Case Study Of Carnival Corporation Essay

This essay has a total of 1589 words and 8 pages.

Case Study Of Carnival Corporation

The history of the Carnival Corporation begins in 1972, when Ted Arison set up Carnival
Cruise Lines as a subsidiary of the American International Travel Service. The first ship
ran aground, but Arison remained steadfast in achieving his vision of a cruise line
offering affordable vacation packages to middle-income consumers. By 1977, Carnival had
three ships, and ten years later, as the industry leader, the company went public. In the
early 1990s, Carnival began to diversify into land-based entertainment, thus changing its
name to Carnival Corp. The company is the world's #1 cruise operator with about a third
of the market.


Carnival Corporation is comprised of Carnival Cruise Lines; the world's largest cruise
line based on passengers carried, Holland America Line, Windstar Cruises and Seabourn
Cruise Line. It owns 25 cruise ships serving customers worldwide and has 6 new ships
under construction (EXHIBT 1). It basically has three market segments: Contemporary,
Premium and Luxury.


Carnival also operates 14 hotels in Alaska and Canada and runs Holland America Westours,
which markets sightseeing tours. Carnival has a 29.5% stake in Airtours, one of the UK's
largest tour operators, and is bidding for control of cruise line NCL. CEO Micky Arison
and family control Carnival.


Carnival was able to increase profits through the acquisition of Holland America Line in
1988 and consequently Carnival expanded its cruise lines to a broader market, however
Carnival experienced a loss of $135 million from disposal of the Crystal Palace Resort &
Casino in 1991.


The company’s current strategy is to attract more repeat cruisers and new cruisers of
different segments by offering different types of packages. Such differences include
choice of shorter or longer cruises, a low to moderate price for affordable cruises for
middle class, and longer luxury cruises for affluent classes. As part of the company’s
plan, Carnival is "going global" through a joint venture with Hyundai Merchant Marine to
the Asia market.


Strengths
Carnival’s strategy focused on the "Fun Ship" concept, beginning with the Mardi Gras,
which targeted people of all ages. In recent years the driving force behind why a person
needs to take a vacation has changed. Today vacationers look to get away from everyday
stress, and opt for a stress-relieving cruise.


Carnival is considered the cruise industry’s leader, and in the past few years, Carnival
has increased its market share through acquisition and joint venture. In 1988, Carnival
acquired Holland America Line to expand its market share in Alaska, Mediterranean, and
South Pacific. Holland America Lines (HAL) is an upscale line. It targets the older, more
sophisticated cruisers with fewer youth-oriented activities and emphasizes on the beauty
of the Alaskan wilderness. Furthermore, the Holland America Westours operates various
tours targeting different markets. Similarly, Westmark operates a hotel business, which
enables Carnival to participate in another profitable industry. Seabourn, known as the
"Rolls Royce" of the industry, targets the luxury market. In terms of targeting
international cruisers, Carnival has purchased 29.5% equity interest in Airtours to enter
into the European and Canadian markets. Also, Carnival entered into the Asian market
through a 50-50 joint venture with Hyundai Merchant Marine, one of the world’s leading
marine shipping companies with knowledge of Asian Market, in order to expand its market
worldwide.


Carnival and its cruise companies together operate 25 ships in the Caribbean, Alaska, and
other worldwide destinations. Combined, Carnival Cruise Lines and Holland America have six
new ships slated for delivery over the next three years.


Weaknesses
In the late 1980s, Carnival built the Crystal Palace Resort and Casino situated in
Bahamas. During the 1990 fiscal year, the company incurred a $25.5 million loss for the
operation of the


Crystal Palace Resort & Casino. In addition, because operations were not profitable and
stock values decreased in early 1990, Carnival sold the resort to Bahamian government in
1991 in exchange for the cancellation of the debt incurred in constructing and developing
the resort. The company took a $135 million write-off for that year. When Carnival
acquired Holland America Lines, it borrowed $375 million. In order to finance the
borrowing, it issued Convertible Subordinated Notes (4 1/2 percent) to raise $113 million
to repay various bank loans and issued more than 5.6 million shares Class A Common stock
to increase capital. And when Carnival acquired a 29.5% equity interest in Airtours for
approximately $307 million, the company entered into an unsecured five-year $200million
multi-currency revolving credit facility and funded about $163 million of the acquisition
cost through this facility.


Opportunities.
In general, the cruise industry will continue to search for innovative ways to increase
passenger volumes, on-board expenditures and ancillary revenue streams. The keys to the
Continues for 4 more pages >>




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