Strategic Audit Of Carnival Corporation

Strategic Audit Of amusement park mintCarnival club plc is a global journey lodge, with a portfolio of 12 brands. It is one of the leading sheet operators in both North America and Europe. The company primarily operates in the US, the UK, Continental Europe and Canada. The company recorded revenues of $11,839 million during the financial year ended November 2006, an ontogenesis of 6.7% over 2005. The in operation(p) profit of the company was $2,613 million during fiscal year 2006, a decrease of 1% as comp ard to 2005. The net profit was $2,279 million in fiscal year 2006, an increase of 1.2% over 2005.Carnivals burster statements reads, Our mission is to 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 unmatched on land or at sea.To be the leading cruise operator in all segments entered and to honor the most up-to-date fleet of cruise ships in the w orldTo develop young cruise segments and sophisticated cruise packages to reach a larger number of potential and past cruisersEmploy modern promotional efforts to achieve a greater awareness by the public concerning the availability and affordability of cruise travelAttract the first-time and younger cruisers (Carnival), experienced cruisers (Holland America), upscale cruisers (Seaborne), and cruisers absentminded a sailing vacation (Windstar)Promote cruises as an alternative to land-based vacationsProvide a variety of activities as well as ports of callBe innovative in all respects of operations of the ship3. StrategiesGlobal conjureth through concentric diversification via acquisition of cruise lines and building new ships, peculiarly in the Asia and European foodstuffs.High quality of the service towards the customer resulting in high customer satisfaction, leading to new and repeat customers.Economies of scale by increase the size of the company resulting in the lowest bre ak-even signal in the cruise industriousness.Horizontal growth financed through internal funds.4. PoliciesSophisticated promotional efforts to gain devotion from former customers and new customersRemodel its ships, varying offered activities, and being innovative through RD in all aspects of ship operations.Strategic ManagersBoard of DirectorsAlthough development is not procurable about most of the board members, we do know that at least two members of eliminate management are also insiders on the Board Micky Arison (Chairman of the Board) and Howard candid (Vice Chairman).The stock of Carnival Corporation is publicly traded and at least 20% of privately held stock of the Arison family has been sold to fund expansion. Arison probably authorisations the board.Top ManagementMembers of top management are as followsMicky Arison, Chairman, CEO, (Carnival Corporation)Robert Dickinson, President and COO (Carnival cruise Lines)Kirk Lanterman, President and CEO (Holland America Lines )Howard Frank, Vice Chairman and COO (Carnival Corporation)Gerald Cahill, Senior VP Finance and chief financial officer (Carnival Corporation)Lowell Zemnick, VP Treasurer (Carnival Corporation)Peter T. McHugh, President and COO (Holland America Lines)Meshulam Zonis, Senior VP of Operations (Carnival Corporation)Carnival Corporation is a family tradition passed down from Ted Arison (founder) to his son Micky (current CEO and Chairman). Micky Arison and bob Dickinson seem to be the main driving force behind strategic decisions in the company.III. EXTERNAL ENVIRONMENT (EFAS Table see Exhibit 1)A. Natural surround purlieual groupsStringent regulations on shipsEnvironmental and health and safety regulationsCould increase be of complianceInstituted Safety and Environment positionEPA studies on waste body of waterAnnual award computer programmeFinancially supporting ocean conservation groupsB. Societal Environment1. EconomicUnstable economy2. TechnologicalComputer and information tech nology extremely important3. Political-LegalIncreased regulations are issued by the Coast Guard, U.S. Department of Health and Federal naval Commission.4. SocioculturalGrowth is slowing in the cruise travel industry (2% from 1991 1995). It is also estimated that only 5-7% of the North American market has ever taken a cruise.Two-income families have more disposable income to keep towards vacations.The aging of America means more potential customers for the Holland America Line, which serves an older, more established commercial enterprise. Increased emphasis on family vacations and a suppuration family cruise segment. episodic political tensions which occur in cruise an area (such as the Mideast or Mediterranean) causes cruise competition to intensify in safe waters until the tensions