Carnival Cruises Analysis

Carnival Cruises Analysis Carnival Corporation is the largest and most successful cruise lines in the world. Their corporate offices are located in Miami, Florida with over 91,000 employees with offices all over the world. It all started in 1972 by Ted Arison who had a vision to create the greatest cruise line in the world. Carnival slowly started to grow and over time was awarded The Worlds Most Popular Cruise Line.(Carnival, 2006) On 1987 the management team decided to take advantage to its well-known reputation and went public entering in the New York Stock Exchange as CCL. Today Carnival has added over 100 ships and acquired premium cruise lines in almost every sector of the industry. In 1989 Holland America Line was acquired by Carnival adding niche operators including Windstar Cruises and Alaskan/Canadian cruise lines. In 1992 several luxury liner, where acquired such as Seabourn and Europes largest operator Costa Cruises. Carnival was not done expanding and in 1998 they acquired the prestiges luxury operator Cunard who built the world largest ocean liner Queen Mary 2. (Carnival, 2006) Carnival Corporation was beginning to take shape, but on 2003 they successfully merged with Princess Cruises creating a global power house. Carnival also purchased P O cruises, Ibero cruises and AIDA Cruises lines. Carnival had become the largest cruise operator in the world from US to Europe. Although Carnival managed several cruise line operator each line had its own distinction and separate operations. In 1972 Ted Arison owner and operator of all Carnival had a vision. Ted story begins when he took a small ship called the Mardi Gras and converted it into a small ocean liner. The Mardi Gras was an innovative cruise liner like no other for its time that only made a one-way trip from Miami to San Juan, Puerto Rico. (Carnival, 2006) Although it wasnt easy surviving, Ted Arison was focused to be successful and on 1974 he became full owner of Carnival cruise line. Organization as large as Carnival has management team that is broken up to different divisions. It starts from CEO Chairman Micky Arison, the next tier down is Howard S Frank as the COO who over sees all businesses of company, within that same tier is David Bernstein who is CFO of all Businesses. The Next tier down is Richard Ames SVP of Shared Services, within same tier Arnaldo Perez SVP General Counsel and Secretary. Next tier down is Larry Freedman who is Chief Accounting Officer and Controller. The last tier down are all the divisional Presidents who manage AIDA Cruises, Carnival Cruise Lines, Carnival Australia, Carnival UK, Costa Crociere S.p.A, Cunard Line, Holland America Line , Princess Cruises and Seabourn Cruise Line. (David, 2013) Carnivals overall goal is to collaborate all its brands to reach every area of the cruising industry. Carnivals main focus is to attract all types of customers who are in different demographic, budgets, geographic and all cultures. The main concepts that Carnival tries to achieve is to be known as Fun Ship, along with all the amenities that go with it such as Luxury, elegance and exotic destination. (David, 2013) Carnival has invested in their own marketing division, were they offer a 10% commission to their travel agents and offer other bonus programs. The marketing division has focused on marketing material, advertisement, website interaction, seminars and videos. These efforts are too assist agent in the field to generate more sales. Their website division has created promotional campaigns that offer discounts, VIP savings, resident discounts, special meals, and holiday deals. (David, 2013) Carnival domestic and international destinations are growing. New routes are being developed and new ships are being built. Travelers most appealing destinations are the Caribbean, Alaska, Bahamas, Hawaii, Mediterranean/Greek Island/Turkey, Bermuda, Europe, Panama Canal and least appealing West coast of Mexico.(David, 2013). Competition is growing among the other cruise lines and more theme based environment is beginning to evolve. For example, onboard amenities are being created such as cell phone access, entertainment, villas, multiple themed restaurant, fitness center and spas are making this industry competitive. (David, 2013)More and more people are cruising and more bigger and better luxury liners are being built around the clock. Carnival is the leader in the industry but it must not lose their edge because competition can knock them down to second place. Executive Summary Carnivals Mission statement is to be the worlds largest cruise operator that offers exceptional customer service to all its clientele. Carnivals number one goal is for its passengers to have an memorable experience and to continue to travel on Carnival. Carnival would like to offer its clients a One-stop shop for traveling. Carnival has eleven different Cruise lines around the world that can make that happen. Despite of economic down turns of the tourism industry; Carnival has continuously grown and expanded their portfolio of cruise line brands. Carnival Corporation has ten cruise lines with one hundred active vessels. In its portfolio of cruise line, Carnival has been able to generate nine percent revenue and delivering new ships each year. Carnival growth strategy has allowed the company to achieve a four percent increase in revenue growth and maintain the largest and most profitable travel company globally. Since its public offering and forty years in business, Carnival has managed to