Carnival 2011

Forest David

A.

Case Abstract
Carnival is a comprehensive strategic management case that includes the companys year -end 2010 financial statements, organizational chart, competitor information and more. The case time setting is the year 2011. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Miami, Florida, Carnivals common stock is publicly traded under the ticker symbol CCL. The world's laregest cruise operator, Carnival operates a dozen cruise lines and about 100 ships with a total passenger capacity of more than 190,000. Carnival operates in North America primarily through its Princess Cruise Line, Holland America, and Seabourn luxury cruise brand, as well as its flagship Carnival Cruise Lines unit. Brands such as AIDA, P&O Cruises, and Costa Cruises offer services to passengers in Europe, and the Cunard Line runs luxury trans-Atlantic liners. Carnival operates as a dual-listed company with UK-based Carnival plc, forming a single enterprise under a unified executive team.

B.

Vision Statement (proposed)

Our vision is to be the world leader in the vacation industry.

C.

Mission Statement (proposed)

Our mission is to provide our valued customers with an unrivalled cruise vacation experience (1, 2). We believe that good ethics is good business and treat our employees like family (6, 9). We strive to provide state of the art cruise ships all over the world (3, 4). We follow all maritime regulations while making sure we are maximizing shareholders profit (5, 8). We also believe in giving back to our communities (7). 1. 2. 3. 4. 5. 6. 7. 8. 9. Customers Products or services Markets Technology Concern for survival, growth, and profitability Philosophy Self-concept Concern for public image Concern for employees

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D.

External Audit
Opportunities 1. 2. 3. 4. The number of cruise passengers increased by 1 million in 2009. Cruise industrys primary age group is expected to grow by 20 million people in the U.S. and Canada. Cruise industrys primary age group is expected to grow 12% in Western European countries. Travel and Tourism industry is expected to grow by 4% per year over the next decade all over the world. 5. North American cruise guests have a 95% satisfaction rate. 6. Major competitor Royal Caribbeans prices are much higher. 7. 90% of Americans have never been on a cruise. 8. Cruises only represent 2% of the overall vacation market. 9. 63% of cruise passengers are sourced from North America. 10. Young travelers prefer more modern and high-tech cruises. Threats 1. 2. 3. 4. 5. 6. 7. 8. 9. Mideast tension causing oil prices to rise. Currency risk- the U.S. dollar maybe losing its worth. Increasing unemployment rate causing people to cut excess spending. Gambling revenues are expected to decline 6%. Unexpected weather conditions. Pirate attacks and civil unrest. Rising costs of ship building. Long-term climate change and rises in sea level may threaten key destinations. Lack of availability of convenient and safe port destinations.

Competitive Profile Matrix

Carnival Critical Success Factors Advertising Consumer Loyalty Price Competiveness Product Quality E-commerce Global Expansion Customer Service Management Experience Production Capacity Sales Distribution Financial Position Org. Structure Totals Weight 0.12 0.09 0.10 0.08 0.07 0.11 0.09 0.05 0.07 0.07 0.09 0.06 1.00 Rating 4 4 4 2 1 4 3 2 4 3 4 1 Score 0.48 0.36 0.40 0.16 0.07 0.44 0.27 0.10 0.28 0.21 0.36 0.06 3.19

Royal Caribbean Rating 3 2 1 3 4 3 1 1 3 2 1 3 Score 0.36 0.18 0.10 0.24 0.28 0.33 0.09 0.05 0.21 0.14 0.09 0.18 2.25

Disney Rating 1 3 3 4 2 1 2 3 1 1 3 2 Score 0.12 0.27 0.30 0.32 0.14 0.11 0.18 0.15 0.07 0.07 0.27 0.12 2.12

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EFE Matrix
Weight Rating Weighted Score Opportunities 1. The number of cruise passengers increased by 1 million in 2009. 0.10 4 0.40 2. Cruise industrys primary age group is expected to grow by 20 0.10 4 0.40 million people in the U.S. and Canada. 3. Cruise industrys primary age group is expected to grow 12% in 0.04 3 0.12 Western European countries. 4. Travel and Tourism industry is expected to grow by 4% per year 0.04 3 0.12 over the next decade all over the world. 5. North American cruise guests have a 95% satisfaction rate. 0.05 3 0.15 6. Major competitor Royal Caribbeans prices are much higher. 0.07 4 0.28 7. 90% of Americans have never been on a cruise. 0.05 2 0.10 8. Cruises only represent 2% of the overall vacation market. 0.03 3 0.09 9. 63% of cruise passengers are sourced from North America. 0.04 3 0.12 10. Young travelers prefer more modern and high-tech cruises. 0.03 2 0.06

1. 2. 3. 4. 5. 6. 7. 8. 9.

