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									                                                University of Applied Sciences




                 Working Paper


International Cruise Industry:
 Coping with the Uncertainty




                Michael P. Vogel
      Bremerhaven, 11th September, 2004




Contact:   Hochschule Bremerhaven
           Michael P. Vogel, Professor of Tourism Management
           An der Karlstadt 8
           D - 27568 Bremerhaven
           Email: mpvogel@mpvogel.com
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty           page 2


           International Cruise Industry: Coping with the Uncertainty


Abstract
This empirical study aims to understand how the cruise industry perceives its past and
future exposure to uncertainty; which sources of uncertainty it considers to be gaining
importance over time; and by which means it intends to cope with the uncertainty.
It is based on the hypothesis that cruise companies face uncertainty from four main
sources: demand, competition, distribution, as well as the economic and political
environment. For each of these sources, the study proposes five to six indicators, or
factors, of uncertainty, which can be observed and evaluated relatively easily.
In a written survey, cruise industry representatives were asked to rate the changes in the
importance of these factors of uncertainty that have taken place since the year 2000, and
the changes they expected to occur until the year 2010. The respondents further rated
the importance of different business functions for coping with the uncertainty.
Overall, the findings suggest that three years after the 9/11 attacks, uncertainty in the
cruise industry remains on a high level. In various respects, future developments are
expected to bring about even more uncertainty. But more importantly, the study
highlights a fundamental qualitative shift in the respondents’ perception of uncertainty:
for the period 2000 - 2004, uncertainty was associated with a mix of risks and
opportunities, whereas for the period 2004 - 2010, uncertainty is seen as a provider of
more opportunities than risks for the cruise industry.
According to the respondents, the most important business functions to cope with the
uncertainty, and therefore to seize the opportunities provided by the uncertain future
changes in demand, competition, distribution, and the industry environment, are
technology and marketing. This should be reflected by cruise companies’ budgetary and
investment priorities, management development activities, and strategies anticipating
continuously high uncertainty levels.


Acknowledgement
I am grateful for the support of the empirical survey by the Hochschule Bremerhaven.
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                         page 3


1. Introduction
Exactly three years ago, the attacks on the World Trade Center in New York and on the
Pentagon in Washington marked the beginning of a qualitatively new phase for the
travel, tourism and hospitality industries worldwide. What started with an immediate
plunge in bookings, occupancies, and turnovers, leading to a radical short-term cutback
of investments and sending shockwaves through the entire sector, has triggered or
accelerated many profound longer-term changes on both the demand and the supply
side, which still strongly influence the way tourism is developing today.
Also the cruise industry was severely hit. But the mobility of their ships allowed cruise
companies to react faster and more flexibly than hotel chains. Capacities were
redeployed to destinations that were perceived safe, and flight-inclusive cruise
programmes were replaced by homeland cruises. Airlines went bankrupt, and so did
some cruise lines. But while the airline industry parked hundreds of aircraft in the desert
in order to limit the cost of idle capacities, the cruise industry reduced prices and held its
breath. Somewhat luckily, the strategy succeeded. Soon, demand recovered, and many
companies returned to profitability.
Yet significant uncertainty remains. In some parts of the world, the geopolitical situation
is becoming more complicated every day, and security concerns still abound. Demand
remains highly price sensitive; technological progress is affecting the role and position of
distribution intermediaries; the forced market exit of players like Festival, Renaissance
and Royal Olympic has changed market structures; and the industry’s high innovation
rates may turn winners of the past into the losers of the future.
The purpose of this study is to understand how the cruise industry itself perceives its
past and future exposure to uncertainty; which sources of uncertainty it considers to be
gaining importance over time; and by which means it intends to cope with the
uncertainty.
Three terms which are central to this study need some clarification: uncertainty, risk, and
opportunity. Uncertainty refers to future developments the outcomes of which are not
certain. Risk denotes uncertainty bearing chances of loss or damage for cruise
companies. Opportunity, finally, is to be understood as a possibility for cruise companies
due to a favourable combination of circumstances. Hence, risk and uncertainty in the
context of this study are not identical with the homonymous concepts known from
decision theory.1




1
  In decision theory, risk specifies situations with different possible outcomes which can be assigned
specific probabilities of their occurrence. Uncertainty also refers to situations with different possible
outcomes, but here the outcomes cannot be assigned probabilities.
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                        page 4


2. Methodology
This study is based on an empirical survey conducted between February and April 2004.
During this period, about 100 envelopes were sent to ocean cruise companies, ocean
cruise tour operators, and international passenger ferry companies in North America,
Europe and Asia.
The envelopes were mostly addressed to human resource directors and contained a
cover letter as well as three copies of a questionnaire (see appendix A). In the letter the
recipient was asked to complete and return one questionnaire, and to forward the other
two questionnaires to a marketing or sales manager, and to a strategy or finance
manager of her or his company. This way, 300 questionnaires have been distributed.
The objective of this procedure was to get different points of view on the same questions
from representatives of the same companies. These points of view could be expected to
vary because of the different information available to each of the three respondents.
The questionnaire was divided into five sections.2 Section 1 contained questions about
the company and the respondent. Sections 2 to 5 comprised questions covering four
possible sources of uncertainty and asking how particular aspects of uncertainty had
developed since the year 2000; how these aspects were expected to change until 2010;
whether the past and uncertain future changes were seen as opportunities or rather as
risks; and finally, how the companies would cope with the expected future changes.
With very few exceptions, all questions were closed-ended, offering a fixed range of five
possible answers.
In the course of the analysis of the returned questionnaires, all answers were trans-
formed into integer scores (variable name x) ranging from 1 to 5, so that for each
question, the mean score x and the empirical standard deviation s could be computed.3
The mean scores x can be assumed to reflect, or to be proportional to, rates of change.
Depending on the type of question, the mean scores x were then interpreted in the
following way:
1.0 ≤   x   ≤ 1.5: strong increase / very important / mainly opportunities
1.5 <   x   ≤ 2.5: moderate increase / important / more opportunities than risks
2.5 <   x   ≤ 3.5: no change / less important / opportunities and risks
3.5 <   x   ≤ 4.5: moderate decrease / not important / more risks than opportunities
4.5 <   x   ≤ 5.0: strong decrease / irrelevant / mainly risks




2
  Actually, the questionnaire contained a sixth section, asking the respondents to validate a particular
management competency model. However, the findings of that section were not intended for, and taken
into account by, the present study.
                         1               1
3
  Sample statistics: x =∑n
                             x and s =
                                       n −1 ∑  ( x − x )2 where n is the sample size.
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty             page 5


The standard deviation s is a measure of the dispersion of answer scores x around their
respective mean score x . Therefore, s can be regarded as an indicator for the level of
consensus among the respondents regarding a specific answer to a question. The
possible values of s were interpreted as follows:
0.0 ≤ s ≤ 0.5:   strong agreement
0.5 < s ≤ 0.8:   some agreement
0.8 < s ≤ 1.2:   some disagreement
1.2 < s:         strong disagreement
In chapter 5 of this study, two additional parameters will be introduced, an average mean
       ˆ                               ˆ
score x and the standard deviation s calculated on the basis of individual mean scores.
                                           ˆ
While the interpretation of the values of x will be the same as of x , the interpretation of
 ˆ
s will be given in the context of the chapter itself.


