a. Describe Royal Caribbean’s business. How important are international operations for the company?
At the end of the 1960’s, Wilhelmsen and Stephan came up with the profitable idea that the wealthy residents of Florida will consider paying top dollar amounts to cruise to the Caribbean Islands as a great alternative for a week or weekend getaway. After proposing this idea to Norwegian entrepreneurs, Royal Caribbean Cruise lines, was born. Forty five years and forty ships later, based out of Miami Florida, Royal Caribbean is the second largest cruise line in the world, behind frontrunner Carnival. RCCL operates its ships under the brand names Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Cruises, and Croisières de France.These fleets are competing in the maturing oligopolistic and consolidated cruise industry with destinations across the globe, including: Asia, Hawaii, Alaska, the Mediterranean, the Baltics, South America, and the Caribbean.
RCCL business can be broken-down into two profitable areas; Revenue Management which involves the income that originates from booking a cabin, and Onboard Revenue constituted by non-included areas where guests spend additional dollars such as bar, onboard casino, internet services, spa treatments, gift shop, photo, shore excursions, port shopping among others. As the cruise capacity has multiplied and cruise fares have dropped, Royal Caribbean and all the major cruise lines have started to increasingly focus on onboard spending as a significant source of revenue.
At the end of 2007, the Unites States started to experience a recession phase that extended over the next eighteen months. During this economic crisis, Royal Caribbean suffered a significant drop in mostly every revenue area, which impacted enormously their stocks in the public market. Consequently, the company realized that they needed to expand their international operations abroad since this challenging situation was driven by their concentration of operations in the US market. Throughout the following years RCCL extended the deployment of its ships to Asia, India, Dubai, South America, Australia and New Zealand, and increased the capacity for Europe. Some foreign markets have proven to have less intense competition and higher profitability. These actions were accompanied by the opening of international offices in China, Singapore, Sidney, Oslo, and Brazil. Royal Caribbean has also been able to take advantage of international supply chains and global market possibilities; sourcing its ships with quality products at a lower cost. Likewise, in order to be ready to meet different demographics and territories demands, Royal Caribbean started a revitalization process for a significant amount of its major ships. The ships facilities have been accommodated according to the practices and traditions of the nationalities that will source the ship; e.g. the spa for ships visiting Asian territories has been accustomed according to their culture. This fleet-wide refurbishing program supports the promotional campaign slogan of “Now Our Best Ship Is Every Ship.”
The escalating prosperity of the global population and the rising popularity of exotic destinations have encourage Royal Caribbean to focus more and more on their strategy of international business development and expansion into emerging and high-growth markets. As a result, and in addition to the ongoing recovery of the US economy, their new ships, global destinations and itineraries, and innovative activities, Royal Caribbean has been able to drive constant growth in revenue and passenger counts; where international passengers duplicate the growth ratio of US passengers.
The cruise line industry is looking forward to a positive year of growth with a 2014 passenger forecast of 21.7 million. To be able to meet the demand, the industry will introduce 24 new ships in 2014-2015 adding a total passenger capacity of 37,546. Royal...
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