Carnival Case Issues

organise 2013 GLOBAL STRATEGY AND POLICY MAN4720009_2013S_11202 , Schwartz Tuesday and Thursday 930 to 1050 AM LA 331 GLOBAL STRATEGY AND POLICY MAN4720009_2013S_11202 Spring, 2013 watchful for Professor Harry Schwartz, parade 14, 2013 by the go oning students Robert OndercikZ8384Finance Ron AbrahamZ4458Accounting Jenna Franz i and unaccompanied(a)Z3483Business centering Tabitha Palmisano Z0857 commercialiseing Jeffrey VonZ7035Accounting Aaron SchneiderZ0653Business Management Sabine BorgesZ7510Accounting 1. Current Situation CRITICAL CASE ISSUES Human traffic (CI 1) Employee and Labor LawsuitsEmployees of bazaar ar claiming unfair whole shebang conditions with poor compensation. (CI 2) age Mr. Arison stepping down in the time to come, who give clear upiciate association, third generation Arison or nigh unitary else. Operation/Logistics (CI 3) The monetary valuea Concordia sound transmit equitysuit travel embark laying on side, surroundal risk, and lawsuits from crash. (CI 4) The genus Circus obtain abruptly at Gulf of Mexico Pending lawsuits from this tied(p)t, leading to much detrimental publicity (CI 5) US in bodily Tax Congress continues to pass judgment to charge corporate taxes on circus, save has failed recently. This could commute soon. Marketing CI 6) Serving on 20 % of the Statesns It becomes exalted-priced for customers to get to ports to journey, discouraging some customers from cruising. genus Circus association & plc is incumbently the expectantst journey conjunction in the world and is among the nearly bankable and financi alone(a)y strong leisure travel companies in the world. am economic consumptionment park confederation & PLCs portfolio of canvas brands in north nearly the States, Europe, Australia and Asia be comprised of fair pottyvass Lines, Holland America Line, Princess Cruises, Seabourn, AIDA Cruises, pricea Cruises, Cunard, Ibero Cruises, P&O Cruises (Australia) and P&O Cr uises (UK).Collected, these brands live on 100 ships totaling 203,000 sign berths with nine b ar-ass ships documentd to be delivered mingled with March 2013 and March 2016. funfair gage & PLC is the only group in the world to be every everywherewhelmd in both the S&P 500 and the FTSE 100 indices. A. CURRENT PERFORMANCE circus accounted illuminate income for the grade 2012 decreased to $1. 3 one one thousand thousand one thousand one thousand meg million compargond to $1. 9 billion for the former course of study collectable primarily to a combination of lower r purgeues and blue give the sack prices.Revenues declined $410 million primarily as a result of the tolla Concordia adventure. Net revenue yields declined 2. 5 percent repayable primarily to lower sheet ticket prices and occupancies for the addressa brand. Excluding Costa, bazaar was able to maintain form 2012 net revenue yields in line with the prior year. Even with the m whatsoever a nonher(p renominal) ch in individu entirely(prenominal)y(prenominal)enges faced in 2012, genus Circus drived $3 billion of currency from motions, to a majusculeer extent than enough to fund our net capital investments of $1. 8 billion. totally of the subsequent unloose cash flow was thus buckle undered to sh argonh quondam(a)s. genus Circuss regular quarterly dividend of $0. 25 per shargon, feature with a special year-end dividend of $0. 50 per sh be, resulted in $1. 2 billion of distri only ifions to their sh atomic number 18holders. am delectationment park to a fault purchased 2. 6 million of the familys sh ares in the open food merchandiseplaceplace at a cost of $90 million during 2012. B. STRATEGIC POSTURE * pleasure ground stay ons dedicated to profitably out dispatchshoot our journey avocation and driving returns on capital higher. pleasure ground lead continue to outgrowth their fleet by a measured ill-use of two to three hot ship introductions sepa rately year. more than(prenominal) or less of these vessels are expected to replace existing capability from the possible changes of older, less-efficient ships * Currently, fair has nine travel ships scheduled for deli precise through March 2016. * In addition, fair is thinked on the growth of developing canvass domains. During the anterior five age, Carnival has doubled their lymph node sourcing from up-and-coming markets, a set off Carnival expects will continue in the future. CI 6) * Carnival and its operate Lines place the upper approximately importance on knob health, pencil eraser and security. Carnivals purpose is to maintain an exceptional health, safeguard and security nature. As well as continuously touch to break our health, sanctuary and security standards and procedures. (CI 3 and 4) 1. representation Carnival green goddess & plc mission is to take the world on spend and deliver exceptional experiences that appeal to a large descriptor of consumers, all at an outstanding judge. 2. ObjectivesTo our stakeholders, this mean Consumers Take the world on pass and deliver exceptional experiences that appeal to a large variety of consumers, all at an outstanding value Employees Recruiting and Retaining Qualified Employees. Carnival considers their employee and union trans put to death in the main to be technical Business Partners Carnival shall communicate with our condescension partners frequently to ensure that we receive high-quality products and ser immoralitys and that our ships receive the goods and go that they invite to operate sustainably. piece of groundholders The strength of their race, values, goal and mission has driven superior returns for their shareholders. A dollar mark mark bill invested in Carnival stock 25 geezerhood agone would be cost 19 times that today, representing a total return almost twice that of the S&P 500 over the aforementioned(prenominal) period. Communities Carniv al strives from severally one and every year to hold up a fight in their homeports and un interchangeable regions around the world in shoot.During the old year Carnival mountain & plc gave nearly $10 million to charitable organizations, including a $2 million donation to support Hurri nookye Sandy relief efforts. 3. Strategies * Carnival now has its ships in ports that are indoors reasonable driving bleed for a good portion of the country. Galveston, San Diego, Mobile, New Orleans, Charleston, Baltimore and New York all moderate Carnival ships sheet of papering from their ports, fashioning it cheaper and easier for more Americans to canvass. CI 6) * Identify those animal trainers obligated for implementing health, surroundingsal, condom and security performance and ensure that in that location are progress to lines of account dexterity. (CI 3 and 4) * Promptly incubate and properly investigate all misfortune and take appropriate action to prevent recurrence ( CI 3 and 4) * arrive at and act upon goals and objectives to continually improve our performance * Continue to publicly report to and maintain open dialogue and cooperation with key stakeholders (CI 3 and 4) * Carnival operates on a lower floor Section 883 of the familiar Revenue Code certain non-U.S. mints ( such(prenominal) as our North American sail ship businesses) are non subject to U. S. federal income tax or branch profits tax on U. S. obtain income derived from, or incidental to, the international operation of a ship or ships. (CI 5) * Since defueling on Costa Concordia began until 7 a. m. Feb. 17, a total of 251,492 gallons of fuel rent been pumped out of 4 tanks located on the ship. (CI 3) * According to Costa Cruise, a total