external analysis of the cruise line industry

Contained in this document is an analysis of the cruise line industry prepared by us as per your request. With a focus on the key success factors, we analyze the industry as a whole. Additionally, we go more in depth in specific company analyses of the industry’s largest companies, Carnival Corporation & plc and Royal Caribbean Cruises Ltd. The key success factors of this industry are proven by support from

• The Current State of The industry• Market Presence and Control• Analyses and comparisons of individual companies

The findings in this report are supported by evidence discovered from

credible articles, databases, and company data. In addition to this, our findings are supported in our appendices, which include a PEST and porters 5 forces analysis for the industry, a SWOT analysis for the two companies, as well as business model canvases, financial statements, and ratios for both Royal Caribbean and Carnival. We are available to discuss this report and its conclusions with you at your request. We thank you for your confidence in selecting us to prepare this comprehensive report

Team 6 Cohort 107Ohio University College of Business February 9, 2015 Copeland & Associates Managers:Nadège Levallet Tom Marchese Luke McElfreshTammy Reynolds

Dear Managers,

Sincerely,

Team 6Rachel BernsteinNicole BickEvan HarcourtXin QianDavid Rothstein

Memo of Transmittal

Prepared for:Copeland Managers

Prepared By:

Copeland Associates:Rachel Bernstein

Nicole BickEvan Harcourt

Xin QianDavid Rothstein

Cohort 107

Team 6

College of BusinessOhio University

External Analysis of the Cruise Line Industry

Overview

From our research of the Cruise Line industry we have been able to identify three key success factors and have used them to analyze both Carnival Corporation & plc and Royal Caribbean Cruises Ltd. These factors include capturing growing global markets, generating on board revenue, and establishing relationships with travel agencies. After comparing Royal Caribbean and Carnival against these factors, we found that Carnival is better positioned in the industry. We have provided three recommendations for Royal Caribbean in order for them to improve their stance in the Industry. Industry Analysis The current state of the cruise line industry is heavily concentrated with great growth opportunities. Royal Caribbean and Carnival, who account for 73 percent of the total market, primarily control the industry. These companies have controlled the United States cruise market, which accounts for 56.1 percent of the global market, but have recently set their sight on capturing newer markets developing in Asia, Europe, and Australia. This, along with other key success factors we have identified, have allowed us to analyze Royal Caribbean and Carnival’s potential success in the industry. Key Success Factors Our research of the cruise line industry has led us to identify three key success factors. First, our research proves that a cruise line must be able to capture

growing global markets. With the United States market becoming saturated, markets developing in regions such as Asia, Europe, and Australia are essential for success. Also, a cruise line must be able to provide their customers with the newest onboard innovations in order to generate revenue. These alternative sources of revenue account for approximately 30 percent of cruise’s total revenue, making this essential for their success. Finally, we have found that a cruise lines’ relationship with travel agencies greatly affect their success because the agencies help promote and sell the cruises to their customers. Using these factors, we have analyzed Royal Caribbean and Carnival and have provided recommendations for Royal Caribbean.

Analysis of Carnival Corp. Carnival is the top cruise line in the industry based on their financial position, information systems, market environment, and strategies. The company’s favorable financial position and positive performance proves their success. The multiple information systems that Carnival uses are also an essential feature that has helped their success within the industry. In relation to the industry’s market environment, Carnival takes advantage of the diverse markets and targets a wide range of locations and costumers. Overall the company's segmentation, targeting, and positioning strategies are what structure all the operations and lead to the success of the company.

Executive Summary

Executive Summary cont.Analysis of Royal Caribbean This section shows that Royal Caribbean is the second most successful cruise line within the industry. They make use of capitalizing on growing global markets, generating onboard revenue, and partnering with travel agents in order to achieve their competitive stance in the industry. They use various information systems to give them a competitive edge over their competition. They also market to a wide demographic of customers in various ways in order to increase their sales and improve consumer relations. We have identified numerous opportunities for growth and have provided recommendations for them. Recommendations for Royal Caribbean In order for Royal Caribbean to improve their position in the cruise line industry we recommend that they invest more in Europe, use less debt and more equity in financing their operations, and increase their social media presence. It is important for Royal Caribbean to target the European market because Europeans have twice the vacation time as Americans. In order to capture this segment, we recommend that Royal Caribbean offer more cruise options and ports to their European Customers. Next, we recommend that Royal Caribbean should use less debt and more equity for financing in the next 5 years. With a much higher debt ratio of 58.1 percent, as compared to Carnivals debt ratio of 38.56 percent, we believe lowering its ratio will lead to a more sustainable operation. Finally, we recommend that Royal Caribbean

increase their social media presence. By doing this, Royal Caribbean can capitalize on a new marketing platform as well as use social media to better connect with their customers. By doing so they can assess customer feedback, advertise to new customers, and compare themselves to their competition through consumer reviews. Through the use of these recommendations we believe that Royal Caribbean can achieve growth within the industry. Conclusion After conducting an analysis of the cruise line industry our team has identified three key success factors. These factors include a cruise line’s ability to capture growing global markets, provide customers with the latest onboard innovations in order to generate revenue, and be able to successfully partner with travel agencies in order to attract more customers. In evaluating Carnival and Royal Caribbean we have found that Royal Caribbean is lacking in these categories and we have provided recommendations for them to improve in these areas. We recommend that Royal Caribbean invest more heavily in Europe, use less debt and more equity to finance their activities, and increase their social media presence. If these recommendations are implemented, we expect Royal Caribbean to grow and succeed in the industry.

Table of Contents

Partnering with Travel Agents……………….......…

Overview…………………………....………

Why this is Important………………...…….

The Future…………………………………..

Benchmark Against Key Competitors…………………...

Carnival Corporation & plc Analysis……………………

Overview……………………………………………..

Financial Position, Performance and Market Value….

Key Information Systems………………………….....

Market Environment…………………………………

Segmentation, Targeting and Positioning Strategies…

Evaluation against Key Success Factors……………..

Key Takeaways………………………………………

Royal Caribbean Cruise Ltd…………………………….

Overview…………………………………………….

Financial Position, Performance and Market Value….

Introduction………………………...…………………...……....

Industry Overview………………………...…………………....

Current State………………………...…………………….

Market Presence/Control………………………………….

Future Outlook……………………………………….……

Growth…………………………………………………….

Key Takeaways……………………………………………

Key Success Factor Analysis…………………………………...

Capitalizing on Growing Markets………………………...

Overview…………………………………………

Asia……………………………………………....

Europe……………………………………………

Australia………………………………………….

Ability to Generate Revenue from Onboard Sources……..

Overview…………………………………………

Why this is Important……………………………

Breakdown of Onboard Revenue Generators…....

Ways to Further Generate Onboard Revenue…….

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Table of Contents cont. Key Information Systems………………………………

Marketing Environment………………………………...

Segmentation, Targeting, Positioning Strategies……….

Evaluation against Key Success Factors………………..

Key Takeaways…………………………………………

Recommendations for Royal Caribbean…………………....

Recommendations………………………………………

Investing Heavier in Europe…………………………...

Explanation and Rational……………………...

How to Implement…………………………….

Financial Impact………………………………

Limitations of these…………………………...

Using Less Debt and More Equity ……………………

Explanation and Rational……………………..

How to Implement…………………………….

Financial Impact………………………………

Limitations of these…………………………...

Increase in Social Media Presence……………………..

Explanation and Rational……………………...

How to Implement……………………….

Financial Impact…………………………

Limitations……………………………….

Conclusion………………………………………………

References………………………………………………

Appendices……………………………………………...

Appendix A: Pest Analysis……………..…………

Appendix B: Porters Five Forces……..…………..

Appendix C: Royal Caribbean SWOT Analysis..…

Appendix D: Royal Caribbean Business Model

Canvas……….........................................................

Appendix E: Carnival SWOT Analysis……....……

Appendix F: Carnival Business Model Canvas…...

Appendix G: Royal Caribbean Income Statement...

Appendix H: Royal Caribbean Balance Sheet….…

Appendix I: Royal Caribbean Financial Analysis....

Appendix J: Carnival Financial Statements……….

Appendix K: Carnival Financial Analysis…..…….

Appendix L: KSF Ranking System………………..

