IT WAS EARLY MORNING IN NOVEMBER 2010 AS MICKEY ARISON, Chairman and CEO, drove up
the palm-lined entryway to the headquarters of Carnival Corporation. In front of the build-
ing, the large Carnival red, white, and blue logo (shaped like a ship’s funnel) reminded him
that his ships were not only still afloat, but doing well in this down economy.
As he reflected back on the year, he was delighted that the company had weathered the
global recession. Despite reduced leisure travel demand, the U.S. government’s advisory
against travel to Mexico as a result of the flu virus, terrorist fears, fuel price uncertainty, and
a host of other factors, Carnival managed to carry a record 8.5 million guests. Although
2009
sales were below the 2008 record, the company still posted a $1.8 billion net income. Quick re-
sponses by management offset the revenue declines through cost containment efforts, most no-
tably a 5% reduction in fuel consumption, and through expansion in its European market. This
expansion represented 39% of the company’s operations.
Third-quarter results (through August 31, 2010) showed improvement over the same
period in 2009, nearing the record levels of 2008. In the Western Hemisphere, the gulf oil spill
had not materially affected cruise operations and the hurricane season had not been as bad as
predicted. European expansion proceeded smoothly and expansion initiatives in Australia and
Asia produced positive results. Given a global economic recovery, the company should see a
return to the historical growth patterns it experienced in previous years.
The strategic outlook through 2012 and beyond was projected to be highly favorable.
Carnival Corporation’s management believed that only 20% of the U.S. population, 9%–10%
of the UK population, and 4%–5% of the continental European population had ever taken a
cruise. This left a large number of potential cruise guests. European growth potential was
consistent with the North American market 12 years ago. Anticipating this growth, Carnival
Corporation intended to continue average annual capacity growth in North America at a 3% rate
and European capacity growth at 9% through 2012.
16-1
C A S E 16
Carnival Corporation & plc (2010)
Michael J. Keeffe, John K. Ross III, Sherry K. Ross,
Bill J. Middlebrook, and Thomas L. Wheelen
This case was prepared by Michael J. Keefe, John K. Ross III, Sherry K. Ross, Bill J. Middlebrook, and Thomas L.
Wheelen. Copyright © 2010 by Kathryn E. Wheelen, Michael J. Keeffe, John K. Ross III, Sherry K. Ross, Bill J.
Middlebrook, and Thomas L. Wheelen. Reprinted by permission only for the 13th edition of Strategic Management
and Business Policy (including international and electronic versions of the book). Any other publication of this case
(translation, any form of electronic or media) or sale (any form of partnership) to another publisher will be in viola-
tion of copyright law unless Kathryn E. Wheelen, Michael J. Keeffe, John K. Ross III, Sherry K. Ross, Bill Middle-
brook, and Thomas L. Wheelen have granted additional written reprint permission.
16-2 S E C T I O N D Industry Three—Entertainment and Leisure
Overview
In 1972, Ted Arison founded Carnival Cruise Lines with one ship, the Mardi Gras. Ted Arison’s
son, Mickey Arison, now served as Chairman and CEO. Exhibit 1 shows the brands, passenger
capacity, number of ships, and primary market from the 2010 Annual Report. By late 2010,
the number of operating ships had increased to 98 ships serving seven continents.
Ships added during 2010 included the Costa Deliziosa, Nieuw Amsterdam, Azura,
AIDAblu, Queen Elizabeth, and the Seabourn Sojourn. Carnival’s 98 ships had a capacity of
over 190,000 passenger berths. Given that fleet-wide occupancy rates usually hover at or
above 100% (ship berths are at double occupancy and additional berths can be made avail-
able), and with over 70,000 shipboard employees, more than 260,000 people were sailing
aboard the Carnival fleet at any given time (Exhibit 2). Additionally, Carnival Corporation
Cruise Brands
Passenger
Capacity (a)
Number of
Cruise Ships Primary Markets
North America
Carnival Cruise Lines 54,480 22 North America
Princess 37,608 17 North America
Holland America Line 23,492 15 North America
Seabourn 1,524 5 North America
North America Cruise Brands 117,104 59
Europe, Australia, & Asia
(“EAA”)
Costa 29,202 14 Italy, France, and Germany
P&O Cruises (UK) (b) 15,098 7 United Kingdom (“UK”)
AIDA 12,054 7 Germany
Cunard 6,676 3 UK and North America
P&O Cruises (Australia) 6,322 4 Australia
Ibero 5,008 4 Spain and South America
EAA Cruise Brands 74,360 39
191,464 98
(a) In accordance with cruise industry practice, passenger capacity is calculated based on two passengers per
cabin even though some cabins can accommodate three or more passengers.
(b) Includes the 1,200-passenger capacity Artemis, which was sold in October 2009 to an unrelated entity
and is being operated by P&O Cruises (UK) under a bareboat charter agreement until April 2011.
EXHIBIT 1
Cruise Brands,
Passenger Capacity,
Number of
Cruise
Ships, and Primary
Markets
SOURCE: Carnival Corporation & plc 2010 Annual Report.
SOURCE: Carnival Corporation & plc 2010 Annual Report.
Fiscal Year Cruise Passengers Year-End Passenger Capacity Occupancy
2005 6,848,000 136,960 105.6%
2006 7,008,000 143,676 106.0%
2007 7,672,000 158,352 105.6%
2008 8,183,000 169,040 105.7%
2009 8,519,000 180,746 105.5%
2010 9,147,000 191,464 105.6%
EXHIBIT 2
Passengers, Capacity,
and Occupancy
C A S E 1 6 Carnival Corporation & plc (2010) 16-3
expected delivery of nine ships by the end of 2014 (Carnival–2; Costa–2; AIDA–2;
Seabourn–1; Princess–2).
In a letter to stockholders, Arison stated that, “. . . While our targeted brands and strategic
growth initiatives remain important ingredients for success, and entrepreneurial spirit is what
our company thrives on. . . . Our culture empowers our brand managers to make daily deci-
sions to the best interest of building their respective operating companies. Each brand is
accountable for its individual performance.”
Carnival not only owned ships but also owned a chain of 16 hotels and lodges in Alaska
and the Canadian Yukon with 3,000 guest rooms to complement Alaska cruises. For
“Alaskan cruise tours,” Carnival operated two luxury day trips to the glaciers in Alaska
and the Yukon River and owned 30 domed rail cars operated by the Alaska Railroad as
sight-seeing trains.
The Evolution of Cruising
When aircraft replaced ocean liners as the primary means of transoceanic travel during the
1960s, the opportunity for developing the modern cruise industry was created. Ships that
were no longer required to ferry passengers from destination to destination became avail-
able to investors who envisioned new alternative vacations that complemented the increas-
ing affluence of Americans. Ted and Mickey Arison envisioned travelers experiencing
classical cruise elegance, along with the latest modern conveniences, at a price comparable
to land-based vacation packages sold by travel agents. Carnival’s all-inclusive package,
when compared to packages at resorts or theme parks such as Walt Disney World, often were
priced below those destinations, especially when the array of activities, entertainment, and
meals were considered. Once the purview of the rich and leisure class, cruising was now tar-
geted to the middle class, with service and amenities similar to the grand days of first-class
ocean travel.
According to Cruise Travel magazine, the increasing popularity of taking a cruise as a
vacation can be traced to two serendipitously timed events. First, television’s Love Boat se-
ries dispelled many myths associated with cruising and depicted people of all ages and back-
grounds enjoying the cruise experience. During the 1970s, this show was among the top 10
television programs and provided extensive publicity for cruise operators. Second, the in-
creasing affluence of Americans and the increased participation of women in the workforce
gave couples and families more disposable income for discretionary purposes, especially
vacations. As the myths were dispelled and disposable income grew, younger couples and
families realized the benefits of cruising as a vacation alternative, creating a large new target
market for the cruise product and accelerating growth in the number of Americans taking
cruises as a vacation.
