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Lisa Burnett Janine Ross Renee Fumo Isaac Stein Doug Hill


“Fun Ships®” “Carnival’s Got the Fun®” “ The Most Popular Cruise Line in the World®”


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 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 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 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 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 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 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 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 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 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 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 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”

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