acquire multiple cruise lines that cater to the global travelers. Carnivals global expansion is now reaching out to travelers in North America, Europe and Australia. Carnival cruises continue to offer itineraries products around the world and offer all types of entertainment including excursions. Carnival continues to venture into regions that are untapped markets, such as Asia to increase market share. Cruise industry has many competitors trying to take each others market share. The few players who compete with each are Carnival Corporation, Royal Caribbean Cruises, Celebration Cruise line, Star Cruises, Norwegian Cruise Lines and Radisson Seven Seas Cruises. Each company has its own niche and advertises in a certain clientele. With an all-inclusive themes cruise liners are beginning to distinguish themselves by the type of services they offer. The industry trend is to create massive ships that allow cruise line to offer more activities that can generate additional revenues to the cruise company. Today the Cruise industry is growing and more ships are currently in production. Cruising is now a major player in the traveling industry and more and more people are cruising today. Market conditions for the cruise industry is growing and for the last five years the cruise industry has been growing at 8% each year. (Cruise tourism, 2010). Internal Assessment (A) After reviewing three years of Carnival 10k data from Financial Statement and Balance sheet, we can see that Carnival is the biggest cruise line operator in the world. The analysis of ratios is broken up into five segments including, liquidity, activity, profitability, asset management and leverage. Within these segments you can see the companys current ratio to total debt to assets. This data indicates the company is strong and sound. Under the current ratios you take the current assets divide by current liabilities which include cash, accounts receivable and short term investments. Carnival shows a down trend of liquidity from 2009 to 2011. When you look at the current ratios, you see that in 2009 the current ratios were 0.31. In 2010 there was a 0.09 drop which left them with a current ratio of .22, and in 2011 you only see a .01 drop which left them with a current ratio of .21. Carnivals receivables turnover shows an increase in the ability to extend credit sales and collect receivables as the years progressed from 2009 to 2011. Carnival has a successful rate on collecting receivable. In 2009, Carnival had an Accounts Receivable Turnover of 37, had increased by 27% for a total of 47 in 2010. During 2011 you see a 30% increase in accounts receivable turnover which left them with a ratio of .61 in 2011. Carnival shows they are able to extend credit and collect in a 30 day timeframe. Looking at Carnivals Return on Asset percentage, you can see in 2009 ROA came in at 4.86 has an increase of 0.46% in 2010 for a total of 5.32% and incurred a slight decrease. In 2011 the total ROA came in at 5.02%. Under the Total Assets Turnover (TAT) you see Carnival shows an increase during 2009 -2011. In 2009, Carnival had a TAT of .37, an increase of .02% in 2010 for a TAT of .39, and in 2011 reflected another .02% increase for a TAT of .41. Based on the ROA and TAT comparisons, Carnival maximizes their assets and the number shows an upward trend. When you look at the Operating Profit Margin (OPM) on Carnival you see margins have been declining through the period of 2009-2011. Carnival had an OPM of 16% in 2009, 16.22% in 2010 and a decrease in 2011 to 14.28%.Net income by percentage of sales declined for Carnival from 2010 to 2011 by 1.56%, while they only saw a gain in sales of .37% from 2009 to 2010. Now, when you look at earning per Share (EPS), as a shareholder these numbers would indicate how profitable the company can be which Carnival had EPS of 2.24 in 2009, and increase in EPS of 0.23to total 2.47 in 2010, and a slight decrease of .05 in 2011 to total 2.42. Stock holder for Carnival would probably want to hold onto their stock as it shows a consistent trend. Overall, Carnival has lower liquidity ratios and has much better management of its assets, relies less on debt to finance its assets. Carnival has higher price per earning percentage for 2011. When you look at stock price history, Carnival has a consistent price in the $30s price range. After looking at all ratios from Liquidity Ratios, Leverage ratios, Activity ratios, Profitability ratios and growth ratios. Carnival has great management of its assets and it is stable for investors. Internal Assessment (B) Organization as large as Carnival has management team that is broken up to different divisions. It starts from CEO Chairman Micky Arison, the next tier down is Howard S Frank as the COO who over sees all businesses of company, within that same tiers is David Bernstein who is CFO of all Businesses. The Next tier down is Richard Ames SVP of Shared Services, within same tier Arnaldo Perez SVP General Counsel and Secretary. Next tier down is Larry Freedman who is Chief Accounting Officer and Controller. The last tier down are all the divisional Presidents who manage AIDA Cruises, Carnival Cruise Lines, Carnival Australia, Carnival UK, Costa Crociere S.p.A, Cunard Line, Holland America Line , Princess Cruises and Seabourn Cruise Line. (David, 2013) If you look at the organization chart Carnival Management team, you see the hierarchical of the line relationship of the chain of command. Carnival runs an effective organization but I would recommend a different approach. The