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List of Illustrations

Figures Page

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The purpose of this report is to analyze the cruise line industry as a whole and establish the key success factors with a focus on Carnival Corporation and Royal Caribbean. It will establish that Carnival is more successful, why that is, and provide recommendations for Royal Caribbean to improve. This global industry is driven by three key success factors that enable it to accumulate billions of dollars in revenue each year. Carnival Corporation and Royal Caribbean are the industry’s leaders that make best use of the three key success factors. The key success

factors in order of most importance are as follows: capitalizing

on growing global markets, ability to generate revenue from onboard sources, and partnering with travel agents. With each of these factors being applied effectively, these industry leaders and other industry competitors are likely to succeed. This already large market will continue to grow and expand in many countries and regions across the globe. With a simultaneous increase in performance, this industry’s growth is not expected to stop anytime in the near future.

Introduction

Key Success Factors

Percentage of Importance

Royal Caribbean Cruises Ltd.

Carnival Corporation & plc

Capitalizing on Growing Global Markets

40% 8/10 10/10

Generating on board revenue 30% 9/10 8/10

Partnering with Travel Agents 30% 9/10 9/10

Weighted Score100% 8.6/10

(86%)9.1/10(91%)

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Figure 1.1

Introduction > Industry Overview > Key Success Factors > Benchmark > Carnival > Royal Caribbean > Recommendations > Conclusion

Current State

The cruise line industry is heavily concentrated, “Carnival and Royal Caribbean are the two main cruise lines and account for 73 [percent] of the market” (Rodrigue, 2015). Although cruise lines have a presence throughout the world, the most popular markets are “the Caribbean and the Mediterranean which are account for about 70 percent of the global annual deployment” (Rodrigue, 2015). Because the market is heavily concentrated and requires high start-up costs it is difficult for new players to enter. In 2014 the industry as a whole generated more than 37.1 billion dollars in revenue (Statista, 2014). Carnival had the greatest income in 2013 with 15.46 billion dollars as shown in (Figure 2.1).

Industry Overview

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(Cruise Market Watch, 2014)

Background:

The first Cruise ship with the sole purpose of transporting passengers was in 1852. In 1970 the cruise line industry took off with overnight luxury cruises. The Cruise Industry is now successful, growing, and able to adapt to the social and economic changes that occur. These ships offer luxury vacationing with technological advancement and a competitive cruising market.

Major Effects on the Market:

There are a variety of different variables that greatly influence the cruise lines industry. First off, the economic climate greatly affects the industry by driving price due to an excess or lack in consumers’ disposable income. “Because cruises can be relatively expensive vacations, demand often declines during economic downturns. The late 2000s recession limited consumer spending on travel; resulting in fewer cruise bookings, lower cruise prices, and fewer customer purchases on ships” (Cruise Ships, 2014).

Figure 2.1

Competition

Cruise lines are constantly in competition with one another to gain the most business. In order for cruise lines to fill their ships they have to compete against not only each other, but with the hotel and tourism industry. The main way cruise lines compete against one another is by branding in ways that each allow each brand to offer personalized services that a consumer would be inclined to choose (Hotel, Resort & Cruise, 2012). Cruise lines gain competitive advantages by offering various packages, destinations, and prices.

Carnival Cor-poration

Royal Caribbean

Norwegian Cruise Line

MSC Cruises

Prestige Cruise Holdings

Disney Cruises

$15.46

$7.96

$2.57

$1.46

$1.25

$0.85

Cruise Lines Ranked by Revenue Worldwide in 2013Revenue (in billions)


Market Presence/Control The cruise industry makes up 51.4 percent of all ocean and costal transportation (Soshkin, 2014). The largest cruise market, accounting for 56.1 percent of the industry, is the United States (Brennan, 2014). This is because Miami, Florida is a major hub for cruises that travel to the Caribbean. The United States play a large role in controlling the market due to the fact that it not only provides a major port for ships to dock but also provides the industry with the majority of its’ consumers. The market is primarily controlled by Carnival and Royal Caribbean who account for 73 percent of the total industry which can be seen in (Figure 2.2)

Industry Overview cont. Future Outlook The future looks strong for the cruise line industry. Sales in 2014 were up 26 percent per agency from the previous year and 2015 advanced bookings were also up 44 percent (Cruising into, 2014). The cost of cruises are also expected to increase 3.5 percent from 2014 with a forecasted price of 1,779 per person (Cruise market watch, 2015).

Growth A large number of new ships are expected for the future, "according to the Florida-Caribbean Cruise Association there will be an expected 30 new ships by 2016" (Shipbuilding, 2014). In result of all the upcoming advancements and opportunities, the cruise line industry's revenue is estimated to increase 2 percent each year on. With consumer spending to rise 2.6 percent per year on average through 2019, revenue is expected to reach 38.2 billion dollars.

Key Takeaways As the economy continues to improve and disposable income expected to grow 1.4 percent in 2015, the cruising industry will continue to thrive (Soshkin, 2014). There are many new opportunities growing in China, Europe, and Australia where companies are always aiming to capture growing markets. In order for a company to become and stay successful within the industry it is important for them to follow the key success factors provided. Per capita disposable income is expected to increase 1.4 percent annually over the next five years until 2015 (Soshkin, 2014).

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Figure 2.2(Cruise Market Watch, 2013)

Market Share of Companies

Carnival Cruise Lines (49.2%)

Carnival (21.1%) Costa Cruises (7.2%)

Princess (6.4%) AIDA (4.4%)

Holland America(3.7%) Other (6.4%)

Royal Caribbean Lines (23.8%)

Royal Caribbean(17.0%) Celebrity (4.7%)

Other (2.1%)

Others (27.0%)

Norwegian (7.1%) MSC Cruises (5.8%)

Disney (2.9%) Star Cruises (1.8%)

Other (9.4%)

China China is now considered the industry’s largest market for growth (Palmeri, 2015). Royal Caribbean has begun to add ships preparing to sail out of Shanghai beginning in 2015. Carnival has “signed agreements with China State Shipbuilding Corp. in regards to construction of new vessels for the Chinese market.


Key Success Factor Analysis Capitalizing on Growing Global Markets

Overview

Capturing developing global markets is essential for success in the cruise line industry. With the North American market becoming saturated by major players in the industry, new markets are beginning to develop in Europe, Asia, and Australia. Cruise lines are now beginning to focus in on these markets in order to gain a larger global market presence in an industry where North America reigns supreme. The distribution of these markets in the industry can be seen in (Figure 3.1 and 3.2)

Asia The cruising industry in Asia is young with only 6-7 percent of cruise passengers coming out of the region, according to the release (Shankman, 2014). According to Royal Caribbean’s report, Chinese passengers increased from 25,000 to 100,000 between 2011 and 2012. Asians currently take about 1.5 million cruises a year, similar to the 1.4 million in U.S. 30 years ago and this region’s growth is expected to mirror that of the United States’ (Hu, 2013). Carnival expects at least 7 million cruise passengers to come from Asia by 2020 (Shankman, 2013). This market potential hasn’t gone unnoticed by major players

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Figure 3.1(Statista, 2014)

Australia and New Zealand

South America

Asia

Europe

North America

$1.13

$1.27

$1.80

$11.59

$21.21

Market Size of the Global Cruise Industry in 2014, by Region

Market Size (in billions of dollars)


in the industry. In the southeastern city of Xiamen, more than 16 billion yuan were earmarked for 10 projects that include construction of a 100,000-ton luxury liner, a cruise terminal and a shipping business center (Yap, 2013). In fact, in Shanghai and Tianjin, the combined investment in cruise infrastructure has topped 12.3 billion yuan, Royal Caribbean International estimates (Yap, 2013). Capturing a growing market such as Asia is essential for any cruise line that intends to grow in the future.

Share of World Wide Passengers Company % of passanagersCarnival Corporation & plc 48.10%Royal Caribbean Cruises Ltd. 23.10%Norwegian Cruise Line 10.40%Disney Cruises 2.80%Star Cruises 0.10%

(Cruise Market Watch, 2015) (Figure 3.2)

Europe Another market that has potential to grow is Europe. As of January 22, 2013, European brands represented 39 percent of Norwegian Cruise Lines total passenger capacity. As of January 22, 2013, five ships are under construction and have been designated for their Europe brands, with three for AIDA and one each for Costa and P&O Cruises. (Norwegian Cruise Line Holding Ltd, 2012) This is important in capturing the European market where approximately 6.2 million European-sourced passengers took cruise vacations for two or more consecutive nights in 2011. Additionally, it is estimated that about 6.4 million European-sourced passengers took a cruise in 2012 (Royal Caribbean, 2012). Europe has experienced a compound annual growth rate in cruise guests of approximately 7.6 percent from 2008 to 2012. (Norwegian Cruise Line Holding Ltd, 2012) This trend shows how the European market is continuing to grow and exemplifies why being able to capitalize on these growing markets are essential for major players in the Cruise Lines Industry.

