May 4, 2006Megan Dow, Kristin Belanger, Angèle Bourgoin Royal Caribbean Cruises Ltd. Megan Dow,...

May 4, 2006 Megan Dow, Kristin Belanger, Angèle Bourgoin

Royal Caribbean Cruises Ltd.

Megan Dow, Kristin BelangerAngèle Bourgoin

http://www.royalcaribbean.com/home.do;jsessionid=0000CR84IuGkFSgE1X_QL_25LOe:10ktdmnut?cS=MHDR


Overview of Royal Caribbean

• Overview of WAL-Mart• History• Stocks• Stock Information• The Divisions • BCG• Their Mission and Vision

Statement• New Mission and Vision

Statement• External Opportunities and

Threats– CPM– EFE

• Internal Strengths and Weaknesses– IFE

• Analysis– SWOT Matrix– SPACE– IE Matrix– Grand Strategy Matrix

• Key Ratios• Different Strategies

– QSPM• Decisions• EPS/EBIT Analysis• Implementation• Evaluation• Update!• References• Questions?



Overview

• Operates 26 ships under two brands– Royal Caribbean International– Celebrity Cruises

• Over 200 destinations– Caribbean– North America– South America– Europe



History• 1968• Three Norwegian shipping companies

– Anders Wilhelmsen & Company– I.M. Skauge & Company– Gotaas Larsen

• 1970– First Royal Caribbean Ship sails

• 1971– Concept of air/sea vacations– Fly guests to Miami from all over N.A.

• 1972– Three ships offer 7 and 14 night cruise vacations from Miami

to Caribbean• 1978

– Passenger boat was split and mid-section was added – from 700 passengers to 1,000



History Cont.• 1986

– Labadee, Royal Caribbean’s own exclusive destination, opens cost of Hispaniola

• 1988– Royal Caribbean and Admiral Cruises merge– A 73,192-ton ship for 2,350 guests sets sail as Royal Caribbean triples

in size• 1991

– CruiseMatch 2000 – a fully automated cruise vacation reservations system with access to over 29,000 travel agents

• 1993 – Royal Caribbean goes public under ticker symbol “RCL”

• 1995 – 25th Anniversary

• 1997– Royal Caribbean Cruise Lines changes name to Royal Caribbean

International – Celebrity Cruises merges with Royal Caribbean Cruises Ltd.



Important Facts

• It is the 51st consecutive quarter Royal Caribbean's Board of Directors has voted to declare a dividend to shareholders. April 28th they decided to give a dividend of 15 cents.

• Royal Caribbean executive nets $6.6M in sale of shares.

• A new ship is going to sale soon, Freedom of the seas.

• Only 10% of vacationing public in the United States.



RCL

• Services: Sector• Industry: General Entertainment• Full Time Employees: 111,690• Index Membership: NYSE



RCL



RCL vs. Industry



RCL Competitors



RCL Historical



Organizational Structure

Richard FainChairman

Luis LeonCFO,

Executive VP

Bonnie BiumiSr. VP,

Treasurer

Jack WilliamsPresident and COO

Adam GoldsteinExecutive VP,

Brand Ops

Royal CaribbeanCelebrity Cruises



Important FactsKEY EXECUTIVES

Pay Exercised

Mr. Richard Fain , 58

$ 3.69M $0 Chairman and Chief Exec. Officer

Mr. Luis E. Leon , 53

$ 1.52M $0 Chief Financial Officer and Exec. VP

Mr. Adam M. Goldstein , 46

$ 1.41M $0 Pres of Royal Caribbean International

Mr. Daniel J. Hanrahan , 48

$ 979.00K $0 Pres of Celebrity Cruises

Mr. Brian J. Rice , 47

$ 875.00K $0 Exec. VP of Revenue Performance



Their Mission Statement• Royal Caribbean Cruises LTD. Strives to:

– Compete principally on the basis of quality of ships, quality of service, variety of itineraries, and price.

– Improve our competitive position with respect to the quality and innovation of our on-board product and state-of-the-art cruise ships.

– Serve markets and provide itineraries worldwide– Value its employees as the company’s most valuable asset.

They are counted on to represent the company professionally and do the utmost to serve the company’s customers.

– Value the environment and remain committed to protecting and preserving environmental resources and preventing pollution.

– Maintain strong relationships with travel agencies, the principal industry distribution system.

– Participate in and make grants to numerous community charity organizations with priority to those helping children and families and education and the environment.



