(FORTUNE Magazine) – HIGH NOON on Lido Deck, somewhere in the Caribbean: As the cotton clouds play hide-and-seek with the sun, the gleaming white 48,000-ton cruise ship Jubilee, ! operated by Carnival Cruise Lines, slowly plies an ocean that is as flat as a tabletop. For the past hour passengers hailing from Everywhere, U.S.A., have been staking out lounge chairs near the enormous pool, the center of shipboard activities during the day. While an out-of-tune reggae band blasts Bob Marley songs in the background, the married men surreptitiously peer over their novels and newspapers at young girls barely clad in microscopic bikinis. Joe Rotelli, 24, a light-brown-haired Eurodollar trader in snug swim trunks, strolls on the scene, flanked by his five buddies, who include a business manager for a car dealer, a foreign-exchange broker, and a New York City cop. ''This is my second cruise in three months,'' says Rotelli, just one of the 400-plus singles among the Jubilee's 1,550 passengers. ''When I showed my boys the video from the first cruise, they got excited. We booked this one two weeks after I returned.'' Pleasure cruising, once a diversion for the well-heeled or nearly dead, has become a hit with the masses, and a $5-billion-a-year industry. The number of Americans who file up the gangplanks annually has gone up 600% since 1980, to more than three million, well above the growth rate of any other hospitality business. Seven days at sea, including air fare, three Caribbean ports of call, and all the food you can eat, costs as little as $1,000. As a result, 30% of today's passengers are between the ages of 25 and 39, and 58% are under 60, according to the Cruise Lines International Association. Nonetheless, only 5% of Americans have ever taken a cruise -- so a huge untapped market is waiting for someone. The likeliest someone is Carnival Cruise Lines, founded in 1972 by an Israeli-born billionaire named Ted Arison and run today out of Miami by his son, Micky, 39. Carnival's ships usually sail the Caribbean, although one cruises the Pacific from Los Angeles with stops in Mexico. Since 1980 Carnival's revenues have grown 30% annually, three times faster than the average for the cruise business as a whole. In 1987 the company -- which is publicly held, although the Arison family controls 80% of the stock -- earned $153 million on sales of $564 million, making it the largest operator in its industry. Why does Carnival rule the waves? The Arisons found and exploited a clientele with television-bred yearnings for glamour, and then kept them coming back with aggressive marketing and prices low enough to give most cruise operators the bends. Ted Arison started Carnival at the height of the energy crisis with one aging transatlantic liner he christened the Mardi Gras. Unfortunately, the ship guzzled fuel, forcing him to cut the number of Caribbean ports it visited and the speed at which it traveled. Since passengers would have to spend more time at sea, Arison installed a disco, a casino, and such other diversions as a movie theater and two nightclubs. The marketing people dubbed the Mardi Gras the ''Fun Ship,'' and the strategy was born. The Fun Ship itself became the destination, a novel approach in an industry that still emphasizes the ports of call over the shipboard experience. ''We had to survive,'' says Micky Arison, ''which meant turning the negatives into positives.'' Carnival could hardly compete as the Cadillac of cruises, so the Arisons began turning another negative into a positive by courting Chevrolet owners with vacations priced at least 20% below competing cruises. Today the average annual household income of Carnival passengers is $25,000 to $50,000. On a recent seven-day Caribbean jaunt aboard Carnival's $150 million Jubilee, many passengers were blue-collar entrepreneurs -- owners of auto supply shops, cleaning establishments, and fast-food franchises. About one in four was single, with unattached women slightly outnumbering men. There were also about 125 honeymooners aboard, some three-generation families, and a sprinkling of children under 12. MOST PAID $1,200 for a package that included air fare from their home cities to Miami -- the port of embarkation -- food, and entertainment. Louise and Peter O'Sullivan -- he owns an auto body shop in Hamilton, Ontario -- brought their two daughters, 8 and 10, for a grand total of $3,700, about what they spent last year to rent a motor home, drive to Florida, and visit Disney World. Drinks and gambling on board and shopping in port were extra. Tony DiLeone, one of Joe Rotelli's pals and a business manager for a Toyota dealership, brought along $1,200 in cash and spent most of it on gifts for his parents, three brothers and sisters, and a lady he met on the ship. To fill its ships Carnival advertises heavily on TV. Last year it spent $15 million on television advertising and promotion, more than virtually all the other