Key Success Factor Analysis cont.Capitalizing on Growing Global Markets

Australia According to “The 2013 Cruise Industry Source Market Report”, Australia’s market growth has become a stable market. The 2013 statistics revealed that a record 833,348 Australians took an ocean or river cruise over the last year, up from 694,062 passengers in 2012 (Cruisecritic, 2014). In 2013 the number was just 153,781 passengers (Cruisecritic, 2014). It’s predicted by 2016, that figure will leap to 1 million as more ships set sail in Australian waters. Moreover, the percentage of Aussies who choose to spend their holidays cruising surpassed that of North

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Figure 3.3(International Cruise Council, 2013)

Destination Growth from 2012-2013

DESTINATION 2012 2013 VARIANCEEurope 57719 77308 34.00%South Pacific 252555 330670 30.90%Asia 34732 44382 27.80%

River Cruising 39275 49122 25.10%

Other Americas 17236 20612 19.60%Other 5927 7023 18.50%Caribbean 17316 19054 10.00%New Zealand 95562 98914 6.90%Australia 140361 148527 5.80%Alaska 22844 24121 5.60%

World Voyages 13535 13615 0.60%total 694062 833348 20.10%


Americans. In 2013, the equivalent of 3.6 percent of the Australian population took a cruise, compared to 3.3 percent of the North Americans. Australia is still a relatively young cruise market, yet the number of Australians taking a cruise has grown by an average of 20 percent a year over the past 11 years. It’s more than doubled other key markets including Germany and France, which grew 9 percent, the US was 3 percent and the UK and Ireland at 1 percent (Crouch, 2014).

Key Success Factor Analysis cont.Ability to Generate Revenue from Onboard SourcesOverview

It is essential for a successful cruise line to generate revenue not only through the sale of tickets, but also through products and services provided onboard. Products and services provided by the company include things such gambling, shore excursions, and, food and beverages. Things such as retail shops, spa services, art auctions, and Internet services are managed through contracts with third-party concessionaires where the company receives a fixed percentage of the gross sales.

Why this is Important

According to the Norwegian Cruise Line Holding Ltd.’s 10-K, passenger ticket sales only account for approximately 70 percent of their operating revenue. The other 30 percent is generated onboard through the variety of goods and services the cruise provides. This can be seen in (Figure 3.4) from Norwegian Cruise Line’s 10-K form. According to Brian Sozzi, “Royal Caribbean's on-board revenue increased 4.25 percent in the first quarter, following a 7.34 percent gain in the same period a year earlier (Sozzi, 2014). Royal Caribbean said it continued to see benefits from "fleet upgrades and on-board revenue management initiatives." Carnival's on-board revenue rose 4.27 percent for the six months ended May 31”. This data shows how important generating onboard revenue is to the success of the cruise line industry.

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Percent of Revenue Generated by Ticket and Onboard Sales

Year Ended December 312013 2012 2011

Revenue Passenger Ticket 70.60% 70.50% 70.40%

Onboard and other 29.40% 29.50% 29.60%Total revenue 100% 100% 100%

(Norwegian, 2012) Figure 3.4


Key Success Factor Analysis cont.Ability to Generate Revenue from Onboard Sources

Breakdown of Onboard Revenue Generators Figure 3.6 shows a breakdown of what products and services the average cruise line customer purchases and how they generate revenue for the company. Cruise lines now are able to offer many more products and services, furthering their ability to capitalize on onboard revenue.

Ways to Further Generate Onboard Revenue Figure 3.5 provides information collected from cruise passengers about what onboard amenities they have paid for while on a cruise ship and what they would potentially spend more on if certain accommodations were provided. This is important because it is consumer feedback to cruise lines about how they can further promote their generation of onboard revenue. According to the cart, Internet access and spa services are the most common areas of onboard revenue generation. Some of the areas where cruise lines could potentially increase their onboard revenue generation include use of “adult only” areas, priority boarding/ disembarking, and celebrity meet-and-greets.

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Figure 3.5(Mintel, 2013)

Shipboard lectures/ education

Priority boarding/disembarking

Exercise/fitness classes

premium entertainment seating

Laundry service

Alternative restaurant dining

Spa services

Internet Acccss

12%

12%

16%

18%

23%

26%

32%

34%

17%

23%

16%

23%

25%

22%

33%

33%

Percent of Passengers that Paid and Would be Willing to Pay Extra for an

Amenity

Would be willing to pay extra for Have paid extra for

All other on board spending

Spa(onboard)

Shore Excursions

Casino & Bar (onboard)

Total Onboard Spending

Ticket

$61.00

$40.00

$81.00

$222.00

$415.00 $1,304.00

Average Cruise Revenue per Pas-senger by Spending Category in

2014

Average revenue in U.S. dollars

Figure 3.6(Cruise Market Watch, 2014)


Key Success Factor Analysis cont.Partnering with Travel AgentsOverview

In many areas of tourism and hospitality travel agents have become obsolete, yet they continue to thrive in the cruise line industry. In 2014 cruise lines perceived by most agents as trade friendly placed even more value on there partnerships, since they would get the most referrals from agents (Cruise Ships, 2014). When booking through a travel agent there are perks that include amenities that are not available through direct booking (Dunbar, 2011). Cruise lines are taking agents on board giving them the full experience of what it is like to vacation on their ships. There are also travel websites such as Expedia and Priceline, which allow consumers to compare prices like never before. Much of the Cruise Line Industry’s success is attributed to their symbiotic relationship with travel agencies. Travel agents have dual agency status, meaning that a travel agent is both an agent of the cruise line and of the customer (Cameron, 2013). Their job is to help both the customer and the cruise line, which is why it is important for a cruise line to strongly encourage travel agents to help them out. Travel agents are helping over thirty eight percent of customers purchase their tickets, (as shown in Figure 3.7). It is key that cruise lines partner with travel agencies to be successful, so that these agencies and agents will have an incentive to recommend those that use their services to a particular cruise line. Cruise Lines work hard to maintain their

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38%

38%

11%

13%

Common Cruise Booking Methods

Through Travel AgentDirectly from Cruise LineThird Party Broker/ ConsolidatorOther

existing partnerships by offering incentives and rewards to the agents that help them the most. It is crucial to maintain strong partnerships in order to distinguish themselves. Many cruises are similar in price and style making these partnerships even more crucial for increasing sales.


The Future

Travel agencies have taken quite a few surveys and in one of them they report a 36.5 percent higher demand for luxurious river cruises (CLIA, 2010). Travel agents will also be promoting cruises to other developing regions in the cruise line industry such as Europe and China. Cruise lines with the help of partnering travel agents are trying to encourage early

bookings to compete with other travel industries. This will allow for better deals and more time to fill up all the berths of a cruise ship (Hayhurst, 2010). The success of this industry will continue to rely heavily on travel agencies and their contributions.

Why this is a Important

Maintaining a strong relationship with travel agencies will give a particular cruise line a strong competitive advantage. Many already successful companies have the ability to offer perks that include amenities that are not available through direct booking (Dunbar, 2011). The most successful company, Carnival Corporation and its many brands have programs to promote their products and services to travel agents (Carnival Corp, 2012).

In addition, Royal Caribbean has made it one of their operational strategies to try and maintain strong relationships with travel agencies (Royal Caribbean, 2012). These partnership strategies are critical for increasing sales and getting people to book earlier than ever (See Figure 3.8). Due primarily to the influences of travel agencies people are now booking farther in advance than ever (Hayhurst, 2010).

Key Success Factor Analysis cont.Partnering with Travel Agents

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Percent of Passengers' booking methods

All Royal Caribbean

Carnival Cruise Lines

Norwegian Cruise Line

Disney Cruise Line

Celebrity Cruises

Princess Cruises

Base: Internet users aged 18+ who have taken a cruise in the past five years or will in the next 12 months

513 268 368 207 196 167 181

Booking Methods: I booked direct with the cruise line 38% 36% 38% 43% 37% 52% 49%I booked through a travel agent 38% 36% 39% 36% 43% 28% 28%I booked through a third-party cruise broker / consolidator (eg Expedia, Cruise Direct, etc)

11% 10% 10% 5% 5% 4% 4%

Don't know / someone else booked the cruise / I haven't booked it yet

13% 19% 14% 16% 15% 16% 19%


Generation of Onboard Revenue NCL generates the highest percentage of their total revenues from onboard revenues in the industry (Based on Figure 4.1). Since most of their earnings are from this and they are at the top of the scale, we rank Norwegian Cruise Lines a 10/10.