Chain of command will start with the CEO which looks at the overall executive team. The tier below would be Chief operation officer which will manage all internal departments such as Marketing, Sales, Customer Service and Operations. On this same line of command you have Chief financial officer which will manage the accounting department along with the controllers. Next to the CFO you have president of Cruise lines this position will oversee all the regional directors. The next tier down would be American cruise director which will manages all Domestic cruise lines and a European cruise director which will handle all international cruise lines. The next tier down would be the Presidents of Carnival US, Holland America and Princess Cruises. On the same tier you will find Presidents for Aida, Carnival Australia, Carnival UK, Costa Cruises, Cunard and Seabourn. These Presidents will manage all the lower level management such as the Vice Presidents and Managers. This organizational chart has a chain of command that manages all levels of the company. The power of executive has more upper management to the managers and this way there is a clear communication channel to the top. The current organization chart doesnt have a chain of command that manages the entire company and all its divisions. When comparing Carnival from its competitors such as Royal Caribbean, Norwegian and Disney you can see where these cruise lines compete with one other. The Profile is broken up by four categories, High Customer Service, Low Customer Service, and Expensive to In-Expensive. Customer Service is large role when it comes to cruising. Prices also play a major role when it comes on choosing a cruise line. I compared all four companies on a 4-7 day cruise to the Caribbean departing from Miami, Fort Lauderdale and Port Canaveral. After comparing the reviews and prices of all four cruises, the most expensive trip was Royal Caribbean. Oasis of the Sea is one of the largest ships cruise ship in the world with a rating of 88% in customer satisfaction and pricing ranging from $749 to $1599(not including taxes, port fees, off season). Travelers rated Disney Dream cruise of 84% with pricing ranging $480 to $1900(not including taxes, port fees, off season, 4 night cruise). Critics gave Carnival Dream a 75% rating with pricing ranging from $299 to $749(not including taxes, port fees, off season).The last company evaluated was Norwegian Epic receiving a 72% rating with prices from $429 to $899(not including taxes, port fees, off season). Carnival Strategies is to compete by offering the most affordable all inclusive entertainment travel experience anyone can have. Carnival Cruise Lines has 24 ships in its fleet. Carnival purchase used ships and refurbishes them with new enhancements. By doing this Carnival is saving millions of dollars and is able to keep costs low. Another strategy carnival does is that it purchases large amounts of fuel when price of oil is low. Carnival marketing strategy is to brand their name as the fun ship; people are drawn to affordable traveling that has tons of fun. The advantage that Carnival has is that its the largest cruise operator in the world. This allows Carnival to have negotiating power politically, along with negotiating new ports or to expand smaller ports. This allows Carnival to increase their ship line and increase demographic reach. The disadvantage is that Carnival is known as the cheapest cruise line with refurbished ships that cater to the masses. Royal Caribbean strategy is to focus on purchases newer ships. By doing this they are building on their name brand recognition and promoting value to all of their luxury lines. Royal Caribbean disadvantages are that they have expensive ships that need to generate a high return on investment. Another disadvantage are fuel cost this can really affect the profitability of the company. Royal Caribbean main goal is to dominate the cruise industry with one name brand at a time. Norwegian Cruises line strategy has around 8% market share in industry and growing. The advantage Norwegian has is that they have 13 ships in there fleet. There demographics is growing from North America, Hawaii, Alaska and Europe. Norwegian disadvantages is that there fleet of 13 consist of older to new ships which requires frequent renovations. Having older ships can affect the name brand recognition of Norwegian for having an image of having old ships. Overall Norwegian Cruise Lines has many good attributes that they have introduced, such as casual dining variety of restaurants and Las Vegas shows. These are popular themes that the industry is following. Internal Assessment (D) Carnivals value is to offer world class service at a fraction of the price. The Fun Ship is there motto and that is what they would like to be known for. They spend countless hours trying to create activities that all of the passengers would love and enjoy. Carnivals number one goal is for all its passengers to have a memorable experience and to return back to its lines. SWOT Analysis Strengths The largest cruise operator in the world with eleven cruise brands0 Carnival most profitable company in the industry. Has established name brand recognition as the Fun Ship. Carnival has negotiating powers with vendors, ports and political figures. Able to purchase fuel when prices are low. Weaknesses Revenues are dropping. Carnival generates majority revenues in North America which means economy can affect the company. Currencies devaluation. Long term debt on new ship