Weight Rating Weighted Score Threats Mideast tension causing oil prices to rise. 0.12 2 0.24 Currency risk- the U.S. dollar maybe losing its worth. 0.06 3 0.18 Increasing unemployment rate causing people to cut excess 0.10 2 0.20 spending. Gambling revenues are expected to decline 6%. 0.04 2 0.08 0.01 3 0.03 Unexpected weather conditions. Pirate attacks and civil unrest. 0.01 4 0.04 Rising costs of ship building. 0.06 2 0.12 Long-term climate change and rises in sea level may threaten key 0.01 2 0.02 destinations. Lack of availability of convenient and safe port destinations. 0.04 2 0.08 TOTALS 1.00 2.83

E.

Internal Audit
Strengths 1. 2. 3. 4. 5. 6. 7. 8. 9. Carnival Corporation owns almost half of the total passenger capacity of the cruise industry in North America. The Holland America line has the highest rate of repeat customers in the cruise industry. Seabourn Yachts have a service ratio of one staff member to one guest. Over the next 3 years in Europe, our net passenger capacity growth rate is expected to be 8.9% compared to the industry average of 5.8%. Carnival owns P&O Cruises which is the largest and best known cruise brand in the UK. Approximately 400,000 Brazilians and Argentineans took a cruise in 2010 and almost half of these guests sailed on a Carnival Corporation and plc ships. Our occupancy rates for all quarters in 2010 were near 100%. Costa, Italy and Europes #1 cruise line, passenger capacity will grow by 24% over the next 3 years. The Senior Cruise Directors blog has attracted over 5.5 million visits which is more than any other cruise brand.

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10. Carnival Cruise lines operates from 19 homeports in North America which is more than any other cruise line. Weaknesses 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. No public vision statement. Sales are mainly through travel agents costing a 10% sales fee and additional commissions. Low market penetration levels in Asia and Australia. Non-user friendly website. 33% of operating revenue cannot be reduced because of fixed costs. Total revenues have been flat since 2008. Cash can only be used in the gaming area of the boat. Working environment is difficult due to varying cultural backgrounds and communication styles. $3.3 billion in goodwill on balance sheet. Old ships need renovations.

Financial Ratio Analysis Growth Rate Percent Sales (Qtr vs year ago qtr) Net Income (YTD vs YTD) Net Income (Qtr vs year ago qtr) Sales (5-Year Annual Avg.) Net Income (5-Year Annual Avg.) Dividends (5-Year Annual Avg.) Profit Margin Percent Gross Margin Pre-Tax Margin Net Profit Margin 5Yr Gross Margin (5-Year Avg.) Liquidity Ratios Debt/Equity Ratio Current Ratio Quick Ratio Profitability Ratios Return On Equity Return On Assets Return On Capital Return On Equity (5-Year Avg.) Return On Assets (5-Year Avg.) Return On Capital (5-Year Avg.) Efficiency Ratios Income/Employee Revenue/Employee Receivable Turnover Inventory Turnover Carnival 11.70 NA 2.60 5.46 -2.57 -12.94 Industry 24.80 NA 152.20 31.99 1.66 -3.38 S&P 500 14.50 NA 48.60 8.30 8.72 5.61

46.6 12.6 12.5 50.2

41.4 16.2 15.7 41.0

39.5 18.2 13.2 39.7

0.40 0.2 0.1

0.33 0.3 0.3

0.98 1.3 0.9

8.2 5.1 6.1 10.9 6.4 7.8

9.7 -0.9 4.0 4.4 2.6 3.0

26.0 8.8 11.8 23.8 8.0 10.8

22,805 183,028 41.3 24.9

38,582 245,252 26.0 80.2

126,792 1 Mil 15.2 12.4

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Net Worth Analysis (in millions)

Stockholders Equity Net Income x 5 (Share Price/EPS) x Net Income Number of Shares Outstanding x Share Price Method Average $ 23,031.00 $ 9,890.00 $ 26,263.00 $ 25,048.10 $ 21,058.02

