The first two spots in the new campaign, released in 1997, featuring dancing fish and swaying palms respectively and included a voice-over by Gifford, saying, "I guess some vacations are just more fun than others." Gifford, whose contract with the cruise line continued until mid-1999, presented a somewhat longer, but still fun-oriented, tagline in the 1998 spots: "Looks like one vacation is just more fun. We guarantee it. Carnival. The most popular cruise line in the world."

Awareness of the target market motivated more than the company's attempts to associate fun with its image, however. Journalist Kitty Pilgrim, interviewing Micky Arison for Cable News Network Financial News (CNNfn) in 1998, noted the high numbers of Americans who would have reached "the prime cruising age" within a few years. According to one analyst, Pilgrim commented, by 2005 there would be 81 million Americans between the ages of 40 and 59. Arison, when asked if he expected an increase in ticket sales to coincide with this trend, not surprisingly said that business had long been good and was only going to get better; nonetheless, he conceded, "There is no question that the aging of the baby-boom generation is falling into really our prime target market for cruising."

To accommodate the aging baby-boom market, along with growing health concerns among the population, in November 1998 Carnival launched its first-ever smoke-free cruise ship, the Paradise. The latter would sail a seven-day route between Miami and the eastern or western reaches of the Caribbean. Arison explained to Pilgrim that surveys had shown a decline in the numbers of smokers among Carnival customers. At present, he said, no more than 22 percent of the company's passengers smoked, so it made sense to dedicate at least one ship to a completely smoke-free environment.

Carnival also used price as a means of drawing in the large numbers of Americans who had never taken a cruise before in their lives—92 percent of the U.S. public, according to a study referred to in Advertising Age in early 1997. The Cruise Line International Association reported that in 1996 fewer than 5 million Americans took cruises, leaving a market of more than 270 million untouched.

TITANIC RESULTS?

Did the 1998 hit Titanic—a huge box-office success as well as the winner of several Academy Awards, including Best Picture—hurt ticket sales for cruise ships? One would assume that it would have: after all, the central event of the film was the sinking of an ocean liner. But that would be an incorrect assumption, according to Carnival Corporation CEO Micky Arison. "I think exposure to the industry is clearly positive," Arison told Kitty Pilgrim of Cable News Network Financial News (CNNfn), on the program In the Game in November 1998. "And while we weren't expecting a boost from Titanic … the reality is that it did show some of the glamour of cruising's past, and the first half of the movie … was pretty positive."

The first half of the film took place before the sinking of the majestic Titanic on the night of April 14, 1912. One scene in particular that seemed to have captured viewers' imaginations, Arison told Pilgrim, was the one in which star Leonardo Di Caprio climbed onto the bow, placing himself at the very front of the ship. Arison stated, "We do have people trying to get out on the bows to feel fresh air because of the movie … Captains are constantly complaining that they've got to take people down from the bows of the ship."

In addition, given trends in the market, the company could be expected to attract female travelers. According to a study conducted by About Women, a business research firm, in late 1996, women were more likely to take cruises than men, more likely to plan their vacations carefully, and more likely to spend a greater amount of money. One of the chief concerns of women travelers—both in the leisure as well as business segments—was security. They wanted to know they would be safe in their rooms, whether in a hotel or on board a ship. Uniglobe Travel senior vice president Michele Desreux gave Carnival high marks for its treatment of female customers: "There are progressive suppliers," she told the Worcester Sunday Telegram, "such as Hyatt Hotels and Resorts and Carnival Cruise Lines, that take special care with women travelers."

COMPETITION

At the same time that Carnival brought out its first round of "dancing fish" spots in early 1997, archrival Royal Caribbean Cruises also broke new advertisements. With six television spots created by ad agency McKinney & Silver of Raleigh, North Carolina, the Royal Caribbean campaign centered on the tagline "Like no vacation on earth." Royal Caribbean's commercials, like Carnival's, departed from existing industry standards, which tended to call for shipboard scenes; the competitor's spots used "fly-by" scenes of a ship cruising on the water.

As Zbar reported in Advertising Age, "Other competitors ha[d] already charted new courses" in their adverting as well. In September 1996 Celebrity Cruise Line introduced a new campaign using animated figures created by Korey, Kay & Partners of New York City. Norwegian Cruise Lines had, in 1995, presented a series of spots built around the tagline "It's different out here"—advertising that used "attractive models and provocative themes," in Zbar's words, to make a departure from typical cruise-ship advertising.

Pointing out the common denominators underlying these advertisements, Zbar reported that "executives noted the merits of selling the emotional experience of cruising, as opposed to the rational approach"—i.e., selling the sizzle rather than the steak. He quoted Adam Goldstein, vice president of marketing for Royal Caribbean: "We wanted to strike out in a new direction that gets people who historically might have been put off by yet more classic cruise imagery, to say that the kind of vacation we offer is connected with some of the most fundamental vacation and personal needs."

MARKETING STRATEGY

For 12 years, starting in the mid-1980s, Carnival advertising had centered on celebrities, usually depicted on board a Carnival ship. Julie Weingarden in Adweek described the typical Carnival ad lineup as "second-tier celebrities like Richard Simmons and Willard Scott rubbing elbows with perky ship hostess/spokesperson Kathie Lee Gifford."