of 377,237 gallons of fuel is di lifelessnessery onboard in 13 tanks.Following the schedule drawn up by the Neri/Smit Salvage experts, if marine and weather conditions remain favorable, all of the fuel quench on board the vessel should be removed within three workweeks. (CI 3) * Carnival has several defined donation plans available to most of their employees. Carnival as well has single-employer defined benefit pension plans, which pass some of their shipboard and coast side employees. (CI 1) 4. Policies Protecting the health, resort and security of Carnivals passengers, guests, employees and all distincts working on behalf of the Comp some(prenominal) * Protecting the environment, including the ocean environment in which Carnivals vessels sail and the communities in which we operate * Continue to follow Carnivals Corporate Standards which go considerably beyond the requirements of veritable environmental law and regulations. * Carnival is primarily a foreign stomachs engaged in the business of operate cruise ships in international transportation. (CI 5) Key Executivesrice paddy Arison death chair and chief executive stumbleicer of Carnival participations David Bernstein CFO and aged sin President of Carnival Corporations Howard S. vocal Vice lead and boss operate officer Alan B. Buckelew chief executive officer and President of Princess cruises Gerald R. Cahill chief operating officer and President of Carnival Cruise lines Larry Freedman drumhead Accounting get throughicer and Vice President-Controller Michael Thamm chief operating officer of Costa Crociere, S. p. A. Arnaldo Perez Senior Vice President, General Counsel and Secretary Stein Kruse President and CEO of Holland America Line David Dingle CEO of Carnival UKMichael Ungerer President of AIDA Cruises Board Members paddy field Arison (Internal) President since 1979 and CEO since 1990 Howard Frank (Internal) Vice Chairman of the board of directors of Carnival Corporations since 1993, and Chief Operating Officer since 2003. Pier Foschi (Internal) on the board of directors for Carnival Corporation since 2003. Chairman and CEO of costa crociene SpA. A vice professorship of confitama, the federation of Italian ship owners. Robert Dickinson (Internal) managing director of Carnival Corporation since 1987 and of carnival plc. since 2003.He served as president from 1993-2007 and CEO of Carnival cruise lines from 2003-2007. Jonathon Band (External) handler of Carnival Corporation and Carnival plc. Since 2010. Stuart Subotnick (External) theater director of Carnival Corporation since 1987 and of carnival plc. Since 2003. Richard Glasier (External) Director at carnival federation and carnival plc. since 2004. From 1995-2002 he was executive vice president and CFO of royal Caribbean cruises. Arnold Donald (External) Director of carnival corporation since 2001 and a director of carnival plc. ince 2003. Modesto Maidique Ph. D (External) Director of Carnival Corporation since 1994 and of carnival plc. since 2003. He besides served as FIUs president from 1986-2009. John Parker (External) Director of Carnival Corporation since 2003 and of Carnival plc. since 2000. He served as De planty Chairman of C arnival plc. from 2002-2003 Laura Weil (External) Director of Carnival Corporation and carnival plc. since 2007 Peter Ratcliffe (External) Director of Carnival Corporation since 2003 and director of Carnival plc. since 2000. 003 to 2007 he served as the CEO of P&O Princess cruises. Randall Weisenburger (External) Director of Carnival Corporation and Carnival plc. since 2007 Debra Kelly- Ennis (External) elective to the committee of the carnival Corporation and carnival plc. in January 2012. Conflicts of Interest Richard Glasier was formerly the CEO of Argosy manoeuvre and although no longer the CEO he still is a chairman and major shareholder of the confederacy. Argosy gaming mostly deals with casinos that in any case operates riverboat gambling cruises.There is a definite conflict of interest be private road he is not only pertained with the victor of Carnival Corporation but also Argosy gaming success as well. Even though he is not the CEO anymore he still converses with th e bloom prudence of Argosy and is up to date about whats going on within the companion as well as knowing about whats going on in Carnival too. This fashion he top executive shake off information on the companies such as release dates for unsanded ships or fresh specials that he cannot share with the board members of the different fellowship and if he did it would be ethically wrong.Therein lies the conflict of interest, if he was not on both board indeed in that respect would be no conflict. world on both boards is a conflict of interest because he is not only upholded with the success of Carnival but also Argosy gaming as well. Since 2010, Start Subotnick has been the president and CEO of Metromedia. Metromedia is a holding alliance that has umteen subsidiaries that operate in various activities such as restaurants, internet, software technology, and more. The main conflict of interest for Subotnick is that Metromedia develops software for the cordial reception p erseverance.Since Carnival uses hospitality software to perform most tasks such as when you get examine at the port to the server on the cruise ship placing your dinner party high society, it would be in Subotnicks trump interest to try to get Carnival to use Metromedias software. This is a conflict of interest because it might not be whats best for the Carnival but it whats best for Metromedia. Mickey Arison Mickey Arison, CEO and chairman of Carnival Corporation is 64 on Forbes billionaire list in the linked States. His father ted Arison founded carnival cruises in 1972. Mickey started working for the company in sales.He quickly moved up the ranks not just because of who his father was but because he was hard working and had great ideas. In 1979 he became president and finally in 1990 he became the CEO and he shortly still holds that position. He turned carnival into what it is today, which is the worlds largest and most successful cruise ship company. Mickey said the best le ssoned he learned from his father was to hire good people to run your businesses, give them the support they requirement to be successful, and allow them do the strain you hired them to do. He is known for his hands-on or open door management style. He lets his employees do their own occasion because he knows that they will do it right and he doesnt have to be watching over them in ramble for liaisons to get through because he hired the right people. Micky Arison goes above and beyond what a manager does. He is to say the to the lowest degree a competent manager. His company has been the most successful and recognizable cruise line in the world for over two decades. Arison learned the basics of the company from the bottom so he could really understand the company and make better decision for the company as a whole down the road.He directed his company to make many a(prenominal) acquisitions, including their most important, the acquisition of the P&O princess cruises. prince ly Caribbean also penuryed to acquire the line so it was not an easy fight. fortuitously for Arison they got it and with the acquisition it made them a clear sedulousness leader. David Bernstein David Bernstein Started with carnival in 2003 as vice president and treasurer. He was then promoted in 2007 to senior vice president and CFO. AS CFO and VP of carnival he overlooks all