Their Vision Statement

• Royal Caribbean Cruises LTD. will build on its reputation of an unwavering commitment to service and a desire to deliver the best cruise vacation possible. Our 27,300 employees are singularly focused on one goal: providing the highest level of service and the best vacation experience on land or sea.



New Mission Statement

• Royal Caribbean International is for everyone ranging from active adults to families who are vacation enthusiasts interested in exploring new destinations and seeking new experiences. We serve markets and provide itineraries worldwide, which we plan to expand more in, as well as capital expansion. Our new technological software will make our operations run better in keeping our unwavering commitment to service and a desire to deliver the best cruise vacation possible. Employees are of great significance to the companies well being. We value being environmentally safe and helping out the communities by donating to charities.



New Vision Statement

• To be the leading Cruise Line and leader in market share by providing the highest level of service and the best vacation experience both on land or sea.



Fleet Deployment (2003)• Domestic

– Baltimore, MD– Boston, MA– Charleston, SC– Fort Lauderdale, FL– Galveston, TX– Honolulu, HA– Jacksonville, FL– Los Angeles, CA– Miami, FL– New Orleans, LA– New York, NY– Philadelphia, PA– Port Canaveral, FL– San Diego, CA– San Francisco, CA– Seward, AK– Tampa, FL

• International– Barcelona, Spain– Buenos Aires, Argentina– Dover, England– Ensinada, Mexico– Hamburg, Germany– Harwich, England– Oslo, Norway– Rome, Italy– San Juan, Puerto Rico– S. Hampton, England– Stockholm, Sweden– Valparaiso, Chile– Vancouver, B.C.– Venice, Italy



Issues

• Global• Capital Expansion Issues• Passenger Safety Issues• Finance Issues• Marketing Issues• eCommerce Issues• Economic Issues• Suppliers’ Issues• Natural Environment Issues• Capacity Issues



Global Issues

• AAA increase in vacationers driving to destinations– Adding more and new itineraries

departing in different locations

• Expanded itineraries in Alaska and Europe

• Offered land-tour programs– Motorcoach or rail with railcars in

Alaska and Canadian Rockies



Capital Expansion Issues

• Driving revenue growth– Purchase new and larger ships

• Expanding the ships average size• Expanding Celebrity Cruise Line



Passenger Safety Issues

• Safety, health, security risks– Accidents, illnesses, and other incidents– War, terrorist attacks, hostilities

• Heightened security– 100% screening of luggage, carry-ons– 100% photo identification of passengers

and crew– Passengers are prescreened – Certain areas on boat restricted



Passenger Safety Issues cont.

• Aboard Magic – 100 people aboard contracted Norwalk virus

• Amsterdam– 450 passengers on four cruises suffered

flu

• Boat was sanitized by Center for Disease Control



Finance Issues

• Prices for cruise lines depends on luxuries– Destination, cruise length, cabin style,

time of year• Revenue from each passenger per day in 2002

was $190

• Suffered a 9% decrease in net income– Due to weak U.S. economy & Middle East

conflicts



Marketing Issues

• Contemporary segment– 7 days or shorter– Out of season vacationers

• Premium Segment– 7 to 14 days– Celebrity Cruises– Families eager to explore new

destinations/experiences– Spent $97.9 million on advertisement in

2002



eCommerce Issues

• Online booking– Virtual tour capabilities

• Electronic documents for passengers– Online access to shore excursion

• CruiseManager• Software packages

– Pricing, inventory, marketing actions• First company in industry to develop

automated booking system



Economic Issues

• U.S. economy recession in 2001• U.S. inflation rates in 2003 – low• Unemployment steady at 6%

– Hurts cruise industry• Lower operating margins and profits

• Fuel costs– Rising about 60%

• Better euro-dollar exchange



Suppliers’ Issues

• Suppliers include– Travel agency commissions– Food and related items– Port facility utilization– Airfare– advertising,– Fuel– Hotel supplies– Products related to guest accommodations– Shipyards

• Sometimes make poor quality, delay in ships, mechanical problems



Natural Environment Issues

• Environmental groups– Stringent regulations on ships

• Environmental and health and safety regulations– Could increase costs of compliance