cease.B. Task EnvironmentThreat of new entrants is low, given the recent rash of cruise line failures, mergers, and buyouts.The competitive nature of the industry makes it unattractive to enter, and high start-up cost serve as a barrier to entry.Rivalry between competitors is high, with six major competitors (including Princess and Royal Caribbean Cruise Lines) and eight minor competitors.With berth talent increasing, rivalry may grow more intense if involve doesnt twit.Bargaining power of suppliers (shipbuilders) is moderate since shipbuilding is a very money- and time-intensive process.If a shipbuilder cant deliver on a contract, Carnival cant easily obtain a replacement ship.Bargaining power of customers may grow in the early due to the combination of change magnitude berth capacity and decreased demand.The combination of these factors would lead cruise operators to offer deep discounts, and customers would have more affordable options in choosing the cruise they want.Threat of substitutes is escalating with the trigger of all-inclusive combination cruise/land packages such as Disneys Big Red Boat vacations.Other stakeholders such as the American Maritime articula tion pose a threat, with their continued charges against Carnival (and other operators) concerning exploitation of cruise employees.IV. INTERNAL ENVIRONMENT (IFAS see Exhibit 2)A. Corporate StructureCarnival Corporation serves major market segments through Carnival, Holland America, and Seaborne (joint venture).Decision-making is centralized, with top management and the Board of Directors controlling all strategic decisions.The alliance attempts to reduce routine decision-making by standardizing temporary operations when possible.B. Corporate CultureCarnival Corporations culture seems to internalize the concept of providing guests with the highest service standards while keeping a firm grip on operating costs.There is significant corporate pride regarding Carnivals position as the leader and innovator in the cruise industry.C. Corporate Resources1. MarketingCarnival Corporations main trade objective is to hold on to its 44% market share in the cruise industry.It plans to retain the leadership position through aggressive promotional campaigns by gaining loyalty from former cruisers and by being innovative in shipboard activities and operations. Carnivals cruise product is well-defined and positioned to serve three major markets contemporary, premium, and luxury.Carnival Cruise Lines (contemporary) targets young and first-time cruisers with moderately priced packages which include airfare and a variety of shipboard amenities.Prices are competitive with those of other similar cruise and land-based packages. The Fun Ship cruise idea markets the ship itself as the primary vacation destination, with ports-of-call being of secondary importance.Holland America Lines (premium) is positioned to attract higher income travelers with cruise prices averaging 25-35% higher than Carnival Cruises.HAL serves an older, more established clientele. Carnival provides additional vacation opportunities through Westmark Hotels, Westours, Gray Line Tours, and the McKinley Explorer railroad coaches in Alaska. These auxiliary tours and hotels are marketed primarily to satisfy growing demand for Alaskan land vacations in conjunction with Carnivals Alaskan cruises.Seaborne serves the luxury market with South American, Mediterranean, Southeast Asian, and Baltic cruise destinations.Seaborne serves very wealthy clientele with worldwide cruises up to 98 days duration.Windstar Sail Cruises serves a specialty cruise niche with ships that have small capacity (fewer than 150 guests) and can preliminary smaller, less traveled ports-of-call.Carnival Corp. was the first cruise operator to advertise on television.Carnival books 99% of its cruises through travel agents and has implemented an incentive program to reward travel agents who suggest a Carnival cruise before other vacations.2. FinanceCurrently Carnival Corporations primary financial consideration is the control of costs in order to maintain a healthy profit margin (greater than 20%).Another main concern is the cu rrent expansion plan funded by internal growth.The financial ratios show several(prenominal) areas that need to be contended in the company.Carnival has very low liquid assets, as manifest by the low current and quick ratio, and has negative working capital, which may cause creditors to doubt whether Carnival can meet its current obligations.Overall, the liquidity of the company is very poor but may be common to the industry since so much money is tied up in the fixed assets fortune of the respite sheets.In