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[Music] hello and welcome along to the industry analysis for the management case study of August 2019 here we're gonna be focusing on the real world cruise ship industry and a very interesting industry it is indeed so before we get into the actual meat of the industry analysis I just want to address one question which is often raised by CMAs students and that is what is the purpose or the point of the industry analysis after all we are presented with some relevant industry information in the pre seen document itself so is it not surplus to requirements to do a separate industry analysis I think the answer to that is no it is not surplus to requirements however I must acknowledge of course that you are not expected to be an industry expert by any stretch of the imagination of course you're not expected to know every single detail of the wider industry however nevertheless there are some really good reasons why it is a good idea to do a wider broader industry analysis than what you're presented with simply in the pre seen document itself understanding the wider business environment and industrial context has to keep attention benefits on exam day firstly it helps you to anticipate some of the potential issues or scenarios that might arise in the unseen on the exam day itself and therefore avoid surprises or confusion so if you think about it if you're presented with a scenario that has some for example unusual terminology or specific examples that come from the broader industry you're much more likely to be able to quickly process that information and understand it if you already have some familiarity with the wider industry now now of course it's not always going to be the case that the unseen scenario is going to use unusual terminology or very industry specific terminology however it might use concepts that are very common in the industry it might use references to certain kinds of features of the industry that you will be more familiar with if you do this broader industry analysis it also helps you to imagine some kinds of scenarios that might arise given your knowledge of the wider business context a second important reason I think to do an industry analysis is that it makes it easier on exam day to illustrate and apply your abstract theoretical knowledge by using concrete examples and specifics from the business and industry context it is not enough of course to simply abstractly state your various theories and principles from your objective test studies you will actually need to show that you can apply it to realistic scenarios and of course it's better if you understand the real-world industry in that case because of course then your ability to apply to realistic scenarios will be much sharper so for those two reasons I think it's important to give the industry a little bit more time than simply is given to it in the pre scene document itself and so that's what we've done here in this industry analysis now of course in some cases some tuition providers might go into a bit of overkill with the industry analysis they might supply you with hundreds of pages of information on the industry and we believe that that is not necessary what we have done instead is we have already analyzed the industry for you and we've distilled it down into its essential parts and components particularly those most relevant to the pre scene document so before we get into the industry analysis that's just a quick rundown of what exactly we're going to be going through in the first section we're going to perform a quantitative analysis we're gonna be focusing some of the key figures and numbers from the industry both in terms of past trends and indeed projections for the coming years from there then we're moving into a more qualitative qualitative dimension I should say we're looking at customer and customer analysis and demand analysis some of the influences on demand some of the factors that feed into this and needs some of the key trends in the coming years from a customer perspective then we will take a look at a real world case or a real-world company in the form of Royal Caribbean a huge player in this industry and I'll explain in Section three why we're actually taking this as our real-world case from there we're going to move into another real-world case study but this is focused more on the negative side of the industry we're looking at the infamous Costa Concordia incident from 2012 and we'll be drawing out some of the lessons and consequences of that really really important incident in section five then we're gonna tie everything that we have covered in the previous four sections together and look at some interesting opportunities and challenges facing companies within this industry of course we cannot identify all of the opportunities and all of the challenges in this vast and very complex industry but we've picked out what we think are some of the most important ones from the perspective of a company like the one we're dealing with in the pre scene and we also include some source material at the end of this presentation for you to peruse at your own leisure should you wish to do so or should you wish to do a deeper dive on some of the issues that we address in this industry analysis so before we get into section one let me just do some preliminary work here and present you with some of the jargon that you might come across during your studies and indeed on exam day itself this is just some nautical terminology relevant to cruise and passenger ships just in case you're not familiar with some of this already you can see here the back of the ship is referred to as the stern you've potholes Porsche portholes I should say down here these are windows underneath the upper part of the ship then you have the air shaft and this is simply an air vent for releasing air from inside the ship you've lifeboats then along and the upper deck you have the stack which is basically where the exhaust from the engine is emitted you also then have the navigation equipment here in the radar and light the masthead light you can see up here top right the bridge is basically where the people who are navigating the ship and the captain of the ship reside that's where all of the driving of the ship is done then you have the bulwark here towards the front the hose hole is simply