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Carnival Corporation & plc (2006)

CARNIVAL HISTORY In 1972 Ted Arison, backed by the (AITS) American Travel services, Inc., purchased an aging ocean liner from Canadian Pacific Empress Lines for $6.5 million. The new AITS subsidiary, Carnival Cruise Line, refurbished the vessel from bow to stern and renamed it the Mardi Gras to capture the party spirit. Carnival lost money for the next three years, and in late 1974 Ted Arison bought out the Carnival Cruise subsidiary AITS, Inc., for $1 cash and the assumption $5 million in debt. One month later, The Mardi Gras began showing a profit and through the remainder of 1975 operated at more than 100% capacity. Carnival targeted first-time cruiser and young people with a moderately priced vacation package that included airfare to the port of embarkation and home after the cruise. Throughout the 1980s, Carnival was able to maintain a growth rate approximately 30%- about three times that of the industry as a whole. In 1987, Ted Arison sold 20% of his shares in Carnival Cruise Lines and immediately generated over $400 million for further expansion. Holland America was positioned to appeal to higher-income travelers with cruise prices averaging 25%-35% more than similar Carnival cruise. Higher fuel Prices and increased cost began to affect the industry as a whole. The first Persian Gulf War caused many cruise operators to divert ships from European and Indian ports to the Caribbean area of operations, increasing the number of ships competing directly with Carnival. In 1991, Carnival attempted to Acquire Premier Cruise Lines, which was then the official cruise line for Walt Disney World in Orlando, Florida, for approximately $372 million. In 1994, the company discontinued the operations of Fiestamarina Lines, which had attempted to serve Spanish-speaking clientele. Carnival Coorporation continued to expand through internally generated growth by adding new ships and its external expansion through acquisition if the right opportunity arose. In 2006, the company had a portfolio of 12 distinct cruise lines with 79 ships serving 7 continents. Carnival also owned a chain of 16 hotels and lodges in Alaska and the Canadian Yukon with 3,000 guest room. These brands, which, according to management, comprised the most-recognized cruise brands in North and South America, The United Kingdom, Germany, Southern Europe, and Australia, offered a wide range of holiday and vacation products to a customer base that is broadly varied in terms of cultures, languages, and leisure-time preferences.

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Carnival Corporation & plc (2006)

ANALYSIS A. PESTEL ANALYSIS 1) Political-Legal a) Conflicts in the middle-east, terrorist attack (T) b) Government Regulations, Carnivals ships were regulated by various international, national, state, and local port authorities laws, regulations, and treaties in force in the jurisdictions in which the ships operate (T) c) Lawsuits, exploitation of its crew, safety issue and unlicensed materials (T) d) Safety Law issue (T) 2) Economics a) Weaker U.S. dollar compared to the Euro encourages Europeans to take advantage of cruise rate (O) b) Tax policy are different in each country (T) 3) Technological a) Computer virus (T) 4) Environmental a) Natural distater, such as hurricane Katrina (T) b) Pollution claim (T) 5) Sociocultural a) Households with dual incomes give families more disposable income (O) b) Changing consumer preferences (T) c) Potential customers of Premium/Luxury sectors (O)

B.

FIVE FORCES ANALYSIS Ships are expensive, Growing AussieThreat of new entrants = MEDIUM (T) Increased ship or berth supply, it was estimated that the total passenger will be increasing in the next three years - Bargaining power of buyers = MEDIUM (O) All-Inclusive land packages growing - Threat of substitute products or services = MEDIUM (T) The ticket selling depends on the agent (80%), purchased fuel and port facility services from a limited suppliers - Bargaining power of suppliers = HIGH (O) Three major competitors, Price war amongst competitor - Rivalry amongst competing firms = HIGH (O)

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Carnival Corporation & plc (2006)

Relative power of Unions, Government, Interest Groups = HIGH (T)

C.