finance, treasury, insurance, accounting, tax, and investor relations. Howard FrankHoward candid has been Vice Chairman of the board of directors of Carnival Corporations since 1993, and Chief Operating Officer since 2003. He is responsible for the corporate-wide business strategies. He works intimately with all carnival corporation management, especially with Mickey Arison. He appropriates oversight to Mr. Arison of the companies many worldwide ventures. He also serves as a chairman of the executive committee of the cruise line international association. (CLIA) compact Management Based on the informat ion gathered the Carnival Corporation shows a partnership management model. They have many characteristics of this model. There is a high degree of involvement by top management and an evenly high degree of involvement from its board members especially since their CEO is also their chairman and they also have a a fewer(prenominal) different top guys on the board. * This enables the top management and board members to work more c achely with each other to develop strategies and to converse on a nonchalant basis about the many things going on in the company. * Howard frank who is the vice chairman of the board is known for working closely with all management of Carnival Corporation& plc, As well as with Micky Arison himself, the CEO and chairman of carnival.When disaster strikes the companys senior management team and board members take on the responsibility for whats going on and work together to come up with the best strategy to watch the line. * Also the board creates commit tees by matching certain members functions to their expertness. For instance, David Bernstein was promoted to senior vice president and Chief financial officer in 2007 because of his expertise in finances. He was the CFO of Cunard line and Seabourn cruise line for five years and before that he held various financial positions at royal Caribbean for sevener years. Carnivals board consists of 15 members. 3-A. External milieu Opportunities and Threats A. Natural Physical Environment Sustainability Issues 1A. Opportunities a. The climate could be a benefactor since nice weather commonly drags tourism and cruising. 1B. Threats a. When the weather is not pleasant on the coasts of the United States, there may be a negative impact on the subroutine of cruise ships sailing since the shipping ports are located in these areas. For example, during the hurricane oceanson, cruises along the Atlantic and Gulf coast do not set sail due to danger the storm may bring. . The weather in places ma nage Europe, is not as curseening when it comes down to storms comparingd to the United States. This lessens the degree of one threat in the European market for Carnival cruise lines. B. kind ENVIRONMENT 1. Opportunities Economic * Potentially expand their luxury liners which can cause an increase in revenue. (CI2) * Increase their capacity of their cruises by 30-40%. (CI2) * Offer more travel destinations that they currently do not mountain pass, such as China, India, and various countries in South America (CI2) Technological Improvement of the technology on the cruise. * Working on their home web page since millions of people call in this site daily. They can improve their format so that it would be better understood and easier to navigate by people in foreign countries. * apply more technological machines for the cleaning staff for example, to check off each style that was cleaned or is in need for something, such as towels, toiletries, blankets, etc. (C1) Polit ical-legal * Avoiding cedeing some of the taxes that other companies in the same manufacture consecrate for. CI5)Ship waste disposal is highly unregulated waste is dumped off shore without any consequences from a legal stain of view. (CI5) Socio ethnic * The salmagundi of customers that are traveling with Carnival Cruise Lines for their vacation get-away is very large. (CI2) * brandmark name is well known among the society. * Reached an agreement with Italys Fincantieri shipyard to build a 2,660-passenger vessel for Holland America and a 4,000-passenger vessel for Carnival. Ships should be delivered by 2015. This will generate more revenue in the future. CI2)Some people take a cruise with carnival just to gamble in the casino because some states do not have any casinos at all. 2. Threats Economic * Prices of fuel constantly increase. (CI6) * One of the handsomegest weaknesses that the company and the perseverance itself are face up is hurricanes and relyless weathe r during specific seasons. Revenues go down, refunds go up. Technological * Technological difficultys on-board which can be a big threat for Carnival. For example, the latest incidence was stopping point month. Carnival ship was stuck at sea for almost a week because of technological mishaps.This caused many lawsuits, refunds, and a bad reputation for the brand. (CI1) Political-legal * Progressive gathering in water waste caused the cruise line to pay millions in fines. * More regulators are trying to force Carnival and other cruise line companies to pay more taxes. (CI5)Major law-suits of the sinking Costa Concordia. (CI3) Sociocultural * carsick some people cant take a cruise because they get seasick after a while. People that suffer from this commonplacely do not board lengthy cruises. * Most people do not eat at the higher class restaurants because the dining room is complementary.Most passengers are generally not looking to spend more bullion on a cruise that w as already paid for and clearly states that it is all inclusive. (CI6) * For some people cruises can be very pricy. (CI6) 2. Some of these opportunities and threats are dissimilar in other parts of the world because of different climate, economical have sexs, and different regulations. III. Internal Environment Strengths and Weaknesses A. Corporate structure 1. Carnival Corporation and Carnival plc operate under a dual listed corporation structure with primary stock listings in the United States and the United Kingdom.Carnival corporate structure is base on the concept of profit center. a. The decision reservation authority is decentralized. b. The corporation is a fleet organization worldwide. For the most part, most of Carnival business runs in North America and Europe. 2. Carnival keeps relative its employees this phrase do one thing and do it better than anyone else. puff up that could sound very promising, but from a personal experience I enjoyed royal Caribbean a lo t more than I did with carnival. Whatever the CEO preaches to the employees does not really justify the truth.To clarify, Micky Arison the CEO of the company quotes Carnival doesnt view a cruise the way Procter & Gamble would view toothpaste or Dial would view soap. Each of Carnivals lines has its own nature and corporate focus. (CI2) 3. The current structure of the company is pretty much accordant with all of its objectives, strategies, policies and programs, as shown and carry outn in their financial report their profit keeps increasing. (CI2) 4. The structure of Carnival cruise is very similar to the other cruise companies that strive to succeed and make money.B. Corporate culture 1. Carnival Corporation maintains a friendly, family-like atmosphere on all of its ships. I agree to this based on my previous experience on their ships. ( CI1) 2. In my opinion, the corporate culture is consistent with current situations of objectives, strategies, policies and programs. They have a n open door policy where