3. Sample
The response rate of the survey was low. Only 11% of the 300 questionnaires distributed
were returned. Telephone calls to a small number of companies that had not replied
suggested two main reasons for this response rate:
(a) Stock-listed companies or subsidiaries of stock-listed parent companies may not
have been allowed to disclose certain information or answer some of the questions
without communicating the same information also publicly.
(b) Since uncertainty and risk are sensitive issues, companies did not want to be
associated with a study on this subject matter, the outcome of which was not
foreseeable for them.
The 33 completed questionnaires were returned from twelve European companies based
in Great Britain, Finland, France, Germany, Italy, and Norway, as well as from four
companies in the United States. Most of the responding companies were small or
medium in size. Only two of them were subsidiaries of the “Big Three” (Carnival
Corporation, Royal Caribbean International and Star Group). This seems to confirm the
particular situation of stock-listed companies mentioned above.
The respondents occupied the following functions in their respective companies: human
resources (9x), sales (7x), finance or controlling (6x), marketing (6x), strategy (2x),
managing director (2x), and information management (1x).
For reasons of confidentiality, the names or further details of the participating companies
and individuals cannot be provided.
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty               page 6


4. Sources of Uncertainty
The questionnaire design was based on the hypothesis that cruise companies face
uncertainty from four main sources: demand, competition, distribution, as well as the
economic and political environment. Uncertainty about future technological progress
itself is not a problem for a cruise line, but it becomes one if this technological change
may erode the company’s competitive advantage (competition-related uncertainty) or
weaken its position in retailing (distribution-related uncertainty).
Since the four terms specifying the sources of uncertainty are relatively abstract and
require lots of explanations before respondents are able to understand and answer
questions about them, sets of more operational indicators were needed that would make
the questionnaire as little abstract as possible.
Therefore, for each source of uncertainty, five to six factors of uncertainty were defined,
which had to fulfil two criteria: to represent facets of the respective source of uncertainty,
and to be very clear and concrete. The resulting hierarchic model of total uncertainty,
sources of uncertainty, and factors of uncertainty is depicted in appendix B.


4.1 Demand
4.1.1 Demand as a source of uncertainty in 2000 - 2004
To investigate the importance of the demand side as a source of uncertainty for cruise
companies, respondents were asked how much, according to them, the following six
factors, or indicators, of uncertainty had changed since the year 2000:
•   Demand for cruises
•   Sensitivity of demand with respect to price
•   Share of late bookers (< 30 days prior to departure)
•   Predictability of demand
•   Customers’ cruise-specific know-how
•   Customers’ uncertainty about the geopolitical situation
With a mean score of x =1.88, the sensitivity of demand with respect to price was seen
by the respondents as the demand-side factor of uncertainty having displayed the
strongest increase over the past four years. The associated standard deviation s=0.83
equals the mean standard deviation calculated for all answers of the sections 2 to 5 of
the questionnaire. In other words, there was an average disagreement among the
respondents concerning the increase of the sensitivity of demand with respect to price.
Due to their fixed-cost structure, cruise lines have a strong incentive to offer price
discounts to late bookers in order to fill empty capacity. A growing price sensitivity of
demand makes this incentive even stronger, and should normally lead to a rising share
of late bookings. The respondents, however, confirmed this hypothesis just partly.
According to them, the share of late bookers ( x =2.38 with s=0.92) has risen less
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty           page 7


significantly than the price sensitivity of demand since 2000. This is good news for the
cruise industry because it largely seems to have escaped the downward spiral tantalising
the airline and hotel business.
The predictability of demand was considered stable by the respondents. Its mean score
of x =3.02 was the highest for any demand-side factor of uncertainty. It means that
demand for cruises today was regarded as equally predictable as in the year 2000. The
standard deviation of s=1.31, however, speaks a different language. It shows that the
respondents disagreed significantly over this factor, and indeed, answers given by the
cruise company representatives varied from 1.00 (“strong increase”) to 4.00 (“moderate
decrease”).
The reason for this heterogeneity could be the result of great behavioural differences of
customers in the different geographical markets and market segments in which the
respondents’ companies operate.
The remaining demand-side factors covered by the questionnaire - demand for cruises,
customers’ cruise-specific know-how, and customers’ uncertainty due to the geo-
political situation - achieved mean scores in the range 2.07 ≤ x ≤ 2.34 (with standard
deviations of 0.74 ≤ s ≤ 0.93), indicating moderate increases in all of them.


4.1.2 Demand as a source of uncertainty in 2004 - 2010
In a next step, the same six questions were asked again, but this time with respect to the
expected development until the year 2010.
In this context, a couple of results seem noteworthy. First of all, the respondents
expressed optimism about the future of cruise demand. Scoring a mean of x =1.63, the
demand for cruises was expected to increase sizeably over the next six years, and the
low standard deviation of s=0.52 shows that most respondents agreed with this
statement.
Some optimism is also reflected by the expectation that the sensitivity of demand with
respect to price ( x =2.36 with s=0.89) would almost stabilise until 2010. The stabilising
price sensitivity of demand is consistent with the anticipation of an equally stabilising
share of late bookers ( x =2.50 with s=0.91), provided that the cruise lines do not
further expand their discounting activities in parallel.
The stabilising price sensitivity of demand could in part be the result of a gradual
habituation of the public to the post-9/11 world. According to the respondents, the
cruise customers’ uncertainty due to the geopolitical situation will settle down over
the next six years ( x =2.47 with s=1.07), though on a higher level than in the year 2000.
The respondents also expected the customers’ cruise-specific know-how to improve
significantly until 2010, which was expressed by the mean score of x =1.82. The level of
consensus on this point was impressive - the standard deviation of s=0.35 was among
the lowest found in this survey. Implications of this development could be that the
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                    page 8


customers’ need for expert advice in the information, decision-making and booking
process prior to a cruise may decline, providing opportunities for new, less advice-
oriented distribution channels and reducing the role of traditional travel agencies.
The following figure 1 summarises these findings diagrammatically by depicting the
mean scores of all six questions with respect to the periods 2000-2004 and 2004-2010.
This representation allows comparing the respondents’ views on past developments of
demand-side factors of uncertainty against their expectations about the future.



Sensitivity of demand
                                                   2.36                     1.88
with respect to price

Demand for cruises                                            2.07                  1.63

Customers' uncertainty
                                                 2.47                2.13
due to geopolitical situation

Customers' cruise-specific
                                                    2.34                     1.82
know-how

Share of late bookers
                                                2.50          2.38
(< 30 days prior to departure)
                                                                                    2000-2004
Predictability of demand          3.02                 2.63                         2004-2010


                         3.50                       2.50                           1.50      1.00

                                    no change                   moderate               strong
                                                                increase              increase

Fig. 1: Mean scores of demand-side factors of uncertainty


4.1.3 Demand as a source of uncertainty: summary
In a separate set of summary questions, the respondents were asked what the changes
on the demand side since 2000 had meant, and what the expected changes on the
demand side until 2010 would mean for their respective companies.
The period 2000-2004 was essentially associated by the respondents with an
equilibrium of demand-related opportunities and risks ( x =2.77 with s=0.89). The period
2004-2010, on the other hand, would bring more opportunities than risks ( x =2.12 with
s=0.64). This result is coherent with the findings of sections 4.1.1 and 4.1.2.
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty           page 9