• Instituted Safety and Environment position

• EPA – studies on waste water• Annual award program• Financially supporting ocean conservation

groups



Capacity Issues

• Increased 9% over 2002• Top 10 cruises carried over 2 million

passengers on 932 North American cruises



External Factors



Opportunities

1. Expansion of fleet has allowed RCCL increasing amount of destinations, itineraries, and markets

2. Flexible strategy, moving their fleets throughout the year to meet the seasonal demand

3. RCCL operates the websites with customer booking capabilities for both Royal Caribbean and Celebrity Cruises

4. Offers competitive price on goods and services offered from suppliers in packaged deals.

5. Demand for cruises has increased and is predicted to continue to increase



Threats

1. Terrorism2. Viral outbreaks3. Decreased tourism since 9/114. Challenging U.S. economy5. Environmental lobbyists 6. Illnesses aboard cruise ships7. Reports of physical attacks while on

board8. Carnival Corporation



EFEKey External Factors Weights Rating Weighted Score

0.0 to 1.0 1 to 4

Opportunities

Expansion of fleet has allowed RCCL increasing amount of destinations, itineraries, and markets. 0.05 3 0.15

Flexible strategy, moving their fleets throughout the year to meet seasonal demand 0.05 3 0.15

RCCL operates web sites with customer booking capabilities for both Royal Carribbean and Celebrity Cruises 0.05 3 0.15

Offers competitive price on goods and services offered from suppliers in packaged deals 0.05 3 0.15

Demand for cruises has increased and is predicted to continue increasing 0.15 4 0.6

Threats 0

Terrorism 0.1 3 0.3

Viral Outbreaks 0.05 3 0.15

Decreased tourism since 9/11 0.1 3 0.3

Challenging U.S. economy 0.05 3 0.15

Environmental Lobbyists 0.05 2 0.1

Illnesses aboard cruise ships 0.05 3 0.15

Reports of physical attacks while on board 0.05 2 0.1

Carnival Corporation 0.2 3 0.6

Totals 1 3.05



CPMRoyal Caribbean Carnival Corporation Star Cruises

Critical Success factors WeightsRatin

gWeighted

ScoreRatin

gWeighted

ScoreRatin

gWeighted

Score

0.0 to

1.0 1 to 4 1 to 4 1 to 4

Market Share 0.1 3 0.3 4 0.4 2 0.2

Inventory System 0.02 3 0.06 3 0.06 2 0.04

Financial Position 0.1 3 0.3 4 0.4 2 0.2

Product Quality 0.05 2 0.1 3 0.15 2 0.1

Consumer Loyalty 0.1 4 0.4 3 0.3 2 0.2

Sales Distribution 0.07 3 0.21 3 0.21 3 0.21

Global Expansion 0.1 4 0.4 4 0.4 3 0.3

Organization Structure 0.07 3 0.21 3 0.21 2 0.14

Production Capacity 0.1 3 0.3 3 0.3 2 0.2

Advertising 0.14 3 0.42 4 0.56 2 0.28

Customer Service 0.05 3 0.15 3 0.15 2 0.1

Price Competition 0.15 3 0.45 4 0.6 3 0.45

Management Experience 0.05 2 0.1 3 0.15 3 0.15

0 0 0

0 0 0

Totals 1 3.1 3.49 2.37



Internal Factors



Strengths

1. Increase net revenue yields2. Revenues growing3. Capital expansion of Celebrity Cruise

Line4. Expanding passenger capacity deal sign

Finland’s Kvaerner-Masa Yards to build bigger Ultra Voyager ships with capacity of 3,600

5. Using latest information technology software to manage operations



Weaknesses

1. During 2002 & 2003 RCCL experienced weaker margins due to pricing pressure caused by a weak U.S. economy, traveler safety concerns, and increasing capacity

2. Net income falling 3. Higher marketing costs due to reduced demand

because of weak economy and ongoing conflict in the Middle East

4. RCCL financed recent shop acquisitions by issuing debt

5. Highly leveraged with LT debt-to-equity ratio of 1.31



IFEKey Internal Factors Weights Rating Weighted Score

0.0 to 1.0 1 to 4

Internal Strengths

Increase net revenue yields 0.07 3 0.21

Revenues growing 0.2 3 0.6

Capital expansion of celebrity cruise line 0.2 4 0.8

Expanding passenger capacity deal signing with Finland's Kvaerner-Masa to build bigger UltraVoyager ships with capacity of 3,600

0.03 3 0.09

Using latest information technology software to manage operations

0.1 4 0.4

Internal Weaknesses

During 2002-2003 RCCL experienced weaker margins due to pricing pressure caused by weak US economy, traveler safety concerns, and increasing capacity 0.1 2 0.2