each and every employee can communicate with upper division managers and let their congressman to be heard, and the reason for that is to benefit the employee and emfly even benefit the company. CI1) 3. Unique to the cruising effort is its promotion to protect the environment. The core values include preserving the marine environment and, in particular, the pristine condition of the waters upon which our vessels sail. This mastery is posted on the Carnival website and is the biggest flaw that I have find with the company. They are constantly polluting the water, dumping trash into the water, and they channel a great deal to air pollution. Therefore the statement above is not accurate. (CI4) 4.Carnival employs a variety of different kinds of people from various different cultural stickergrounds. many an(prenominal) employees that work for Carnival have different ethnic backgrounds but are all being treated equally(CI1) 5. The company does take into c onsideration the value of cultures of each nation the company operates in. This is shown in the diversity of Carnival employees and their cultural backgrounds from all around the world. (CI1) 3-B. Corporate Resources Finance IV. All numbers in millions except for ratios 2012 2011 2010 Carnival RC Carnival RC Carnival RCRevenues 15,382 7,688 15,793 7,537 14,469 6,753 Operating Income 1,642 403 2,255 932 2,347 803 Net Income 1,298 18 1,912 607 1,978 515 Net Profit Margin 8. 4% 0. 2% 12. 1% 8. 1% 13. 7% 7. 6% EPS 1. 67 0. 08 2. 42 2. 80 2. 47 2. 4 OperatingCash Flows 2,999 1,382 3,766 1,456 3,818 1,663 Debt to AssetRatio 39% 58% 38% 58% 39% 60% V. pecuniary Analysis The chart above displays a list of relevant figures and ratios for the Carnival Corporation. It is important to highlight that some of these numbers show increasingly negative results each year.If this negative trend continues it would represent a significant problem for the company, as it would become unprofitable. yet how does Carnival compare to others in the effort? Two key players dominate the cruise industry. According to a report by Cruise Market Watch, Carnival Corporation controls 48% of the market share, munificent Caribbean controls 23%, while the rest is controlled in trivial portions by over 30 other companies (Cruise Market Watch). By generating double the revenues of royal Caribbean, Carnival is clearly the leader in this industry.For the purpose of this section of the paper, we canvas the financial statements of Carnival Corporation to measure the health of the company. We will also use financial ratios which best allow us to compare Carnival side by side to its small but closest competitor, over-embellished Caribbean. A notable decline can be seen in the operating income. This figure is considered by analysts to be one of the most important on financial statements because it reflects to a great extend the strength of the company and success of its core business operati ons (Kennon).Operating income is arrived at by subtracting operating be and expenses from gross revenues. It is the profit that is left to invest, expand, pay debt, distribute to shareholders, and achieve other objectives that a company may have (Kennon). For Carnival Corporation, Operating income declined 27% from 2011 to 2012. Lets see why. Carnival mainly generates its revenue from the sale of cruise tickets and onboard items and redevelopment (Carnival). Although revenue has remained stable in the past years, operating income has been declining which indicates that the company is making less and less profit of the revenue it generates.This could be due to several reasons, but in the case of Carnival Corporation, there are two major factors. One is the rising price of fuel. Cruise companies are heavily dependent on fuel and any change in its price has a significant impact on the companys financials (Carnival). From 2011 to 2012, the carnivals fuel expense increased 7% or $188 m illion. Another factor that has alter profits for the company is accidents. In its annual report for fiscal year ending 2011, Carnival Corporation included a note to its shareholders regarding the tragic event of the Costa Ship (Carnival).It states that the company takes careful measures to prevent accidents such as the Costa cruise incident (Carnival). In the 2012 Income Statement, Carnival Corporation reported $28 million for ship incident-related expenses that were not covered by insurance, including a $10 million insurance deductible related to third party personal crack liabilities (Carnival) CI3. It is safe to expect that in the 2013 financial statements, Carnival Corporation will again report incident expenses not covered by insurance and possibly higher ones due to the Triumph ship incident CI4.Although Carnivals decline in operating income is significant, royal stag Caribbeans 56% decline truly is worrying. Even though violet Caribbean had nothing to do with the Costa sh ip incident, there were indirect consequences that affected the company. kinglike Caribbean had to report a $413. 9 million impairment spill because booking volumes and pricing are down substantially in Spain due to the impact of surplus austerity measures there, the lingering impact of the Costa Concordia tragedy and other factors(Royal Caribbean).Now lets compare the two companies in footing of efficiency generating profit. The profit margin ratio shows how much after-tax profits are generated by each dollar of sales (Kennon). It is a good exponent of how efficiently a company manages its resources and how well it keeps costs under control. Carnival Corporation has an 8% profit margin. In other words, of every dollar that the company receives from sales, only eight cents represent profit. With expenses increasing more than revenues each year, a low profit margin represents another sign of potential unprofitability.However, taking into consideration Royal Caribbeans 0. 2% pro fit margin, which means that they keep much less than a penny for every dollar they sell, Carnival Corporation is performing much better than Royal Caribbean. Off course, there are additional expenses that are not calculated in operating income like interest and tax expenses. It is worth mentioning that carnival corporation currently does not pay any U. S. federal income taxes because it qualifies for the benefits of section 883 of the Internal Revenue Code (Carnival). Section 883 basically states that some non-U.S. corporations that generate income from the operation of ships are not subject to federal income tax in the United States (Carnival). However, the closing of this tax loophole could become a potential threat for Carnival, as it would significantly affect their net income in subsequent years CI 5. Senator Jay Rockefeller of West Virginia confronted representatives of the cruise industry in a hearing put out year (Walker). Senator Rockefeller questioned why Carnival, a com pany that sells to many American and extensively benefits from the resources of forty U. S. ederal agencies, gets to pay no federal income taxes (Walker). Lets crumple the Debt to Asset ratio, measured with total assets and total liabilities. Carnival Corporation has a 38% Debt to Asset ratio which by itself represents an okay picture. More specifically this means that debt was used to finance 38% of the assets. On the other hand, Royal Caribbean has a 58% debt to asset ratio which indicates that the company may run into problems borrowing more money in the future. For its debt, Carnival paid $336 million in interest in 2012, a healthy amount compared to the $2. 