IFAS (INTERNAL FACTOR ANALYSIS SUMMARY) STRENGTHS Product carnival Classical cruise elegance along with modern convenience could be had at a price comparable to land-based vacation packages. A typical vacation cruise ship started when the bags were tagged for the ship at the airport and finally after dinner cruisers could choose from among many forms of entertaiment, including live music, dancing, nightclubs, and a selection of movies. Carnival also offered passage to multiple exotic Carribean ports, several meals served daily with premier restaurant service. Expansion of Carnival Carnival seemed to be willing to continue with its external expansion through acquisitions if the righ opportunity arose. Carnival corporation & plc was a global cruise company and one of the largest vacation companies in the world Carnival corporation attracted almost 7 million guests annually Carnival have a mission that 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

WEAKNESS Too many brands Carnival have 12 brands, there are carnival cruise lines, princess cruises, Holland America line, seabourn cruise line, ocean village, P&O cruises, cunard line, swan Hellenic, costa cruises, AIDA, and windstar cruises. Too many brands that owned Carnival, so Carnival cant control well and cause uncoordinated business. Carnival also have business that unproductive (among 12 brands) Labor force exploitation Carnival records showed that employees remained with the company for approximately eight years and that applicants exceeded demand for all cruise positions. Nonetheless, the American Maritime union had cited Carnival (and other cruise operators) several times for exploitation of its crews Difficulties in the new destination

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Carnival Corporation & plc (2006)

D.

EFAS (EXTERNAL FACTOR ANALYSIS SUMMARY) OPPORTUNITIES Uncertainty future demand Demand for cruising remained strong in 2005. It was estimated that about 31,280,000 of the U.S. population will take a cruise in the next three years Weaker U.S. dollar compared to the Euro encourages Europeans to take advantage of cruise rate Households with dual incomes give families more disposable income Potential customers of Premium/Luxury sectors

THREATS Terrorist attack Terrorist threats had tightened U.S. security of ports regarding docking facilities, cargo containers, and storage areas, and crews. Pollution claim Carnival paid $18 million in fines in 2002 for six pollution discharges by its ships. The company pleaded guilty to six felony counts for filling false statements with the U.S. Coast Guard. Many substitutes (non-cruise vacations) Natural disaster (Hurricane cathrina) Goverment regulations Safety law issue Changing consumer preferences Agent bargaining power Four out of five cruisers (79%) use travel agents to book at least some of their cruisesport high satisfaction levels with their travel agent

Table of Internal Factor Analysis Summary (IFAS) showed in Table 1.


Table 1 Internal Factor Analysis Summary (IFAS)

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Carnival Corporation & plc (2006)

Table of External Factor Analysis Summary (EFAS) showed in Table 2.


Table 2 External Factor Analysis Summary (EFAS)

Table of Strategic Factor Analysis Summary (SFAS) showed in Table 3.


Table 3 Strategic Factor Analysis Summary (SFAS)

Generating TOWS Matrix for Carnival showed on Table 4.


Table 4 TOWS Matrix for Carnival

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Carnival Corporation & plc (2006)

E.

FINANCIAL ANALYSIS

Financial analysis
COMPANY: CARNIVAL CORPORATION 1. Company Highlights

Highlights
(in millions, except per share amounts and other operating data)

2005 Revenues-Net Sales Net Income-Net Profit After Tax Earnings Per Share Dividends Per Share Total Assets $11,087 $2,257 $2.70 $0.80 $28,432

2004 $9,727 $1,854 $2.24 $0.53 $27,636

2003 $6,718 $1,194 $1.63 $0.44 $24,491

Current Assets Current Liabilities Inventory Cash & Cash equivalents Shareholder's equity Accounts Receivable-Net

$2,215 $5,192 $250 $1,178 $16,972 $408

$1,728 $5,034 $240 $643 $15,760 $409

Other Operating Data Passengers Carried Passenger Capacity Number of Ships Number of Employees 6,848,386 136,960 79 71,000 6,306,168 129,108 76 69,000 5,037,553 113,296 71 59,000

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2. Liquidity ratios a. Debt ratio Value 2004 : 0.34 Value 2005 : 0.43 (increase 0.09) Definition : carnival corp. has a great amount of assets, it makes their debt ratio is below 1. Even though the amount is increasing from 2004 to 2005, but still they might not have a liquidity problem, because the ratio is still below 1. b. Quick ratio Value 2004 : 0.30 Value 2005 : 0.38 (increase 0.08) Definition : carnival corp. has a quick ratio lower than 1, it means that they may have a difficulty to pay their short-term debt. The amount is increasing in 2005, but still the amount is below 1.