4.2 Competition
4.2.1 Competition as a source of uncertainty in 2000 - 2004
The second potential source of uncertainty for cruise companies covered by the
questionnaire was competition. The respondents were asked how much, according to
them, the following six factors had changed during the period 2000-2004:
•   Overcapacities
•   Market entries of new competitors
•   Degree of concentration among cruise companies
•   Insolvencies and market exits
•   New product concepts; product differentiation
•   Price level of cruises
Among those six factors, the emergence of new product concepts and product
differentiation was perceived to have increased the most ( x =1.97 with s =0.51).
Although for more traditional and less innovative companies, this tendency may
represent a risk which could even prove fatal, the industry as a whole clearly benefits
from it. Innovation and differentiation allow targeting new customer segments and
maintaining prices at higher levels.
According to the respondents, on average the price levels of cruises has remained
stable since the year 2000 ( x =3.19). In the presence of moderately increasing
overcapacities ( x =2.26 with s=0.69), the successful avoidance of industry-wide price
battles can be seen as the consequence of the tendency towards greater differentiation
just described.
Interestingly, the respondents disagreed strongly over the issue of price stability
(s=1.25). Closer inspection of their answers revealed that most of them thought prices
had decreased moderately, but a few “outliers” felt that price levels had actually
increased moderately or even strongly. In two of these cases, the specific niche products
or markets may indeed have allowed the respondents’ companies to raise prices against
general market trends. In the other cases it can only be conjectured that the respective
respondents actually wanted to express the opposite, but got the dimensions of the
questionnaire wrong.
The other competition-related factors contributing to uncertainty in the cruise industry -
market entries of new competitors, market concentration, insolvencies and market
exits - were given mean scores of 2.39 ≤ x ≤ 2.71, indicating very moderate increases or
no changes at all, with rather high degrees of consensus (0.46 ≤ s ≤ 0.71) among the
respondents.
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty           page 10


4.2.2 Competition as a source of uncertainty in 2004 - 2010
When asked to rate the changes of the same six factors for the years 2004-2010, the
respondents emphasised two points in particular.
First of all, with a high level of consensus (s=0.46), they expected an increase in entries
of new competitors in their respective local markets. The mean score of x =2.13 for the
next six years compares to a mean score of x =2.69 (“no change”) for the past four years.
So it seems that the cruise industry is expecting competition to intensify in the future
through the arrival of additional players or of existing players in new geographical
markets and market segments.
According to the respondents, the entry of new competitors will be accompanied by a
moderate increase in the degree of market concentration ( x =2.33 with s=0.52). The
higher market concentration was not expected to result from insolvencies and market
exits ( x =2.88 with s=0.67), but rather from the acquisition of existing companies by the
new entrants. This explains why the anticipated market entries may not create new
overcapacities ( x =2.64 with s=0.93).
Another aspect worth noting is the further increase in the industry’s innovation rate
expected by the respondents. New product concepts and product differentiation will
be playing an even more important role in the period 2004-2010 ( x =1.85 with s=0.64)
than they have over the past four years ( x =1.97 with s=0.51; see section 4.2.1).
The industry’s ability to diversify its offer and to serve a larger number of customer
groups will allow companies to moderately raise the price level of cruises until 2010
( x =2.31), after a period of stagnation since 2000 (see section 4.2.1). There was,
however, some disagreement about this outlook among the respondents (s=0.96).
The following figure 2 summarises these results in the familiar manner.
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                  page 11


New product concepts;                                         1.97         1.85
product differentiation

Overcapacities                              2.64               2.26


Degree of concentration                            2.39      2.33
among cruise companies

Market entries of new
                                            2.69                    2.13
competitors

Insolvencies and market
                                     2.88          2.71
exits
                                                                                   2000-2004
Price level of cruises       3.19                            2.31                  2004-2010


                          3.50                      2.50                          1.50      1.00

                                    no change                  moderate               strong
                                                               increase              increase

Fig. 2: Mean scores of competition-related factors of uncertainty


4.2.3 Competition as a source of uncertainty: summary
The respondents were then asked to summarise their view on the past and future
competitive developments by stating what the different changes since 2000 had meant,
and what the expected changes until 2010 would mean for their respective companies.
Just like demand-side uncertainty, also competition-related uncertainty seems to have
provided the cruise companies with a balanced mix of opportunities and risks since the
year 2000, with a slight tendency towards an excess of opportunities over risks
( x =2.63). However, risks and opportunities have not been distributed evenly across the
cruise industry, because the replies show quite some disagreement among the
respondents (s=1.06).
For the next six years, the competitive uncertainty was expected to offer modestly more
opportunities than risks to cruise companies ( x =2.46), with a higher level of consensus
among the participants (s=0.76).
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty            page 12


4.3 Distribution
4.3.1 Distribution as a source of uncertainty in 2000 - 2004
As a third possible source of uncertainty for cruise companies, the distribution side of
their business was covered by the survey. In the questionnaire, the respondents were
asked to rate the importance of changes in the following five distribution-related factors
for the period 2000-2004:
•   Degree of concentration in travel retailing
•   Commission rates for cruise distribution
•   Expert cruise know-how expected from travel agents
•   Share of direct sales in total cruise sales
•   Sales of cruises via the Internet
According to the respondents, the importance of cruise sales via the Internet has
increased significantly since the year 2000 ( x =1.89 with s=0.83). Although the turnover
generated online with cruise products is still small, this is an interesting finding. It
challenges the conventional wisdom that cruise customers require detailed advice and
personal contact with an agent they have confidence in. It can be conjectured that
Internet buyers of cruises are mainly people who either look for the best available deals,
not caring much about the specific product offered, or who are repeat buyers, already
knowing the product and therefore not needing any further advice.
The degree of concentration in travel retailing was felt to have increased moderately
( x =2.13 with s=0.83) since 2000. A higher concentration can have an ambiguous effect
on the cruise industry. On the one hand, it could gradually shift the balance of
negotiation power in favour of the retailers and lead to the risk of rising commission rates
or other distribution costs. But the respondents did not perceive such a development
over the past four years: they largely agreed that commission rates for cruise
distribution have largely remained stable ( x =2.79 with s=0.49).
On the other hand, a higher concentration of the distribution side may be associated
with the emergence of more professional and more efficient retail networks, investing
more in training and technology. Both would improve the quality of the sales process,
and benefit those types of products in particular, which tend to be consulting-intensive
and more complicated to book - cruises for instance. In this case, concentration would be
seen as an opportunity by the cruise industry.
The importance of training is highlighted by the respondents’ view that the level of
expert cruise know-how required from travel agents has also increased moderately
since 2000 ( x =2.10 with s=0.71). This judgement is in line with the previous
observation that cruise products seem to be getting increasingly differentiated (see
sections 4.2.1 and 4.2.2).
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty           page 13


The share of direct sales in the cruise industry, finally, seems to have remained largely
stable over the past four years ( x =2.57), though there was some disagreement among
the participants of the survey on this issue (s=1.07). Less than in other parts of
organised tourism, direct sales in the cruise industry are a domain of the Internet. A
much bigger business for cruise lines is the on-board direct sale of cruises to their own
passengers.