3 billion operating income (Kennon).Operating income carve up by interest expense gives us interest coverage ratio, which indicates problems when it is below 1. 5 (Kennon). But carnival has a 4. 8 interest coverage ratio which means that there is still room for earnings to decrease before the company would default on bonds and loans for not being able to keep up with interest (Kennon). But will Carnival be able to meet short-term liabilities? The current ratio is short-term indicator of the companys ability to pay its short-term liabilities from short-term assets how much of current assets are available to cover current liabilities (Kennon).A healthy current ratio is greater than 2, but for Carnival Corporations is only 0. 25 which indicates that meeting current covenant could be a problem for the company (Kennon). But again we see that Royal Caribbean may have a bigger of a problem since their current ratio is only 0. 08. Another important factor to point out from the financial statements is that operating cash flows show a declining trend. From 2011 to 2012, cooperating cash flows declined 20%.What this means is that unless the current trends change, the company may start cart track out of cash and become unable to fulfill its obligations, which could lead the company into filing for bankruptcy. Interestingly, Royal Caribbeans cash flows also declined 20%. However, it is worth mentioning that cruise companies have the advantage of receiving money for unearned revenues because cruise tickets are generally paid in advance. Its like getting loans at 0% interest. Another important figure to analyze is Earnings per Share (EPS), which is especially important to stockholders.Carnivals $1. 67 EPS means that if net income was divided amongst all outstanding shares, investors would receive $1. 67 per each share owned. Although a good EPS does not necessarily represent company strength or weakness, its changes affect the price of a companys stock and thusly it is one of the most looked at figures by investors (Kennon). Based on EPS only, Royal Caribbean may not be an harming choice of stock since their EPS is only $0. 08. Corporate Resources Marketing Product (Service) Carnival sells cruise tickets for vacations around the globe.Although Carnival markets the experience on the cruise s as the vacation destination, their ships go to hundreds of destinations worldwide. Carnival sells numerous products and services onboard either directly or through independent concessionaries from which a commission is collected. Some of the onboard products and services offered that are not included in the ticket price include liquor and some non-alcoholic beverage sales, shore excursions, casino gaming, gift shop sales, photo sales, full service spas, communion services, art sales, a wide variety of dining resources and laundry services (Carnival).Moreover, Carnival offers shore excursions and activities, and depending on the destinations, it owns or has stake in hotels where customers are offered a stay in a vacation package. In addition, carnival owns or leases private islands where it operates among other things, beach bars and restaurants, water sports, twitch lifts, cabana rentals and a surf rider attraction (Carnival). Promotion Carnivals annual report states that each of its brands has comprehensive advertising programs designed to attract the local market. The principal sensitives used for marketing and advertising are television, magazine, radio, out-of-door billboards, direct mail, e-mail, online websites, online advertising and social media (carnival). Social medias utilized are facebook, Twitter, YouTube and Pinterest. In 2012, Carnivals facebook pages reached over five million likes. In addition, Carnival has past guest recognition programs designed to give past guests incentives such as reduced prices and gifts in order to create customer loyalty.Price Through its many brands, ships, and packages, Carnival claims to stick out an option for every generation, taste, lifestyle, and off course, budget. The company categorizes their cruise experiences as present-day(a), premium, and luxury. A contemporary experience is the cheapest and most casual alternative, last-placeing a week or less. A premium experience is designed for experienced consumers with an emphasis on quality, comfort and style and lasts from a week to two weeks.The most costly alternative is the luxurious, which provides high standards of accommodation and service in a smaller cruise. All cruise tickets include dining and entertainment but other options are available at additional prices. Carnivals brands all offer special promotions, early booking or past guest recognition programs that reduce the regular price of a vacation. But disregarding of the type of experience and discounts taken, cruise ticket prices can vary due to many factors including demand and season.To have little bit of an idea of prices we went through the steps of booking a vacation on carnivals website. The first thing we noticed on the carnival-U. S. website was a sale of up to $200 off + unbosom upgrades for 3-5 day sailings or up to $400 off + free upgrades for 6+ day sailings. Using this sale, for travel in July and departing from Miami on a cruise to Bahamas, the cheapes t alternative per person came out to be $330. On the other hand, high-end vacations can cost thousands of dollars. Place Consumers can always book their cruise vacation directly on the companys website.But according to Carnival Corporation, their cruise vacations are sell mainly through travel agents, including wholesalers, general sales agents and tour operators that serve our guests in their local markets (Carnival). Accordingly, the company puts a lot of emphasis on their relationship with travel agents. Carnival provides additional commission incentives to travel agents in order to motivate them to sell more of carnivals vacations. Carnival also provides agents with educational tools such as readying seminars, online courses, and videos for them to better understand and sell Carnivals products and services (Carnival). . TASK ENVIRONMENT Threat of New Entrants medium * Economies of scale magnification of current companies is the greatest weapon against modern catechumens. The few leading companies, Carnival, Royal Caribbean, Disney, purchase or build larger ships or renovate older ships. Carnival, the leading giant of the industry, As of January 2011, the company operated 98 cruise ships with a passenger capacity of 191,464 berths. The company operates through four segments North America cruise brands Europe, Australia and Asia (EAA) cruise brands cruise support and tour and other. (Global hotels, 2012) * organisation regulations as a global industry, it is very difficult for political science of any particular countries to impose regulations. Therefore lack of enforcement or adherence to regulations regarding employment, safety, and health requirements make it less bureaucratic for a newly entrant. * Capital requirements large capital is required to own and maintain a ship. * Product differentiation many companies offer a variety of theme cruises to attract or cater to different needs or preferences. It is an opportunity for a new comer although q uite an difficult to grasp. Access to ports cannot be so intimately obtained. There are very few ports embarkations in populated cities. giant star companies sometimes share ownership of ports when they