IFE Matrix
Weight Rating Weighted Score Strengths 1. Carnival Corporation owns almost half of the total passenger 0.10 4 0.40 capacity of the cruise industry in North America. 2. The Holland America line has the highest rate of repeat 0.05 4 0.20 customers in the cruise industry. 3. Seabourn Yachts have a service ratio of one staff member to one 0.03 4 0.12 guest. 4. Over the next 3 years in Europe, our net passenger capacity growth rate is expected to be 8.9% compared to the industry 0.05 4 0.20 average of 5.8%. 5. Carnival owns P&O Cruises which is the largest and best known 0.03 4 0.12 cruise brand in the UK. 6. Approximately 400,000 Brazilians and Argentineans took a cruise in 2010 and almost half of these guests sailed on a Carnival 0.03 4 0.12 Corporation and plc ships. 7. Our occupancy rates for all quarters in 2010 were near 100%. 0.10 4 0.40 8. Costa, Italy and Europes #1 cruise line, passenger capacity will 0.03 4 0.12 grow by 24% over the next 3 years. 9. The Senior Cruise Directors blog has attracted over 5.5 million 0.03 4 0.12 visits which is more than any other cruise brand. 10. Carnival Cruise lines operates from 19 homeports in North America which is more than any other cruise line. 0.07 4 0.28

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Weaknesses No public vision statement. Sales are mainly through travel agents costing a 10% sales fee and additional commissions. Low market penetration levels in Asia and Australia. Non-user friendly website. 33% of operating revenue cannot be reduced because of fixed costs. Total revenues have been flat since 2008. Cash can only be used in the gaming area of the boat. Working environment is difficult due to varying cultural backgrounds and communication styles. $3.3 billion in goodwill on balance sheet. Old ships need renovations. TOTALS

Weight Rating Weighted Score 0.02 1 0.02 0.05 0.07 0.04 0.06 0.07 0.03 0.03 0.05 0.06 1.00 1 1 1 1 2 1 2 1 2 0.05 0.07 0.04 0.06 0.14 0.03 0.06 0.05 0.12 2.72

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F.

SWOT
SO Strategies 1. Purchase 10 new ships for the North American market (S1, S10, O1, O5, O7, O9). WO Strategies 1. Publish a Vision Statement (W1, O7, O,10). 2. Hire marketing research firm to determine profitable customers who have never been on a cruise before (W6, O7). ST Strategies 1. Purchase 5 new ships for European markets (S8, T2). 2. Purchase 5 new ships for South American markets (S6, T2). WT Strategies 1. Increase oil hedge positions to protect against rising oil prices (W6, T1). 2. Renovate old ships (W10, T7).

G.

SPACE Matrix
FP 7 6 5 4 3 2 1

Conservative

Aggressive

CP

-7

-6

-5

-4

-3

-2

-1 -1 -2 -3 -4 -5 -6 -7

IP

Defensive

SP

Competitive

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Internal Analysis: Financial Position (FP) Return on Equity (ROE) Return on Assets (ROA) Debt/Equity Ratio Gross Margin Current Ratio Financial Position (FP) Average Internal Analysis: Competitive Position (CP) Market Share Product Quality Customer Loyalty Technological know-how Control over Suppliers and Distributors Competitive Position (CP) Average

4 5 5 6 2 4.4

External Analysis: Stability Position (SP) Rate of Inflation Technological Changes Price Elasticity of Demand Competitive Pressure Barriers to Entry into Market Stability Position (SP) Average External Analysis: Industry Position (IP) Growth Potential Financial Stability Ease of Entry into Market Resource Utilization Profit Potential Industry Position (IP) Average

-2 -2 -2 -4 -2 -2.4

-1 -2 -2 -2 -4 -2.2

4 3 4 3 3 3.4

H.

Grand Strategy Matrix

Rapid Market Growth Quadrant II Quadrant I

Weak Competitive Position

Strong Competitive Position

Carnival

Quadrant III Slow Market Growth

Quadrant IV

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I.

The Internal-External (IE) Matrix

The Total IFE Weighted Scores
Strong 4.0 to 3.0 4.0 I Average 2.99 to 2.0 II Weak 1.99 to 1.0 III

High

3.0

IV

VI

The EFE Total Medium Weighted Scores

Carnival

2.0

VII

VIII

IX

Low

1.0

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J.