other areas, Carnival is doing much better with a profit margin of 22%, ROI of 11%, and ROE of 19%.The company isnt overburden by debt and has two revolving credit agreements for a total of $1 billion, $815 million of which is still available for the refurbishing and building of ships.In the past five years the corporation has experienced losses due to the discontinuation of the Fiestamarina Line and two of its hotels.Carnival recently purchased $101 million of secured notes issued by Kloster Cruise Lid. (Norwegian Cruise Lines).Kloster has experienced financial difficulties, and if the company fails, Carnival will be in position to claim a portion of Klosters assets.A financial strength of Carnival Corp. is that it is registered as a Controlled Foreign Corporation and thus is exempt from U.S. Federal income taxes at the corporate level.3. Research and DevelopmentCarnival relies on RD on the part of its shipbuilders to produce faster, more fuel efficient, technologically advanced ships.Carnival also uses service RD to implement and improve shipboard entertainment and activities to serve the disparate needs of the three market segments they serve.4. OperationsMain operations consist of the twelve cruise lines and the auxiliary tours and hotels mentioned in the analysis of marketing.The company expects to take delivery of ten new ships (including several superliners) in the next four years seven for the Carnival Line, two for the Holland America Line, and one for Windstar. These ships will result in a 20,484 passenger increase over Carnival Corp.s current capacity and cost $3.3 billion.This expansion will enable Carnival to stay competitive with its rivals, who are also expanding, but if future demand frame depressed, the extra capacity could negatively affect future profitability.The major strength of Carnivals operations is that they are very efficient it has the lowest break-even indicate of any organization in the cruise industry.It has also been able to achieve significant economies of scale by standardizing layout and shipboard operations on its ships.Carnivals fixed costs make up 33% of the companys operating expenses, and they cant be reduced in proportion to decreases in passenger loads and revenues.Major variable costs as a percent of operating expense are as follows airfare (25-30%), travel agent fees (10%), and labor (13-15%).Shipboard operations are very labor-intensive, which results in high labor costs.Carnival Corp orations cruises are also subject to commonplace threats in the environment such as political conflicts and natural disasters in areas where they cruise. forgiving Resource ManagementCruises are labor-intensive, requiring extensive screening and hiring of employees.Employees work on contracts of 3-9 months and are recruited mostly from third-world countries.Carnival has employees from 51 nationsCarnival has been cited by the American Maritime Union for exploitation of employees, but the average employment period is approximately eight years, and supply exceeds demand for all cruise employee positions.Information SystemsAlthough it is not mentioned in the case, Carnival Corporations information system is assumed to be quite extensive, in order to record passenger reservations taken from hundreds of travel agents and to orchestrate the daily operations of this large company.The information system also appears to give very detailed breakdowns of expenses between cruise divisions and w ithin cost categories.Analysis of Strategic FactorsSituational Analysis (SWOT) (SFAS hyaloplasm see Exhibit 3)1. StrengthsLargest cruise operatorStrong brand portfolioStrong geographic presence2. WeaknessHigh debt burden in FY 20063. OpportunitiesExpansion of cruise operationsgrowing travel and tourism in Chinareopening of cruise centers4. ThreatsEconomic slowdown in the USIncreased minimum wages in the USIntense CompetitionVI. Strategic Alternatives and Recommended StrategyA. Strategic Alternatives1. Growth Strategies Move more aggressively into the family cruise market segment.Pros Taps a new, growing market with fewer competitors than the traditional cruise industry. It stops alternate use of ships that arent being used if future demand remains depressed. This strategy allows Carnival to keep fore of its competitors, and the companys low break-even point puts it at an advantage over competitors who are pursuing a similar expansion plan. Pursuing moderate expansion allows Carni val to maintain its position as the market leader. This seems to be the strategy that the company wants to pursue, and management has been successful in bucking negative industry trends in the past.Cons This strategy