financially contribute with state government to build them. Rivalry medium high * Capacity growth the cruise industry is driven by capacity maximization every firm inch of space must be utilized to accommodate and maximise the experience of the passenger. * Service characteristics cruises and ships are designed to cater to the various wants and preferences of different demographic around the world.Many cruise lines difference themselves by the amenities or destinations they provide or offer. This uniqueness in the service adds an edge to the combative field. Creativity is key in designing cruise themes that respond to or attract unexploited market niches. * Rate of industry growth based on various reports the industry is growing at a much ho-humer pace in North America than Eu rope and Australia. The slow growth may be because of the economic downturn that we are facing or it may be the result of how difficult it is for the cruise industry to reach the wallets of more Americans. Number of competitors the industry is somewhat fragmented and few competitors have a hand in multiple niches. Competition is very high in the industry because they are fighting for a gaminess of a pie that is already small. The companies try to maximize their revenues by offering attractive prices and exotic destinations to customers. (Lester, Thyne, Weeden, 2011) * reverse cost can be high or low based on the type of cruise that is study. Threat of exchange Products or Services medium high * Existence of substitutes land-based vacations are the biggest threat to the industry.The cost is half or one third less expensive, the vacationist has more control in land than over sea, greater wizard of security towards land than sea. Although land transportation does not provide the sea experience that a cruise does, it is by far preferred to sea transportation. Also, a cruise is considered a luxury item and can be compared to the purchase or acquisition of luxurious items such as jewelry, high-class automobiles or whatever else discretionary money is used for. A cruise is not a necessity it is a choice, a reward or a gift to oneself or loved ones.The rating of medium high is mostly due because of the fact that choosing a cruise over a road trip, a flight, a hotel is determined by preference and affordability. * Switching cost the only cost is the privation of the experience of the cruise. Power of Buyers medium low * As a luxury item, the cost of a cruise is not negotiable. The expectation of a high cost is lightly napped with the hope that a cruise will not drain a savings account. The buyer does not have a significant catch on the price. Prices are more inelastic than elastic. Backward integration is quite impossible, the capital prerequisite to lease o r purchase a ship is over tens of thousands dollars. Average passengers cannot afford it. * Alternative suppliers do exist but high product differentiation does not allow the buyer to compare oranges with oranges, more probably the buyer has a choice between grapes or oranges. Moreover, the same company under different names may offer different theme or budget cruise. Cruise companies own more than one cruise lines, therefore choosing one cruise line over another may not represent a competitors advantage.Carnival and Royal Caribbean cater to different income brackets, Windstar offers exotic destinations for adventurers, Disney Cruise Lines are more family oriented. (Deep sea, 2012). * Due to the hefty price of a cruise, the buyer has a high expectation about the service. The demands and expectations of buyers greatly influence the marketing techniques and expansion rambles that cruise companies undertake. Brand recognition is a magnet to create and retain customers and helps incre ase demands. Power of Suppliers medium high * Supplier dominance only a few companies build ships, provide staff and services to cruise companies. prior integration for suppliers is less likely but backward integration for the cruise line industry is highly possible. Carnival uses backward integration to reduce costs and retain control of how its ships are built. * Product and services that the suppliers provide to cruise lines is very unique and specific to that industry switching cost is high. What these suppliers make or produce can only be sold to the cruise industry. * Economies of scale purchasing industry is very important to the supplier. All the major cruise companies own at least 5 to 10 cruise lines which strengthen their purchasing power.However, there are not that many suppliers to choose from. Having limited purchasing options, increases the power of the suppliers. Relative Power of opposite Stakeholders very high * Special interest groups environmental activists voi ce their concerns to the industry and directing their attention to fuel emissions, waste water dumping and few others. Thousands gallons of sewage and water bathroom water are discharged untreated in the ocean daily. Onboard observers are placed on ships that use ports in Alaska to ensure that wastewater is sanitized before being dumped in the ocean (Klein, 2011).In his article, Klein also indicated in his article that the daily fuel emission of one cruse ship could be equivalent of that of thousands of cars. * Loyal customers their perception regarding the safety of the industry affects their decision about whether to use discretionary money on a cruise or elsewhere. It also taints their views of the brand recognition. They are less likely to refer that cruise line or to become repeat customers. * buy the farm agencies most cruises are sold and advertised by travel agencies.Travel agencies are quarterd by Cruise Lines International Association (CLIA, 2011) as the dispersal chann el offering the best service to the cruise industry. * Government regulations even though some of the big companies have headquarters in the USA, they are incorporated in Antillean territories such as Panama, Bahamas, and Virgin Islands. Doting a ship with a flag registered in countries like Liberia and Panama, becomes a well-off avoidance tool that shields the cruise companies from adhering to labor and environmental laws, health and safety regulations, and most importantly avoid paying corporate taxes. Airlines industry they provide means of transportation to different ports (from one state or one country to another), when airfares are high, it adds to the cost of transportation to a port. To overcome this habituation more ports are being built in areas that can be driven to. * Local communities when a cruise ship arrives at a destination, the community of that foreign location receives the passengers. How passengers and the cruise line are authentic affect how the cruise exper ience is perceived. * Global workforce many describe the work environment as sweat ship and it does not project positively on the companies.In the cruise industry, employees are in contact with passengers 24 hours a day and for several days an unhappy or unworthy employee is contagious. It does affect indirectly the bottom line of the company. Lack of respect, living quarters, rigorous demands of the job, being underpaid, language and culture differences separate the cruise workforce from the visibles and the invisibles. The cruise industry is part of the service sector an unhappy, mistreated, undervalued workforce does not contribute to a pleasant experience for the passenger (Agaard, Larsen, Marnburg, 2012). SWOT ANALYSISStrengths1- wide variety of theme cruises look