Benchmark Against Key Competitors

Capitalizing on Growing Global Markets Norwegian Cruise Line Holdings Ltd. is a leader in capitalizing on growing global markets. They have done this recently through their acquisition of Oceania Cruises. This company calls on more than 330 ports across Europe, Australia, New Zealand, South Pacific, Asia, Africa and the Americas (GlobeNewswire, 2014). For a small cruise line, the have capitalized on many growing global markets. Based on our scale we rank them a 6/10. Star Cruises is another growing brand, specifically in the Asia-Pacific. If we were to rank them they would receive a 1/10 based on our scale even though they take advantage of the largest growing market, they do not focusing on any others. They have six ships exclusive to this region, that’s more than any other company (Star Cruises, 2015). Disney only has cruise ships and trips to the most popular destinations, North America and some in Europe (Disney, 2015). Based on the scale they earn a 2/10, the lowest score of the major companies.

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Figure 4.1(Griffin, 2011)

Cruise Line Revenues Fares On board (1) (2)

Carnival Corp & PLC $11,084 $3,385 30.5%

Royal Caribbean Cruise $4,909 $1,844 37.6%

NCL Corporation $1,393 $620 44.5%

Total, Top Three $17,386 $5,840 33.6%

(1) Includes miscellaneous extra air ticket sales in some cases (2) On board revenues expressed as a proportion of original fare revenues

On Board Spending As A Proportion of Fares Paid In 2010 (in millions)

Partnering With Travel Agencies When it comes to partnering with travel agencies, Disney has proportionately the highest sales through travel agents (Based on Figure 3.8). There are travel agents that specialize in only Disney vacations, since Disney has many other resorts and theme parks, they can offer much more to travel agents, strengthening their relationships (Mousesavers, 2015). Being a multifunctional company with numerous travel options, unlike most major cruise lines, they have a significant competitive advantage when it comes to partnering with travel agencies. Disney is ranked a 10/10 in regards to this key success factor with their percentage of sales through travel agents being at the top of our scale..

We used the following graphs and data (Figure 4.1) to set a benchmark in order to compare Royal Caribbean and Carnival Corp. to other players in the industry. Based on our analysis we have provided a 1-10 score for both companies depicting their success in these specific areas. A scale for these ranking can be seen in appendix L.


Key Information Systems Carnival has multiple information systems implemented on their ships in order to manage and interpret information efficiently. Some of the systems that each ship is equipped with include Advanced Passenger Information System (APIS), Safety Management System (SMS) and Environmental Management System (EMS). One of Carnival's Strategies is to form a safe, healthy, and secure environment for passengers (Carnival Corp, 2014). For Carnival to use this strategy in full force, information systems are

Carnival Corporation &Plc Analysis Overview

Carnival Corporation is the top cruise line in the world based off its financial position, information systems, market environment and strategies. With ten successful brands targeting a wide range of cruisers and locations, Carnival has gained a large amount of the market share. Key information systems and constant onboard innovation have also had a huge impact on the company's success.

Financial position, performance and market value

According to our research Carnival is currently pursuing a stability strategy. They use more equity to finance their operations because it causes increased cash flows and less liabilities. Their ability to generate significant operating cash flows allows them to finance all their capital investments and also have a substantial amount of remaining cash flow (Carnival Corporation, 2015). As seen in figure 5.1, with a profit margin of 7.78% in 2014 resulting in a $1.07M net profit, Carnival has a high performance and financial position. The companies show financially stable ratios with ROA at 3.13% and ROE at 5.09% in 2014. All these financial aspects have led to Carnival holding 49.2% of the market share (Cruise Market Watch).

(Carnival Corp, 2014)

Market Environments Carnival's market environment focuses largely on cruiser's demographics including regions, age, and lifestyles. The top regions that carnival operates with are North America, Australia, and the UK. Carnival targets these locations based on the industry’s number of annual cruise passengers as a percent of their total populations of 3.4 percent in North America, 2.7 percent in Australia, and 1.4 percent in central Europe. Carnival also targets middle age cruisers based on the industries average age ranging from 40 to 60 years old (Carnival Corp., 2015). Lifestyle and preferences are also a large factor in the market environment, which is why multiple ship styles and sizes are available. Carnival offers a diverse range of ship styles including contemporary, premium, and luxury categories (Carnival Corp, 2015).

11

Figure 5.1

Operating Income (in thousands)

2014 2013 2012

Royal Caribbean $941,859 $789,148 $403,110

Carnival Corporation

$1,792,000 $1,352,000 $1,642,000

essential. The APIS categorizes and organizes all passenger information saving time for the company and employees when information needs to be accessed (Keynote, 2013). The SMS manages pollution, inspections, regulations and policies for each ship. This makes it quicker and easier for Carnival to regulate its ships based on the ISM Code. Each ship is also linked with an EMS which helps manage the environmental impacts of the ships’ processes, products and services (Carnival Corp, 2012).


Segmentation, Targeting and Positioning Strategies Carnival has many strategies for segmentation, targeting, and positioning that promote their success within the industry. The market Carnival is targeting includes families, seniors, kids and couples. Since they generally target everyone, Carnival's strategy is to offer a wide range of products and services to suit cruisers of many ages, backgrounds and interests (Griffin, 2012). Classifying the different cruise brands as contemporary, premium and luxury is also a strategy for the business. For their segmentation strategy, they divide their ten cruise brands and aggregate them to operate in North America and Europe, Australia, and Asia (The EAA). Even though Carnival has expanded into different regions, there is a large opportunity to expand into more growing markets around the world. Since almost 60 percent of cruise passengers in the world are from North America, Carnival has four out of its ten brands operating there as shown in (Figure 5.2) (Carnival Corp, 2015). In order for Carnival to position themselves as a fun and memorable cruise line, they spend a large amount of money on onboard innovations to make the ship more entertaining for the cruisers.

Carnival Corporation &Plc Analysis cont.


12

Figure 5.2

Passenger Capacity

Number of Ships

Primary Markets

61968 24 North America36912 16 North America23492 15 North America1986 6 North America

North America Cruise Brands 124358 61

EAA (Europe, Australia Asia)

31720 14 Italy, France and Germany AIDA Cruises ("AIDA") 16442 9 Germany

14636 7 UK6672 3 UK and North America4780 3 Australia 4176 3 Spain and South America

78426 39202784 100

North America

Totals

SeabournHolland America LinePrincess Cruises ("Princess")Carnival Cruise Lines

Cruise Brands

Segmentation of Brands within Markets

Costa

P&O Cruises (UK)cunardP&O Cruises (Australia)Ibero Cruises ("Ibero")EAA Cruise Brands


Carnival Corporation &Plc Analysis cont.

Evaluation of Key Success Factors

Carnival Corporation, through its many brands, has the most ships in regions outside of North America. With 39 ships used primarily in other continents, they are the leader in capitalizing on growing global markets and 48.1 percent of the share of world wide passengers, they earn a ranking of 10/10. Carnival quantitatively generates the most onboard revenue of any of its competitors. However this accounts for only 30.5 percent of their total revenue, proportionately the lower of the other two top competitors (See Figure 5.3). The percentage that they take in is important, but seeing as they still bring in the most they are given a rank of 8/10 for generation of onboard revenue. The third most important key success factor is one that carnival does extremely well and it is partnering with travel agents. For this they are ranked 9/10 based on our scale with 39 percent of sales, from their partnerships with travel agents, only slightly below Disney. (See Appendix L)

Key Takeaways Carnival is the top cruise lines in the cruise industry based on their financials, information systems, market environment, and strategies. The companies’ strong financial position and positive performance show the success in the company's financial aspects. The information systems that Carnival uses are also an essential feature that has helped

the success within the company. In relation to the industry’s market environment, Carnival also takes advantage of the diverse market and targets a wide range of locations and costumers. Overall the company's segmentation, targeting and positioning strategies are what structure all of their operations and lead to the success of the company.

13

Figure 5.3

Key Success Factors

Percentage of

Importance

Royal Caribbean

Cruises Ltd.


