MAY 3RD,2011

TRM 472.01

BUSINESS STRATEGY

CASE ANALYSIS:

“Carnival Corporation - 2007”

STUDENT: NEŞE 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 Corporation’s 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, Europe’s 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

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 America.

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.

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 Cruises 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 unique

land 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 company’s brands which are Royal Caribbean International, Celebrity Cruises,

and Azamara Cruises.

The other competitors of the Carnival Cruises can be listed 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 Corporation’s articles 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

company’s 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

They use their brands to reach every tier of the cruise market.

Regardless of the vacationer’s budget, itinerary, geography, demographics or

psychographics, they focus on providing services.

Company’s goal is to meet the needs of consumers seeking luxury, elegance,

shorter vacations, exotic destinations or land/sea packages.

Marketing

With Holland America, Windstar, Seabourn, Costa and Airtour’s Sun Cruises

brands they focus on every potential cruise customer whereas Carnival’s 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 savings, 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.

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 contemporary 20-30-

year 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

There is no information about their management information systems in the

case.

Operations

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 Corporation’s 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. Carnival’s 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: Current Assets / Current Liabilities =

1,995 / 5,145 = 0,38

As the current ratio is equal 1 or more than 1 means the company does not have any

liquidity problems. Carnival’s ratio indicates that the company 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

Cruise’s 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 Carnival’s 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

Carnival’s 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 indicates 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%. It’s 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 Carnival’s ratio, it is a high

one.

ROE: Net income / Common Equity =

2,279 / 18,210 = 0,12

ROE shows the company’s profitability by revealing how much profit it generates with

the money shareholders have invested. Carnival ROE’s indicates that company

generates profit and the equity is earning money.

Mission

“Our mission is to deliver exceptional vacation experiences through the world’s 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 Cruises are fully equipped to handle the entertainment of all the

passengers.

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

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 company’s profitability and increases the costs

heavily.

Investment in improving fleets increases costs and decreases profitability.

Opportunities

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

Competition can be severe in the future, because industry is growing.

Prediction of overcapacity for the industry. Industry may not grow as much as

the capacity. Everybody may not be ready for cruise vacation.

Seasonality, global warming

Natural disasters

Government regulations

Unemployment, reduction in discretionary income, inflation, recession, interest

rates, foreign exchange rates

Terrorism

Increasing fuel costs

Main Problem / Opportunity:

Untapped potential market is an opportunity to grow.

Possible Alternative Strategies:

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, company 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.