a hole in the front of the ship through which what's called the hawser can be put this hoser is used to more or to dock large ships to a port so you see a huge rope called the holes are being put through the hose hole in order to dock or port the ship you also tend to have the anchor towards the front part of the ship and then the prow is the basically the pointy part at the front of the ship it's sometimes referred to as the bow of the ship as well so there's just some of the basic terminology to help you navigate your way around these ships which are absolutely enormous in some cases so it's good to have a sense of orientation as you proceed through the different parts of the ship where you are relative to other parts okay so let's get into the quantitative market analysis this is looking at the broadest global and regional trends in terms of growth and projections we're looking here at the Year in Review for 2018 and this is a report that was created by the Cruise Lines International Association is an industry association and it really does produce some excellent information you can find a lot of their information for free online and much of the quantitative aspect of this industry analysis utilizes some of that information so you can see here in the center 20:18 global ocean passengers the vast majority come from North America most of Martin North America has the the relative majority I should say not the absolute majority it should we say both the relative majority in this market by far and away you can see the next in line is Europe 25.1% asia-pacific is growing as well it's coming up to the 20 percent mark and then much less further behind you have South America and others at one point seven percent so North America is really dominating this industry from a passenger perspective has done for a long time and looks like it will continue to do so for the near future Europe coming in second to 25% so together they comprise almost 70% in fact seventy seventy-five percent of the market amongst those two regions alone so a really really huge proportion of the global market coming from those regions so looking then at overall passengers overall volume of passengers was twenty-eight point five million in 2018 up to six point seven percent from 2017 so looking at some really healthy growth numbers here as you can see on the right the major growth regions were both South America and North America it is perhaps surprising that North America has grown so much considering it's already it's it's absolute share of the market already it's so high at forty nine percent to see it grow up 9.4% this really is a very healthy market indeed at the North American market so for looking at investment opportunities North America seems a no-brainer both in absolute terms and in terms of growth South America a promising grower although in terms of absolute share of the market it is very far behind at three point three percent so a lot of room for growth there you would think in the coming years and then here you can see bottom left the average Cruiser is 47 years old and cruises for an average of seven days so typically the cycles for cruises are seven days or fourteen days as you would have seen in the precinct document the average Cruiser is 47 years old so a slightly older demographic we're dealing with here or don't come back to the customers and analyze them in more detail in the next section but worth noting there the average age of the cruiser but that is it seems going to be there was going to be replaced in large numbers in the coming years by Millennials coming on board increasingly we're gonna come back to Millennials later on as well so here we're looking at passenger number growth since 2009 this is just to give you a sense of how healthy the industry has become in recent years you can see there the growth was quite modest around the 2011 12 and 13 mark it has begun to jump then since 2014 1516 the trajectory is looking a little steeper year-on-year at healthier growth numbers in terms of passenger numbers so you can see in 2019 they're projecting 30 million passengers expected to cruise so very very good numbers there indeed as we saw United States North America is the dominant market with the vast majority coming from the United States eleven point nine million passengers in 2018 then you have China in absolute terms a 2.4 percent Germany then 2.0 sorry 2.4 million I should say 2.1 nine million then from Germany one point nine three from the United Kingdom and one point three four from Australia deployment this refers to the main areas or regions where the ships themselves actually sailed this is from a 2017 report by the same Association and as you can see the Caribbean is well out in front at thirty five point four percent no surprising no surprises there perhaps given the fact that North America is the dominant supplier of passengers for this market and the Caribbean then is geographically relatively close and is easy access for that market so not surprising that the Caribbean is right up there thirty five point four percent the Mediterranean then coming in second for the European market of course at fifteen point eight percent as the most popular location for these cruises to take place all other than a fourteen point six percent and you've got the European market and without the Med at eleven point three percent China coming in behind Europe and then you also have Australia New Zealand and the Pacific region at six percent lookers notice there as well Alaska at four point three percent for such a relatively small geographical region that has a significant portion of the market and that is related to that adventure cruising segment that was mentioned in the pristine and that indeed is also a growing market more people are looking for those kinds of adventure cruises and that market is being well served indeed by some of the major corporations and companies looking here at the asia-pacific region in particular at the cruise market of capacity growth from 2008 2016 you can see again very healthy numbers indeed and that follows more or less the pattern that we saw in the previous slide for global passengers you can see around the 2010-11 12 mark things were looking not so great but since then things have begun begun to really take off and that is reflected in the asia-pacific region as well