Over the last 20 years the cruise industry and cruise vacation have matured with the de-
velopment of ships designed specifically for cruise vacations and varied itineraries world-
wide. Current cruise liners bear little resemblance to early industry cruise liners and are truly
a floating vacation resort. Modern cruise ships are much larger than previous ships, have lit-
tle motion due to computer-controlled stabilization systems, are environmentally friendly
with full recycling capabilities, and have a multitude of activities, entertainment, clubs, and
deck spaces for guests to explore. The common misconception of being perpetually seasick
or bored on a ship would be hard to fathom given the evolution and development of modern
cruise ships and the many and varied ports of call.
16-4 S E C T I O N D Industry Three—Entertainment and Leisure
Carnival History
In 1972 Ted Arison, backed by the American Travel Services Inc. (AITS) purchased an ag-
ing ocean liner from Canadian Pacific Empress Lines for $6.5 million. The new AITS sub-
sidiary, Carnival Cruise Lines, refurbished the vessel from bow to stern and renamed it the
Mardi Gras to capture the party spirit. (Also included in the deal was another ship later re-
named the Carnivale.) The company’s beginning was less than promising when the Mardi
Gras ran aground in Miami Harbor with more than 300 invited travel agents aboard. The ship
was slow and guzzled expensive fuel, which limited the number of ports of call and length-
ened the minimum stay of passengers on the ship needed to reach break-even. Arison then
bought another older vessel from the Union Castle Lines to complement the Mardi Gras and
the Carnivale and named it the Festivale. To attract customers, Arison began adding onboard
diversions such as planned activities, a casino, discos, and other forms of entertainment de-
signed to enhance the shipboard experience.
Carnival lost money for the next three years, and in late 1974 Ted Arison bought out the
Carnival Cruise subsidiary from AITS Inc. for $1 cash and the assumption of $5 million in
debt. One month later, the Mardi Gras began showing a profit and, through the remainder of
1975, operated at more than 100% capacity. (Normal ship capacity was determined by the
number of fixed berths [referred to as lower berths available]. Ships, like hotels, operate
beyond this fixed capacity by using rollaway beds, pullmans, and upper bunks.)
Ted Arison, Chairman, along with his son Mickey Arison, President, and Bob Dickinson, Vice
President of Sales and Marketing, began to alter the current approach to cruise vacations.
Carnival targeted first-time cruisers and young people with a moderately priced vacation pack-
age that included airfare to the port of embarkation and airfare home after the cruise. Per-diem
rates were very competitive with other vacation packages. Carnival offered passage to multi-
ple exotic Caribbean ports, several meals served daily with premier restaurant service, and all
forms of entertainment and activities included in the base fare. The only items not included
in the fare were items of a personal nature, liquor purchases, gambling, and tips for the cabin
steward, table waiter, and busboy. Carnival continued to add to the shipboard experience with
a greater variety of activities, nightclubs, and other forms of entertainment. It also used mul-
timedia-advertising promotions and established the theme of “Fun Ship” cruises, primarily
promoting the ship as the destination and ports of call as secondary. Carnival told the public it
was throwing a shipboard party and everyone was invited. Today, the “Fun Ship” theme still
permeates all Carnival Cruise brand ships.
Throughout the 1980s, Carnival was able to maintain a growth rate of approximately 30%,
about three times that of the industry as a whole. Between 1982 and 1988, its ships sailed with
an average capacity of 104%. Targeting younger, first-time passengers by promoting the ship
as a destination proved to be extremely successful. Carnival’s customer profile showed that
approximately 30% of passengers at that time were between the ages of 25 and 39, with
household incomes of $25,000 to $50,000.
In 1987, Ted Arison sold 20% of his shares of Carnival Cruise Lines and immediately
generated over $400 million for further expansion. In 1988, Carnival acquired the Holland
America Line, which had four cruise ships with 4,500 berths. Holland America was positioned
to appeal to higher-income travelers with cruise prices averaging 25%–35% more than similar
Carnival cruises. The deal included two Holland America subsidiaries, Windstar Sail Cruises
and Holland America Westours. This purchase allowed Carnival to begin an aggressive
“superliner” building campaign for its core subsidiary. By 1989, the cruise segments of Carni-
val Corporation carried more than 75,000 passengers in one year, a “first” in the cruise industry.
Ted Arison relinquished the role of Chairman to his son Mickey in 1990, a time when the
explosive growth of the industry began to subside. Higher fuel prices and increased airline
costs began to affect the industry as a whole. The first Persian Gulf War caused many cruise
C A S E 1 6 Carnival Corporation & plc (2010) 16-5
operators to divert ships to the Caribbean, increasing the number of ships competing directly
with Carnival. Carnival’s stock price fell from $25 in June of 1990 to $13 later in the year. The
company also incurred a $25.5 million loss during fiscal 1990 for the operation of the Crystal
Palace Resort and Casino in the Bahamas. In 1991, Carnival reached a settlement with the
Bahamian government (effective March 1, 1992) to surrender the 672-room Riviera Towers to
the Hotel Corporation of the Bahamas in exchange for debt cancellation incurred in construct-
ing and developing the resort. The corporation took a $135 million write-down on the Crystal
Palace that year.
In the early 1990s, Carnival attempted to acquire Premier Cruise Lines, which was then
the official cruise line for Walt Disney World in Orlando, Florida, for approximately $372
million. The deal was never consummated because the involved parties could not agree on
price. In 1992, Carnival acquired 50% of Seabourn, gaining the cruise operations of K/S
Seabourn Cruise Lines, and formed a partnership with Atle Brynestad. Seabourn served the
ultra-luxury market with destinations in South America, the Mediterranean, Southeast Asia,
and the Baltic.
The 1993 to 1995 period saw the addition of the superliner Imagination to Carnival Cruise
Lines and Ryndam for Holland America Lines. In 1994, the company discontinued the oper-
ations of Fiestamarina Lines, which had attempted to serve Spanish-speaking clientele. Fies-
tamarina had been beset with marketing and operational problems and had never reached
continuous operation. Many industry analysts and observers were surprised at the failure of
Carnival to successfully develop this market. In 1995 Carnival sold 49% interest in the
Epirotiki Line, a Greek cruise operation, for $25 million and purchased $101 million (face
amount) of senior secured notes of Kloster Cruise Limited, the parent of competitor Norwegian
Cruise Lines, for $81 million. Carnival Corporation continued to expand through internally
generated growth by adding new ships. Additionally, Carnival seemed to be willing to con-
tinue with its external expansion through acquisitions, if the right opportunity arose.
In June 1997, Royal Caribbean made a bid to buy Celebrity Cruise Lines for $500 million
and the assumption of its $800 million debt. Within a week, Carnival had responded by sub-
mitting a counteroffer to Celebrity for $510 million and the assumption of debt. Two days later,
Carnival raised the bid to $525 million. Nevertheless, Royal Caribbean announced on June 30,
1997, the final merger arrangements with Celebrity. The resulting company had 17 ships, with
more than 30,000 berths.
Not to be thwarted in its expansion, Carnival announced in June 1997 the purchase of
Costa, an Italian cruise company and the largest European cruise line, for $141 million. The
purchase was finalized in September 2000. External expansion continued when Carnival an-
nounced the acquisition of the Cunard Line for $500 million from Kvaerner ASA on May 28,
1998. Cunard was then operationally merged with Seabourn Cruise Line. Carnival announced
on December 2, 1999, a hostile bid for NCL Holding ASA, the parent company of Norwegian
Cruise Lines. Carnival was unsuccessful in this acquisition attempt.
The terrorist attacks on New York’s twin towers on September 11, 2001, caused tourists
to cancel cruise plans and affected the leisure travel industry worldwide. It forced several
smaller cruise line companies into bankruptcy while others reduced the size and scope of op-
erations. Other competitors discounted cruise prices to maintain historic occupancy levels.
Carnival was well positioned in the market and soon recovered once public fears subsided. It
also made a focused effort to expand into the German and Spanish markets in Europe.
Consolidation in the industry continued in 2003 when Carnival and P&O Princess Cruises
finalized an agreement to combine and created the first truly global cruise line. Carnival
remained the parent company and added P&O Cruises, Ocean Village, AIDA, P&O Cruises
Australia, and tour operator Princess Tours. The new Carnival now offered an ever expanding
selection of price points, alternative destinations, and varied accommodations which allowed
for even greater market penetration.