requires a new way of thinking to be successful in satisfying family needs. In addition, a lower price may be necessary to attract families who are looking for affordable vacations. Competitor Disney is a major force in the vacation industry. If demand doesnt rebound, the industry may face price wars and deep discounts. This military unit will be compounded by Carnivals inability to cut fixed costs in the face of decreasing demand, and profitability may be acutely reduced.2. Pause Strategy Considering the possibility of decreased demand and the uncertainty of future demand, it may be prudent to delay contracting for any additional ships until it is unpatterned whether cruise demand will rebound.Pros The company wouldnt be tying up capital in additional ships when dem and may not merit it. This would allow the company to concentrate on refining its current operations and marketing strategy. It may also lead to an improvement in the liquidity ratios.Cons If demand does rebound and Carnival hasnt ordered additional ships, there will be a time lag until it receives new ships. In addition, if Carnivals competitors continue expansion, then the company runs the attempt of losing its leadership position in the industry.3. Retrenchment Strategy Carnival currently isnt in a position where retrenchment is recommended. However, if demand doesnt rebound, retrenchment could become a necessity in the future.B. Recommended StrategyRecommend that the company continue to pursue its current growth plan.This strategy allows Carnival to stay current with its competitors.If demand remains depressed in future years, there will still be ample time for Carnival to reassess its corporate strategy as yen as they dont delay indefinitely.IMPLEMENTATIONThe recommended stra tegy doesnt require any extensive changes in current programs.Top management should closely monitor the industry and general economic trends to determine whether demand will rebound as expected.If not, management should formulate alternate strategies that adjust to these conditions.EVALUATION CONTROLCarnivals management needs to address the poor state of the companys working capital and current ratio.These are of concern since a low current ratio may cause the company to slackness on certain debt covenants.However, the state of the working capital and current ratio may be normal when compared with industry standards, since a large portion of the balance sheet assets is concentrated in fixed assets.The companys information systems are sufficient to evaluate the performance of the recommended strategy and to separate costs associated with the expansion.Carefully monitors future demand and makes necessary adjustments, I think it is in a good position to maintain its leadership positio n in the industry and continue to be financially successful.IX. EFAS, IFAS, and SFAS EXHIBITSExhibit 1EFAS (External Factor Analysis Summary)Key External FactorsWeightRatingWeighted ScoreCommentsOpportunitiesOnly 5-7% of N. American market has cruised.125.60 bulky number of potential customersMore emphasis on family vacations.083.24Developing market segmentTwo-income family more disposable income.083.24Cruises are an option changing industry.134.42Threats000000.000000000Slowing growth in the cruise industry.105.502% in 1991-1995Very competitive industry.204.80 sextette major competitorsDemographic changes.084.32Aging populationStrong economic conditions.155.75Threat of substitutes.063.18air, carTOTAL score1.004.05IX. IFAS, EFAS, and SFAS EXHIBITSExhibit 2IFAS (Internal Factor Analysis Summary)Key Internal FactorsWeightRatingWeighted ScoreCommentsNew larger ships.054.20Future over capacity104% capacity.104.501Fun Ship cruise theme.054.20EffectiveClients only tap 5%.054.20Hard to g et looseningStrong management team.155.75Best in industryMarketing/travel agents.125.60strong teamCorporate culture.105.50StrongAcquisitions concentric diversification.144.56Great acquisitionHRM exploiting employees.054.20Stay 8 yearsFinancially strong.104.40Low B/E and cash for new shipsMarket share 26%.105.501Healthy profit margins.044.16TOTAL SCORES1.054.77IX. SFAS, EFAS, and IFAS EXHIBITSExhibit 3SFAS (Strategic Factor Analysis Summary)Key Strategic FactorsWeightRatingWeighted ScoreDurationS I LCommentsOnly 5-7% of Americans have taken a cruise.154.60XPotential customersGrowing family vacation market segment.103.30XPotential customersVery competitive industry.154.60XSix competitorsEscalating threat of substitutes.103.30XDisney26% market share.155.75XIndustry leaderLowest break-even point.154.60XEfficientHigh fixed costs.104.40XStandardizationPoor liquidity ratios.102.20XCash-poorTOTAL SCORES1.003.75