Slide1 : Lisa Burnett
Janine Ross
Renee Fumo
Isaac Stein
Doug Hill
Slide2 : “Fun Ships®”
“Carnival’s Got the Fun®”
“ The Most Popular Cruise Line in the World®”
Topics : Topics Background
SWOT
Financial Analysis
1997 Annual Report
Topics (contd.) : Topics (contd.) Strategic Issues
Recommendations
Latest News
Brochures & Tips
Carnival Background : Carnival Background Incorporated in 1974 (Republic of Panama)
Started out with (2) converted ocean liners
Today, (22) ships 100% owned by Carnival
World’s largest multiple-night cruise company based on:
number of passengers
revenues generated
available capacity
Background (contd.) : Background (contd.) Wholly owned cruise operations:
Carnival Cruise Lines (11, contemporary)
Holland America Line (8, premium)
Windstar Cruises (3, luxury)
Primary market ==> North America
(22) total ships
Total passenger cap = 31,078
Background (contd.) : Background (contd.) Affiliated cruise operations:
Costa Crociere (50%, 7, 7710)
Seabourn Cruise Line (50%, 3, 612)
Airtours’ Sun Cruises (28%, 3, 2924)
Primary markets:
Costa Crociere (Europe, contemporary)
Seabourn (North America, luxury)
Airtours (Europe, contemporary)
Background (contd.) : Background (contd.) “Holland America Westours”
Sightseeing tour business as part of cruise/tour packages or separate itinerary:
14 hotels in Alaska and Canadian Yukon
2 luxury day-boats to glaciers
300+ motor coaches
13 private domed rail cars
Joint Venture : Joint Venture In September 1996, Carnival and Hyundai Merchant Marine C. Ltd formed a 50/50 joint venture to develop Asian cruise market
Each contributed $4.8 million
Carnival sold ship “Tropicale” to joint venture
Year later, venture dissolved and Carnival repurchased Tropicale for $93 million
Cruise Pricing : Cruise Pricing Brochure prices vary by cruise line and within cruise lines (cabin category and itinerary)
Cruise price includes: all meals and entertainment; casino; nightclubs; theatrical shows; movies; parties; a discotheque; health club; and swimming pools
Cruises generally substantially booked several months in advance
Cruise Pricing : Cruise Pricing In 1983:
gallon of milk = $1.48
new imported car = $5,000
seven-day cruise = $599
In 1998:
seven-day cruise = as low as $599
Other Revenues : Other Revenues Other revenues:
casino gambling
liquor and gift shop sales
shore tours
photography
spa services
promotional advertising by port of call merchants
pre- and post-cruise land packages
Employees : Employees Carnival shoreside employees
1,670 full-time
310 part-time
Carnival on ship staff
350 officers
8,140 crew and staff
Distribution System : Distribution System Travel agents book > 95% of all cruise passengers
In 1997, Carnival took reservations from 30,000 of about 48,000 travel agencies
Internal staff to motivate independent travel agents = 90 managers + 30 service reps
360 reservation agents to take bookings from independent travel agents
How Much $$ : How Much $$ 1997 Carnival Corp Annual Report: (in $ millions, except eps)
1997 1996 1995
$2,447 $2,213 $1,998 (tot rev)
$666 $566 $451 (net inc)
$2.23 $1.95 $1.59 (eps)
$5,427 $5,102 $4,105 (tot assets)
Passengers : Passengers Fiscal Year Ended November 30,
1997 1996 1995
Number of passengers 1,945,000 1,764,00 1,543,000
Occupancy percentage 108.3 % 107.6 % 105.0 %
New Ships : New Ships Cruise Line Ships Cap Est Costs
Carnival 7 15,912 $2,575M
Holland America 3 4,260 $900M
Windstar 1 312 $45M
New Ships : New Ships As a result of shipbuilding program... (assuming none of existing fleet retired)
passenger capacity will increase 52 %
total capacity will be 47, 362 berths by the end of 2000
Marketing : Marketing Carnival cruises are alternatives to:
competitor’s cruises
land-based resorts
sight-seeing destinations
Seeks first-time passengers (only 2%)
Seeks those who might not consider a cruise
Emphasizes the cruise experience, not the particular destinations
Markets : Markets Cruise markets in Europe much smaller than North American market
In 1997:
European cruise passengers = 1.2 million
North American passengers = 5 million
European market seen as North American market in the 1970s
Seasonality : Seasonality Carnival Cruises demand:
greater in late June and August
lower during fall months
Holland America Cruises more seasonal:
strongest during summer months in Alaska and Europe
slowest during winter months
Competition : Competition Primary methods among cruise lines:
cruise pricing
cruise product
cruise destination
Carnival competes with 6 cruise lines
In Alaska, 10 different cruise lines
Holland America, 16 cruise lines
Windstar, 3 primary competitor cruises
Suppliers : Suppliers Largest purchases: airfare, advertising, fuel, food, hotel supplies, products related to passenger accommodation
Uses a limited number of suppliers
Most of supplies are avail from many sources at competitive prices
Volume discounts due to limited number of suppliers
Governmental Regulations : Governmental Regulations Carnival ships registered in Panama, or the Netherlands, or the Bahamas
Ships sailing in North America waters subject to USCG inspections
US Public Health Service for sanitary stds
Federal Maritime Commission certifies ships can refund in case of nonperformance (guaranty, escrow, surety bond, insurance, etc… = two $15M performance bonds)
Governmental Regulations : Governmental Regulations HAL relies on concession permit from the National Park Service
International Maritime Organization adopted safety standards (SOLAS)
safe management and operation
pollution prevention
enhanced vessel requirements to improve safety
translates to more costs and less capacity
Strengths : Strengths Considered the leader and innovator
Newest fleet of any major cruise line
Largest advertising budget in industry
Ship is the primary destination
Operates at or near capacity
Lowest break-even point in industry
Cruises for all three segments
Weaknesses : Weaknesses High fixed costs (25% of overall operating expenses)
Onboard service is labor intensive
Long lead time for new ship delivery
Seasonality of ship usage
Opportunities : Opportunities Eleven ships expected within next 4 years
Only 8% of N.A. has ever taken a cruise
Aging population wants relaxing vacations
All inclusive packages < theme park
Spanish speaking cruises
Favor value concept vs premium brand
“Titanic” movie
Threats : Threats Maturing Industry
overcapacity
rate of growth slowing
Expected growth of 6.3% in industry
Compliance regulations and U.S. laws
Carnival increasing capacity 52% in next four years
Selected Financial Info (1997) : Selected Financial Info (1997)
Carnival Financial Ratios : Carnival Financial Ratios 1997 1996 1995
Current ratio .43 .44 n/a
Debt-to-equity .51 .68 n/a
ROA 12.27 11.09 10.99
Net profit margin 27% 26% 23%
EPS 2.23 1.95 1.59
Sales growth 11% 11% n/a
Income growth 18% 26% n/a
Occupancy % 108.3% 107.6% 105.0%
1997 Annual Report : 1997 Annual Report Cruising offers tremendous value: “Industry surveys show that among first-time cruise passengers, almost 80 percent would probably take another cruise.”
1997 Annual Report : 1997 Annual Report Travel agents book > 95% of all passengers: “...Carnival Cruise Lines is ranked the top “agent friendly’ cruise line in the industry…travel agents ranked Carnival and Holland America number one in 10 of 13 categories, and voted Carnival 1997’s “Cruise Line of the Year””
1997 Annual Report : 1997 Annual Report “As economies grow and thrive, people age and geographic boundaries become less distinct, people seek new places to go and new experiences…as Baby Boomers hit their peak earning years, and recreational spending and leisure time interest levels continue to rise, we believe more will consider cruising as an outstanding vacation choice.”
1997 Annual Report : 1997 Annual Report “Cruise Lines International Association projects that by the year 2000, more than seven million North Americans annually will cruise, with the greatest growth among first-time cruise passengers.”