16-6 S E C T I O N D Industry Three—Entertainment and Leisure
Carnival’s Corporate Governance
Board of Directors
Exhibit 3A shows the 14 members of Carnival’s Board of Directors, of whom three served
as internal officers and four others were retired company employees or had previous ties to
Carnival Corporation or one of its subsidiaries. Mickey Arison owned approximately one-third
of the company’s stock. (He also owned the Miami Heat, a basketball team which won the
2006 NBA Championship.) The Arison family and its trusts controlled roughly 36% of the
stock. All other directors and executive officers, as a group, owned or controlled approximately
30% of the total shares outstanding.
According to the Board’s by-laws, each outside director must own at least 5,000 shares of
stock. Additionally, external board members are yearly granted 10,000 stock options, and are
paid an annual retainer fee of $40,000 for serving on the Board. Fees are also paid for attending
board and committee meetings.
Exhibit 3B lists Carnival’s executive officers. Exhibit 4 shows compensation for the key
executives.
In 2007 Carnival sold Windstar Cruise Line to Ambassadors International Cruise Group
and Swan Hellenic to Lord Sterling.
Mickey Arison
Chairman of the Board
and
Chief Executive Officer
Carnival Corporation
& plc
Sir Jonathon Band
Former First Sea Lord and Chief of Naval
Staff British Navy
Robert H. Dickinson
Former President
and Chief Executive Officer
Carnival Cruise Lines
Arnold W. Donald
Former President
and Chief Executive Officer
Juvenile Diabetes Research Foundation
International
Pier Luigi Foschi
Chairman and Chief Executive Officer
Costa Crociere S.p.A.
Howard S. Frank
Vice Chairman of the Board
and Chief Operating Officer
Carnival Corporation & plc
Richard J. Glasier
Former President
and Chief Executive Officer
Argosy Gaming Company
Modesto A. Maidique
President Emeritus and Professor of
Management and Executive Director, FIU
Center for Leadership
Florida International University
Sir John Parker
Chairman, National Grid plc, Chairman,
Anglo American plc, and Vice Chairman,
DP World (Dubai)
Peter G. Ratcliffe
Former Chief Executive Officer
P&O Princess Cruises International
Stuart Subotnick
General Partner
and Executive Vice
President
Metromedia Company
Laura Weil
Chief Executive Officer
Urban Brands, Inc.
Randall J. Weisenburger
Executive Vice President
and Chief Financial Officer
Omnicom Group Inc.
Uzi Zucker
Private Investor
EXHIBIT 3A
Board of Directors
C A S E 1 6 Carnival Corporation & plc (2010) 16-7
Mickey Arison
Chairman of the Board
and Chief Executive Officer
Howard S. Frank
Vice Chairman of the Board
and Chief Operating Officer
David Bernstein
Senior Vice President
and Chief Financial Officer
Richard D. Ames
Senior Vice President—Shared Services
Arnaldo Perez
Senior Vice President, General Counsel
and Secretary
Larry Freedman
Chief Accounting Officer
and Vice President–Controller
OPERATIONS SEGMENTS
AIDA CRUISES
Michael Thamm
President
CARNIVAL CRUISE LINES
Gerald R. Cahill
President and Chief Executive Officer
CARNIVAL AUSTRALIA
Ann Sherry AO
Chief Executive Officer
Carnival Australia
CARNIVAL UK
David K. Dingle
Chief Executive Officer
COSTA CROCIERE S.p.A.
Pier Luigi Foschi
Chairman and Chief Executive Officer
Gianni Onorato
President
HOLLAND AMERICA LINE
Stein Kruse
President and Chief Executive Officer
PRINCESS CRUISES
Alan B. Buckelew
President and Chief Executive Officer
SEABOURN CRUISE LINE
Pamela C. Conover
President and Chief Executive Officer
EXHIBIT 3B
Principal Officers
Corporate Organization
Headquartered in Miami, Florida, U.S.A., and London, England, Carnival Corporation is in-
corporated in Panama, and Carnival plc is incorporated in England and Wales. Fleet opera-
tions are worldwide with the majority of operations in the North American market and
secondarily in Europe. The company’s total worldwide share of the cruise line vacation mar-
ket was at or above 50%, and distinctly higher in some geographically defined or segmented
markets.
According to Carnival’s investor relations site, Carnival Corporation & plc operated un-
der a dual listed company structure whereby Carnival Corporation and Carnival plc functioned
as a single economic entity through contractual agreements between separate legal entities.
Shareholders of both Carnival Corporation and Carnival plc had the same economic and vot-
ing interest, but their shares were listed on different stock exchanges and not fungible. Carni-
val Corporation common stock was traded on the New York Stock Exchange under the symbol
CCL. Carnival plc was traded on the London Stock Exchange under the symbol CCL and as
ADS on the New York Stock Exchange under the symbol CUK. Carnival was the only com-
pany in the world to be included in both the S&P 500 index in the United States and the FTSE
100 index in the United Kingdom.
Name and Principal
Position
Fiscal
Year Salary ($) Bonus
($)
Stock
Awards ($)
Option
Awards ($)
Non-Equity
Incentive Plan
Compensation
($)
Change in Pension
Value and Nonqualified
Deferred Compensation
Earnings ($)
All Other
Compensation
($) Total ($)
Micky Arison 2009 880,000 — 4,772,807 930,546 2,206,116 255,581 496,513 9,541,563
Chairman of the 2008 880,000 — 5,561,856 1,538,673 — 112,718 404,329 8,497,576
Board & CEO 2007 850,000 — 3,689,123 1,879,529 2,925,000 69,875 336,688 9,750,215
David Bernstein 2009 450,000 83,915 274,181 91,013 383,585 — 107,269 1,389,963
Senior Vice 2008 350,000 155,860 107,122 128,795 428,260 — 105,088 1,275,125
President & CFO 2007 269,596 — — 158,043 350,000 — 77,193 854,832
Gerald R. Cahill 2009 750,000 194,310 1,094,676 423,413 655,441 884,716 58,869 4,061,425
President and CEO 2008 750,000 — 708,717 569,727 1,162,288 675,536 48,775 3,915,043
of Carnival Cruise Lines 2007 625,000 — 168,248 654,499 1,000,000 343,435 42,841 2,834,023
Pier Luigi Foschi 2009 1,320,500 — 791,735 315,915 1,794,143 — 340,033 4,562,326
Chairman and CEO 2008 1,415,500 996,810 486,451 583,118 800,441 — 402,830 4,685,150
of Costa Crociere S.p.A. 2007 1,244,400 909,840 194,428 1,663,810 668,430 — 312,149 4,993,057
Howard S. Frank 2009 780,000 — 3,015,393 513,577 2,137,175 — 267,303 6,713,448
Vice Chairman of the 2008 780,000 — 2,893,800 827,976 2,709,400 3,899,136 355,255 11,465,567
Board & COO 2007 750,000 — 2,610,000 1,113,260 2,825,000 — 243,383 7,541,643
EXHIBIT 4
Annual Compensation: Carnival Corporation & plc
1
6
-8
C A S E 1 6 Carnival Corporation & plc (2010) 16-9
Mission
According to management, “Our mission is to deliver exceptional vacation experiences
through the world’s best-known cruise brands that cater to a variety of different lifestyle and
budgets, all at an outstanding value unrivaled on land or at sea.”
The 11 cruise lines competed in all of the three operational sectors of the cruise market
(contemporary, premium, and luxury).
Operating Segments and Corporate Brands
Carnival Cruise Lines (www.carnival.com)
Carnival Cruise Lines was the most popular and most profitable cruise line in the world. Op-
erating in the contemporary cruise sector, as of late 2010, Carnival operated 22 ships with a
total passenger capacity of 54,480. Occupancy rates typically exceeded 100% on average,
and the brand was the market leader in the contemporary segment of the industry. Carnival
still utilized the theme of the “Fun Ships,” and had embarked on a $250 million enhancement
program of its eight fantasy-class ships. Carnival ships cruised to destinations in the Bahamas,
Canada, the Caribbean, the Mexican Riviera, New England, the Panama Canal, Alaska,
and Hawaii, as well as limited operations in Europe, with most cruises ranging from three to
seven days.