players combined. It drives home the message that a Carnival holiday at sea is within reach of nearly every American. Says Sir Jeffrey Sterling, chairman of Britain's P&O Co., which owns Los Angeles-based Princess Cruises (No. 4 in the business): ''Carnival's marketing approach has been brilliant. Nobody has been able to truly compete in their niche.'' CARNIVAL is the most forceful marketer to travel agents in the industry, pushing the notion that a Carnival cruise is an alternative to a trip to Disneyland or Paris. Says Bob Dickinson, senior vice president of sales and marketing: ''Our market is the 150 million people who take vacations at hotels, not just the few million who go on cruises.'' Dickinson gets the travel agents' attention by sending around employees who pose as prospective clients. If the agent recommends a cruise first, the ''client'' hands him or her a $10 bill. If the agent's initial suggestion is more specific -- a Carnival cruise -- the visitor peels off $1,000 and forks it over on the spot. Carnival has awarded $500,000 to agents since Dickinson began this Mystery Vacationer promotion in 1981 -- and money talks. Virtually all passengers who sailed on the Jubilee during the week of November 6 said that a travel agent had recommended Carnival. As befits their status as destinations rather than mere transportation, Carnival's ships are floating resorts. The decor of the Jubilee, built in 1986, aims at luxury and hits Las Vegas. Art-nouveau etched glass is everywhere; the nine decks use enough Burmese teak to cover 17 basketball courts; lavender leather banquettes line the walls of one of the cocktail lounges. A pair of giant golden sea horses flank the stage of the Atlantis lounge, where entertainers put on revues every night and the burgundy glass walls are highlighted in gold leaf. The company reinforces the notion of the ship as resort by swamping the passengers with service. The ratio of guests to crew is 2 to 1. Room stewards are always nearby to tidy the cabin, serve breakfast in bed, or search the ship for a misplaced piece of luggage. Stewards will turn down beds and even lay out negligees, which they sculpt in the shape of a female body. Waiters who serve the pool and decks quickly learn the passengers' beverage preferences and appear unbidden with refills. DINNER is the day's big event. George Hondromihalis, the tall, Greek-born maitre d', drops by the tables to offer tips about the menu and flirts back unabashedly with the ladies. Each evening is built around a different theme -- Italian, French, Caribbean -- with waiters and busboys dressed to fit. On Caribbean night waiters balance trays filled with candles on their heads and implore female guests to dance around the room with them. In any given week the kitchen serves up ten tons of meat, seven tons of seafood and poultry, and 90,000 rolls, for a total cost of about $150,000. After it is prepared, the food gets decidedly mixed reviews. A young couple from Orange County, California, thought it so awful that they loaded up on pizza in Puerto Rico so they could skip a few meals on board. Kitty Kitchens Cutler, a bubbly 69-year-old honeymooner who is also the co-author of Gator Country Cooks, a Southern cookbook, rated the kitchen uneven, but many first- time cruisers thought the food was terrific. They were impressed with the amount, the variety, and the exotic names of dishes such as flambe carnivale and baked blue crab St. Thomas. Eating, drinking, and a daunting number of other activities go on nonstop. There are eight bars; room service is available 24 hours a day, vs. 16 for some lines; the dining rooms serve three full meals daily, with two seatings for each, plus two midnight buffets; and sandwiches, salads, and snacks are available from 6:30 A.M. Every afternoon pie-eating events, pillow fights, and contests to select the woman with the shapeliest legs and the man with the hairiest chest take place at poolside. Passengers can play bingo or shuffleboard, shoot skeet, or visit a fully equipped gym and sauna, a beauty parlor, or a gambling casino. For many, gambling is the main attraction. The Jubilee's ebony and rosewood Sporting Club, one of the largest casinos afloat, opens at 8:30 A.M. for the addicts who pump quarters into 120 slot machines. Around noon blackjack and other table games start as the more serious, albeit low-rolling, gamblers crowd in. But the Sporting Club does the biggest part of its business after dinner when passengers, now elegantly dressed, jam in toe to toe. Honeymooner Jeffery Wardell, 26, could usually be found at a blackjack table when formal meals were not being served. His bride, Barbara, 22, hit a $150 bingo jackpot one afternoon, but was usually loading the slot machines. ''We budgeted $1,500 for gambling on the cruise,'' says Jeffery, ''and we expected to lose it all.'' Lady Luck stood by them: When they tallied up, their losses totaled just $200.