4.3.2 Distribution as a source of uncertainty in 2004 - 2010
For the period 2004 to 2010, the respondents expected further increases in all five
distribution-related factors of uncertainty, and at even higher rates than during the past
four years
First of all, the Internet as a sales channel for cruises will continue to gain importance.
Of all factors analysed in this study, Internet sales were expected to demonstrate the
strongest increase over the next six years ( x =1.59 with s=0.74). This could be the result
of the two trends mentioned in the last section: bargain hunting and repeater business.
But it could also point towards the cruise companies’ and intermediaries’ growing ability
to appropriately present and explain their products on the web, and to provide simple
and secure payment solutions.
Secondly, according to the respondents, intermediaries should start worrying a little
about the erosion of their strong position in the distribution of cruises. The share of
direct sales was expected to grow slowly ( x =2.42 with s=1.03) until 2010. This may be
a consequence of the cruise companies’ professional customer relationship manage-
ment and their on-board sale of cruises, of their efforts to save distribution costs by
cutting out middle-men, and of the customers’ growing ease with Internet bookings.
A third important finding is that the process of concentration in travel retailing was
expected accelerate in the future ( x =1.74 with s=0.62). This process would not be
accompanied by rising commission rates for the sale of cruises ( x =2.63 with s=0.77),
but it could help improve the quality of sales staff (see section 4.3.1). The latter is
particularly critical because expert cruise know-how required from travel agents was
anticipated to increase significantly over the next six years ( x =1.63 with s=0.52).
The perceived past and expected future changes in distribution-related factors of
uncertainty are summarised by figure 3.
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty               page 14


Sales of cruises via the
                                                                   1.89       1.59
Internet

Expert cruise know-how
                                                            2.10             1.63
expected from travel agents

Degree of concentration in
                                                         2.13              1.74
travel retailing

Share of direct sales in
                                             2.57
total cruise sales                                          2.42
                                                                              2000-2004
Commission rates for                                                          2004-2010
                                        2.79         2.63
cruise distribution

                           3.50                     2.50                     1.50        1.00

                                    no change                   moderate           strong
                                                                increase          increase

Fig. 3: Mean scores of distribution-related factors of uncertainty


4.3.3 Distribution as a source of uncertainty: summary
Overall, the changes on the distribution side of the cruise industry were seen as sources
of more opportunities than risks. This view, although not shared by all respondents, was
expressed for the period 2000 - 2004 ( x =1.98 with s=0.93) as well as for the period
2004 - 2010 ( x =2.13 with s=0.83). Interestingly, the respondents were a little more
reserved about the future developments than they were about the past.


4.4 Economic and political environment
4.4.1 Industry environment as a source of uncertainty in 2000 - 2004
The fourth potential source of uncertainty taken into account by the survey was the
economic and political environment in which the cruise industry operates. The
questionnaire asked the respondents to rate the importance of changes in the following
six factors for the period 2000-2004:
•   Disposable household income
•   General propensity to consume
•   Uncertainty about the future economic situation
•   Impact of political crises on the cruise industry
•   Safety and security regulations in the cruise industry
•   Uncertainty about the future geopolitical situation
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty            page 15


The environment-related factor of uncertainty that was perceived by the respondents to
have changed the most over the past four years is the uncertainty about the future
geopolitical situation. The mean score of x =1.61, indicating a significant increase in
this factor, and the low standard deviation of s=0.52 reflect the general concern of the
cruise industry about issues such as terrorist threats, Islamic fundamentalism, or the
uncertain future influence of the U.S., the NATO, the U.N. and other powers in some of
the more unstable parts of the world.
It is remarkable that the respondents implicitly believed that their customers’ uncertainty
about the future geopolitical situation ( x =2.13; see section 4.1.1) had increased less
than the actual uncertainty. In other words, according to the respondents, cruise
customers seem to underestimate geopolitical uncertainty. Is this one reason why
demand for cruises could recover relatively quickly after 11th September 2001?
Closely related to the geopolitical situation is the impact of (current) political crises on
the cruise industry. Not surprisingly, the respondents felt that the impact of such crises
had also increased since 2000 ( x =2.03 with s=0.95).
As a reaction to terrorism in particular, security regulations for passenger shipping have
been tightened. For cruise lines and passenger ports, especially the ISPS code has been
an object of debate for the last two years. The ‘end of hassle-free cruising’ and the costs
of implementation were feared to curb the demand for cruises. The findings of this
survey, however, do not fully support this position. Although the mean score of x = 1.72
says that safety and security regulations did increase, this increase was considered only
moderate by the respondents, not strong (only a score below 1.50 would have signalled
a strong increase). With s=0.44, consensus about this rating was very high.
It should further be pointed out that the perceived tightening of security regulations is
fully in line with the perceived increase of uncertainty about the future geopolitical
situation ( x =1.61; see above). Obviously, the respondents felt that the appropriate
measures had been taken to protect the passenger shipping business.
In general, the economic environment of the cruise industry seems to have remained
more stable than the political environment since the year 2000. No significant changes in
disposable household incomes was registered by the respondents ( x =2.75 with
s=0.71). On average, the households’ propensity to consume seems to have remained
stable, too, although there was some disagreement among the respondents concerning
this point ( x =3.13 with s=1.13). Only the uncertainty about the future economic
situation was perceived to be higher today than in 2000 ( x =2.27 with s=1.04)
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                  page 16


4.4.2 Industry environment as a source of uncertainty in 2004 - 2010
Based on the survey it would be too much to say that the political and economic
environment of the cruise industry will be brighter in the future than it is today. However,
all six environment-related factors contributing to uncertainty in the cruise industry that
were tested in this survey were better for 2004 - 2010 than for the period 2000 - 2004.
Especially the economic outlook has become more optimistic.
With a high level of consensus, disposable household incomes and the propensity to
consume were expected to rise again moderately ( x =2.15 and x =2.00 with s=0.35 and
s=0.55 respectively) after a phase of stagnation.
According to the respondents, the uncertainty about the future economic situation will
stop rising and stabilise, yet at a higher level than in the 1990s ( x =2.95 with s=0.53).
Unlike the economic environment, the political environment of the cruise industry was
expected to get still more difficult over the next six years, but at lower rates than during
the past four years: safety and security regulations ( x =2.14 with s=0.64), uncertainty
about the future geopolitical situation ( x =2.20 with s=0.71), and the impacts of
political crises on the cruise industry ( x =2.38 with s=0.74).
Figure 4 summarises and illustrates these findings.



Uncertainty about the future
                                                         2.20                  1.61
geopolitical situation

Safety and security regulations
                                                           2.14               1.72
in the cruise industry

Impact of political crises on                       2.38               2.03
the cruise industry

Uncertainty about the future
                                    2.95                        2.27             2000-2004
economic situation
                                                                                 2004-2010
Disposable household
                                           2.75                    2.15
income

General propensity
                                3.13                                   2.00
to consume

                         3.50                       2.50                       1.50         1.00

                                    no change                   moderate              strong
                                                                increase             increase

Fig. 4: Mean scores of factors of uncertainty related to the economic and political
environment of the cruise industry
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                   page 17


4.4.3 Industry environment as a source of uncertainty: summary
Overall, the respondents felt that between 2000 and 2004, the economic and political
environment had confronted cruise companies with more risks than it has provided them
with opportunities ( x =3.63 with s=0.92). Since over the same period, the changes on
the demand side, in competition, and on the distribution side were generally perceived
as rather beneficial than harmful for the individual players of the cruise industry (see
sections 4.1.3, 4.2.3, and 4.3.3), the industry’s environment can now be identified, or
rather confirmed, as the main source of risk.
For the next six years, on the other hand, the respondents expected also the cruise
industry’s environment to develop more favourably, and thus to improve the operating
conditions of the world’s cruise lines ( x =2.73 with s=0.89).
The following figure 5 depicts a comparison of the summary findings of sections 4.1.3,
4.2.3, 4.3.3 and 4.4.3.