Net Income falling 0.05 1 0.05

Higher marketing costs due to reduced demand because of weak economy and ongoing conflict in the Middle East 0.05 2 0.1

RCCL financed recent shop acquisitions by issuing debt 0.1 2 0.2

Highly leveraged with LT Debt-to-Equity ratioof 1.31 0.1 2 0.2

Totals 1 2.85



SWOT Matrix



Space Matrix



IE Matrix



Grand Strategy Matrix



Matrix Analysis and SWOT Summary

Alternative Strategies IE SPACE GRAND COUNT

Forward Integration X X 2

Backward Integration X X 2

Horizontal Integration X X 2

Market Penetration X X 2

Market Development X X 2

Product Development X X 2

Concentric Diversification X X 2

Conglomerate Diversification X X 2

Horizontal Diversification X X 2

Joint Venture X 1

Retrenchment

Divestiture

Liquidation



Key Ratios

FINANCIAL HIGHLIGHTS

Fiscal Year

Fiscal Year Ends: 31-Dec

Most Recent Quarter (mrq): 31-Dec-05

Profitability

Profit Margin (ttm): 14.60%

Operating Margin (ttm): 17.78%

Management Effectiveness

Return on Assets (ttm): 4.69%

Return on Equity (ttm): 12.81%



Key Ratios con.

Income Statement

Revenue (ttm): 4.90B

Revenue Per Share (ttm): 23.777

Qtrly Revenue Growth (yoy): 6.70%

Gross Profit (ttm): 1.91B

EBITDA (ttm): 1.27B

Net Income Avl to Common (ttm): 663.47M

Diluted EPS (ttm): 3.26

Qtrly Earnings Growth (yoy): N/A



Key Ratios con.Balance Sheet

Total Cash (mrq): 125.39M

Total Cash Per Share (mrq): 0.594

Total Debt (mrq): 4.15B

Total Debt/Equity (mrq): 0.748

Current Ratio (mrq): 0.19

Book Value Per Share (mrq): 26.403999

Cash Flow Statement

Operating Cash Flow (ttm): 1.11B

Levered Free Cash Flow (ttm): -826.24M



• Expanding fleet by two boats with larger capacity for passengers

• Capital expansion to increase the amount of revenue to surpass the larger competitor Carnival Cruiseline

Different Strategies



QSPM



QSPM cont.



• We have decided to add two other boats to the entire fleet and they will be finished by May 2006 and 2008.

Decisions



EPS/EBIT Analysis

• Amount needed = $ 10 Million• Stock Price = $41.89 (on May 2,

2003)• EBIT Range = $5 to $8 Million• Tax Rate = 32%• Interest rate = 5%• # Shares Outstanding = 195.6

(million)



EPS/EBIT Analysis Royal Caribbean LTD.

In $Millions Stock Financing Financing

Low High Low High

EBIT (280.7 Million) 500 800 500 800

Interest 5% 0 0 25 40

EBT 500 800 475 760

Taxes 26% 130 208 130 208

EAT 370 592 345 552

# Shares Outstanding 195.60 195.60 119.36 190.97

EPS 1.89 3.03 2.89 2.89



• We will do debt financing on both the high and low because the numbers were equally the same and they were the best all around option.

Implementation



• Annual reports• Quarterly reports• Stock prices• Key Ratio’s• Progress of ship• Average number of passengers per

cruise

Evaluation



In The News…

• George Smith IV, a 26 year old man, tragically disappeared while on his honeymoon from the Brilliance of the Seas sometime in the early morning hours on July 5, 2005. The ship was sailing the Mediterranean Sea on a 12 day cruise to Turkey.– The reason for his disappearance is still

being investigated by the FBI



Update!

• Is still the second largest cruise line.

• As of December 31, 2005, it operated 19 cruise ships with approximately 44,350 berths. (rooms)

• A new ship is going to sail Freedom of the Seas, and will be the world’s largest cruise ship. Will occupy 3,634 passengers.

• Royal Caribbean believes that bigger is better, and ordered to have bigger ships built that can occupy 5,400 in the future.



• http://www.rcl.com• http://finance.yahoo.com• http://biz.yahoo.com• Business & Resource Premier• Strategic Management Concepts and

Cases

References

http://www.rcl.com/

http://finance.yahoo.com/

http://biz.yahoo.com/

http://biz.yahoo.com/



Questions?


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May 4, 2006Megan Dow, Kristin Belanger, Angèle Bourgoin Royal Caribbean Cruises Ltd. Megan Dow,...

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