Princess Cruises (www.princesscruises.com)
Princess Cruises offered a “complete escape” from daily routine. This segment operated
17 ships with a total passenger capacity of 37,588. Princess treated its passengers to world-class
cuisine, exceptional service, and a myriad of resort-like amenities onboard, including the Lotus
Spa, Movies Under the Stars, lavish casinos, nightclubs, and lounges. Princess was a pioneer
in offering a choice of dining experiences so guests could dine when and where it was conven-
ient. The Princess fleet cruised to all seven continents and boasted more than 280 destinations.
Princess was classified in the industry as contemporary to premium. The company offered
cruises ranging in length principally from 7 to 14 days.
Holland America Line (www.hollandamerica.com)
The Holland America Line was a leader in the premium cruise sector. Holland America oper-
ated a five-star fleet of 15 ships, with 23,484 passenger capacity. Holland America consistently
set a standard in the premium segment with feature programs and amenities such as culinary
arts demonstrations, greenhouse spas, and cabins with flat-panel TVs and Sealy plush-top
Mariner’s Dream beds. The company offered cruises from 7 to 21 days. Its ships sailed to more
than 300 ports of call on all seven continents with more than 500 cruises per year.
Seabourn Cruises (www.seabourn.com)
Seabourn Cruise Line epitomized luxury cruising aboard each of its five intimate all-suite
ships. The Yachts of Seabourn were lavishly appointed with virtually one staff member for
every guest, to ensure the highest quality service. Typical cruises were from 7 to 14 days.
Costa Cruises (www.costacruises.com)
Costa Cruises was the leading cruise company in Europe and South America. Headquartered
in Genoa, Italy, Costa offered guests on its 14 ships a multiethnic, multicultural, and multi-
lingual ambiance. A Costa cruise was distinguished by its “Cruising Italian Style” shipboard
ambiance. Costa’s fleet cruised the Caribbean, the Mediterranean, Northern Europe, South
America, Dubai, the Far East, and transoceanic crossings.
www.carnival.com
www.princesscruises.com
www.hollandamerica.com
www.seabourn.com
www.costacruises.com
16-10 S E C T I O N D Industry Three—Entertainment and Leisure
P&O Cruises (www.pocruises.com)
P&O Cruises was the largest cruise operator and the best-known contemporary cruise brand
in the United Kingdom, and has cruised Australia for 78 years. The seven-ship main fleet and
the three-ship Australian fleet offered cruises to the Mediterranean, the Baltic, the Norwegian
Fjords, the Caribbean, and the Atlantic Islands, as well as Australia and the Far East. Total
passenger capacity was approaching 20,000 for both operational fleets, and its principal
market was the United Kingdom.
AIDA (www.aida.com)
AIDA was the best-known cruise brand in the fast-growing German cruise market. With its
seven club ships and a capacity of over 12,000, AIDA offered cruises to the Mediterranean,
the Baltic, the Norwegian Fjords, the Canary Islands, and the Caribbean. AIDA emphasized
elements of the upmarket clubs and resorts in the premium and four-star range, and its
facilities and activities attracted younger, more active vacationers.
Cunard Line (www.cunard.com)
The Cunard Line offered the only regular transatlantic crossing service aboard the world-
famous ocean liner Queen Mary 2 and the brand new Queen Elizabeth. Her equally famous
retired sister, Queen Elizabeth 2, sailed on unique itineraries worldwide serving both U.S.
and U.K. guests and still evoked memories of the grand days of ocean travel. The passenger
capacity of the three Cunard ships was 6,700 (double occupancy), and Cunard’s primary
market was the United Kingdom and North America. The line proudly carried the legacy of
the era of sophisticated floating palaces into the 21st century. These ships were classified in
the luxury sector of the cruise market.
Ocean Village (http://www.oceanvillageholidays.co.uk)
Ocean Village was founded in 2004 in the United Kingdom. Its one ship sailed throughout
the Mediterranean and the Caribbean, and targeted individuals in the 30 to 50 age range who
liked to explore and wanted a change from traditional cruising. Although performance had
been good, there have been indications that the ship may be transferred to the P&O brand at
some future date.
IberoCruceros (www.iberocruceros.com/)
IberoCruceros was one of the top operators in the fast-growing Spanish and Portuguese
language cruise markets. The company operated four ships with a berth capacity of 5,010.
Ibero vessels operated in Mediterranean, Brazilian, Northern Europe, and Caribbean waters.
Industry Projections
The leisure cruise vacation industry has fared very well over the last 25 years, originating from
transatlantic crossings and leisure cruises for the wealthy to being a staple vacation alternative for
the middle class. Cruise Market Watch, a cruise vacation research company, estimated that all
cruise lines will carry an annualized total passenger count worldwide of 18.4 million in 2010 and
projected an increase to 21.3 million in 2013, a 15.7% increase from 2010. Giving perspective to
the 2010 numbers, cruise travel accounted for less than half (50%) of all visitors to Las Vegas,
when including all cruise ships, from all lines, filled to capacity all year long. Cruise companies
can move ships to match demand patterns over the globe, while Las Vegas was a fixed destination.
www.pocruises.com
www.aida.com
www.cunard.com
http://www.oceanvillageholidays.co.uk
www.iberocruceros.com/
C A S E 1 6 Carnival Corporation & plc (2010) 16-11
According to Cruise Lines International Association’s 2010 Cruise Market Overview,
growth in the number of North American passengers (95% U.S. and 5% Canadian) was cur-
rently flat. Mickey Arison estimated the number of people in the United States that have taken
a cruise at 20%. He based his estimate on the total U.S. population. Arison’s estimate did not
reflect the core market, the number of people who fit the cruiser potential profile: over 25, suffi-
cient income, leisure time, and other factors. Cruise Market Watch estimated the core market at
130 million, and approximately 60 million individuals in the core market had taken a cruise.
The North American market was a more mature market than other geographic markets inter-
nationally. Still, as of 2009, the North American market was the largest and was valued at
$15.95 billion with Carnival holding a commanding 55% market share.
Despite the 2008–2009 current economic slump, industry growth worldwide had been be-
tween 5% and 8% per year due to the growth in the number of international passengers. This
annual growth was expected to exceed that of the U.S. and Canadian market for the next sev-
eral years. Europe’s market was valued at $7.2 billion and the Asia/Australian markets com-
bined was valued at $2.9 billion. Faster market growth combined with a weakening U.S. dollar
would strengthen overseas earnings and create a greater focus to capture the fast growing
markets. In these two market areas, as of 2009, Carnival held a 52% market share.
Industry capacity continued to increase (up 6.9% over 2009 capacity) and should continue
through 2013. Industry occupancy (per ship) hovered between 102% and 104% in 2008–2009,
depending on the market. Ticket prices and onboard spending should improve slightly in
2010
when compared to 2009, but still remain below 2008 levels. Cruise Market Watch estimated
that average cruise revenue, per passenger, per diem for all cruise lines worldwide was pro-
jected to be approximately $208, of which $157 would be attributed to ticket price and $51 in
onboard spending.
Advertising
According to the Nielsen Company, hospitality and total travel advertising expenditures
showed a slight increase for the industry in 2009 over 2008 levels. Total industry advertising
in 2008 of $3.89 billion was roughly a 4% increase over 2007. While hospitality firms such
as Intercontinental Hotels, the Blackstone Group, and Southwest Airlines all increased ad-
vertising expenditures, Carnival Corporation decreased U.S. advertising expenditures as of
January 2009 to $89.3 million, a 21% decrease from the previous calendar year. The brand
with the greatest reduction in ad spending in the Carnival portfolio was Princess Cruises.
Hoover’s reported that, beginning in 2009, Carnival increased online and social media adver-
tising utilizing Facebook, YouTube, Twitter, Flickr, and Podcasts, to allow for two-way con-
versations with consumers and also create brand fans.