0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 debt ratio current ratio 2004 2005

3. Leverage Ratios a. Debt To Total Assets Value 2004 : 18% Value 2005 : 18% (stable) Definition : carnival corp. has a debt to total assets ratio of 18%; it means they have a good chance to b. Debt to Equity Value 2004 : 31% Value 2005 : 32% (increase 1%) Definition : carnival corp. has a great amount of assets, it makes their debt to equity ratio is below 100%. Even though the amount is increasing from
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2004 to 2005, but still theyre a less-levered corporation, because the ratio is still below 100%.

35% 30% 25% 20% 15% 10% 5% 0% debt ratio current ratio 2004 2005

4. Activity Ratios a. Inventory turnover-sales Value 2004 : 40.5 Value 2005 : 44.3 (increase 3.8) Definition : b. Avg. Collection Period-days Value 2004 : 15 days Value 2005 : 13 days (shorter 2 days) Definition : carnival corp. have a good managed credit or collection department, because their avg. collection period shows that they have a short collection period of 15 days in 2004 and getting better in 2005 by 13 days. c. Fixed Asset Turnover Value 2004 : 75% Value 2005 : 75% (stable) Definition : carnival corp. d. Total Assets Turnover Value 2004 : 0.35 Value 2005 : 0.39 (increase 0.04) Definition : carnival corp. shows the increasing value of total asset turnover from 2004 to 2005, this shows that they have a increasing sales and revenue from 2004 to 2005.
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5. Profitability Ratios a. Net Profit Margins Value 2004 : 19% Value 2005 : 20% (increase 1%) Definition : carnival corp. has a success sale, the net profit margin show us that the company have a great value of sales remaining after its all cost and expenses. The value is also increasing 1% from 2004 to 2005. b. Return on Equity Value 2004 : 12% Value 2005 : 13% (increase 1%) Definition : carnival corp. have an increasing rate of return/book values of shareholder's investment from 2004 to 2005. c. Return on Investment Value 2004 : 7% Value 2005 : 8% (increase 1%) Definition : carnival corp. have an increasing Rate of return on assets used in the company from 2004 to 2005

20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Net profit margins Return on equity Return on investment

2004 2005

CONCLUSION FROM FINANCIAL ANALYSIS: From the financial analysis, we can see that in general Carnival corp. shows a good financial condition; although there might be some liquidity problem because the current ratio shows that they have a problem in paying short term debt, because they have a huge amount of fixed assets may be for the cruise, and left a small amount of current asset, makes them hard to pay their current liabilities. For the rest of the ratio, carnival corp. shows a good condition, profit margin is in the value of 20%, ROE of 13% (average), and ROI 8%.
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Carnival Corporation & plc (2006)

F.

STRATEGIC SOLUTION As we can see from the analysis of carnival corp. we prepared some strategic solutions for the carnival corp.: 1. Increase Asian presence o Given the rapid growth in this industry in Asia especially in the tourism industry around Hong Kong, Korea, Japan, Indonesia, Thailand, and Singapore. Carnival Cruise could add a few more ships to their Asia market to gain more revenues, as well as increase marketing there. Given that in the SWOT analysis there is a future demand growth and expanding their distribution channel, it would be good for this expansion. o This is an example of Market Development or market distribution channel. 2. Customer segmentation and targeted marketing/advertising. o 4 typical cruise segments budget, contemporary, premium and luxury. o Many of these are families, lower to mid middle-class, and people who just havent had the time or havent thought about taken a cruise vacation. o Carnival corp. should increase their marketing and advertising efforts to all segments, primarily the budget and contemporary segments to better serve the middle-class market. This would involve doing research as to which geographical segments have the least amount of people taking cruises, what their incomes are, etc. and doing television advertisements, online ads (especially on travel sites), travel agent marketing, etc. o Offer discounts to first time cruisers, set up a loyalty program for repeat cruisers, etc. o This is an example of Market Penetration

G.

IMPLEMENTATION

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