& plc


40% 10/10

Generating on board revenue 30% 8/10

Partnering with Travel Agents 30% 9/10

Weighted Score 100% 9.1/10

(91%)


Overview Royal Caribbean Cruises Ltd. makes use of many different business practices in order to maintain its position as a major player in the cruise line travel industry. This global company owns Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises, and CDF Croisières de France along with 50 percent of TUI Cruises. Each of these brands targets a different region or target market (see Figure 6.1). All together, these six brands operate a total of 42 ships that go to approximately 480 different ports and destinations across the seven continents (Royal Caribbean, 2015).

ROYAL CARIBBEAN CRUISES LTD.Trend analysis over 3 years (in percentage)

The DuPont Identity 2014 2013 2012

Return on Equity (ROE) =Net Income/Total Equity 9.22% 5.38% 0.22%

Return on Assets (ROA) =Net Income/Total Assets (3.69%) 4.21% 0.16%

Profit Margins =Net Income/Sales 9.46% 5.95% 0.24%

Debt Ratios =Total Liabilities/Total Assests 60.00% (56.12%) 58.10%

Asset Turnover =Sale/Total Assets (38.98%) 39.65% 38.77%

Equity Turnover =Sale/Total Equity 97.46% (90.37%) 92.53%

Equity Multiplier =Total Assets/Stockholder's Equity 250.03 (227.89) 238.64%

ROE = Net Income / Total equity 9.22% 5.38% 0.22%

Royal Caribbean Cruises Ltd. Analysis

14

Figure 6.1

Financial Position, Performance and Market Value Royal Caribbean is currently pursuing a growth strategy. This is apparent due to their use of debt instead of equity to finance their operations. They do this because by financing their capital investments using debt, there is a lower overall cost than if done with equity. This is shown by (Figure 6.2) having a debt ratio trend of 56.12% in 2013, to 60% in 2014. They also had increasing liabilities of $11,264,682, and then $12,428,831 respectively. Royal Caribbean’s ROE has risen from 2012 to 2014 due to an increase in their net profit margin. In 2013, the profit margin was 5.95%, which then increased to 9.46% in 2014, demonstrating improvements in cost control. From 2013 to 2014, the company's total revenue's trend increased.

Figure 6.2(Cederholm, 2015)

Royal Caribbean's Six Strong Brands

Deliver the WOW to the Global Cruiser

Modern Luxury Focused on North America, United Kingdom and Australia

Latin Cruising Experience Focused on Spain and Latin America

Destination Immersion for the Up- Market

French Cruising Experience

Premium German Cruise Experience



Key Information Systems Much of Royal Caribbean’s success is attributed to their use of information systems. They are continuously updating their infrastructure to facilitate growth and keep up with constant advancements in technology. Since 2012 Royal Caribbean has been using CA Technologies IT management solutions to enhance its efficiency. CA Technology provides Royal Caribbean with multiple systems including application performance management, infrastructure management, automation, and project and portfolio management systems. The benefits from CA include resolving potential problems before they cause disruptions for guests and also helping run the entire company more easily and efficiently (CA Technologies, 2013). All of these systems help Royal Caribbean be the family friendly vacation that they have positioned themselves at.

Royal Caribbean Cruises Ltd. Analysis cont.

15


The Marketing Environment Royal Caribbean has a very broad market environment that targets a wide range of cruiser's demographics. Even though the market includes all age ranges, according to the MRI Consumer Research, the 25-54 age range is the age group that is most likely to go on a cruise. For their region market, Royal Caribbean sources internationally in the United Kingdom, Germany, Italy, Spain, China, Brazil, Australia and more (Royal Caribbean, 2010). Since the market includes a wide range of ages and regions, a broad range of lifestyles are also included in the market environment. With majority of cruise goers married with children ages 6-17, Royal Caribbean focuses mostly on lifestyles of a typical family. They target various regions as well (see Figure 6.3). Figure 6.3(Royal Caribbean, 2012)

2012 2011 2010Passanger ticket revenues:

51% 51% 55%49% 49% 45%

Distribution of Passanger Ticket Revenue from 2010-2012

United StatesAll Other Countries

Segmentation, Targeting, Positioning Strategies and Opportunities Royal Caribbean segments, targets, and positions through many different strategies. Though mainly focused on North America, Royal Caribbean has expanded in a few locations in Europe, Asia and Australia by building more ships and advertising internationally. With such large target market including almost all ages and demographics, Royal Caribbean also focuses on provided a wide range of products and services on board to target every cruiser (Royal Caribbean, 2010). However, an opportunity for Royal Caribbean to focus more attention on one market would targeting baby boomers. In order to raise awareness of these products and services, Royal Caribbean advertises through travel agents, commercials, direct mailing and social media. Their targeting strategies also overlap with their positioning strategies. Royal Caribbean has positioned itself as a family fun vacation that includes entertainment, food, leisure, and exploration all in one place for any age (Royal Caribbean, 2013). This includes some of the same targeting strategies of offering an extensive amount of options that will please all cruisers.

Evaluation Against Key Success Factors Royal Caribbean is capitalizing on the growing global market, specifically the Asian market in China and other areas for potential growth such as Australia and South America. They earned an 8/10 for this key success factor based on their share of world wide passengers. Royal Caribbean has two ships in South America, four in Australia and three in Asia (Allen, 2014). In addition, Royal Caribbean ranked second in the industry for most annually generated onboard revenue with an average of 1.8M or 37.6 percent (Figure 6.4), giving them a ranking of 9/10. About half of the respondents of a survey conducted by Mintel stated that meals, drinks, and entertainment are amongst their top priorities (O’Donnell, 2013).Travel agents are also an important factor in the cruise industry and Royal Caribbean ranks a 9/10. This ranking is based on Royal Caribbean only having 36 percent of its costumers booking through a travel agent, just behind Carnival’s 38 percent and Disney with 43 percent (Figure 6.4). To insure sales, Royal Caribbean partners with many travel agencies by ensuring commission rates and incentive structures that are competitive in the market (Royal Caribbean, 2012). (See Appendix L)

Royal Caribbean Cruises Ltd. Analysis cont.

16

Key Takeaways from this Section The main purpose of this section is to show that Royal Caribbean is the second top cruise line in the industry. They make use of capitalizing on growing global markets, generating onboard revenue, and partnering with travel agents in order to gain their stance in the industry. They use various

information systems to give them a competitive edge over their competition. They have wide demographics for which they can target in various ways to increase their sales and improve consumer relations.

Key Success Factors


Royal Caribbean

Cruises Ltd.


& plc


40% 8/10 10/10

Generating onboard revenue

30% 9/10 8/10



(86%)9.1/10(91%)

Figure 1.1


Investing Heavier in Europe

Specific Strategic Recommendations for Royal Caribbean Cruises Ltd.

Intro to Recommendations

After comparing both Carnival Corporation & plc and Royal Caribbean Ltd. we have found Royal Caribbean to be less favorable than Carnival. To grow in the industry we recommend investing heavier in Europe, to use less debt and more equity to finance operations, and to increase their social media presence.

Explanation and Rationale

In 2008 less than 2 percent of Europeans went on a cruise versus the 15 percent of Americans who have (Royal Caribbean, 2008). Europeans twice the average amount of vacation time than Americans. Due to this, the cruise industry has potential for growth in this region. In order to increase revenue, Royal Caribbean needs to provide more ships to Europe. Also, adding more ports throughout Europe will increase accessibility for potential clients. Royal Caribbean must establish connections with European travel agents in order to build a reputation around Europe.

How to Implement

There has been over a 5 percent increase of ship deployment to Europe in 2014 (CLIA, 2014). By creating new ports, there are opportunities to add more ships and create a higher revenue stream. In order to receive bookings in Europe, there needs to be a better marketing campaign to European customers. By working with Travel Agents they will be able to recommend Royal Caribbean to these customers.

Financial Impact

Initially, there will need to be an investment made to implement a marketing plan and add more ships and ports throughout Europe. While there are high costs, we project a positive ROI from investing in growing global markets.

Limitations

These recommendations require a large amount of capital investment. There are also already companies investing in the growing cruise market present in Europe. Star Cruises is the “first global cruise line with a presence in the Asian-Pacific, North American, South American, and European market” (Kamery, 2008). By what is represented in (Figure 7.1) the European market is the second largest market. With the market in Europe growing, Royal Caribbean needs to make a presence now in order to capture this market before it becomes overly saturated.

(Geography, 2015)

17

Figure 7.1

Middle East/ Africa

South America

Austrailia Asia Europe North America

0% 3% 4% 9%26%

59%

Percent of Worldwide Cruise Pas-sengers by Source in 2015

Percent of Passengers


LimitationsThe only possible limitations of this is if they need to make any large purchases and are unable to finance through investors alone. They then will need to borrow more money, which will increase their debt.