Changes in cruise distribution                    2000-2004              2.13       1.98
                                                  2004-2010
Changes in the competitive
                                                           2.63            2.46
environment

Changes on the demand side                             2.77
                                                                                  2.12

Changes in the economic
                                3.63                              2.73
and political environment

                                       3.50                       2.50                        1.50

                   more risks than             opportunities             more opportunities
                    opportunities                and risks                   than risks

Fig. 5: Mean scores of the summary questions about the meaning of different types of
past and expected future changes for cruise companies


The diagram highlights the fundamental shift in the respondents’ perception of
uncertainty: for the period 2000 - 2004, uncertainty was associated with a mix of risks
and opportunities, whereas for the period 2004 - 2010, uncertainty is seen rather
positively as a provider of more opportunities than risks for the cruise industry. So even if
uncertainty overall continues to be high, the way of looking at it and thinking about it
seems to be changing. This is clearly an important message of this study.
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty         page 18


5 The importance of business functions for coping with the uncertainty
5.1 Approach
After investigating the importance of changes in different factors of uncertainty for the
cruise industry, the question arises how cruise companies are coping, or planning to
cope, with the uncertainty, and what role different business functions can play in this
context. Therefore, the questionnaire proposed a list of seven business functions. The
respondents were asked to rate each of them in terms of their usefulness, or relevance,
for coping with each one of the four sources of uncertainty. The business functions
proposed were:
•   Technology (e.g. IT infrastructure, data networks, knowledge-based systems,
    reservation systems)
•   Organisation (e.g. responsibilities, (de-)centralisation, distribution of tasks,
    processes, outsourcing)
•   Human resources (e.g. recruitment policy, training, management development,
    headcount reductions)
•   Strategy (e.g. company objectives, business model, acquisitions, alliances, new
    markets)
•   Capacity management (e.g. own ships, charter contracts, occupancy guarantees,
    distribution capacity)
•   Marketing (e.g. target group definition, CRM, cruise ship concepts, product
    development, pricing, communication)
•   Finance (e.g. capital lockup, debt ratio, raising equity, sell and lease back)
This list of functions was rated four times by the respondents, each time with respect to
another source of uncertainty. The resulting four mean scores x of each business
function (one for each source of uncertainty) were then used to derive four profiles of
functional importance. The full graphical representation of these four ‘uncertainty-
specific’ profiles can be found in appendix C.
As will be shown further below, these four profiles exhibit a remarkable resemblance,
which suggested aggregating them into a single synthetic profile. The values used for
this single synthetic profile were average mean scores, i.e. the arithmetic means of the
                                                                      ˆ
four uncertainty-specific x . The average mean scores are denoted by x , and their values
can be given the same interpretation as the values of x (see chapter 2).
Based on the four uncertainty-specific mean scores x relating to each business function,
                              ˆ                                   ˆ
also the standard deviation s was calculated. The meaning of s deviates from that of s.
While s is a measure of the consensus among the respondents concerning the answer to
                     ˆ
a specific question, s is a measure of how well the synthetic profile summarises the four
uncertainty-specific profiles with respect to a particular business function.
      ˆ           ˆ
A low s says that x is a good representation of the respective four mean scores x . The
          ˆ                      ˆ                    ˆ
parameter s is considered low if s ≤ 0.2, and high if s ≥ 0.4.
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                 page 19


5.2 Findings
The complete synthetic profile is depicted by the dotted line in figure 6. It is graphically
embedded in the four original uncertainty-specific profiles, showing the resemblance
between them. The values given in the figure are the average mean scores x . ˆ



Technology                                                                 1.36
                                 Separate profiles for the
                                 four sources of uncertainty
Marketing                                                                         1.38
                                 Synthetic profile combining
                                 all types of uncertainty
Strategy
                                                                           1.61

Organisation                                                   1.78

Human Resources
                                                                 1.92

Capacity Management                                         2.12


Finance                                       2.57

                          3.00            2.50                             1.50           1.00

                    less important                      important             very important

Fig. 6: Synthetic profile of mean scores for the importance of different business functions
to cope with uncertainty


With only one exception, all business functions proposed in the questionnaire and listed
                                                                  ˆ
in section 5.1, scored remarkably low average means of 1.36 ≤ x ≤ 2.12, which means
that the respective functions were considered important or even very important.
Compared to other parts of this study, such low scores really stick out. The pre-selection
of suitable business functions by the author cannot alone explain these ratings, since
also the sources and factors of uncertainty (see appendix B) had been pre-selected in the
same way.
Possibly, the respondents wanted to emphasise the necessity to combine several
business functions in order to succeed. But equally well, the respondents’ judgements
might have been systematically biased against everything that had to do with risk and
passiveness, and biased in favour of everything that implied action and success.
Therefore, these results need to be interpreted with some caution.
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty             page 20


As can be seen from figure 6, technology was almost consistently rated the most
important function of all for coping with uncertainty. With its average mean score of
 ˆ                                      ˆ
 x =1.36 and a standard deviation of s =0.27, technology was broadly considered “very
important”. Of the four individual mean scores x ={1.25; 1.31; 1.13; 1.75}, only one did
not fall into the “very important” category. The respondents felt that technology is not so
well suited for dealing with uncertainty originating from the political and economic
environment of the cruise industry ( x =1.75).
In the context of sales-side uncertainty, technology was assigned the greatest
importance ( x =1.13). This is not surprising, given the power of today’s reservation
systems, yield management instruments, knowledge management tools, and the rate of
technological progress in these areas.
Technology was very closely followed by marketing as a business function employed to
                                                        ˆ
cope with uncertainty. The low standard deviation of s =0.10 shows that the average
                 ˆ
mean score of x =1.38 is a very good representative of the individual mean scores
 x ={1.46; 1.34; 1.25; 1.47}. This means that marketing activities play an almost equally
important (and always “very important”) role, be it in the context of demand-side
uncertainty, competitive uncertainty, sales-side uncertainty, or political and economic
uncertainty facing cruise companies.
According to the respondents, strategy as a business function follows on third position
                                  ˆ
with an average mean score of x =1.61 (“important”) and a fairly low standard deviation
    ˆ
of s =0.21. From the individual mean scores x ={1.52; 1.38; 1.88; 1.66}, it follows that
strategy is regarded as particularly effective in the face of competition-related uncertainty
( x =1.38). In comparison with the functions of technology and marketing, however,
strategy still only occupies the third place with respect to this source of uncertainty.
This provokes the question whether, ultimately, it is not company’s strategy that
determines the use of technology and marketing tools (‘structure follows strategy’). If this
is so, i.e. if the concrete forms of technology and marketing applied by a cruise company
are actually consequences of strategic decisions, why did the respondents not put
strategy on top of the list of business functions?
The reason could lie in the narrow definition of strategy proposed in the questionnaire
(see section 5.1 above). Another reason could be that technology and marketing may
have been regarded as the most effective business functions to fix unforeseen
‘emergency’ situations, whereas strategic reactions take time and are thus more limited.
A third possible explanation is that the majority of respondents perform rather
operational functions in their respective companies (see chapter 3), and therefore may
have assumed more operational points of view when completing the questionnaire.
                                                      ˆ
Organisation achieved an average mean score of x =1.78. It was thus considered an
important business function for cruise companies to cope with uncertainty. A look at the
individual mean scores x ={1.61; 1.49; 1.63; 2.38} explains the high standard deviation
   ˆ
of s =0.40. In coping with uncertainty originating from within the cruise industry itself -
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                           page 21


demand, competition, distribution - the role of organisation was considered important or
even very important, whereas in the face of uncertainty related to the economic and
political environment of the cruise industry, organisation was rated less important
( x =2.38).
                                    ˆ
With an average mean score of x =1.92, human resources were only placed on fifth
position in the ranking of the most effective business functions for coping with
uncertainty in the cruise industry. Given the fact that nine out of 33 respondents were HR
managers, this result could be expected to be biased. However, a statistical test4
comparing the replies of HR managers with those of all other respondents did not reveal
a significant difference. In other words, HR managers did not systematically rate the
human resource function higher or lower than everybody else.
                            ˆ
The standard deviation of s =0.23 and individual mean scores x ={1.75; 1.69; 2.13;
2.11} are inconspicuous, confirming that human resource management was not regarded
as a very important business function with respect to any source of uncertainty.
Capacity management was considered the least universal business function for coping
with uncertainty from the different sources. Its average mean score of x =2.12   ˆ
                                                                   ˆ
(“important”) is associated with a very high standard deviation of s =0.59, which results
from the diversity of individual mean scores x ={1.63; 1.76; 2.93; 2.15}. Naturally, the
respondents felt that capacity management is most effectively applied when dealing with
demand-side and competitive uncertainty, since capacity management is about the cost-
efficient adjustment of a companies’ capacities to market demand and to the
competitors’ capacity supply.
The business function considered to be least effective in coping with uncertainty in the
                                                              ˆ
cruise industry was finance. Its average mean score of x =2.57 shows that the
respondents regarded financial management only as less important. The low standard
             ˆ
deviation of s =0.17 and the individual mean scores x ={2.38; 2.52; 2.77; 2.63} indicate
that this judgement was made consistently with respect to the different sources of
uncertainty.