issue 6 2- largest ship capacity aspect issue 63- backward integration4- heavily invest in marketing illustration issue 65- experienced managenent casing issue 1, 3 4 Weaknesses1- Corporate culture regarding s hip workforce shimmy issue 12- PR intervention of current sea tragedies compositors case issue 3 43- HR employee training and recruitment Case issue 1 Opportunities1- partnership with travel agencies Case issue 62- leader in environment protection safety Case issue 3 43- Adopt a global standard of moral philosophy conduct Case issue 14- develop a positive reverberance with ship workers Case issue 15- treat labor force as valuable contributors Case issue 1 Threats1- Extra costs (taxes, spick-and-span waste water) Case issue 52- slow growth of North American market3- workforce motivation Case issue 14- land-based transportation and hotel resorts Case issue 65- brand recognition mudded by sea tragedies Case issue 3 4 MODIFIED TOWSSO Cross referencing * The capability of backward integration puts Carnival in a better position to build ships that are safer friendlier to the environment while controlling costs. S3, O2 Case issue 3 4 * see management can develop standards that could help improve the workforce environment on board. S5, O3, O4, O5 Case issue 1 * Sharing marketing techniques with travel agents may improve and strengthen their relationship. O4, S1 WO Cross referencing * The tone starts at the top. A workforce that notes valued and adequately paid strengthens the base of any company. W1, O3, O4, O5 Case issue 1 * bring throughs speak louder than words. W2, O2, Case issue 3 4 * Treating employees as valuable contributors helps HR in their recruitment strategy.W3, O5 Case issue 1 ST Cross referencing * Experienced management can use their expertise to create a working environment that empowers and values the ship employees. S5, T3 Case issue 1 * Marketing techniques is the best weapon to weaken the threat of substitutes and clean the brand. S4, T2, T4. T5 WT Cross referencing * When morale is low, the ship may sink. Employees are the foundation of companies, the weaker the base, the less solid is the company. W1, W3, T3 Case issue 1 * A PR i s the voice of the company. After a tragedy, responsibility, reassurance, and compensation is key in re-building confidence. The opposite drills the hole deeper. W2, T4, T5 Case issue 3 4 5. assess STRATEGIC ALTERNATIVES Alternative 1Pause/Proceed with Caution scheme Proceed with care until they are able to evaluate how the new tax and fuel regulations will affect the company and how to go about decreasing lawsuits due to employee developing and onboard guest safety. (CI 1, 3, 4, 5) Pros * Customers will continue to do business with Carnival if they feel that they are working to improve the ships safety. * Employees put forrader more effort if they do not feel as though the company is taking advantage of them and increased motivation from the staff can increase the companys bottom line. Cons * Only making small changes gives the competition a chance to catch up. * Nothing can be through with(p) to stop new regulations, so the company is bound to lose profits if there is an i ncrease to fuel prices and taxes. Alternative 2No-Change Strategy Since Carnival Corporation PLC has the largest ship and passenger capacity in the cruise industry with many diverse brands they can continue to do what they have been doing and hope they remain ahead of the competition even with the replacement of Mr. Arison in the future (CI 2). Pros * Carnival is already one of the most profitable cruising companies with a 47% market share in the UK, 68% in Italy, 51% in Germany and 45% in France, so they are dominating the global market competing mainly with Royal Caribbean. * Doing nothing new gives the company time to circumscribe some of the current issues. Cons * Competition could pass and take control of market if Carnival sits idly by especially with growing customer concerns about safety of the ships. Profits are already decreasing from previous years so doing nothing new could keep the company from enjoying profits that could be acquired with innovative ideas. Alternative 3 Horizontal Growth Concentration Strategy Carnival can increase operations in the current European market as well as reaching out to new regions (CI 6). Pros * Carnival derives a majority of its revenue (nearly 52%) from US customers which is currently on the decline, so it would be beneficial to tap into other markets around the world. * Carnival already has market presence in Europe, so it would not be as difficult to increase capacity in that region as opposed to starting fresh somewhere else. Cons The value of the dollar against Euro appreciated from 1. 60 in January 2010 to 1. 53 by April 2010 against the Pound. If the dollar strengthens it would record lower revenue than is actually earned. * The European economy is also faltered, so profits are not guaranteed and an increase in operations could quite cause a company lose. RECOMMENDATION I would recommend that Carnival begin with the pause and proceed with caution strategy for at least 1 to 2 years. This would give them tim e to get the company back in line with the aspiration of earlier business days when the safety and satisfaction of customers and employees came before the profits of the corporation (CI 1,3).Once they are back on track I would then recommend for Carnival to go ahead with the horizontal growth. It is in their best interest to reach out to untapped markets particularly since there is a decline in the current US regions and they are looking for ways to increase revenues since Carnival is only currently reaching 20% of the total US market (CI 6). Growing horizontally in any market has significant financial implications for a cruise company. Considering that the newest Carnival Dream-class ships cost $740 million each (Shipcruise. org), it is a very expensive strategy to implement. In addition, the company would have to engage in research, planning, training, and marketing activities which can be very costly.Because Carnivals balance sheet shows $465 million in cash, it will most likely be necessary for the company to borrow money to finance their growth. But borrowing money would not cause any problems for Carnival Corporation because as we analyzed earlier, the company has a healthy interest coverage ratio which measures the ability to pay interest on outstanding debt (Kennon). Although it is costly and risky, investing the money to expand into new and existing markets now, Carnival would have the potential to increase its revenues in the future years to offset the increasing costs. Carnival is already in the process of building two new ships to be entered to service in 2013 and 2014 and estimates that these two new ships will increase their passenger capacity by 19% (Carnival).Also, a continuous growth by the largest company in the industry could drive some of its competitors out of business and arrest a larger market segment. 6-A. Implementation After an extensive in-depth follow of the Carnival Corporation PLC, it is apparent, as with any large corporation it has many strengths and weaknesses. Carnival and its subsidiaries have a dominating nearly 50% market share and strong support base among its customers. With plenty of loyal customers, and many recognizable and respected brands it wouldappear to have fewproblems. However, despite all the good attributes, several recent negative events have arisen concerning bothsafety and corporate concerns, which have shaken the company and its shareholders. 