as in other regions we're looking at more and more ships each year and more and more new ships being contracted there are currently 272 clia member cruise ships projected to be in operation in 2019 and 18 new cle-cle a member eoghan ships are scheduled to debut in 2019 now a key question is how long is it going to actually take to construct one of these ships as we'll see in subsequent slides these are absolutely enormous structures some of these major cruise ships and it is perhaps surprising to note that actually it doesn't take as long as you might think some of these huge cruisers can be built in under two years and when you see the actual structure and complexity involved that is actually quite surprising the largest ship currently the largest cruise and passenger ship currently in the world is the symphony of the Seas which belongs to Royal Caribbean we're going to be looking at them a little bit later on but as you can see there that took 30 months which is the most out of all of the ships listed here but you can get a sense of the rough ballpark figure for these kinds of ships it's in and around the two-year mark just under two years being the average but Symphony disease is an outlier because of just how enormous it is we're going to be coming back to the symphony of the Seas example a little bit later on looking at it in more detail just to get a sense of how spectacular some of these structures are nice little overview here of the industry see these are some of the key quantitative facts about the industry in and around the 2018 mark in 2017 a record twenty five point eight million passengers cruise globally an estimated 20 7.2 million will cruise globally in 2018 as we saw that actually ended up being a figure closer to twenty eight point five million so you can see that the actual growth is outstripping recent predictions and that's a very good sign indeed 126 billion in total economic impact and 1 million jobs paying 41 billion in wages and salaries were generated by the global cruise industry in 2016 alone demand for cruising increased twenty point five percent in the last five years that was from 2017 backwards and things have continued to increase since then the cruise industry is the fastest growing category in the large leisure travel market and that is is still the case to this day it really is a very fast growing segment indeed it is in absolute terms quite a small percentage of the overall tourist market in and around a three to five percent mark but it is growing very rapidly relative to other segments within the broader leisure travel market so want to keep an eye on and a very very interesting market from the perspective of investment and new entrants from a capacity standpoint utilization is consistently over 100 percent in other words these cruise ships are consistently 100 percent booked for all of the cruises 8 out of 10 CLIA certified travel agents expect increased cruises in 2018 as we saw that was the case indeed and it's going to be the same it seems in 2019 throughout its history the cruise industry has responded to vacation desires of its guests and embraced innovation to develop new destinations new ship designs and so on and so forth we're going to come back to these issues a little bit further on the cruise ship order book from 2018 to 2025 includes 50 new ocean-going vessels from FCC a and CLIA member Cruise Lines representing 220,000 lower berths and an investment value of 51 billion dollars so now let's look at customers and analyze some of the influencing factors on customer preferences and ind
ed on demand in general we're gonna start here with an interesting little set of parameters this was created by Deloitte in their 2018 report the next generation of cruise passengers has embarked and they've divided the customer into five different air of concern pertaining to different kinds of needs and preferences and desires engage me this is corresponds to the statement they engage me in a personalized authentic and attentive way so that obviously pertains to customer service dimensions and things like that hear me refers to the proposition they listen to me and my needs empathize with my situation and follow through empower me means they provide me with opportunities and access to drive my experience the way that I want delight me corresponds to the proposition that they create moments that surprised me and exceed my expectations and then Nomi refers to the idea that they know and remember me my preferences and my needs so basically these are statements that passengers have been surveyed on after they go on cruises and asked whether or not they strongly agree or moderately agree or disagree and so on with these various statements and based on the feedback from these passengers then Deloitte has compiled some of the results and some of the insights that they have gleaned from the surveys based on these five different dimensions of passenger or customer preference and demand and as you can see there's a 70 percent satisfaction rate with the engagement dimension there is a 63% satisfaction rate with the hiromi dimension seventy-four percent satisfaction with the empowerment dimension 66 percent satisfaction with the delight me dimension and then 67 percent satisfaction with the Nomi dimension overall then you have basics referring to the basics which we're going to talk about a little bit later on seventy-five percent satisfaction with the basics so the basics obviously is probably the strongest out of all of the satisfaction dimensions but these other satisfaction dimensions as well seem to be scoring relatively healthy opening around the 60 to 70 percent mark let's break this down a little bit more and compare then these dimensions with those from other holiday destinations and holiday types you can see here cruises compared with hotels and restaurants are separate segments with the tourism industry and you can see that in particular the empower me and delight me dimensions are given much more importance in the Cruz segment than they are in some of these other segments you can see empower me is 106 compared to 88 and 57 for hotels in restaurants and then 84 for delight me compared to 51 and 49 for hotels and restaurants and this really does speak to the high expectations that customers have brought to bear on the cruising experience when you think about