Human Resources Management
Carnival Corporation’s shore operations had approximately 10,000 full-time and 5,000 part-
time/seasonal employees. Carnival also employed approximately 70,000 officers, crew, and
staff onboard the 98 ships at any one time. Because of the highly seasonal nature of the
Alaskan and Canadian operations, Holland America Tours and Princess Tours increased their
workforce during the late spring and summer months in connection with the Alaskan cruise
season, employing additional seasonal personnel. Carnival had entered into agreements with
unions covering certain employee categories, and union relations were considered to be gen-
erally good. Nonetheless, the American Maritime union had cited Carnival (and other cruise
operators) several times for exploitation of its crews.
16-12 S E C T I O N D Industry Three—Entertainment and Leisure
Suppliers
The company’s largest purchases were for travel agency services, fuel, advertising, food and
beverages, hotel and restaurant supplies and products, airfare, repairs and maintenance, dry-
docking, port facility utilization, and communication services. Most capital outlays were for
the construction of new ships as well as upgrades and refurbishment of current ships. Although
Carnival utilized a select number of suppliers for most of its food and beverages and hotel and
restaurant supplies, most of these items were available from numerous sources at competitive
prices. The use of a select number of suppliers enabled management to, among other things,
obtain volume discounts. The company purchased fuel and port facility services at some of its
ports of call from a limited number of suppliers. To better manage price fluctuations, the com-
pany hedged the price of fuel oil. In addition, the company performed major dry-dock and ship
improvement work at dry-dock facilities in the Bahamas, British Columbia, Canada, the
Caribbean, Europe, and the United States. Management believed there were sufficient dry-dock
and shipbuilding facilities to meet the company’s anticipated requirements.
Government Regulations
All of Carnival’s ships were registered in a country outside the United States and each ship flew
the flag of its country of registration. Carnival’s ships were regulated by various international,
national, state, and local port authorities’ laws, regulations, and treaties in force in the jurisdic-
tions in which the ships operated. Internationally, all ships and operations conformed to the
SOLAS (Safety of Life at Sea) regulations adopted by most seafaring nations. In U.S. waters and
ports, the ships had to comply with U.S. Coast Guard and U.S. Public Health regulations, the
Maritime Transportation Security Act, International Ship and Port Facility Security Code, U.S.
Oil Pollution Act of 1990, U.S. Maritime Commission, local port authorities, local and federal
law enforcement agencies, and all laws pertaining to the hiring of foreign workers. All cruise
ships were inspected for health issues and received a rating which was published on the Center
for Disease Control (CDC) website for potential cruisers to review. Terrorist threats had tight-
ened U.S. security of ports regarding docking facilities, cargo containers and storage areas, and
crews requiring compliance with various Homeland Security agencies.
Sustainability
Carnival Corporation had adopted the requirements of International Standard ISO 14001:2004
for the environmental management systems of all subsidiary lines. It had internal policies con-
cerning the reduction of the carbon and environmental footprint, energy reduction, shipboard
waste management, environmental training of crew members, health, safety and security, and
corporate social responsibility. The following excerpt from the Carnival Corporation investor
relations website illustrates the commitment of Carnival Management.
“. . . Carnival senior management maintains a continuing commitment to be responsible corporate
citizens, especially when it comes to protecting the environment. We have made great strides in this
Onboard service was labor intensive, employing help from almost 100 nations, many from
third-world countries, with reasonable returns to employees. For example, waiters on a Carni-
val Cruise Lines ship could earn approximately $18,000 to $27,000 per year (base salary and
tips), significantly greater than could be earned in their home countries for similar employ-
ment. Waiters typically worked 10 hours per day, 6–7 days per week, and had tenure of ap-
proximately eight years with the company. Even with these work parameters, applicants
exceeded demand for all cruise positions.
C A S E 1 6 Carnival Corporation & plc (2010) 16-13
area and will continue to dedicate our efforts toward even more progress. In 2009, we published our
fourth annual Environmental Management Report. This action continues the expansion of our trans-
parency in publicly reporting the details of our ongoing commitment to the environment. We have
also begun to broaden the scope of our transparency to include sustainability reporting. Sustainabil-
ity reports have been published by two of our brands, Costa and AIDA. We are planning to use these
reports as models for similar sustainability reports by all of our brands, beginning in 2010.”
Legal Issues
Carnival Corporation, like all cruise companies and hospitality providers, usually had several
lawsuits pending at any point in time. Although consuming the time of corporate officers and
sometimes requiring substantial financial remuneration, the principal danger of lawsuits
results from the negative media publicity that may influence current and potential guests.
Some of the more publicized personal lawsuits came from passengers injured while on-
board a Carnival vessel, sexual assaults by crewmembers or other passengers, negligence of
the onboard medical staff, food contamination lawsuits, pay and working conditions lawsuits
brought by crewmembers, and a host of other related court filings.
Legal issues for the company also tarnished its corporate image and reputation. Carnival
had been sued by various entities for pollution, ship dumping of bilge and other waste contam-
inants in international and jurisdictional waters, and filing false statements with the U.S. Coast
Guard. Fuel surcharges for passengers that were not part of the stated cruise fare and various
other class-actions have also led to legal proceedings. The company had also been sued over
copyright infringement in its production of entertainment shows and materials onboard ship.
Carnival attempted to aggressively protect its corporate reputation and brand image by
attempting to minimize damage while ensuring that violations and actions were promptly cor-
rected. Management wanted the company to be perceived as a responsible corporate citizen for
guests, workers, and the world community.
Competitors
According to Cruise Lines International Association, there were several large cruise line
companies worldwide and a host of smaller companies totaling more than 100 ships compet-
ing with the Carnival fleet. Carnival’s primary competitors were Royal Caribbean, Disney,
and Norwegian Cruise Line, although several other companies competed with Carnival
brands in selected geographical markets and specific targeted cruise segments.
Royal Caribbean Cruises Ltd. operated five brands—Royal Caribbean International,
Celebrity Cruises, Pullmantur, Azamara Cruises, and CDF Croisieres de France—and had a
50% joint venture with TUI cruises. Royal Caribbean operated 38 cruise ships with a passen-
ger capacity of over 84,000. The company planned to add four new ships by 2012, bringing
the capacity to 100,000 berths. The fleet visited approximately 400 destinations worldwide.
The Royal Caribbean brand competed with the Carnival Cruise Lines brand and was perceived
as being slightly more upscale than Carnival ships. It competed secondarily with Costa and
other Carnival brands. Celebrity cruises competed in the premium segment against Carnival’s
Princess and Holland America brands. The Royal Caribbean company had a 27% market share
in North America and a 22% share in the remaining world markets.
Disney Cruise Line, had two cruise ships, each having 877 staterooms (3,508 berths).
Disney had its own private island, Castaway Bay, exclusive for Disney Cruise Line passengers,
and catered primarily to family vacations. One analyst said, “Carnival should thank Disney
for taking children off their ships.” Specific areas of the ships were designated for activities
preferred by adults, families, teens, and children. Disney Cruise Line used its ships primarily
as a complement to its theme park vacations, and had a 2% market share in North America.
16-14 S E C T I O N D Industry Three—Entertainment and Leisure
Other Competitive Concerns
Carnival’s management described the firm’s competitors in the following manner:
First. Carnival competed with land-based vacation alternatives throughout the world includ-
ing resorts, hotels, theme parks, and vacation ownership properties located in Las Vegas,
Nevada, Orlando, Florida, various parts of the Caribbean and Mexico, Bahamian and
Hawaiian Island destination resorts, and numerous other vacation destinations throughout
Europe and the rest of the world.
Second. Carnival’s primary cruise competitors in the contemporary and/or premium cruise
segments for North American passengers were Royal Caribbean Cruise Ltd., Norwegian
Cruise Line, and Disney Cruise Line. The three primary cruise competitors for European
passengers were: (1) My Travel’s Sun Cruises, Fred Olsen, Saga and Thomson in the
United Kingdom; (2), Festival Cruises, Hapag-Lloyd, Peter Deilmann, Phoenix Reisen,
and Tranocean Cruises in Germany; and (3) Mediterranean Shipping Cruises, Louis
Cruise Line, Festival Cruises, and Spanish Cruise Line in Southern Europe. Carnival also
competed for passengers throughout Europe with Norwegian Cruise Line, Orient Lines,
Royal Caribbean International, and Celebrity Cruises.