4
 A two-sided test using the normal distribution did not reveal a significant difference between the two
sample means at a 5% level of significance.
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty          page 22


6 Some implications of uncertainty for the cruise industry
Overall, the findings of this study suggest that three years after the 9/11 attacks,
uncertainty in the cruise industry remains on a high level. In various respects, future
developments are expected to bring about even more uncertainty. The respondents of
the empirical survey clearly did not believe that the clock could be turned back, and that
the world, and with it the cruise industry, would return to the more stable conditions of
the past.


6.1 Scenario building
The factors of uncertainty with the highest expected rates of change (i.e. the lowest
scores for the period 2004 - 2010) were:
•   Sales of cruises via the Internet ( x =1.59)
•   Expert cruise know-how expected from travel agents ( x =1.63)
•   Degree of concentration in travel retailing ( x =1.74)
•   Customers’ cruise-specific know-how ( x =1.82)
•   New concepts; product differentiation ( x =1.85)
All of these factors are industry-internal, and not the results of changes in the economic
or political environment. So, according to the respondents of the survey, the greatest
drivers of uncertain dynamics lie within the cruise industry. Companies should observe
these factors and develop scenarios of how they might shape the industry landscape in
the future. Such a scenario development could also be taken care of by a cruise industry
association, or by a neutral research institution. In any case, concrete scenarios would
help all players to cope better with the uncertainty.


6.2 Reactive versus proactive approach
Beyond that, cruise lines should consider making a conscious and fundamental decision
about the way they want to deal with uncertainty. Such a decision could force managers
to face the reality that things may be less predictable and controllable than they would
like them to be.
The first alternative would be to adopt a reactive approach, where they take ad-hoc
action when fate - or uncertainty - strikes. Sufficient flexibility and responsiveness to
changing operating conditions provided, a reactive approach could prove cheaper and
less complicated. Especially when decisions can be made and implemented quickly, like
in the case of an owner-manager, a more formal, strategic approach may be unnecessary
and rather obstructive than helpful. Therefore, the decision to follow that road may be
especially attractive for smaller, less bureaucratic cruise companies.
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty              page 23


The alternative would be to take a proactive stance by systematically anticipating
possible future developments, by preparing contingency plans and counter-strategies,
and by trying to actively influence some of the factors of uncertainty. This proactive
approach is organisationally and technically quite demanding. It requires the installation
of a risk monitoring system, a permanent risk analysis and evaluation, sets of policies for
handling risk in order to decentralise decisions, and a disciplined management which
respects the rules. All in all, this more sophisticated approach may be better suited for
large, less entrepreneurial cruise companies, with many levels of hierarchy, operations in
several countries, and also the financial resources to build up and run the necessary
systems.


6.3 Role and priority of business functions
Independent from the specific approach to dealing with uncertainty, there seem to be a
number of measures that should be taken in any case. The respondents largely agreed
that certain business functions were much more useful than others in coping with
uncertainty from different sources. This assumes of course, that the business functions
are performed effectively. Therefore, it seems recommendable for cruise companies to
review the performance of these functions in their own businesses with respect to
different sources of uncertainty. If high uncertainty is really here to stay, the key business
functions should become
•   priorities for performance optimisation,
•   priorities of budget increases,
•   priorities for special management education and trainings.
So much about the technical side of coping with the uncertainty. But equally important is
the right attitude. It is important that optimism and a positive spirit return to the cruise
industry.
This study has found, that while uncertainty in the period 2000 - 2004 was associated by
the respondents with a mix of risks and opportunities, future uncertainty until the year
2010 was seen more as a provider of more opportunities than risks for the cruise
industry. This looks like the kind of spirit needed to tackle the uncertain challenges that
lie ahead.
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                                                 page 24


Appendix A: Questionnaire

Survey: The Impact of Uncertainty on the Cruise Industry


Dear [name or ‘Respondent’]:

In autumn 2003, Bremerhaven University of Applied Sciences, located on the shore of the German North Sea, has launched the
first degree course in Cruise Industry Management worldwide. It is a 3-year Bachelor programme which has been developed in
cooperation with major cruise companies in Germany.

With the present survey we want to explore the impact of uncertainty on the cruise industry. The information gathered will be
used to prepare a research report. It can further help us to adjust our study programme to the specific needs of the cruise
industry with regards to the handling of uncertainty.

We kindly ask you to contribute to our study by completing this questionnaire and returning it before the end of April 2004 to:

          Hochschule Bremerhaven
          Prof. Dr. Michael Vogel
          An der Karlstadt 8
          27568 Bremerhaven
          Germany
Alternatively, you can fax it to +49 471 4823 285, attn. Michael Vogel.

If you are not able to answer a question, or if you are not allowed to disclose certain information, please leave the line blank. All
answers will be treated confidentially. No information that can be associated with you or with your company will be given to third
parties in any form.

In return for your completed questionnaire you will receive a copy of the final report via email.

Your participation is very much appreciated.




Part 1: Respondent and Company



1.1 What are your company’s name and address?




1.2 What is your name, phone number and email address?




1.3 What is your job title or function in your company?


1.4 What is your company’s Internet address?


1.5 How many employees does your company have?                      0 - 20     20 - 100      100 - 500      500 - 2000      > 2000
                                                                       ❍            ❍              ❍             ❍             ❍

1.6 Which term describes your company best?                        Shipping company       Tour operator     Travel Agency    Other
                                                                          ❍                    ❍                   ❍          ❍
1.7 What type of cruises does your company offer?                  Ocean          Coastal           River      Ferry        Others
                                                                     ❍             ❍                 ❍          ❍             ❍

1.8 In which countries / markets does your company sell its
cruises?


1.9 Do you want to receive information about the study                                Yes                     No
programme in Cruise Industry Management?                                              ❍                       ❍
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                                 page 25


Part 2: Demand

According to you, how much have the following factors            strong                  no                strong
changed in your market since 2000?                               increase              change            decrease
                                                                    1            2        3          4        5
2.1 Demand for cruises                                             ❍             ❍        ❍          ❍        ❍
2.2 Sensitivity of demand with respect to price                    ❍             ❍        ❍          ❍        ❍
2.3 Share of late bookers (< 30 days prior to departure)           ❍             ❍        ❍          ❍        ❍
2.4 Predictability of demand                                       ❍             ❍        ❍          ❍        ❍
2.5 Customers’ cruise-specific know-how                            ❍             ❍        ❍          ❍        ❍
2.6 Customers’ uncertainty due to geopolitical situation           ❍             ❍        ❍          ❍        ❍


According to you, how much will the following factors            strong                  no                strong
change in your market until 2010?                                increase              change            decrease
                                                                    1            2        3          4        5
2.7 Demand for cruises                                             ❍             ❍        ❍          ❍        ❍
2.8 Sensitivity of demand with respect to price                    ❍             ❍        ❍          ❍        ❍
2.9 Share of late bookers (< 30 days prior to departure)           ❍             ❍        ❍          ❍        ❍
2.10 Predictability of demand                                      ❍             ❍        ❍          ❍        ❍
2.11 Customers’ cruise-specific know-how                           ❍             ❍        ❍          ❍        ❍
2.12 Customers’ uncertainty due to geopolitical situation          ❍             ❍        ❍          ❍        ❍


                                                                 mainly              opportunities         mainly
                                                                 opportunities         and risks            risks
                                                                   1             2        3          4       5
2.13 What did the changes on the demand side since 2000
                                                                   ❍             ❍        ❍          ❍        ❍
mean for your company?
2.14 What will the expected changes on the demand side
                                                                   ❍             ❍        ❍          ❍        ❍
until 2010 mean for your company?