QSPM
Hire marketing research firm
AS 2 3 2 4 1 0 4 4 3 2 TAS 0.20 0.30 0.08 0.16 0.05 0.00 0.20 0.12 0.12 0.06

Purchase 20 new ships

Weight Opportunities 1. The number of cruise passengers increased by 1 million in 2009. 0.10 2. Cruise industrys primary age group is expected to grow by 20 0.10 million people in the U.S. and Canada. 3. Cruise industrys primary age group is expected to grow 12% in 0.04 Western European countries. 4. Travel and Tourism industry is expected to grow by 4% per year 0.04 over the next decade all over the world. 5. North American cruise guests have a 95% satisfaction rate. 0.05 6. Major competitor Royal Caribbeans prices are much higher. 0.07 7. 90% of Americans have never been on a cruise. 0.05 8. Cruises only represent 2% of the overall vacation market. 0.03 9. 63% of cruise passengers are sourced from North America. 0.04 10. Young travelers prefer more modern and high-tech cruises. 0.03 AS 4 4 3 1 2 0 2 2 4 3 TAS 0.40 0.40 0.12 0.04 0.10 0.00 0.10 0.06 0.16 0.09

Weight Threats 1. Mideast tension causing oil prices to rise. 0.12 2. Currency risk- the U.S. dollar maybe losing its worth. 0.06 3. Increasing unemployment rate causing people to cut excess 0.10 spending. 4. Gambling revenues are expected to decline 6%. 0.04 5. Unexpected weather conditions. 0.01 6. Pirate attacks and civil unrest. 0.01 7. Rising costs of ship building. 0.06 8. Long-term climate change and rises in sea level may threaten key 0.01 destinations. 9. Lack of availability of convenient and safe port destinations. 0.04

AS 0 3 1 1 0 0 0 0 2

TAS 0.00 0.18 0.10 0.04 0.00 0.00 0.00 0.00 0.08

AS 0 2 3 3 0 0 0 0 3

TAS 0.00 0.12 0.30 0.12 0.00 0.00 0.00 0.00 0.12

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Purchase 20 new ships

Weight Strengths 1. Carnival Corporation owns almost half of the total passenger 0.10 capacity of the cruise industry in North America. 2. The Holland America line has the highest rate of repeat 0.05 customers in the cruise industry. 3. Seabourn Yachts have a service ratio of one staff member to one 0.03 guest. 4. Over the next 3 years in Europe, our net passenger capacity growth rate is expected to be 8.9% compared to the industry 0.05 average of 5.8%. 5. Carnival owns P&O Cruises which is the largest and best known cruise brand in the UK. 6. Approximately 400,000 Brazilians and Argentineans took a cruise in 2010 and almost half of these guests sailed on a Carnival Corporation and plc ships. 7. Our occupancy rates for all quarters in 2010 were near 100%. 8. Costa, Italy and Europes #1 cruise line, passenger capacity will grow by 24% over the next 3 years. 9. The Senior Cruise Directors blog has attracted over 5.5 million visits which is more than any other cruise brand. 10. Carnival Cruise lines operates from 19 homeports in North America which is more than any other cruise line.
Weaknesses 1. No public vision statement. 2. Sales are mainly through travel agents costing a 10% sales fee and additional commissions. 3. Low market penetration levels in Asia and Australia. 4. Non-user friendly website. 5. 33% of operating revenue cannot be reduced because of fixed costs. 6. Total revenues have been flat since 2008. 7. Cash can only be used in the gaming area of the boat. 8. Working environment is difficult due to varying cultural backgrounds and communication styles. 9. $3.3 billion in goodwill on balance sheet. 10. Old ships need renovations.

Hire marketing research firm

AS 2 2 2 2 2 2 2 2 2 2
AS 0 3 2 0 3 4 0 0 0 1

AS 3 3 3 3 3 3 3 3 3 3
AS 0 1 3 0 1 2 0 0 0 4

TAS 0.30 0.15 0.09 0.15 0.09 0.09 0.30 0.09 0.09 0.21
TAS 0.00 0.05 0.21 0.00 0.06 0.14 0.00 0.00 0.00 0.24

TAS 0.20 0.10 0.06 0.10 0.06 0.06 0.20 0.06 0.06 0.14
TAS 0.00 0.15 0.14 0.00 0.18 0.28 0.00 0.00 0.00 0.06

0.03 0.03 0.10 0.03 0.03 0.07

Weight 0.02 0.05 0.07 0.04 0.06 0.07 0.03 0.03 0.05 0.06

TOTALS

4.13

3.80

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K.

Recommendations
1. 2. 3. Publish a Vision Statement. Hire marketing research firm to determine profitable customers who have never been on a cruise before for $100M Purchase 20 new ships for American, South American, and European markets for $300M each.