Third. The company’s primary competitors in the luxury cruise segment for the Cunard
and Seabourn brands included Crystal Cruises, Radisson Seven Seas Cruise Line, and
Silversea Cruises.
Fourth. Carnival brands also competed with similar or overlapping product offerings across
all segments.
Financials
Stock
Like most corporations in the last five years, Carnival (CCL) stock had been a rollercoaster
ride ranging from approximately $55 per share common to $17 and back to $42 as of the third
quarter, 2010. With a beta of 1.51 the stock has moved parallel to both the DOW and S&P 500
but had underperformed both indexes. However, with a market cap of $33.51 billion and a
forward P/E of 14.59, market analysts were generally recommending Carnival as a “hold” in
October, 2010.
In 2006 the Board of Directors authorized the repurchase of $1 billion (maximum) of
Carnival Corporation common stock and Carnival plc. A repurchase authorization of approx-
imately $787 million was still in effect.
Because Carnival Corporation & plc operated under a dual listed company structure, an
unusual “Stock Swap” arrangement had been created. Each year the Boards of Directors au-
thorized the repurchase of a set dollar amount of Carnival plc ordinary shares and a set dollar
amount of Carnival Corporation common stock shares under the “Stock Swap” program. The
boards then used the “Stock Swap” program in situations where an economic benefit can be
obtained because either Carnival Corporation common stock or Carnival plc ordinary shares
were trading at a price that was at a premium or discount to the price of Carnival plc ordinary
Norwegian Cruise Line had 11 ships with a berth capacity of over 23,000, and marketed
“Freestyle Cruising,” which allowed guests freedom of choice with regard to a multiplicity of
dining venues and times. The atmosphere in the ships was “resort casual”; the fleet competed with
Royal Caribbean and Carnival ships, and, to a lesser extent, brands targeted to the premium segment.
The company was Hawaii’s cruise leader. NCL had a market share of 10% of the North American
Market and its affiliated companies had a small market share primarily in European markets.
C A S E 1 6 Carnival Corporation & plc (2010) 16-15
shares or Carnival Corporation common stock, as the case may be. In effect, the company
would sell overpriced stock in one company to buy undervalued stock in the other company.
Income and Balance Sheet
Cash dropped from $1.1 billion to $0.5 billion over the last five years and remained steady
with a slight rise quarter over quarter during the third quarter of 2010. (See Exhibits 5 to 7.)
Reflecting the increase in the number of ships ordered and going online, property and equip-
ment steadily increased over the last five years from $21 billion to over $30 billion (3Q 2010).
For this same reason, by 2009 long-term debt also increased from $5.7 billion to over $9 billion,
but dropped to $7.6 billion by 3Q 2010.
Revenues had also seen a steady increase until the recession, but 3Q 2010 results indi-
cated the company was on the road to recovery and could reach the net profits of 2008.
Year Ending November 30
2009 2008 2007
Revenues
Cruise
Passenger tickets $ 9,985 $ 11,210 $ 9,792
Onboard and other 2,885 3,044 2,846
Other 287 392 395
13,157 14,646 13,033
Costs and expenses
Operating
Cruise
Commissions, transportation, and other 1,917 2,232 1,941
Onboard and other 461 501 495
Payroll and related 1,498 1,470 1,336
Fuel 1,156 1,774 1,096
Food 839 856 747
Other ship operating 1,997 1,913 1,717
Other 236 293 296
Total 8,104 9,039 7,628
Selling and administrative 1,590 1,629 1,579
Depreciation and amortization 1,309 1,249 1,101
11,003 11,917 10,308
Operating income 2,154 2,729 2,725
Nonoperating (expense) income
Interest income 14 35 67
Interest expense, net of capitalized interest (380) (414) (367)
Other income (expense), net 18 27 (1)
(348) (352) (301)
Income before income taxes 1,806 2,377 2,424
Income tax expense, net (16) (47) (16)
Net income $ 1,790 $ 2,330 $ 2,408
Earnings per share
Basic $ 2.27 $ 2.96 $ 3.04
Diluted $ 2.24 $ 2.90 $ 2.95
Dividends declared per share $ 1.60 $ 1.375
EXHIBIT 5
Consolidated
Statements of
Operations: Carnival
Corporation & plc
(Dollar amounts in
millions, except per
share data)
16-16 S E C T I O N D Industry Three—Entertainment and Leisure
Year Ending November 30
Assets
Current assets
Cash and cash equivalents $ 538 $ 650
Trade and other receivables, net 362 418
Inventories 320 315
Prepaid expenses and other 298 267
Total current assets 1,518 1,650
Property and equipment, net 29,870 26,457
Goodwill 3,451 3,266
Trademarks 1,346 1,294
Other assets 650 733
Total assets $36,835 $33,400
Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings $135 $256
Current portion of long-term debt 815 1,081
Convertible debt subject to current put option 271
Accounts payable 568 512
Accrued liabilities and other 874 1,142
Customer deposits 2,575 2,519
Total current liabilities 4,967 5,781
Long-term debt 9,097 7,735
Other long-term liabilities and deferred income 736 786
Commitments and contingencies
Shareholders’ equity
Common stock of Carnival Corporation; $0.01 par
value; 1,960 shares authorized; 644 shares at 2009
and 643 shares at 2008 issued 6 6
Ordinary shares of Carnival plc; $1.66 par value;
226 shares authorized; 213 shares at 2009 and 2008 issued 354 354
Additional paid-in capital 7,707 7,677
Retained earnings 15,770 13,980
Accumulated other comprehensive income (loss) 462 (623)
Treasury stock; 24 shares at 2009 and 19 shares at
2008 of Carnival Corporation and 46 shares at 2009
and 52 shares at 2008 of Carnival plc, at cost (2,264) (2,296)
Total shareholders’ equity 22,035 19,098
Total liabilities and shareholders’ equity $36,835 $33,400
EXHIBIT 6
Consolidated
Balance Sheets:
Carnival Corporation
& plc (Dollar
amounts in millions,
except par values)
Although both revenues and profits had begun to recover, trends in ROA, ROI, gross profit
margin, and net margin had steadily decreased over the last five years. Additionally, cost of
goods sold as a percentage of revenues had shown a slow, but steady increase over the last five
years. This increase had been partially offset by careful management of selling, general, and
administrative expenses.
Geographic, Segment, and Cost
Exhibit 8 shows the revenues by geographic region. Although revenues across the board
dropped in 2009, the percent of revenues from North America declined (�7.7%) with a
corresponding increase in Europe (up 5.5%) and Others (up 2.3%).
C A S E 1 6 Carnival Corporation & plc (2010) 16-17
Carnival offered both cruises and tours. Exhibit 9 shows the breakdown of revenues and cost
for each segment. Cruises brought in the greatest revenue and had the least cost structure. Tours,
although profitable, were offered primarily to enhance the cruise experience and differentiate
one destination from another.
Selected Ratios 11/30/09 11/30/08 11/30/07 11/30/06 11/30/05
Return on assets 5.80 7.69 8.18 8.43 8.82
Return on invested capital 6.73 9.08 9.65 9.87 10.29
Cost of goods sold to sales 61.59 61.72 58.53 57.36 56.07
Net margin 13.60 15.91 18.48 19.25 20.36
From Common-Sized Income Statement
Cost of goods sold 61.59% 61.72% 58.53% 57.36% 56.07%
Selling, general, &
admin expenses
12.08% 10.94% 12.12% 12.22% 11.99%
EXHIBIT 7
Selected Ratios and
Common-Sized Data:
Carnival Corporation
& plc
SOURCE: Tompson One Banker, October 28, 2010.
Years Ended November 30
2009 2008 2007
North America $ 6,855 $ 8,090 $ 7,803
Europe 5,119 5,443 4,355
Others 1,183 1,113 875
$ 13,157 $ 14,646 $ 13,033
EXHIBIT 8
Revenues by
Geographic Area
(Dollar amount in
millions)
SOURCE: Carnival Corporation & plc 2010 Annual Report, p. F 24.
