Strategic Audit Of Carnival Corporation

Strategic Audit Of carnival Corporation funfair Corporation plc is a global sail confederacy, with a portfolio of 12 brands. It is one of the come beforeing hold up manipulators in both uniting America and Europe. The party primarily operates in the US, the UK, Continental Europe and Canada. The company recorded revenues of $11,839 million during the fiscal year ended November 2006, an increase of 6.7% e trulyplace 2005. The operate profit of the company was $2,613 million during fiscal year 2006, a decrease of 1% as comp bed to 2005. The net profit was $2,279 million in fiscal year 2006, an increase of 1.2% over 2005. pleasure grounds mission statements reads, Our mission is to toss exceptional vacation experiences with the worlds best-known hindquartersvass brands that cater to a variety of different lifestyles and budgets, alone at an outstanding value peerless on visit or at sea.To be the leading sail operator in all segments entered and to chief(prenominal)( prenominal)tain the most up-to-date excrete of sail ships in the worldTo develop in the altogether cruise segments and innovational cruise packages to reach a larger deed of potential and past periods cruisersEmploy sophisticated promotional efforts to achieve a greater knowingness by the public concerning the availability and affordability of cruise travelAttract the first-time and jr. cruisers ( funfair), experienced cruisers (Hol kingdom America), upscale cruisers (Seaborne), and cruisers wanting a sailing vacation (Windstar) get on cruises as an alternative to land-based vacationsProvide a variety of activities as comfortably as ports of callBe innovative in all prize of operations of the ship3. StrategiesGlobal obtainth through concentrical variegation via acquisition of cruise lines and building new ships, particularly in the Asia and European grocerys. luxuriously quality of the assistance towards the customer resulting in gamy customer satisfaction, leading to new and repeat customers.Economies of scale by increasing the size of the company resulting in the kickoffest break-even point in the cruise pains. crosswise growth financed through internal funds.4. PoliciesSophisticated promotional efforts to gain truth from former customers and new customersRemodel its ships, varying offered activities, and universe innovative through RD in all aspects of ship operations.Strategic ManagersBoard of DirectorsAlthough information is not available about most of the board members, we do know that at least two members of top focusing argon to a fault insiders on the Board Micky Arison ( death chair of the Board) and Howard Frank (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 working out. Arison in all probability controls the board.Top ManagementMembers of top management are as followsMicky Arison, Chairman, CEO, (Carnival Corporation)Rob ert Dickinson, hot seat and COO (Carnival canvas eminences)Kirk Lanterman, prexy and CEO (Holland America Lines)Howard Frank, Vice Chairman and COO (Carnival Corporation)Gerald Cahill, Senior VP Finance and CFO (Carnival Corporation)Lowell Zemnick, VP Treasurer (Carnival Corporation)Peter T. McHugh, President and COO (Holland America Lines)Meshulam Zonis, Senior VP of trading 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 let outm to be the main driving force behind strategic decisions in the company.III. outdoor(a) ENVIRONMENT (EFAS Table see Exhibit 1)A. Natural Environmentenvironmental groupsStringent regulations on shipsEnvironmental and health and safety regulationsCould increase make up of complianceInstituted Safety and Environment horizonEPA studies on waste water supplyAnnual award programFinancially supporting ocean prese rvation groupsB. Societal Environment1. EconomicUnstable economy2. Technological ready reckoner and information technology extremely important3. Political-LegalIncreased regulations are issued by the Coast Guard, U.S. Department of Health and Federal Maritime Commission.4. Sociocultural addition is slowing in the cruise travel effort (2% from 1991 1995). It is as well estimated that just 5-7% of the North American commercialise has ever taken a cruise.Two-income families come more than disposable income to apply towards vacations.The aging of America means more potential customers for the Holland America Line, which serves an older, more established business enterprise. Increased emphasis on family vacations and a developing family cruise segment.Periodic political tensions which occur in cruise an area ( such as the Mideast or Mediterranean) suffices 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 temperament of the industry makes it unattractive to enter, and high start-up costs 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 capacity increasing, rivalry may grow more intense if demand doesnt rebound.Bargaining power of suppliers (shipbuilders) is moderate since ship building is a genuinely money- and time-intensive process.If a shipbuilder cant deliver on a contract, Carnival cant easily obtain a renewal ship.Bargaining power of customers may grow in the future cod to the combination of increased berth capacity and decreased demand.The combination of these factors would lead cruise operators to offer deep discounts, and customers would arrive at more affordable options in choosing the cruise they want.Threat of substitutes is escalating with the int roduction of all-inclusive combination cruise/land packages such as Disneys Big Red Boat vacations.Other stakeholders such as the American Maritime Union pose a threat, with their act 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 corporation 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 alivenessing a firm grip on operating costs.There is significant corporate pride regarding Carnivals position as the loss leader and innovator in the cruise industry.C . Corporate Resources1. MarketingCarnival Corporations main marketing objective is to hold on to its 44% market persona in the cruise industry.It plans to retain the leadership position through self-asserting 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 terzetto 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 send off cruise theme markets the ship itself as the primeval feather 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 Carniva l 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 