Specific Strategic Recommendations for Royal Caribbean Cruises Ltd.Explanation and Rationale

As seen in (Figure 7.2) Royal Caribbean has a debt ratio of 58.1 percent compared to Carnival, who has a debt ratio of 38.56 percent. We recommend that once Royal Caribbean pays off their current long-term debt, they should begin switching to equity to finance their operations in order to decrease their debt and create a more sustainable strategy. If this is done, along with our other recommendations, we believe that Royal Caribbean will be able capitalize on their current growth strategy in the short term and become more stable in the long term.

Use more Equity for Financing in the Next 5 YearsFinancial Impact

This will positively effect Royal Caribbean by decreasing their annual loan payments for long term debt while transferring it to stock holders by using equity instead. Currently, Royal Caribbean is trying to grow through the purchase of new ships. Once these loans are paid, we believe using equity to finance will be more sustainable because it takes risk off them and puts it on stockholders.

18


The DuPont Identity 2014 2013 2012

Return on Equity (ROE) =Net Income/Total Equity

9.22% 5.38% 0.22%

Return on Assets (ROA) =Net Income/Total Assets

(3.69%) 4.21% 0.16%

Profit Margins =Net Income/Sales 9.46% 5.95% 0.24%

Debt Ratios =Total Liabilities/Total Assests 60.00% (56.12%) 58.10%

Asset Turnover =Sale/Total Assets (38.98%) 39.65% 38.77%

Equity Turnover =Sale/Total Equity 97.46% (90.37%) 92.53%

Equity Multiplier =Total Assets/Stockholder's Equity

250.03 (227.89) 238.64%


How to Implement

With the recent purchase of their new ship, Quantum of the Seas, Royal Caribbean has devoted much of their financing through debt. In order for them to lower their debt-to-equity ratio and create a more sustainable strategy, it is important that they focus on maintaining their current ships and using their new ones to use for expansion into growing markets.

Figure 7.2


(Royal Caribbean, 2015)

Brand MentionsPercent of

Total Mentions

Facebook Page Likes

Carnival Cruise Lines 1,604,155 73% 2,237,639

Disney Cruise Line 454,876 21% 1,040,325

Royal Caribbean 42,147 2% 1,423,640

Princess Cruises 41,323 2% 1,138,572

Celebrity Cruises 24,422 1% 393,417

Norweigan Cruise Line 20,686 1% 557,765

Specific Strategic Recommendations for Royal Caribbean Cruises Ltd.Increase in Social Media Presence

Social Media is key to every business and is one of the most effective ways to connect with consumers. By increasing social media presence on Facebook, Twitter and other media applications there will be a new market that become intrigued. By being able to analyze consumer feedback, Royal Caribbean can make improvements to their current business model. Also, social media provides a way for companies to connect and build a relationship with their clients before and after they purchase a cruise. Using effective social media promotions can make or break a company’s online presence.

Explanation and Rationale

Royal Caribbean is drastically lacking in their social media involvement. “Carnival Cruise Lines was the most talked about cruise line with 7 out of 10 online mentions” for every cruise related post (O’Donnel, 2013). By increasing their social media presence, there will be an increase in online chatter and consumer information Royal Caribbean can analyze.

Limitations

There are threats when investing into social media. Social media sites go through trends of popularity and there is a possibility that certain social media campaigns will not succeed.

How to Implement

Royal Caribbean needs to use social media in order to better segment and target customers. Instead of general advertising targeting a wide range of customers, Royal Caribbean needs to use social media to gather information to better identify their target market. With the average cruise customer age being roughly 50 years old, collecting data such as surveys and customer feedback from this demographic through social media can help give Royal Caribbean a better understanding of their primary customers.

Financial Impact

Marketers need to be trained in how to use social media. There are many advertisement spaces that are available for purchase on websites. Tweets can be promoted on twitter and everyone on Snapchat can see videos and pictures from new ships that would have a lasting impression on people about their cruises.

19

Figure 7.3(O’Donnell, 2013)


ConclusionAfter conducting an analysis of the cruise line industry our team has identified three key success factors. These factors include a cruise line’s ability to capture growing global markets, provide customers with the latest onboard innovations in order to generate revenue, and be able to successfully partner with travel agencies in order to draw more customers to their cruises. In evaluating Carnival and Royal Caribbean we have found that Royal Caribbean is lacking in these categories and

we have provided recommendations for them to improve in these areas. We recommend that Royal Caribbean invest more heavily in Europe, use less debt and more equity to finance their activities, and increase their social media presence. If these recommendations are implemented, we expect Royal Caribbean to grow and succeed in the industry.

20

Figure 1.1

Key Success Factors


Royal Caribbean Cruises Ltd.

Carnival Corporation & plc


40% 8/10 10/10

Generating on board revenue 30% 9/10 8/10



(86%)9.1/10(91%)


References

21

References

22

References

23

References

24

Appendix A: Pest Analysis

25

Political

Governments have few restrictions on the cruise line industry but still have an impact on travel restrictions, taxation, entertainment and franchising laws. All governments that cruise lines travel to have different regulations when it comes to tourism and customs. While ships are in open waters there is no sales tax due to the loop hole in the US tax code. Within jurisdiction of the coast of any country the cruise ship must comply with all entertainment and alcohol regulations of the host country. U.S. based companies still have to follow the regulations by the Federal Trade Commission.

Social

Social factors that affect the cruise line industry include the average age, niche markets and cultural norms. The industry attracts all ages but with the baby boomer generation now at the age where they can afford to take time off and buy cruises the industry expects to see a continued growth. The most popular cruise lines are the large cruise lines that cater to the majority. But there is an increase in niche cruise lines including Disney, spring break and singles cruises. The norms of the vast majority of cruises include beach attire, social events, as well as casual and formal dinners.

Economical

The economic climate has a strong impact on the cruise line industry. While the cruise line industry tends to mirror the stock market tends to outperform it (Brennan, 2014). The stock market proves that during an economic recession cruise lines suffer due to a decrease in disposable income. Since the recession in 2009, stock prices of cruise lines such as Carnival Corporation and Royal Caribbean have been steadily increasing (Morningstar, 2015).

Technological

In an era with continuous technological advances in modern technology, the cruise line industry is making accommodations to bring these advances onboard. Technology is adding to the onboard experience by providing travelers with amenities such as Wi-Fi, Internet kiosks, and RFID technology use for keeping track of children. The ships themselves have been following the contemporary trend of “going green.” Newer ships are beginning to use more eco-friendly waste, fuel, and water purification systems as well as more energy efficient appliances onboard.

Appendix B: Porters Five ForcesSubstitutes Only a small percent of vacation goers go on cruises each year. With so many other options it easy for a consumer to choose from a variety of substitutes including resorts, theme parks, road trips, camping, etc. Many of these options are less expensive; for that reason some consumers are tempted to choose a substitute. With these other options available cruises have an incentive to retain their previous customers while attracting new customers. For this to happen cruises have to focus on brand loyalty. Threat of New Entrants The industry as a whole has low barriers to entry however, a high amount of capital is required to start a new company. The threat of new entrants is low because it is hard to raise billions of dollars in capital for ship construction, advertising, maintenance, etc. Some new companies such as Star Cruises pose little threat to the major players in the industry because they are in the Asia-Pacific, an area where little of the current market is held. This could potentially create a future obstacle if existing companies plan on expanding to those areas. New entrants primarily pose a threat to smaller cruise lines with few ships and a weaker market share. Bargaining Power of Consumer The bargaining power of consumers is low because consumers have little negotiating power due to fixed prices, destinations, and accommodations. Each ship is likely to be filled for each voyage, leaving the customers without any leverage for negotiation. Consumers have the most bargaining power when choosing between different cruise lines.

Bargaining Power of Suppliers

Retail, food, and drink suppliers onboard have very low bargaining power. With so many different sellers each cruise line has a lot of options to choose from, giving them the ability to pick the cheapest ones. The bargaining power of suppliers who construct ships is high due to the low availability of companies with the resources to build large, deep-sea cruise ships.

Competition Most consumer comparisons are done through travel agencies prior to booking. Cruise lines build relationships with Travel Agents to gain customers. Consumers benefit through booking with Travel Agencies because it allows them to easily compare rates between companies. This has encouraged cruise lines to lower prices and add perks in order to stay competitive. Another way the industry competes is through specialty cruises. This allows companies to position themselves to target different niche markets.