it cruise these cruises these modern cruise ships sell themselves as an all-encompassing kind of holiday everything you could need and want is what's supposed to be provided on these huge huge ships on like hotels and restaurants for example where the experience is much more specific it's much more limited and generally the people who use those kinds of destinations and those kinds of facilities hotels and restaurants they will use them in a fleeting manner much less permanent much more temporary they'll go out and they'll see other sights and sounds whereas the cruise ship is really for many people the main attraction of their holiday when it comes to cruise bookings the ports that they stop at and the excursions that they go on away from the cruise ship itself are kind of secondary considerations and really the cruise ship itself is the main attraction for that reason the expectations are generally much higher when compared to things like hotels and restaurants so empowerment and delight or thrilling experiences are much higher in terms of importance all the cruise passengers are more satisfied than restaurant or hotel guests their expectations then are also higher as you can see here on the Left these high expectations are further underscores of the all-encompassing nature of cruises lodging food and activities all combined in one experience compared to the restaurant and hotel industries passengers place additional importance on being empowered and delighted which are opportunities for cruise operators to create additional value we'll come back to that again a little bit later on coming back to this issue of the basics and increasingly it is acknowledged within the industry that the basics can no longer simply be basic looking at this feedback here you can see on the left this pertains to cruise frequency and repeat custom improving satisfaction by one point for the following propositions cruise was great value or Pleasant spaces to spend time outside of the room the cabin room if you have satisfaction pertaining to these two propositions and increase that satisfaction by one point for each of those this in turn increases the probability of a better experience that in turn leads to more frequent travel by one hundred and twenty three percent in the case of the cruise was perceived to be of great value and eighty five percent in the case of perception of pleasant spaces in which to spend time outside of the room so they're considered very much the kind of basic value propositions and value perceptions for passengers and you can see how consequential they can be when it comes to frequent or repeat travel on these cruises you can also see on the right here the influence of the basics and a good perception of the basics on net promotion or on making these passengers promoters of the cruise ships too appears and friends and so on and so forth attributes that increase the likelihood of creating net promoters the cruise was great value if the perception is that the cruise was great value there's a 60% chance of more or being more likely to be a Net Promoter rooms were well kept clean and sanitary 34% increased chance of being a net promoter and the location of port is convenient and easily accessible a 30% increased chance of becoming a net promoter so those really are very basic value propositions there the cruises great value pleasant spaces outside of the room rooms are well kept and clean location of port is convenient and easily accessible so really the basics have to be absolutely nailed considering just how big these percentages are when it comes to things like becoming a net promoter of the cruise ship and becoming a frequent or repeat traveler really really consequential very important that the basics are very very good indeed and indeed you might say the basics cannot simply be basic they've really got to actually impress if you're going to beat the competition and get loyal customers coming back to this idea of delighting passengers and this is taken again from the Deloitte analysis delight me is a satisfaction area 66 percent with broad room for improvement even with an ever-growing list of activities and large investments in ship upgrades twenty-eight percent of passengers say they're actually unsatisfied with the experiences and activities that they find on board since Generation X and Millennials are the roofs that value delight the most enhancing the delight me dimension can play a very long-term dividends with respect to then the empowering dimension empower me that is to say opportunities and access to drive my own experience the way that I want this is really pertaining to personalization scores the highest in importance and satisfaction for cruises but there is still room for growth the use of digital to increase personalization and customization is one very promising Avenue to make this happen don't let the mention of digital induce say induced to narrow focus say Deloitte on millenials older generations show that they also value this category highly as well so the digital aspect and increasing the amount of digitization on board is not simply something that pertains to Millennials and shouldn't only be done with Millennials in mind other generations show that they value this as well but this is all linking back to customization personalization and thereby giving more power to each passenger to determine the kind of cruise that cruise experience that they have so where to begin in addressing some of these more challenging recent demands nuanced demands coming from current passengers of cruise ships well the result of the Lloyds passenger survey the course of Technology and the competitive landscape all point to the same conclusion to create a differentiated experience in a highly competitive market with increasingly savvy consumers cruise operators should invest is poor in Italy in enhancing passenger experience as well as in the data and digital tools required to deliver self-service and a bespoke in-person experience powered by underlying decisioning and insights capability so a little bit jargon either towards the end but I think this really does point towards the importance of data analytics and indeed perhaps big data as the way forward in anticipating consumer desires and preferences and tailoring onboard services as much as possible to those unique consumer tastes
