MAY3RD,2011

TRM 472.01 BUSINESS STRATEGY CASE ANALYSIS: Carnival Corporation - 2007

STUDENT:

NE E ROMAN

STUDENT ID: 2006104603 INSTRUCTOR: MARIA DOLORES ALVAREZ

Introduction

Carnival Cruise Lines was established in 1972. Carnival Corporation is incorporated in Panama and Carnival PLC is incorporated in England and Wales. They operate as dual listed company and their business combined through a number of contracts and provisions in Carnival Corporations articles of association . Over the years, Carnival has acquired many different companies which are targeting different market segments of the cruise industry. It acquired premium operator Holland American Line in 1989, the Windstar Cruises and Alaskan / Canadian tour operator Holland America Tours and luxury brand Seabourn Cruise line in 1992, contemporary operator, Europes leading cruise company Costa Cruises in 1997, premium/luxury operator Cunard Line in 1998, P&O Princess cruises in 2003. In 2007, Carnival is the leader of the cruise industry in the world, operating 81 cruise ships with 143,676 passenger capacity in North America, Europe, the United Kingdom, Germany, Australia and New Zealand.

External Environment

Industry y

Multinight cruise industry has had significant growth in recent years, but in terms of global vacation market, its share still remains small part of it.

The market of the industry is very sensitive to consumers discretionary income, so the consumers seek for different deals, discounts, other substitute vacation categories or destinations.

Majority of passengers comes from North America.

According to growth percentages, there is significant growth opportunity in Europe, Asia, Australia, New Zeland, South A merica.

Cruise ship companies are ordering and adding new fleets to their portfolio to meet the increased demand of cruise guests (in terms of cruise passenger numbers, more than 40% of growth is projected) sailing in the Asia Pacific region.

During early 2000, industry suffered from the 9/11, SARS and weak economic conditions.

Since 2004, both capacity and revenue increased in non -Caribbean product offerings.

Hurricanes, higher fuel costs, confidence in the Us economy as result of the Iraq war affected the industry.

Industry appeals to broad range of demographic groups and has a relatively high entry barrier but has a low penetration level.

y y

Environmental concerns and regulations affect the industry. To sum up seasonality, natural disasters, government regulations, environmental and health concerns, economic conditions, internal issues have a significant impact on the cruise industry.

Competition

In terms of competition, it is not very severe in the industry for now. Because Carnival Corporation is the industry leader but in according to future predictions there can be growth in industry which may result in increase in competition.

The most aggressive competitor of the Carnival Crui ses is Royal Caribbean Cruises which operates Royal Carribbean International, Celebrity Cruises, Pullmantur and Azamara Cruises. Company has 35 ships at sea and 6 of them under construction whereas Carnival Cruises has 81 ships at sea. Royal Carribbean offers wide range of on board activities to consumers such as swimming pools, beauty salons, exercise and spa facilities, sun decks, ice skating rinks and many more. They organize uniqueland tour vacations in Alaska, Asia, Australia, Canada, Europe, Latin America, and New Zeland. In 2007, they opened Royal Caribbean Cruises Pte Ltd (Asia Pacific headquarter) to support the marketing efforts of the Asia Pacific region of three of the companys brands which are Royal Caribbean International, Celebrity Cruises, and Azamara Cruises. The other competitors of the Carnival Cruises can be lis ted as: Royal Car, Star Cruises and TUI AG.

Internal Environment

Carnival Corporation incorporated in Panama, and Carnaval PLC is incorporated in England and Wales, Carnival Corporation and Carnival PLC operate as dual listed company (DLC) whereby the businesses of Carnival Corporation and Carnival are combined through provisions in Carnival Corporations artic les of association. In 2003 the company acquired P&O Princess Cruises, becoming a global vacation leader with 12 brands of 66 ships over 100,000 lower berths. Carnival in 2007, has 81 cruises with passenger capacity of 143,676.

Management

The organizational structure of the company is divisional. When we look at the companys chart, it is clear that company has a divisional structure by product. They have 9 different product lines which are Carnival Cruise Liners, Princess Cruises, Costa Cruises, Holland America Line, P&O Cruises, AIDA Cruises, Cunard Line, P&O Cruises Australia, Ocean Village, Swan Hellenic, Seabourn Cruise Line, Windstar Cruises.

Company Objectives
y y

They use their brands to reach every tier of the cruise market. Regardless of the vacationers budget, itinerary, geography, demographics or psychographics, they focus on providing services.

Companys goal is to meet the needs of consumers seeking luxury, elegance, shorter vacations, exotic destinations or land/sea packages.

Marketing
y

With Holland America, Windstar, Seabourn, Costa and Airtours Sun Cruises brands they focus on every potential cruise customer whereas Carnivals other brands targets the customers who looks for luxury, elegance, shorter vacations and exotic destinations.

Distribution channels of the company are travel agents including wholesalers and tour operators. Also, company accepts the telephone and internet bookings direct from customers.

Company has a partnership with major airline computer reservation systems such as SABRE, Galileo, Amadeus and Worldspan.

Websites, seminars and videos, direct response marketing, media (tv, magazine, newspaper, radio) and other promotional campaigns are used for marketing activities of the company.

Carnival has an interactive website which attracts customers by offering opportunity to scan locations, packages, prices, promotions and so on.

Company offers discounted cruises, singles cruises, resident discounts, different departure locations, VIP savi ngs, free personal customer service telephone, elderly packages, special meals, holiday packages, coupons via the Web and many other promotions.

Company has moved from its marketing strongly to first time and repeat customers.

y y

92% of the market is untapped . Carnival recognizes customers more than anything else , want to have fun and provides them ultimate fun experience.