1997 Annual Report : 1997 Annual Report “The U.S. Bureau of Economic Analysis predicts that by the year 2005 there will be a 30-plus percent growth in the 41-59 age group, a prime demographic group for cruising, and a very positive indication for the cruise industry.”
1997 Annual Report : 1997 Annual Report “…in North America alone, only 8 percent of the population has ever cruised, and just two percent of 240 million annual vacationers go on a cruise...”
SEC Form 10-K (1997) : SEC Form 10-K (1997) “ The growth in the Company’s revenues during the last three fiscal years has primarily been a function of the expansion of its fleet capacity.”
SEC Form 10-K (1997) : SEC Form 10-K (1997) “ Fixed costs, including depreciation, fuel, insurance and crew costs represent more than one-third of the Company’s operating expenses and do not significantly change in relation to changes in passenger loads and aggregate passenger ticket revenue.”
Strategic Issues : Strategic Issues Carnival Corp and it’s competitors are building bigger ships to satisfy “economies of scale” and consumer preferences. However, analysts predict overcapacity in the future. Does Carnival continue with the strategy of “build it, and they will come”?
Strategic Issues : Strategic Issues Demographics….
average age of cruise passengers has been falling steadily in the past ten years (56 to 44)
recent surge of interest from 20 year olds
by 2005, 30-plus percent growth in 41-59 age group How does Carnival market to these various target markets?
Strategic Issues : Strategic Issues Carnival is trying to appeal to “first time” (2% of vacationers) and “repeat” (only 8% of N.A.) customers. The needs and preferences for these customers at times appear to be in opposition to each other. How does Carnival market to both segments?
Overcapacity Recommendations : Overcapacity Recommendations Mergers and acquisitions
Market new ships
Sell and/or redeploy older ships
Expand European and other geographic regions
Target untapped market (92%)
Customer Profile Recommendations : Customer Profile Recommendations Market segmentation
“Contemporary”
20 - 30 year olds
Singles
Marriage and Honeymoon
College students
Families
Customer Profile Recommendations : Customer Profile Recommendations Market Segmentation
“Premium”
Aging Baby Boomers
“Luxury”
Affluent passengers
Marketing Recommendations : Marketing Recommendations Target first-time customers
buy one, get second half-price
early booking discounts
kids travel free with each paid adult
special incentives for travel agents to book first time cruisers
increased cruising education and awareness (brochures with pricing, Q&A, infomercials)
Marketing Recommendations : Marketing Recommendations New or expansion of geographic regions:
targets both first-time and repeat customers
new ships = new places
new itineraries
river cruises
Corporate-sponsored trips
promote to large companies
conventions and conferences
Marketing Recommendations : Marketing Recommendations Promotions for repeat customers
frequent flier and frequent cruiser miles used interchangeably and leveraged for customers benefit
free cabin upgrades
Technology
Internet (on-line quotes, special Internet discounts and online brochures)
Y2k (already being addressed)
Innovation Recommendations : Innovation Recommendations “All inclusive” pricing option (i.e., including alcoholic and non-alcoholic drinks)
NO tipping and therefore increase salaries so wages include average tip amounts
Affiliate with a bank or internally provide a cruise financing program
Cruise with a celebrity
Latest News : Latest News 4/3/98: Buys Britain’s Cunard for $500M
2/24/98: Takes early delivery of new ship
2/4/98: “Best Honeymoon Cruise Value” in recent magazine poll
12/19/97: Record earnings for Q4 and year
9/29/97: Web site most-visited cruise line site on the Internet
Latest News : Latest News 7/21/97: Plans world’s first smoke-free cruise ship
4/24/97: Extends vacation guarantee through 1998
2/28/97: Expands alternative dining; goes fleetwide with 24-hour pizzerias
11/24/96: World’s first 101,000-ton cruise ship detailed
Brochures & Tips : Brochures & Tips Costco brochure
Travel agent brochure
“First Time Cruiser’s Guide”