26

Strengths•Six unique brands: Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, Pullmantur brand which is tailored to serve the market in Spain, Portugal and Latin America, CDF Croisieres de france brand and a 50pecent joint venture with TUI cruises in Germany (Royal Caribbean , 2012)

•42 Ships among the six brands (Royal Caribbean, 2015)

•Approximately 480 destinations and ports (Royal Caribbean, 2015)

•Cruise to 95 countries in all 7 continents (Royal Caribbean, 2012)

Weaknesses•Struggle to obtain financing or capital for our needs or expectations that are sufficient (Royal Caribbean, 2012).

•Rely to heavily on travel agencies for generating sales (Royal Caribbean, 2012)

Opportunities•Possibility of expanding into the smaller, faster growing European markets (Royal Caribbean, 2012)

•The capacity for China’s market is projected to increase 66 percent for 2015 (Royal Caribbean, 2015)

•Expansion into the Brazilian and Australian markets (Royal Caribbean, 2012)

Threats•The new market expansions may be unsuccessful if the markets do not grow as anticipated (Royal Caribbean, 2012)

•Unforeseen events such as terrorism and natural disasters could halt cruise sales (Royal Caribbean, 2015)

•Past economic downturn has slowed sales and a repeat economic crisis is always a possibility (Royal Caribbean, 2012)

Appendix C: S.W.O.T. AnalysisRoyal Caribbean Cruises Ltd.

27

•Variety of cruise brands targeted to different markets

•Values placed on couples and families traveling with children

•Positioned to attract new customers and retain previous ones (Royal Caribbean, 2012)

•Ranked Second in overall satisfaction within the overall cruise industry ( JD Power, 2013)

•Maintain strong connections with travel agents (Royal Caribbean 2012)•Increase social media for brand recognition (Royal Caribbean, 2012)

•Strong focus on exceeding customers needs and expectations

•Service customer preference by improving technological capabilities (Royal Caribbean, 2012)

•Add greater value to ticket price by adding bundles and credits (Royal Caribbean, 2015)• Net Yields and Net Cost excluding Fuel are the most important financial measures (Royal Caribbean, 2015)•Debt agreements require a minimum net worth and debt to capital ratio (Royal Caribbean, 2012)

•Mobile Apps and websites to allow customers to change, personalize and book reservations

•Consumer Outreach department with 24 hour vacation planers (Royal, Caribbean, 2012

•Brand dedicated sales representatives and travel agencies work with customers to secure travel arrangement and needs

•Offering air transportation to guests through the Air Transportation Program

•50% Joint Venture with TUI Cruises (Royal Caribbean, 2012)

• Social Media is key factor for marketing strategy

•Constantly improving the digital platform in order to keep up with increasing technology use (Royal Caribbean,2012)

•On board revenue generated from specialty restaurants, casinos, internet, unlimited alcohol packages and shore excursions •Constantly offering guests more places to spend money

Appendix D: Business Model CanvasRoyal Caribbean Cruises Ltd.

28

StrengthsAppeal to Numerous Niche Markets• Carnival has many different brands including budget minded,

contemporary, and luxury cruises.Superior Profitability• Their average income stands at 18.1% compared to the

industry average of 6.3. (Friesner 2014)Efficiency• Since 2007, fuel consumption has decreased by 25%. .

(Friesner 2014)

WeaknessesNegative Media Attention• Events such as the Costa Concordina ship crash in Italy on January

13, 2012 and the losing of two passengers in May of 2013 have hurt their image. (National Post 2013)

Legal Proceeding on Pollution• On August 28, 2013, the UK Maritime & Coastguard Agency began

an investigation into allegations that Caribbean Princess breached international pollution laws.

• On December 28, 2014, the Egyptian Environmental Affairs Agency began an investigation into allegations that Costa neoClassica Breached Egyptian environmental laws. (Carnival Corp. & PLC 2012)

OpportunitiesExpansion to Underdeveloped Markets• Europe• Asia• RiversTargeting the 45 – 60 Year Old Demographic• Over the next 10 years the number of people projected to take

cruises is expected to rise by 17 million. (Levin 2012)

ThreatsGovernment Closing Loopholes• In 2009, the US government began discussions on closing tax

loopholes that Carnival Corp. were using. (Levin 2012)Increasing Fuel Prices• The EPA has changed laws in regards to reducing the sulfur

content used in fueling ships. (Carnival Corp. & PLC 2012)• This increasing demand for low-sulfur fuel could potentially

rise fuel prices. (Carnival Corp. & PLC 2012)Natural Disasters & Contagious Diseases• These instances that threaten passengers’ health and safety

could have an adverse effect on sales and profitability. (Carnival Corp. & PLC 2012)

Appendix E: S.W.O.T. AnalysisCarnival Corporation & plc

29

• Cargill (Food)

• Starboard Cruise Services (Shipboard Gift Shops)

• Steiner Management Inc. (Shipboard Spa/ Beauty/ Fitness)

• Hasbro Inc. for onboard entertainment

• Innovate ways to enhance guests’ onboard experiences

• Adding advertising programs to promote products

• Maintenance

• Best cruise line for the value

• Fun and Memorable Vacation

• Provide fun onboard environment and have friendly service

• Friendly and Reliable Service

• Quality Products and Entertainment

• Families• Couples• Singles• Seniors

• Quality Employees

• Food and Drink Suppliers

• Variety of destinations

• Retail, online and home based agents

• Social Media and digital marketing

• Television• Mail• Radio

• Largest Cost• Fuel• Food and Beverage• Travel Agency Services• Port Facilities• Repairs and Maintenance• Advertising and Marketing

• Largest Capital Investments

• Construction of New Ships

• Improvements to Existing Ships

• Ticket sales account for 76% of total revenue• Onboard revenue account for 24% of total revenue

Appendix F: Business Model Canvas Carnival Corporation & plc

30

ROYAL CARIBBEAN CRUISES LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE

INCOME (LOSS) AND COMMON SIZE INCOME STATEMENT(unaudited, in thousands, except per share data)

Passenger ticket revenuesOnboard and other revenues

Total revenuesCruise operating expenses:Commissions, transportation and otherOnboard and otherPayroll and relatedFoodFuelOther operatingTotal cruise operating expensesMarketing, selling and administrative expensesDepreciation and amortization expensesImpairment of Pullmantur related assetsRestructuring and related impairment chargesTotal operating costsOperating IncomeOther income (expense):Interest incomeInterest expense, net of interest capitalizedExtinguishment of unsecured senior notesOther income (expense)Total other income (expense)Net IncomeEarnings Per Share:BasicDiluted

2014 2013 201273.0% 71.9% 72.8%27.0% 28.1% 27.2%

100.0% 100.0% 100.0%

17.0% 16.5% 16.8%7.2% 7.1% 6.9%

10.5% 10.6% 10.8%5.9% 5.9% 5.8%

11.8%11.7% 11.6%13.3% 14.9% 15.0%65.7% 66.7% 67.1%13.0% 13.1% 13.2%9.6% 9.5% 9.5%

5.0%0.1% 0.7% _

88.3% 90.0% 94.8%11.7% 9.9% 5.2%

0.1% 0.2% 0.3%-3.2% -4.2% -4.6%

-0.1% -0.1%0.9% -0.02% -0.6%-2.2% -4.1% -5.0%9.5% 6.0% 0.2%

$3.45 $2.16 $0.08$3.43 $2.14 $0.08

Appendix G: Royal Caribbean Cruise Ltd. Income Statement

31

Assets 2014 2013 2012

Current assets

Cash and cash equivalents 0.9% 1.0% 1.0%

Trade and other receivables, net 1.3% 1.3% 1.4%

Inventories 0.6% 0.8% 0.7%

Prepaid expenses and other assets 1.1% 1.3% 1.0%

Derivative financial instruments 0.4% 0.3%

Total current assets 3.9% 4.8% 4.5%

Property and equipment, net 88.0% 87.3% 88.0%

Goodwill 2.0% 2.2% 2.2%

Other assets 6.1% 5.8% 5.3%

Total assets 100.0% 100.0% 100.0%

Liabilities and Shareholders‘ Equity

Current liabilities

Current portion of long-term debt 3.9% 7.8% 7.7%

Accounts payable 1.6% 1.9% 1.8%

Accrued interest 0.2% 0.5% 0.5%

Accrued expenses and other liabilities 4.4% 2.8% 2.7%

Customer deposits 8.5% 8.3% 7.8%

Total current liabilities 18.6% 21.3% 20.5%

Long-term debt 36.9% 32.4% 35.2%

Other long-term liabilities 4.5% 2.4% 2.4%

Total liabilities 60.0% 56.1% 58.1%

Shareholders' equity

Preferred stock ($0.01 par value; 20,000,000 shares authorized; none outstanding)