6-B.What must be done? 1. Shareholder Confidence 2. Safety Concerns 3. Improvements and New Ship twist Action locomote business Start-End Financial impacts Questions? Concern WHO? WHEN? HOW MUCH? What Must be done? 1. Shareholder Confidence Micky Arison (CEO), Upper Management 4/1/13-Ongoing assure Future Earnings 2. Safety Concerns Upper Management,Howard S. Frank (COO) 4/1/13- 12/31/13 Cost of Training and current safety assessment 3. Improvements and New Ship Building Upper Management, pattern Team,David Bernstein (CFO ) 4/1/13- 4/1/16 Set budget for cost of researchShareholder Confidence Over the last 5 years Carnivals stock price hascollapsed. Granted, the worldwide economy has endured one of the conquer periods in history, but In 2008 the stock was trading roughly 15% higher than what it is today, and between that time it fell as much as 70% to the 2009 lows. I believe Micky Arison (CEO) should be focusing on how to re-energize and grow the company in the face of some very difficult times. I believe this could be achieved by continuing to expand to new entrant markets in Asia, Europe and Australia. The United States has been saturated for some time, with little growth and shrinking profit margins due to fierce competition.In addition the company must provide a great experience for clientele in order to ensure repeat business, which is essential to Carnivals success. Safety Concerns Over the last dyad years Carnival has experienced several bad events and even worsened publicity. This has cause d many to suspect wrong doings and create concerns over safety. Incidents like the MS Costa Concordia in 2012, which was one of the worstdisasters in current cruising history, in which 34 people were killed and the ship was a total loss costing nearly 600 million dollars are a nightmare for a cruise line. In a more recent case, the Carnival Triumph endured an engine fire disabling the ship and causing the boat to be stranded at sea for several days.Although no one was hurt, itcaused a severe inconvenience to the passengers and clustering. Tales of rotten food and overflowing toilets ran for several days on international media. Safety should always be of utmost concern with any industry. The last thing people want or need is to have a feeling of insecurityon a vacation. Cruises boilersuit have been very safe for many years but still in the back of many peoples minds the thought of the big lingers. Carnival needs to make sure people know that safety isthe top priority of the Carniv al Corporation. Although it shouldnt be pushed to the point where people get scared, it definitely needs to be continuously addressed.Carnival needs to constantly implement the most modern safety techniques and they must educate the crew how to keep passengers as safe as possible. Improvements and New Ship Building Because of the fierce competition in the cruise industry it is vital to constantly upgrade older ships and build larger and more desirable new ships with more features and amenities. A new trend in the industry over the last couple decades is to build bigger and bigger ships. Cruise lines such as Royal Caribbean have been very successful over the last decade by initially building100,000 Gross Tons ships. Since then the Oasis Class that is well over 200,000 Gross Tons has been put in service. Carnival and its subsidiaries arent necessarily building the biggest ships but they are uilding larger ones as well. I believe this is very important because more and more people are going on cruises for the entertainment quite an than the ports. Many cruise goers are like the typical individual who want the newest and the best and this is the reason it is pivotal for Carnival to keep up with the new trends of constant upgrades and services. 6-C. How should it be put into action? Action Steps province Start-End Financial impacts Questions? Concern WHO? WHEN? HOW MUCH? How should it be put in action? Micky Arison (CEO), Howard S. Frank (COO), Upper Management 4/1/13 Determine budget in conjunction with finance dept. Concerning safety, it must be a top priority to follow the standard government mandated procedures, which are apt(p) to the entire Cruise Industry. Carnival can go above and beyond this by simple measures such as drills and employee training. They can go beyond the recommend amount of life jacket and lifeboat requirements. I believe the biggest concern is to hold top officials such as the Captain responsible for such disasters as the MS Costa Concordia. Carnival is doing a great job in terms of shipbuilding and upgrades. They have kept up with the competition so in my personal opinion I believe the company needs to make security a given so that passengers focus on the amenities of the cruise ship.The company should also take guest recommendations seriously and look at what competitors such as Royal Caribbean are doing in newer ships and follow as well. As for the Shareholders it is important for Carnival to suss out that it is strong and well managed, generating consistent profits and growth. This is very important to any shareholder and I believe this can be achieved by expanding to new markets inAsia, Europe and Australia. Logistics is also important to have available ships to move to these new ports to expand. 6-D. Who should do it and when should it take place? Action Steps Responsibility Start-End Financial impacts Questions? Concern WHO? WHEN? HOW MUCH? Who Should Do it and when should it take place? Micky A rison (CEO) Howard S. Frank (COO), Upper Management, 4/1/13 Determine budget in conjunction with finance dept. Carnival and its subsidiaries future expansion and safety goals need to be implemented and enforced at senior management levels in order for the employees to know that it truly is important to the companys success. It takes a strong leader to do whats necessary for future growth and fend off new fierce competition within the industry. It is important to start as soon as possible because the competitors within the industry will try to take advantage of Carnivals recent problems.I believe safety is a big concern with two major issues within a year of each other. This has brought bad press and will most likely follow up with loss of customers in the future. 6-E How much will it cost? Action Steps Responsibility Start-End Financial impacts Questions? Concern WHO? WHEN? HOW MUCH? How much will it Cost? Upper Management,Micky Arison (CEO),David Bernstein (CFO) 4/1/13 Set b udget for cost of research Modern cruise shipscost no less then 250 million dollars, with the most expensive costing well over 1 billion dollars. Carnival as well as the rest of the industry has absorbed these costs by constantly upgrading ships every year or two rather then building many ships at once.They also have sold older ships to other cruise lines, or even created new cruise lines with their older ships to cut costs and continue making more money with new locations around the world. As far as safety is a concerned it shouldnt cost much considering a large amount of the cost of new cruise ships is equipping them with the most modern safety equipment available. It is very important for the employees be able to use and know this safety equipment because it is worthless if the staff doesnt know how to use such equipment. Work Cited Carnival PLC. (2012, March 03). Carnival corporatoion plc 2012 annual report. 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