L.

EPS/EBIT Analysis (in millions)

Amount Needed: $6,100M Stock Price: $31.69 Shares Outstanding: 776 Interest Rate: 5% Tax Rate: 0%

EBIT Interest EBT Taxes EAT # Shares EPS

Common Stock Financing Recession Normal $2,000 $3,000 0 0 2,000 3,000 0 0 2,000 3,000 968 968 2.07 3.10

Boom $4,000 0 4,000 0 4,000 968 4.13

Recession $2,000 305 1,695 0 1,695 776 2.18

Debt Financing Normal $3,000 305 2,695 0 2,695 776 3.47

Boom $4,000 305 3,695 0 3,695 776 4.76

EBIT Interest EBT Taxes EAT # Shares EPS

Recession $2,000 244 1,756 0 1,756 814 2.16

20 Percent Stock Normal $3,000 244 2,756 0 2,756 814 3.38

Boom $4,000 244 3,756 0 3,756 814 4.61

Recession $2,000 61 1,939 0 1,939 930 2.08

80 Percent Stock Normal $3,000 61 2,939 0 2,939 930 3.16

Boom $4,000 61 3,939 0 3,939 930 4.24

M.

Epilogue

Carnival Corp. operates 101 ships totaling approximately 200,000 lower berths with 10 new ships scheduled to be delivered between April 2012 and March 2016. Carnival Corp. & plc also operates Holland America Princess Alaska Tours, the leading tour company in Alaska and the Canadian Yukon. Traded on both the New York and London Stock Exchanges, Carnival Corporation & plc is the only group in the world to be included in both the S&P 500 and the FTSE 100 indices.

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In Winter 2012 and Spring 2013, two Holland America Line ships ms Oosterdam and ms Volendam will sail a series of Australia, New Zealand and South Pacific cruises, visiting more than 50 ports where guests can revel in the cosmopolitan attractions of Sydney, Melbourne and Auckland, and explore the exotic landscapes of Vanuatu and Fiji in the South Pacific. The complete series of sailings ranges from 10to 58-days and features for the first time one of the line's larger Vista-class ships, ms Oosterdam. This addition represents almost a 25 percent capacity increase in the Australia/ South Pacific region for Holland America Line. Carnival is having a huge, exclusive concert to welcome the line's newest "Fun Ship" to its year-round homeport of Galveston, Texas. On Sunday, November, 13, 2011, set to the backdrop of the spectacular new Carnival Magic from Pier 21, thousands of fans of Maroon 5 and Carnival will be treated to a free, ticketed concert by the multi-platinum group the day before the new vessel sets sail on its inaugural U.S. voyage. Carnival Magic, which entered service in May 2011 in Europe, will make its transatlantic voyage to arrive in Galveston on November 13. Carnival has 23 "Fun Ships" operate three- to 16-day voyages to The Bahamas, Caribbean, Mexican Riviera, Alaska, Hawaii, Panama Canal, Canada, New England, Bermuda, Europe, the Pacific Islands and New Zealand. In addition to the 130,000-ton Carnival Magic, which debuted in Europe May 1, 2011, the new 130,000-ton Carnival Breeze is scheduled to enter service June 3, 2012. In October 2011, Carnival announced partnerships with entertainer George Lopez, who will become Carnival's creative director for comedy and enhance its fleetwide comedy clubs; Food Network star Guy Fieri, who will develop a burger venue called Guy's Burger Joint; leading video game manufacturer EA SPORTS to create the first-ever EA SPORTS Bar at sea, and Hasbro for new larger-than-life game shows featuring iconic games and brands. "Fun Ship 2.0 is the largest and most ambitious initiative that our company has ever undertaken and it will serve to significantly transform the Carnival vacation experience for our guests," said Gerry Cahill, president and CEO of Carnival Cruise Lines. "Through breakthrough partnerships with some of today's biggest talents and most popular entertainment brands, plus our very own new branded experiences and on-board destinations, Carnival fans and those new to our cruises are destined for an incredible vacation experience." The Carnival Liberty will be the first ship to feature many of the new dining and bar venues when it returns from a scheduled refurbishment later this month. Fourteen ships are scheduled to receive many of the Fun Ship 2.0 enhancements through 2015. Shareholders of Carnival Corp. & plc stock will receive a dividend of $0.25 per share, a record date for the quarterly dividend of November 25, 2011, and a payment date of December 16, 2011.

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