How important will the following functions be for your            very                                        not
company to cope with these demand-side changes?                  important                               important
                                                                    1            2        3          4        5
2.15 Technology (e.g. IT infrastructure, data networks,
                                                                   ❍             ❍        ❍          ❍        ❍
knowledge-based systems, reservation systems)
2.16 Organisation (e.g. responsibilities, (de-)centralisation,
                                                                   ❍             ❍        ❍          ❍        ❍
distribution of tasks, processes, outsourcing)
2.17 Human resources (e.g. recruitment policy, training,
                                                                   ❍             ❍        ❍          ❍        ❍
management development, headcount reductions)
2.18 Strategy (e.g. company objectives, business model,
                                                                   ❍             ❍        ❍          ❍        ❍
acquisitions, alliances, new markets)
2.19 Capacity management (e.g. own ships, charter
                                                                   ❍             ❍        ❍          ❍        ❍
contracts, occupancy guarantees, distribution capacity)
2.20 Marketing (e.g. target group definition, CRM, cruise ship
                                                                   ❍             ❍        ❍          ❍        ❍
concepts, product development, pricing, communication)
2.21 Finance (e.g. capital lockup, debt ratio, raising equity,
                                                                   ❍             ❍        ❍          ❍        ❍
sell and lease back)
2.22 Other (please specify)
                                                                   ❍             ❍        ❍          ❍        ❍
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                                 page 26


Part 3: Competition

According to you, how much have the following factors            strong                  no                strong
changed in your market since 2000?                               increase              change            decrease
                                                                    1            2        3          4        5
3.1 Overcapacities                                                 ❍             ❍        ❍          ❍        ❍
3.2 Market entries of new competitors                              ❍             ❍        ❍          ❍        ❍
3.3 Degree of concentration among cruise companies                 ❍             ❍        ❍          ❍        ❍
3.4 Insolvencies and market exits                                  ❍             ❍        ❍          ❍        ❍
3.5 New product concepts; product differentiation                  ❍             ❍        ❍          ❍        ❍
3.6 Price level of cruises                                         ❍             ❍        ❍          ❍        ❍


According to you, how much will the following factors            strong                  no                strong
change in your market until 2010?                                increase              change            decrease
                                                                    1            2        3          4        5
3.7 Overcapacities                                                 ❍             ❍        ❍          ❍        ❍
3.8 Market entries of new competitors                              ❍             ❍        ❍          ❍        ❍
3.9 Degree of concentration among cruise companies                 ❍             ❍        ❍          ❍        ❍
3.10 Insolvencies and market exits                                 ❍             ❍        ❍          ❍        ❍
3.11 New product concepts; product differentiation                 ❍             ❍        ❍          ❍        ❍
3.12 Price level of cruises                                        ❍             ❍        ❍          ❍        ❍


                                                                 mainly              opportunities         mainly
                                                                 opportunities         and risks            risks
                                                                   1             2        3          4       5
3.13 What did the changes in the competitive environment
                                                                   ❍             ❍        ❍          ❍        ❍
since 2000 mean for your company?
3.14 What will the expected changes in the competitive
                                                                   ❍             ❍        ❍          ❍        ❍
environment until 2010 mean for your company?


How important will the following functions be for your            very                                        not
company to cope with these competitive changes?                  important                               important
                                                                    1            2        3          4        5
3.15 Technology (e.g. IT infrastructure, data networks,
                                                                   ❍             ❍        ❍          ❍        ❍
knowledge-based systems, reservation systems)
3.16 Organisation (e.g. responsibilities, (de-)centralisation,
                                                                   ❍             ❍        ❍          ❍        ❍
distribution of tasks, processes, outsourcing)
3.17 Human resources (e.g. recruitment policy, training,
                                                                   ❍             ❍        ❍          ❍        ❍
management development, headcount reductions)
3.18 Strategy (e.g. company objectives, business model,
                                                                   ❍             ❍        ❍          ❍        ❍
acquisitions, alliances, new markets)
3.19 Capacity management (e.g. own ships, charter
                                                                   ❍             ❍        ❍          ❍        ❍
contracts, occupancy guarantees, distribution capacity)
3.20 Marketing (e.g. target group definition, CRM, cruise ship
                                                                   ❍             ❍        ❍          ❍        ❍
concepts, product development, pricing, communication)
3.21 Finance (e.g. capital lockup, debt ratio, raising equity,
                                                                   ❍             ❍        ❍          ❍        ❍
sell and lease back)
3.22 Other (please specify)
                                                                   ❍             ❍        ❍          ❍        ❍
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                                 page 27


Part 4: Distribution

According to you, how much have the following factors            strong                  no                strong
changed in your market since 2000?                               increase              change            decrease
                                                                    1            2        3          4        5
4.1 Degree of concentration in travel retailing                    ❍             ❍        ❍          ❍        ❍
4.2 Commission rates for cruise distribution                       ❍             ❍        ❍          ❍        ❍
4.3 Expert cruise know-how expected from travel agents             ❍             ❍        ❍          ❍        ❍
4.4 Share of direct sales in total cruise sales                    ❍             ❍        ❍          ❍        ❍
4.5 Sales of cruises via the Internet                              ❍             ❍        ❍          ❍        ❍


According to you, how much will the following factors            strong                  no                strong
change in your market until 2010?                                increase              change            decrease
                                                                    1            2        3          4        5
4.6 Degree of concentration in travel retailing                    ❍             ❍        ❍          ❍        ❍
4.7 Commission rates for cruise distribution                       ❍             ❍        ❍          ❍        ❍
4.8 Expert cruise know-how expected from travel agents             ❍             ❍        ❍          ❍        ❍
4.9 Share of direct sales in total cruise sales                    ❍             ❍        ❍          ❍        ❍
4.10 Sales of cruises via the Internet                             ❍             ❍        ❍          ❍        ❍


                                                                 mainly              opportunities         mainly
                                                                 opportunities         and risks            risks
                                                                   1             2        3          4       5
4.11 What did the changes in cruise distribution since 2000
                                                                   ❍             ❍        ❍          ❍        ❍
mean for your company?
4.12 What will the expected changes in cruise distribution
                                                                   ❍             ❍        ❍          ❍        ❍
until 2010 mean for your company?


