arnival Corp. remains the largest
cruise line in the world. Royal Caribbean remains the
second-largest cruise line in the world. Because "Status quo
maintained!" isn't a very compelling headline, perhaps our cruise
merger story on Page 1 of the Nov. 4 issue should have been
entitled, "Norwegian Cruise Line moves up to No. 3."
In the end, there wasn't much drama. Carnival's capturing of
P&O Princess Cruises wasn't really in doubt from the moment the
regulatory hurdles had been cleared.
Perhaps now's an appropriate time to consider why Carnival came
to be so financially strong that we all assumed it was going to
Given the ages of Carnival's venerable brands (such as Cunard),
it's useful to remember that the line went public just 15 years
ago. Carnival's strategy, since it made its first acquisition, has
been quite deliberate, and it is now in such a dominant position
that it will remain No. 1 for the foreseeable future -- I don't see
how Royal Caribbean can catch up unless it somehow figures out how
to buy Carnival.
One of the secrets to Carnival's success is its branding
strategy. Companies that grow by acquisition, no matter what their
scale, have to make branding choices that will determine their
future. Acquiring a business -- especially a formerly competitive
business -- requires extensive thought about how the newly acquired
company will be positioned vis-a-vis the existing brand(s).
There are no rules here -- a company must try to strike the
right balance between taking advantage of the economies of scale
that are the spoils of a large company and sacrificing the
distinctive qualities that may have made the acquired brand
attractive in the first place.
Carnival decided to give an unusual amount of autonomy to its
brands, and that was a key decision. Yes, it takes advantage of its
size when buying fuel, insurance and Coca-Cola, but it doesn't, for
instance, save money on rent by moving Holland America from Seattle
to its Miami headquarters.
It doesn't ask its sales force to present a portfolio of brands,
but instead maintains six (soon to be seven) distinct sales forces,
each at considerable expense.
With the exception of the Cunard-Seabourn linkage, it hasn't
distracted its senior executives with trying to administer more
than one cruise line at a time.
That it has resisted these temptations speaks to two points: the
vision of Carnival Corp's chairman, Micky Arison, and the financial
strength of the company. Arison has demonstrated that he's willing
to forego short-term cost savings in favor of maintaining long-term
brand equity, and he's been fortunate to head a public company that
isn't driven by the overriding need to shore up stock prices or
He also has had the common sense not to drive his managers to
look for "synergies" that, more often than not, blur brand
distinctions rather than enhance business.
It is perhaps on this last point that Arison is about to face
his greatest temptation.
Holland America and Princess together will dominate the Alaska
market. But both have vast networks of ground operators and
personnel in Alaska, and the cost of maintaining two separate
systems is high.
Competition between the two lines has, in the past, led to
differentiation between the products, both at sea and on the ground
(neither can do anything about the scenery being similarly awesome
from either ship). If Carnival Corp. takes it for granted that
Alaska passengers' dollars will flow into one of their two pockets,
and it doesn't really care which, the products may well begin to
look more similar on the ground. And if that happens, Carnival will
provide an opening to a cruise line that can claim to offer "a
And then Carnival would have no choice but to buy it, too.