Marketing has begun targeting the premium group, aging baby boomers and luxury affluent passengers. Now, Carnival targets the contemporar y 20-30year olds, singles, married couples and honeymooners, college students and families with teenage children.

Company had a unique opportunity in marketing with the restoration of Calipso.

MIS
y

There is no information about their management information systems in the case.

Operations
y

Carnival Corporation is incorporated in Panama and Carnival PLC is incorporated in England and Wales. They operate as dual listed company and their business combined through a number of contracts and provisions i n Carnival Corporations articles of association.

Carnival Corpotatin has signed agreements with shipyards for providing additional cruise ships to be released between 2007 and 2011.

According to demand in the industry, company may retire some of its older ships or may order additional fleets.

Finance
Carnival Corporation revenues come from mostly passenger tickets, onboard and other. As the company operates in service based industry, they heavily invest in customer service for its passengers as well as assisting travel agents. Company focused on building and/or obtaining bigger ships to satisfy economies of scale and consumer preferences. Carnivals revenues increased 49% to $4,321 billion, while net income increased 253 percent to 1,377 and this can be explained by decreasing cost and using economies of scale.
Financial Ratios

The Current Ratio :CurrentAssets / CurrentLiabilities =

1,995 / 5,145 = 0,38 As thecurrentratio is equal 1 ormorethan 1 meansthecompanydoes not haveanyliquidityproblems. Carnivalsratioindicatesthatthecompany has liquidity problem.

Quick Ratio:

Current assets Inventory / Current Liabilities= 1,995 263 / 5,145 = 0,33

Quick ratio overestimates the companies short term financial strength because it includes the inventory which can not be easily converted to cash The Carnival Cruises quick ratio looks low and company may have liquidty problem in short period of time.
Debt Ratio:

Total Debt / Total Assets = 12,342 / 30,552 = 0.40

As Carnivals debt ratio indicates, the companies 40% of assets are financed with debt. It is a good ratio.

Times Interest Earned:

EBIT / Interest Charges = 2,318 / 312= 7,42

Carnivals Times Interest Earned ratios shows that the company is able to meet its interest obligations because earning are significantly greater than annual interest charges.

Fixed Asset Utilization:

Sales / Net Fixed Assets = 11,839 / 23,458= 0,5$

The fixed asset utilization ratio indic ates that 1$ of assets creates 0.5$ interms of sales.

Profit Margin:

Net Income / Sales = 2,279 / 11,839 = 0,19

Carnival Profit Margin signals the profitability of the industry. Profit margin is 19%.Its a good ratio.

ROA:

Net Income / Total Assets = 2,279 / 465 = 4,90

ROA gives the clue of how effectively the company is converting money it has to invest into net income. The higher the ratio is better because it means the company is earning more money on less investment. In the case of Carnivals ratio, it is a high one.
ROE:

Net income / Common Equity = 2,279 / 18,210 = 0,12

ROE shows the companys profitability by revealing how much profit it generates with the money shareholders have invested. Carnival ROEs indicatesthat company generates profit and the equity is earning money.
Mission

Our mission is to deliver exceptional vacation experiences through the worlds best known cruise brands that cater to a variety of different lifestyles and budgets, all at an outstanding value unrivaled on land or at sea. In their mission statement they focus on customer and their cruise brand. They emphasize they target the different segments with their different brands.
Vision

Company does not have a mission statement.

SWOT

Strengths

Carnival is the leader of the industry, has a large fleet (81 ships) and operates 12 different cruise brands.

Carnival Cruisesarefullyequippedtohandlethe entertainment of allthepassengers.

With different brands, they attract different segments of the market and get more share from the market.

Obtaining bigger ships increasing capacity helps them to use economies of scale efficiently and decreasing their costs.

Carnival uses many marketing activities and techniques (websites, seminars and videos, direct response marketing, and variety of media such as tv magazine, newspaper, radio, and other promotional campaigns) and targets wide range of customers.

Weaknesses

y y y

Product differentiation is difficult for them. Delivery of cruises may take time. They are strong in North America, Europe, UK, Australia and New Zeland but Asia is still untapped market for them.

Their inventory which is the most expensive one is the cruise. A cruise accident may easily affect the companys profitability and increases the costs heavily.

Investment in improving fleets increases costs and decreases profitability.

Opportunities

y y y

Cruise industry is rapidly growing. 92 percent of the cruise market is untapped. Significant growth opportunity in Europe , Asia, Australia, New Zeland, South America

Threats y y

Competition can be severe in the future, because industry is growing. Prediction of overcapacity for the industry. Industry may not g row as much as the capacity. Everybody may not be ready for cruise vacation.

y y y y

Seasonality, global warming Natural disasters Government regulations Unemployment, reduction in discretionary income, inflation, recession, interest rates, foreign exchange rates

y y

Terrorism Increasing fuel costs

Main Problem / Opportunity:

Untapped potential market is an opportunity to grow.

Possible Alternative Strategies: y y y y

Horizontal Integration Market Penetration Market Development Product Development

Implementation

For the Horizontal Integration strategy, Carnival Corporation may acquire Royal Caribbean Cruises.

To get higher share in the untapped market of cruise industry, company can increase marketing activities. It may try to convince people to travel in cruise with different marketing activities. For instance, company can make agreements with banks and banks may offer free cruise vacation packages to their premium customers. So customers will have a chance to travel in cruises. To better penetration into market, comp any can offer loyalty cards to its customers to increase the repeated visit.

Carnival Cruises may use market development strategy and they can enter in to Asia Region.

Company may offer different products for different markets such as creating a concept for only honeymooners. A honeymoon cruise may only serve for this segment. Unique destinations and routes can be another alternative for the product development.