Saturday, November 06, 2004

Oligopoly brief: Carnival Cruise Lines The kicker (subtitle) on a BusinessWeek article says it all: "At a time when demand - and prices - for cruises are rising, it pays to be the biggest." ("Carnival: Plenty of Ports in a Storm", 11/15/2004). Even though this season's many hurricanes are estimated to have cost Carnival $40 million or more, it is still doing very well. It is the biggest cruise line by far with 47% market share) with a number of different brands and has seen revenue grow by almost 20% a year on average. It even introduced the $80 million Queen Mary 2 this year, the first trans-Atlantic liner built in 35 years. Not only are their fewer cruise lines, there are also few new cruise ships being built. That translates into a surge in demand for what exists, and thus higher prices. Costs for typical cruises have gone up by 40% over the past year. And Carnival's domination of the industry means it is reaping much of the windfall. In 2003, the company managed to snap cruise line P&O Princesses Cruises from archrival (and #2) Royal Caribbean in an $8 billion deal. In the deal, it picked up the following brands; Princess Cruises, Swan Hellenic (UK), P&O Cruises, Ocean Village (UK), AIDA (Germany), and P&O Cruises Australia. It was remarkable that US and European antitrust would allow such a dominant entity to be put together. Earlier Carnival acquisitions were: 1989, Holland America lines, a luxury cruise line, which brought long Windstar, which features cruises on luxury sailing yachts. 1992, Yachts of Seabourn , a luxury line. 1997, Costa Cruises of Italy, Europe's largest cruise line. 1998, industry veteran Cunard with the Queen Elizabeth II Holiday's cruises cover much of the world and come in a variety of prices and accommodations. We've seen already how big cruise companies can use their muscle to dictate to destinations in the Caribbean to provide open services. Carnival and other lines have been frequently cited for oil and sewage discharges in the ocean. And that's the tip of the iceberg; much of the tie cruise ships act in secret, outside the area where responsible governments can prosecute or have any authority. Furthermore, the cruise lines (operating in the US, but with ships flagged in Panama, Liberia, and other small countries) pay next to no income tax, can pay very low wages to their (usually third-world employees. In other words, they act like first-world companies carrying first-world passengers but are somehow shielded from first-world law. In the US, at last, cruise industry lobbyists make sure this situation does not change. 5:22:12 PM

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