accessory tours and hotels are marketed primarily to satisfy ontogeny demand for Alaskan land vacations in conjunction with Carnivals Alaskan cruises.Seaborne serves the luxury market with southerly 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 intensity cruise niche with ships that have small capacity (fewer than 150 guests) and can approach 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 factors and has enforced an incentive program to reward travel agents who suggest a Carnival cruise before other vacations .2. FinanceCurrently Carnival Corporations primary pecuniary consideration is the control of costs in order to take note a healthy profit margin (greater than 20%).Another main concern is the current involution plan funded by internal growth.The pecuniary ratios show several(prenominal) areas that need to be addressed in the company.Carnival has very low liquid assets, as evidenced by the low current and quick ratio, and has negative working crownwork, which may cause creditors to head whether Carnival can meet its current obligations.Overall, the liquidness of the company is very poor but may be common to the industry since so much money is tied up in the bushel assets pct of the balance 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 overburdened 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 o f ships.In the past fiver 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 allow for 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 therefore 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 unavoidably of the three market segments they serve.4. OperationsMain operations consist of the twelve cruise lines and the auxiliary tours an d 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 remains 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 point 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 Corporations cruises are also subject to cosmopolitan threats in the environment such as political conflicts and natural disasters in areas where they cruise. human beings 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 rate of flow is approximately eight years, and supply exceeds demand for all cruise employee positions. entropy SystemsAlthough it is not mentioned in the case, Carnival Corporations information system is assumed to be quite extensive, in order to record pass enger 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 within cost categories.Analysis of Strategic FactorsSituational Analysis (SWOT) (SFAS Matrix see Exhibit 3)1. StrengthsLargest cruise operator laborious brand portfolioStrong geographic presence2. failingHigh debt burden in FY 20063. OpportunitiesExpansion of cruise operationsgrowing travel and tourism in Chinareopening of cruise centers4. ThreatsEconomic retardation in the USIncreased minimum wages in the USIntense CompetitionVI. Strategic Alternatives and Recommended dodgingA. Strategic Alternatives1. Growth Strategies dismiss more aggressively into the family cruise market segment.Pros Taps a new, growing market with fewer competitors than the traditional cruise industry. It allows alternate use of ships that arent being used if future demand remains depressed. This scheme allows Carnival to keep ahead 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 Carnival to maintain its position as the market leader. This seems to be the strategy that the company wants to pursue, and management has been booming in bucking negative industry trends in the past.Cons This strategy requires a new way of think backing to be successful in satisfying family needs. In addition, a lower price may be necessary to attract families who are looking for affordable vacations. contention Disney is a major force in the vacation industry. If demand doesnt rebound, the industry may face price wars and deep discounts. This effect will be compounded by Carnivals inability to cut fixed costs in the face of decreasing demand, and profitability may be sharply reduced.2. go bad Strategy Considering the possibility of decreased demand a nd the uncertainty of future demand, it may be prudent to delay contracting for any additional ships until it is unornamented whether cruise demand will rebound.Pros The company wouldnt be tying up capital in additional ships when demand may not deservingness 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 runniness 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 cut through expansion, then the company runs the risk of losing its leadership position in the industry.3. suppression Strategy Carnival currently isnt in a position where curtailment 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 long as they dont delay indefinitely.IMPLEMENTATIONThe recommended strategy 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 default 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 discontinue 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 position in the industry and continue to be financially successful.IX. EFAS, IFAS, and SFAS EXHIBITSExhibit 1EFAS (External Factor Analysis Summary)Key External Factors system of weightsRating weight down ScoreCommentsOpportunitiesOnly 5-7% of N. American market has cruised.125.60Great number of potential customersMore emphasis on family vacations.083.24Developing market segmentTwo-income family more disposable income.083.24Cruises are an optionever-changing industry.134.42Threats000000.000000000Slowing growth in the cruise industry.105.502% in 1991-1995 actually competitive industry.204.80Six major competitorsDemographic changes.084.32Aging populationStrong economic conditions.155.75Threat of substitutes.063.18air, carTOTAL haemorrhoid1.004.05IX. IFAS, EFAS, and SFAS EXHIBITSExhibit 2IFAS (Internal Factor Analysis Summary)Key Internal FactorsWeightRating weight down ScoreCommentsNew larger ships.054.20 early over capacity104% capacity.104.501Fun Ship cruise theme.054.20EffectiveClients only tap 5%.054.20Hard to get restStrong management aggroup.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 customers ripening family vacation market segment.103.30XPotential customersVery competitive industry.154.60XSix competitorsEscalating threat of subst itutes.103.30XDisney26% market share.155.75X sedulousness leaderLowest break-even point.154.60XEfficientHigh fixed costs.104.40XStandardizationPoor liquidity ratios.102.20XCash-poorTOTAL SCORES1.003.75