Nine Months
Ended August 31
Revenues Operating
Expenses
Selling and
Administrative
Depreciation and
Amortization
Operating
Income
2010
Cruise $ 10,475 $ 6,306 $ 1,158 $ 1,019 $ 1,992
Tour and other 346 279 23 30 14
Intersegment elimination (105) (105) — — —
$ 10,716 $ 6,480 $ 1,181 $ 1,049 $ 2,006
2009
Cruise $ 9,698 $ 5,765 $ 1,142 $ 937 $ 1,854
Tour and other 373 316 24 27 6
Intersegment elimination (120) (120) — — —
Total revenue $ 9,951 $ 5,961 $ 1,166 $ 964 $ 1,860
EXHIBIT 9
Revenue by Segment: Carnival Corporation & plc (Dollar amount in millions)
SOURCE: Carnival 2010 10-Q, p. 7.
16-18 S E C T I O N D Industry Three—Entertainment and Leisure
Exhibits 10 and 11 provide a further breakdown of costs associated with cruising and the
dramatic impact fuel costs have on the net profitability.
Year Ending Three Months
Ended August 31
Year Ending Nine Months
Ended August 31
2010 2009 2010 2009
Passengers carried (in thousands) 2,617 2,485 6,888 6,383
Occupancy percentage (a) 111.1% 111.4% 106.2% 106.4%
Fuel consumption (metric tons
in thousands)
838 807 2,473 2,359
Fuel cost per metric ton (b) $ 473 $ 405 $ 489 $ 330
Currencies
U.S. dollar to €1 $ 1.27 $ 1.41 $ 1.32 $ 1.37
U.S. dollar to £1 $ 1.52 $ 1.64 $ 1.54 $ 1.53
Notes:
(a) In accordance with cruise industry practice, occupancy is calculated using a denominator of two
passengers per cabin even though some cabins can accommodate three or more passengers. Percentages
in excess of 100% indicate that on average more than two passengers occupied some cabins.
(b) Fuel cost per metric ton is calculated by dividing the cost of fuel by the number of metric tons
consumed.
EXHIBIT 10
Selected Cruise and
Other Information:
Carnival
Corporation
& plc
SOURCE: Carnival 2010 10-Q, p. 16.
(Dollar amounts in millions except ALBDS*
and cost per ALBD) Three Months Ended August 31
2010
2010 Constant
Dollar 2009
(in millions, except ALBDs and costs per ALBD)
Cruise operating expenses $ 2,160 $ 2,224 $ 2,081
Cruise selling and administrative expenses 373 384 372
Gross cruise costs 2,533 2,608 2,453
Less cruise costs included in net
cruise revenues
Commissions, transportation, and other (517) (542) (515)
Onboard and other (131) (134) (131)
Net cruise costs 1,885 1,932 1,807
Less fuel (396) (396) (327)
Net cruise costs excluding fuel $ 1,489 $ 1,536 $ 1,480
ALBDs 17,255,120 17,255,120 16,241,798
Gross cruise costs per ALBD $ 146.84 $ 151.15 $ 151.07
Net cruise costs per ALBD $ 109.24 $ 111.96 $ 111.29
Net cruise costs excluding fuel per ALBD $ 86.28 $ 89.00 $ 91.16
Notes:
*ALBD stands for Available Lower Berth Day
EXHIBIT 11
Selected Overall and
ALBD* Expenses
SOURCE: Carnival 2010 10-Q, p. 18.
C A S E 1 6 Carnival Corporation & plc (2010) 16-19
Carnival in the Future
Carnival currently held approximately 50% of the cruising market. The company’s strategy
of “do one thing and do it better than anyone else” had been very successful. This concentra-
tion strategy had been so successful, in fact, that continued expansion in the cruise market was
likely to become increasingly competitive and additional market share difficult to capture.
However, improving economic conditions may release pent-up demand for vacations with
corresponding increase in the entire cruising market. An improving economy may be offset by
increased terrorist activity in Europe and North America, a double dip recession, or rising fuel
prices.
Carnival seemed to be positioned to take advantage of changes in the cruising industry by
focusing more on Europe and differentiating with destinations, shipboard activities, and ship
size. As Mickey Arison pondered the future of Carnival, his vision must extend many years
into the future (ships must be ordered five or more years in advance) and attempt to forecast
the world of 2016 and beyond to be successful.
- Cover
- Half-
- Title Page
- Copyright Page
- Dedication Page
- Brief
- Contents
- Preface
- About the Contributors
- Acknowledgments
- PART ONE: Introduction to Strategic Management and Business Policy
- PART TWO: Scanning the Environment
- PART THREE: Strategy Formulation
- PART FOUR: Strategy Implementation and Control
- PART FIVE: Introduction to Case Analysis
- GLOSSARY
- NAME INDEX
- SUBJECT INDEX
- PART SEVEN: Cases in Strategic Management
Title Page
Contents
CHAPTER 1 Basic Concepts of Strategic Management
1.1 The Study of Strategic Management
1.2 Globalization and Environmental Sustainability: Challenges to Strategic Management
Global Issue: REGIONAL TRADE ASSOCIATIONS REPLACE NATIONAL TRADE BARRIERS
Environmental Sustainability Issue: PROJECTED EFFECTS OF CLIMATE CHANGE
1.3 Theories of Organizational Adaptation
1.4 Creating a Learning Organization
1.5 Basic Model of Strategic Management
Strategy Highlight 1.1: DO YOU HAVE A GOOD MISSION STATEMENT?
1.6 Initiation of Strategy: Triggering Events
Strategy Highlight 1.2: TRIGGERING EVENT AT UNILEVER
1.7 Strategic Decision Making
1.8 The Strategic Audit: Aid to Strategic Decision-Making
1.9 End of Chapter Summary
APPENDIX 1.A: Strategic Audit of a Corporation
CHAPTER 2 Corporate Governance
2.1 Role of the Board of Directors
Strategy Highlight 2.1: AGENCY THEORY VERSUS STEWARDSHIP THEORY IN CORPORATE GOVERNANCE
Global Issue: CORPORATE GOVERNANCE IMPROVEMENTS THROUGHOUT THE WORLD
2.2 The Role of Top Management
Environmental Sustainability Issue: CONFLICT AT THE BODY SHOP
2.3 End of Chapter Summary
CHAPTER 3 Social Responsibility and Ethics in Strategic Management
3.1 Social Responsibilities of Strategic Decision Makers
Environmental Sustainability Issue: THE DOW JONES SUSTAINABILITY INDEX
Strategy Highlight 3.1: JOHNSON & JOHNSON CREDO
3.2 Ethical Decision Making
Strategy Highlight 3.2: UNETHICAL PRACTICES AT ENRON AND WORLDCOM EXPOSED BY “WHISTLE-BLOWERS”
Global Issue: HOW RULE-BASED AND RELATIONSHIP-BASED GOVERNANCE SYSTEMS AFFECT ETHICAL BEHAVIOR
3.3 End of Chapter Summary
Ending Case for Part One: BLOOD BANANAS
CHAPTER 4 Environmental Scanning and Industry Analysis
4.1 Environmental Scanning
Environmental Sustainability Issue: MEASURING AND SHRINKING YOUR PERSONAL CARBON FOOTPRINT
Global Issue: IDENTIFYING POTENTIAL MARKETS IN DEVELOPING NATIONS
4.2 Industry Analysis: Analyzing the Task Environment
Strategy Highlight 4.1: MICROSOFT IN A HYPERCOMPETITIVE INDUSTRY
4.3 Competitive Intelligence
Strategy Highlight 4.2: EVALUATING COMPETITIVE INTELLIGENCE
4.4 Forecasting
4.5 The Strategic Audit: A Checklist for Environmental Scanning
4.6 Synthesis of External Factors—EFAS
4.7 End of Chapter Summary
APPENDIX 4.A: Competitive Analysis Techniques
CHAPTER 5 Internal Scanning: Organizational Analysis
5.1 A Resource-Based Approach to Organizational Analysis
5.2 Business Models
5.3 Value-Chain Analysis
Strategy Highlight 5.1: A NEW BUSINESS MODEL AT SMARTYPIG
5.4 Scanning Functional Resources and Capabilities
Global Issue: MANAGING CORPORATE CULTURE FOR GLOBAL COMPETITIVE ADVANTAGE: ABB VERSUS MATSUSHITA
Environmental Sustainability Issue: USING ENERGY EFFICIENCY FOR COMPETITIVE ADVANTAGE AND QUALITY OF WORK LIFE
5.5 The Strategic Audit: A Checklist for Organizational Analysis
5.6 Synthesis of Internal Factors
5.7 End of Chapter Summary
Ending Case for Part Two: BOEING BETS THE COMPANY
CHAPTER 6 Strategy Formulation: Situation Analysis and Business Strategy
6.1 Situation Analysis: SWOT Analysis
Global Issue: SAB DEFENDS ITS PROPITIOUS NICHE
6.2 Review of Mission and Objectives
6.3 Generating Alternative Strategies by Using a TOWS Matrix
6.4 Business Strategies
Environmental Sustainability Issue: PATAGONIA USES SUSTAINABILITY AS DIFFERENTIATION COMPETITIVE STRATEGY
6.5 End of Chapter Summary
CHAPTER 7 Strategy Formulation: Corporate Strategy
7.1 Corporate Strategy
7.2 Directional Strategy
Strategy Highlight 7.1: TRANSACTION COST ECONOMICS ANALYZES VERTICAL GROWTH STRATEGY
Global Issue: COMPANIES
Strategy Highlight 7.2: SCREENING CRITERIA FOR CONCENTRIC DIVERSIFICATION
7.3 Portfolio Analysis
Environmental Sustainability Issue: GENERAL MOTORS AND THE ELECTRIC CAR
7.4 Corporate Parenting
7.5 End of Chapter Summary
CHAPTER 8 Strategy Formulation: Functional Strategy and Strategic Choice
8.1 Functional Strategy
Global Issue: INTERNATIONAL DIFFERENCES ALTER WHIRLPOOL’S OPERATIONS STRATEGY
Environmental Sustainability Issue: OPERATIONS NEED FRESH WATER AND LOTS OF IT!