Fortunately for Carnival, most gamblers are not as lucky as the Wardells. Carnival won't say how much it makes from gambling and liquor, but all shipboard purchases, which include liquor, gambling, and gift shop items, contribute 14% to revenues. Al Wallack, senior vice president of Chandris Fantasy Cruises, acknowledges that casino revenues are important, ''but they are not enough to make the difference between a successful and an unsuccessful cruise line.'' Operators make money by filling up the ship. According to analyst Peter R. McMullin of Gulfstream Financial Associates, a regional brokerage in Boca Raton, Florida, Carnival starts turning a profit when its ships are a little over 60% full, which he says is ''the lowest breakeven in the industry.'' Capacity is based on two people to a cabin, even though some rooms can accommodate four, and during 1987 Carnival's load factor averaged 112%. Carnival rarely discounts prices to fill those cabins, which is remarkable in an industry where the practice is widespread. Running a tight ship is ingrained in Carnival's culture. Being 16% larger than its nearest competitor, Royal Caribbean Cruise Line, Carnival gets better prices from suppliers based on volume alone. Company managers fight for every dime. ''When somebody raises the price 50 cents for something, that's a considerable increase,'' says Bob Dickinson. ''Multiply that 50 cents by the 580,000 passengers we serve each year, that's $290,000.'' Carnival's biggest expense, roughly 30% of the total, is air fare, because the price of a Carnival package nearly always includes a plane trip. Bob Dickinson boasts: ''Without getting any worse service from the airlines, we have always been able to get better prices than our competitors. On some of our West Coast routes, the prices we get are meaningfully cheaper, $100 to $150 less per person.'' When one of his competitors was negotiating the price of airline tickets, Dickinson says, he took the first offer. ''We would never blow an opportunity like that,'' he says. All that on-board service makes the cruise business labor-intensive, and wages are also a big cost, accounting for 13% to 15% of the total. (Travel agents' fees are the second-largest cost, at 20% to 24% of expenditures.) Waiters on the Jubilee earn $18,000 to $25,000 a year, according to the ship's food manager, Natko Nincevic. That includes tips and a base salary of about $11,000. The crew depends heavily on tips, and Carnival, like other cruise operators, advises passengers to tip cabin stewards and waiters a minimum of $17.50 per person, busboys $8.75. Tipping suggestions are printed in bold type in the welcome-aboard brochure, the ship's daily newspaper, and a special flier. ; The stewards, waiters, busboys, and other help hail from 51 nations, but most come from impoverished Third World countries and are willing to work up to 15 hours a day with only a half day off every other week. They keep that pace for ten straight months before getting an eight-week break. The National Maritime Union, now known as District 1 MEBA/NMU, has accused Carnival of overworking and exploiting its crews, but Micky Arison believes Carnival is being singled out because it is the biggest of the cruise lines whose ships all carry foreign flags. ''So we are the enemy,'' he reasons. ''The fact is, we couldn't have the Fun Ship product if the crew wasn't happy.'' If length of service is the measure of happiness, employment records support Arison's claim. For example, galley employees, who include waiters and busboys, remain with the company eight years on average. Now that Carnival controls the mass market for pleasure cruises, it wants to play in every niche of the industry. In a move that will give it entry into the premium market, the segment directly above its current level, Carnival recently agreed to buy Holland America Line for $625 million, which will boost its share of the total cruise market from 20% to 26%. The price was high, about 14 times Holland America's estimated 1988 earnings, substantially above Carnival's own multiple of 10. But Holland America dominates the large Alaska cruise market, and analyst Peter McMullin says, ''It's a good strategic fit.'' To compete in the very top of the market, Carnival has Project Tiffany in the works. At this stage the plan calls for the company to build three luxury liners, all equipped with suites instead of individual cabins, that will carry about 700 passengers apiece. But not to lose touch with its basic business, Carnival is in the midst of building three of the biggest passenger ships ever, at a total price of $600 million. Their names: the Fantasy, the Ecstasy, and the Sensation. Carnival has never been guilty of underselling.

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