How important will the following functions be for your            very                                        not
company to cope with distribution-related changes?               important                               important
                                                                    1            2        3          4        5
4.13 Technology (e.g. IT infrastructure, data networks,
                                                                   ❍             ❍        ❍          ❍        ❍
knowledge-based systems, reservation systems)
4.14 Organisation (e.g. responsibilities, (de-)centralisation,
                                                                   ❍             ❍        ❍          ❍        ❍
distribution of tasks, processes, outsourcing)
4.15 Human resources (e.g. recruitment policy, training,
                                                                   ❍             ❍        ❍          ❍        ❍
management development, headcount reductions)
4.16 Strategy (e.g. company objectives, business model,
                                                                   ❍             ❍        ❍          ❍        ❍
acquisitions, alliances, new markets)
4.17 Capacity management (e.g. own ships, charter
                                                                   ❍             ❍        ❍          ❍        ❍
contracts, occupancy guarantees, distribution capacity)
4.18 Marketing (e.g. target group definition, CRM, cruise ship
                                                                   ❍             ❍        ❍          ❍        ❍
concepts, product development, pricing, communication)
4.19 Finance (e.g. capital lockup, debt ratio, raising equity,
                                                                   ❍             ❍        ❍          ❍        ❍
sell and lease back)
4.20 Other (please specify)
                                                                   ❍             ❍        ❍          ❍        ❍
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                                    page 28


Part 5: Economic and Political Environment

According to you, how much have the following factors            strong                  no                   strong
changed in your market since 2000?                               increase              change               decrease
                                                                    1            2        3          4           5
5.1 Disposable household income                                    ❍             ❍        ❍          ❍             ❍
5.2 General propensity to consume                                  ❍             ❍        ❍          ❍             ❍
5.3 Uncertainty about the future economic situation                ❍             ❍        ❍          ❍             ❍
5.4 Impact of political crises on the cruise industry              ❍             ❍        ❍          ❍             ❍
5.5 Safety and security regulations in the cruise industry         ❍             ❍        ❍          ❍             ❍
5.6 Uncertainty about the future geopolitical situation            ❍             ❍        ❍          ❍             ❍


According to you, how much will the following factors            strong                  no                   strong
change in your market until 2010?                                increase              change               decrease
                                                                    1            2        3          4           5
5.7 Disposable household income                                    ❍             ❍        ❍          ❍             ❍
5.8 General propensity to consume                                  ❍             ❍        ❍          ❍             ❍
5.9 Uncertainty about the future economic situation                ❍             ❍        ❍          ❍             ❍
5.10 Impact of political crises on the cruise industry             ❍             ❍        ❍          ❍             ❍
5.11 Safety and security regulations in the cruise industry        ❍             ❍        ❍          ❍             ❍
5.12 Uncertainty about the future geopolitical situation           ❍             ❍        ❍          ❍             ❍


                                                                 mainly              opportunities               mainly
                                                                 opportunities         and risks                  risks
                                                                   1             2        3          4             5
5.13 What did the changes in the economic and the political
                                                                   ❍             ❍        ❍          ❍             ❍
environment since 2000 mean for your company?
5.14 What will the expected changes in the economic and the
                                                                   ❍             ❍        ❍          ❍             ❍
political environment until 2010 mean for your company?


How important will the following functions be for your            very                                           not
company to cope with these changes in its environment?           important                                  important
                                                                    1            2        3          4           5
5.15 Technology (e.g. IT infrastructure, data networks,
                                                                   ❍             ❍        ❍          ❍             ❍
knowledge-based systems, reservation systems)
5.16 Organisation (e.g. responsibilities, (de-)centralisation,
                                                                   ❍             ❍        ❍          ❍             ❍
distribution of tasks, processes, outsourcing)
5.17 Human resources (e.g. recruitment policy, training,
                                                                   ❍             ❍        ❍          ❍             ❍
management development, headcount reductions)
5.18 Strategy (e.g. company objectives, business model,
                                                                   ❍             ❍        ❍          ❍             ❍
acquisitions, alliances, new markets)
5.19 Capacity management (e.g. own ships, charter
                                                                   ❍             ❍        ❍          ❍             ❍
contracts, occupancy guarantees, distribution capacity)
5.20 Marketing (e.g. target group definition, CRM, cruise ship
                                                                   ❍             ❍        ❍          ❍             ❍
concepts, product development, pricing, communication)
5.21 Finance (e.g. capital lockup, debt ratio, raising equity,
                                                                   ❍             ❍        ❍          ❍             ❍
sell and lease back)
5.22 Other (please specify)
                                                                   ❍             ❍        ❍          ❍             ❍




Thank you very much for participating in this survey! Now please do not forget to send back the questionnaire.
              Sources of uncertainty   Factors of uncertainty
                                       Demand for cruises
                                       Sensitivity of demand with respect to price
              Related to the           Share of late bookers (< 30 days prior to departure)
              demand-side              Predictability of demand
                                       Customers’ cruise-specific know-how
                                       Customers’ uncertainty about the geopolitical situation

                                       Overcapacities
                                       Market entries of new competitors
                                       Degree of concentration among cruise companies
              Competition-related
                                       Insolvencies and market exits
                                       New product concepts; product differentiation
                                       Price level of cruises
Uncertainty
                                       Degree of concentration in travel retailing
                                       Commission rates for cruise distribution
                                                                                                 Appendix B: Hierarchic decomposition of uncertainty




              Related to the
                                       Expert cruise know-how expected from travel agents
              sell-side
                                       Share of direct sales in total cruise sales
                                       Sales of cruises via the Internet
                                                                                                                                                       M. P. Vogel: International Cruise Industry - Coping with the Uncertainty




                                       Disposable household income
                                       General propensity to consume
              Related to the
                                       Uncertainty about the future economic situation
              economic and
                                       Impact of political crises on the cruise industry
              political environment
                                       Safety and security regulations in the cruise industry
                                       Uncertainty about the future geopolitical situation
                                                                                                                                                       page 29
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                              page 30


          Appendix C: Importance of business functions to cope with uncertainty

Technology                                                                      1.36           1.25
                                 Demand-side uncertainty
Marketing                        All types of uncertainty                  1.46           1.38

Strategy                                                                1.61          1.52

Organisation                                                     1.78            1.61

Human Resources                                           1.92             1.75

Capacity Management                              2.12                            1.63


Finance                            2.57            2.38

                        3.00              2.50                                  1.50                 1.00

                   less important                       important                     very important

Fig. B1: Comparison of mean scores for the importance of different business functions to
cope with demand-side uncertainty and with all types of uncertainty combined


Technology                                                                      1.36          1.31
                                 Competitive uncertainty
Marketing                        All types of uncertainty                       1.38         1.34


Strategy                                                                1.61              1.38

Organisation                                                     1,78                  1.49

Human Resources                                           1.92                 1.69

Capacity Management                              2,12                     1.76


Finance                            2.57
                                            2.52
                        3.00              2.50                                  1.50                 1.00

                   less important                       important                     very important

Fig. B2: Comparison of mean scores for the importance of different business functions to
cope with competition-related uncertainty and with all types of uncertainty combined
M. P. Vogel: International Cruise Industry - Coping with the Uncertainty                          page 31




Technology                                                                   1.36               1.13
                                 Sell-side uncertainty
Marketing                        All types of uncertainty                   1.38           1.25


Strategy                                                    1.88             1.61

Organisation                                                  1.78           1,63

                                                 2.13
Human Resources                                                    1.92

Capacity Management             2.93             2,12


Finance                     2.77            2.57

                        3.00              2.50                               1.50               1.00

                   less important                       important                 very important

Fig. B3: Comparison of mean scores for the importance of different business functions to
cope with sell-side uncertainty and with all types of uncertainty combined



Technology                                                    1.75                       1.36

                             Environment-related uncertainty
Marketing                                                             1.47              1.38
                             All types of uncertainty

Strategy                                                           1.66          1.61

Organisation                              2.38                            1.78

Human Resources                                    2.11            1.92

Capacity Management                              2.15       2,12


Finance                            2.63     2.57

                        3.00              2.50                               1.50               1.00

                   less important                       important                  very important

Fig. B4: Comparison of mean scores for the importance of different business functions to
cope with environment-related uncertainty and with all types of uncertainty combined

								
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