Then in January 1997 came the first in a new line of television spots, which Zbar described in Advertising Age: "Realistic, computer-animated tropical fish and swaying palms replace longtime spokeswoman Kathie Lee Gifford—retained as voice-over talent—as the central characters. As the fish dance to an original mambo tune, a Carnival ship is seen plying the water's surface. And as palms sway to a calypso beat, a ship sails into view. 'I guess some vacations are just more fun than others,' says Ms. Gifford's voice-over."

The new television campaign had emerged from a 1996 print campaign using the theme of fun, and whereas Carnival had spent $30 million on total advertising in the preceding year, in 1997 it intended to devote $20 million to the new campaign alone. The company certainly was not having to spend money on celebrity talent: the "stars," as Weingarden called the main attractions in the commercials, were computer-generated. Behind the new spots was the work of Digital Domain, a computer production facility in Venice, California, that had also provided visuals for the film Titanic.

In 1998 the company proceeded with what Zbar called "a continued shift from shipboard shots and toward branding its 'Fun Ships' concept." Again there were two spots that replaced their predecessors on national television in October, and again the theme of fun was built around the antics of images created with the help of a computer. In "Starfish," a school of those multilegged sea creatures danced to a calypso beat, and the same musical backing appeared in "Beach Chairs & Umbrellas"—a spot that showed yet more cavorting on the part of nonhuman actors. Both spots included Gifford's voice-over: "Looks like one vacation is just more fun. We guarantee it. Carnival. The most popular cruise line in the world." The campaign continued with little alteration through 2000.

OUTCOME

Results for Carnival in the late 1990s seemed to indicate that the company's leadership was justified in straying from cruise-ship advertising tradition. In 1999 Wall Street analyst Brian Egger of Donaldson, Lufkin and Jenrette, a specialist in the cruise and gaming industries, described Carnival as "extremely well positioned." According to Suzanne Koudsi of Leisure Travel News, Egger called Carnival his "favorite company" and noted, "Carnival is best known for going after a customer that's never taken a cruise."

The fall of 2000 saw Carnival depart even further from the celebrity-focused platform that had defined its advertising prior to 1997. The new campaign adopted the conventions of so-called "reality TV" as a means of updating Carnival's image and addressing negative stereotypes about the cruising experience. Amateur actors were sent on Carnival cruises and then interviewed after the fact; the hope was that the actors would appear to be disinterested, third-party endorsers. The first-time cruisers told stories of negative expectations overcome, and in the process they described highlights of their individual Carnival vacations. The previous tagline, "The most popular cruise line in the world," remained in place.

The booming cruise industry of the late 1990s had led Carnival, along with its competitors, to increase the size of its fleet dramatically. The consequences of such overbuilding were already cause for concern by 2000, but the September 11, 2001, terrorist attacks turned the situation into a full-blown problem. The declines in travel and tourism following the attacks forced Carnival and its competitors to resort to deeply discounted fares in the scramble to fill what had become an overabundance of berths. Although the subsequent years were difficult ones for all cruise lines, the long-term outlook for the cruise industry remained strong, and Carnival was well positioned for future growth in the event of a rebound, thanks in no small part to its marketing-generated identity as the "fun" cruise line.

FURTHER READING

"Carnival Reports Revenue Hike in 1st Quarter." Travel Weekly, April 3, 1995, p. 39.

Determan, Wendy. "Carnival's New Line of Luxury." Leisure Travel News, April 12, 1999, p. 17.

Goetzl, David. "Cruising to Nowhere." Advertising Age (midwest ed.), November 12, 2001.

Koudsi, Suzanne. "Analysts Optimistic for Cruise Industry." Leisure Travel News, January 25, 1999, p. 21.

――――――. "The Cruise Buzz." Leisure Travel News, December 14, 1998, p. 598.

――――――. "Selling Cruises Made Easy?" Leisure Travel News, March 8, 1999, p. 4.

"Record Carnival Result." Lloyd's List, December 23, 1994, p. 2.

Scott, Diana. "Travel Is Up for Women of All Ages, but Survey Reveals a Troubling Note" Worcester (MA) Telegram & Gazette, January 26, 1997, p. F1.

Weingarden, Julie. "Carnival Cruise Turns to 'Toons to Show It's Still the 'Fun Ship,'" Adweek (southwest ed.), January 13, 1997, p. 5.

Zbar, Jeffery D.. "Carnival, Royal Caribbean Ads Depart from Tradition: Dancing Fish Bump Beaming Kathie Lee from Starring Role in Cruise-Ship Ads." Advertising Age, January 6, 1997, p. 6.

――――――. "Fun Ads for the 'Fun Ships': Carnival Sets Sail into World of Computer Animation." Fort Lauderdale (FL) Sun-Sentinel, October 3, 1998, p. 15C.

――――――. "Miami-Based Carnival Cruise Lines to Debut New 'Reality-Based' Television Ads." Fort Lauderdale (FL) Sun-Sentinel, November 8, 2000.

                                                 Judson Knight

                                                    Mark Lane

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