construction. Opportunity There is still market share in the vacationing market. Bigger ships are being made that carry more people. Asia is an untapped market. Threats US Tax loopholes may be expiring Cap and Trade Accidents on the ships Security of the ships from pirates. Internal Factor Evaluation Matrix Internal Factor PESTLE Analysis Political / Government Ongoing relations with Politicians and cruise line operators are essentials. Politicians are directly involved on expanding and creating ports, taxes, environmental fees, trade restrictions and tariffs. These projects need the backing from the Politicians. Without agreements with governments, cruise operators would not be able to conduct business in their countries. Governments and Political factors work hand and hand in the cruise industry. Each countries government is in communication with the cruise ship operators from port facilitation to emergencies safety rescue occurrences. Depending on the region, Pirates are a continuing problem. Cruise ship companies rely on local governments for protection from these threats. Government plays an important role when it comes to safety protection. There are mutual benefits when working together with cruise ship companies. The cruise industry offers an increase of local employment within the city and its ports. For example restaurants, hotels, taxis, theme parks, museums, shops, taxi drivers and travel guides are all positively affected. In some countries tourism brings large sums of revenues to the local city and governments. This enhances the relationship with cruise companies and Politicians. Economic The cruise line industry is growing at a growth rate of 8% and more people are traveling today than ever before. Many Economic factors are involved, such as clienteles economic positions, growth in markets, currencies rates when working international and inflation plays a role. Cruise operators will be affected under management and operational levels. If the price of fuel starts to increase, then this will affect operating cost of the company. If interest rates increase then this will affect the revenues of the company. Economic factor plays a major role of the survival of the company. Social / Cultural / Demographic Social factors are measured by the Demographics, Population Growth and Age of their clientele. Popularity destinations and customer experiences will identify cruise industry demands. For example if a certain demographic and age, has a positive experience on their vacation. Then a positive trend will occur for that demographic and age segment. Social studies are important to the cruise industry to determine marketing opportunities on certain segments of the cruise industry. Today cultural factors play a role when traveling on a cruise ship. There are several cultural destinations from The Caribbean, Alaska, Western Mexico, Mediterranean, Europe, South America and Asia pacific. The Caribbean is most popular cultural destination in the world and Mediterranean is next in popularity. As the cruise industry grows more cultural destinations will be available. Demographics factors are important when conducting research and development. When conducting research they look at certain segments from Age, Income, Sex, Civil status, Occupancy, Education and Employment status. Conducting market study requires statistical data on each demographics. There are four different segments that are broken down by Luxury, Premium, Contemporary and Special. With all this information gathered, research and development can create a market strategy that will provide valuable information when creating an itineraries or new destinations. Technological Technological factors are important externally and internally within the company. Having good communications from management to operations is a critical factor when operating a company. Cruise companies are also looking for new technological advancement that can help improve safety occurrences. New technologies are being developed to assist the multibillion dollar industry. Due to the increase production of new ships, technologies are advancing each year. Cruise ships are looking for the most advanced Maritime technology, GPS systems and Satellite Weathering systems that the industry offers. Now that cruising has become a large part of the travel industry new and safer systems are in demand. Legal The Legal factors are important to the cruise industry. The cruise industry has been monitored for many types of law violations, such as employment, consumer, health and safety violations. If any cruise company is caught, violating any of these laws, large fines or criminal penalties can result from it. The legal occurrences can damage political and governmental relations. This is why Legal factors play an important role to the cruise industry. Environment The Environment factors have a large impact to the cruise industry. For example climate change and weather can impact the cruise industry as a whole. The cruise ships have advance weathering systems that can detect storm movement. Environmental factors must be addressed when creating newer cruise ship. Cruise operators goals are to decrease the environmental effects to the environment, thus decreasing climate change. For example reverse osmosis systems, shore power systems and wastewater systems all help decrease their environmental footprint. With pressures from Politians, cruise companies are forced to implement new environmental friendly technologies that can have a positive effect to the environment.