8.2 The Sourcing Decision: Location of Functions
8.3 Strategies to Avoid
8.4 Strategic Choice: Selecting the Best Strategy
8.5 Developing Policies
8.6 End of Chapter Summary
Ending Case for Part Three: KMART AND SEARS: STILL STUCK IN THE MIDDLE?
CHAPTER 9 Strategy Implementation: Organizing for Action
9.1 Strategy Implementation
9.2 Who Implements Strategy?
9.3 What Must Be Done?
Environmental Sustainability Issue: FORD’S SOYBEAN SEAT FOAM PROGRAM
Strategy Highlight 9.1: THE TOP TEN EXCUSES FOR BAD SERVICE
9.4 How Is Strategy to Be Implemented? Organizing for Action
Strategy Highlight 9.2: DESIGNING JOBS WITH THE JOB CHARACTERISTICS MODEL
9.5 International Issues in Strategy Implementation
Global Issue: MULTIPLE HEADQUARTERS: A SIXTH STAGE OF INTERNATIONAL DEVELOPMENT?
9.6 End of Chapter Summary
CHAPTER 10 Strategy Implementation: Staffing and Directing
10.1 Staffing
Strategy Highlight 10.1: HOW HEWLETT-PACKARD IDENTIFIES POTENTIAL EXECUTIVES
10.2 Leading
Environmental Sustainability Issue: ABBOTT LABORATORIES’ NEW PROCEDURES FOR GREENER COMPANY CARS
Global Issue: CULTURAL DIFFERENCES CREATE IMPLEMENTATION PROBLEMS IN MERGER
10.3 End of Chapter Summary
CHAPTER 11 Evaluation and Control
11.1 Evaluation and Control in Strategic Management
11.2 Measuring Performance
Environmental Sustainability Issue: HOW GLOBAL WARMING COULD AFFECT CORPORATE VALUATION
Global Issue: COUNTERFEIT GOODS AND PIRATED SOFTWARE: A GLOBAL PROBLEM
11.3 Strategic Information Systems
11.4 Problems in Measuring Performance
11.5 Guidelines for Proper Control
Strategy Highlight 11.1: SOME RULES OF THUMB IN STRATEGY
11.6 Strategic Incentive Management
11.7 End of Chapter Summary
Ending Case for Part Four: HEWLETT-PACKARD BUYS EDS
CHAPTER 12 Suggestions for Case Analysis
12.1 The Case Method
12.2 Researching the Case Situation
12.3 Financial Analysis: A Place to Begin
Environmental Sustainability Issue: IMPACT OF CARBON TRADING
Global Issue: FINANCIAL STATEMENTS OF MULTINATIONAL CORPORATIONS: NOT ALWAYS WHAT THEY SEEM
12.4 Format for Case Analysis: The Strategic Audit
12.5 End of Chapter Summary
APPENDIX 12.A: Resources for Case Research
APPENDIX 12.B: Suggested Case Analysis Methodology Using the Strategic Audit
APPENDIX 12.C: Example of a Student-Written Strategic Audit
Ending Case for Part Five: IN THE GARDEN
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
Z
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
Z
SECTION A: Corporate Governance and Social Responsibility: Executive Leadership
CASE 1 The Recalcitrant Director at Byte Products Inc.: Corporate Legality versus Corporate Responsibility
CASE 2 The Wallace Group
SECTION B: Business Ethics
CASE 3 Everyone Does It
CASE 4 The Audit
SECTION C: International Issues in Strategic Management
CASE 5 Starbucks’ Coffee Company: The Indian Dilemma
CASE 6 Guajilote Cooperativo Forestal: Honduras
SECTION D: General Issues in Strategic Management
INDUSTRY ONE: Information Technology
CASE 7 Apple Inc.: Performance in a Zero-Sum World Economy
CASE 8 iRobot: Finding the Right Market Mix?
CASE 9 Dell Inc.: Changing the Business Model (Mini Case)
CASE 10 Rosetta Stone Inc.: Changing the Way People Learn Languages
CASE 11 Logitech (Mini Case)
INDUSTRY TWO: INTERNET COMPANIES
CASE 12 Google Inc. (2010): The Future of the Internet Search Engine
CASE 13 Reorganizing Yahoo!
INDUSTRY THREE: ENTERTAINMENT AND LEISURE
CASE 14 TiVo Inc.: TiVo vs. Cable and Satellite DVR: Can TiVo survive?
CASE 15 Marvel Entertainment Inc.
CASE 16 Carnival Corporation and plc (2010)
INDUSTRY FOUR: TRANSPORTATION
CASE 17 Chrysler in Trouble
CASE 18 Tesla Motors Inc. (Mini Case)
CASE 19 Harley-Davidson Inc. 2008: Thriving through a Recession
CASE 20 JetBlue Airways: Growing Pains?
CASE 21 TomTom: New Competition Everywhere!
INDUSTRY FIVE: CLOTHING
CASE 22 Volcom Inc.: Riding the Wave
CASE 23 TOMS Shoes (Mini Case)
INDUSTRY SIX : SPECIALTY RETAILING
CASE 24 Best Buy Co. Inc.: Sustainable Customer Centricity Model?
CASE 25 The Future of Gap Inc.
CASE 26 Rocky Mountain Chocolate Factory Inc. (2008)
CASE 27 Dollar General Corporation (Mini Case)
INDUSTRY SEVEN: MANUFACTURING
CASE 28 Inner-City Paint Corporation (Revised)
CASE 29 The Carey Plant
INDUSTRY EIGHT: FOOD AND BEVERAGE
CASE 30 The Boston Beer Company: Brewers of Samuel Adams Boston Lager (Mini Case)
CASE 31 Wal-Mart and Vlasic Pickles
CASE 32 Panera Bread Company (2010): Still Rising Fortunes?
CASE 33 Whole Foods Market (2010): How to Grow in an Increasingly Competitive Market? (Mini Case)
CASE 34 Burger King (Mini Case)
CASE 35 Church & Dwight: Time to Rethink the Portfolio?
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