Common stock ($0.01 par value; 500,000,000 shares authorized; 233,106,019 and 230,782,315

shares issued, December 31, 2014 and December 31, 2013, respectively)

0.01% 0.01% 0.01%

Paid-in capital 15.7% 15.7% 15.7%Retained earnings 31.7% 30.2% 29.0%

Accumulated other comprehensive (loss) income-4.3% 0.03% -0.7%

Treasury stock (13,808,683 and 10,308,683 common shares at cost, December 31, 2014 and

December 31, 2013, respectively)

-3.1% -2.1% -2.1%

Total shareholders' equity 40.0% 43.9% 41.9%

Total Liabilities and Shareholders equity 100.0% 100.0% 100.0%

ROYAL CARIBBEAN CRUISES LTD.CONSOLIDATED BALANCE SHEETS AND COMMON SIZE

BALANCE SHEET(in thousands, except share data)

Appendix H: Royal Caribbean Cruise Ltd. Balance Sheet

32


The DuPont Identity 2014 2013 2012Return on Equity (ROE) =Net Income/Total Equity 9.22% 5.38% 0.22%Return on Assets (ROA) =Net Income/Total Assets 3.69% 4.21% 0.16%Profit Margins =Net Income/Sales 9.46% 5.95% 0.24%Debt Ratios =Total Liabilities/Total Assests 60.00% 56.12% 58.10%Asset Turnover =Sale/Total Assets 38.98% 39.65% 38.77%Equity Turnover =Sale/Total Equity 97.46% 90.37% 92.53%Equity Multiplier =Total Assets/Stockholder's Equity 250.03 227.89 238.64


ROE = (Net Income / Total Asset ) * (Total Asset / Total Equity) ROE = ROA * Equity Multiplier 3.69% * 250.03 4.21% * 227.89 0.16% * 238.64

ROE = (Net Income / Sales) * (Sales / Total Asset) * (Total Asset / Total Equity) ROE = Profit Margin * Asset Turnover * Equity Multiplier

9.46% * 38.98% * 250.03 5.95% * 39.65% * 227.89 0.24% * 38.77% * 238.64

Appendix I: Royal Caribbean Cruise Ltd. Financial Analysis

33

PositiveNegative

Key

Operating efficiency - as measured by profit margin.Asset use efficiency - as measured by total asset turnover.Financial leverage - as measured by the equity multiplier.

Royal Caribbean's ROE goes up from 2012 to 2014 due to an increase in the net profit margin. This is a positive sign for the company. In 2013, their net profit margin was 5.95%, meaning the company is better controlling costs compared to 2012. The profit margin again rose to 9.46%, in 2014; Meaning Royal Caribbean has done a lot to control their cost.

In 2012, the company's asset turnover was 38.77%, and it increased to 39.65% in 2013. This means that for every $1 worth of assets, $39.65 worth of revenue was made. In 2014, their asset turnover decreased to 38.98%, meaning the company gained less revenue in 2014 in regards to their assets. From 2012 to 2014, the company's total revenue's trendincreased, which could be a sign that the company was "overinvested"

in assets. The company's cash and cash equivalents was $281,421 in 2012, $259,746 in 2013, and $261,392 in 2014. Inventories were $146,295, $151,244, and $123,490 respectively. This might mean the company had assets that are doing nothing, such as cash sitting in the bank and inventory that isn't selling.

An equity multiplier shows how much leverage a company is using to fund its assets and shows the relationship between the value of a company's assets and the value of its shareholders' equity. The company's equity multiplier in 2012 was 238.64. This decreased in 2013 to 227.89, but increased to 250.03 in 2014. Too much leverage can lead to financial trouble, which can reduce a company's stock price. From 2012 to 2014, the company's liabilities increased from11,519,181, to 11,264,682, and 12,428,83. Their company's equity was 8,308,749, 8,808,265, and 8,284,359; the companies with higher leverage are thought to be more risky because they have more liabilities and less equity.

Carnival Corporation & Plc Consolidated Balance Sheets (USD $) and Common size balance sheet

In Millions, unless otherwise specifiedAssets 2014 2013 2012

Current assetsCash and cash equivalents 0.8% 1.2% 1.2%Trade and other receivables, net 0.8% 1.0% 0.7%Insurance recoverables 0.4% 1.0% 1.2%Inventories 0.9% 0.9% 1.0%Prepaid expenses and other 0.8% 0.8% 0.6%Total current assets 3.8% 4.8% 4.7%

Property and equipment, net 82.9% 82.0% 82.1%Goodwill 7.9% 8.0% 8.1%Other Intangibles 3.2% 3.2% 3.4%Other Assets 2.2% 1.9% 1.8%

Total assets 100.0% 100.0% 100.0%

Liabilities and Shareholders' EquityCurrent liabilitiesShort-term borrowings 1.7% 0.15% 0.1%Current portion of long-term debt 2.7% 3.5% 4.3%Accounts payable 1.6% 1.6% 1.4%Dividends payable 0.5% 1.5%Claims reserve 0.7% 1.1% 1.4%Accrued liabilities and other 3.2% 2.3% 2.2%Customer deposits 7.7% 7.6% 7.9% Total current liabilities 17.5% 16.8% 18.7%Long-term debt 18.6% 20.2% 18.3%Other long-term liabilities 2.4% 1.8% 1.8%

Total liabilities 38.6% 38.8% 38.9%

Commitments and contingencies

Shareholders' equityAdditional paid-in capital 21.2% 20.8% 21.1%Retained earnings 48.7% 46.8% 47.2%

Accumulated other comprehensive (loss) income -1.6% 0.4% -0.5%

Treasury stock, 59 shares at 2014 and 2013 of Carnival Corporation and 32 share at 2014 and 2013 of Carnival plx, at cost

-7.8% -7.7% -7.6%

Total shareholders' equity 61.4% 61.2% 61.1%Liabilities and Equity, Total 100.0% 100.0% 100.0%

Carnival Corporation & PlcConsolidated Statements of Income (USD$) and Common size income

statementIn millions, except Per Share data, unless otherwise specified

Passenger ticket revenuesOnboard and other revenues

2014 2013 201274.8% 75.4% 75.8%23.8% 23.3% 22.8%

Tour and other 1.4% 1.4% 1.4%Total revenues 100.0% 100.0% 100.0%

Cruise operating expenses: Commissions, transportation and other 14.5% 14.9% 14.9%Onboard and other 3.3% 3.5% 3.6%Fuel 12.8% 14.3% 15.5%Payroll and related 12.2% 12.0% 11.3%Food 6.3% 6.4% 6.2%Other ship operating 15.4% 16.8% 14.5%Tour and other 1.0% 0.9% 1.0%Total cruise operating expenses 65.5% 68.7% 67.1%Selling and administrative expenses 12.9% 12.2% 11.2%Depreciation and amortization expenses 10.3% 10.3% 9.9%Ibero goodwill and trademark impairment 0.1% 1.1%Costs and Expenses 88.7% 91.3% 89.3%Operating income (loss) 11.3% 8.7% 10.7% Nonoperating (Expense) IncomeInterest income 0.05% 0.07% 0.07%Interest expense, net of interest capitalized -1.8% -2.1% -2.2%(Losses) gain on fuel derivatives, net -1.7% 0.2% -0.05%Other income (expense), net 0.03% 0.05% -0.05%Nonoperating (Expense) Income, Total -3.4% -1.81% -2.2%Income Before Income Taxes 7.8% 6.94% 8.5%Income Tax (Expense) Benefit, Net -0.1% 0.04% -0.03%Net Income 7.8% 7.0% 8.4% Earnings Per Share:Basic $1.59 $1.39 $1.67 Diluted $1.59 $1.39 $1.67

Appendix J: Carnival Corporation Financial Statements

34

Carnival Corporation & PlcTrend analysis over 3 years (in percentage)

The DuPont Identity 2014 2013 2012Return on Equity (ROE) 5.09% 4.39% 5.42%Return on Assets (ROA) 3.13% 2.69% 3.31%Profit Margins 7.78% 6.97% 8.44%Debt Ratios 38.56% 38.77% 38.90%Asset Turnover 40.18% 38.54% 39.28%Equity Turnover =Sale/Total Equity 65.40% 62.94% 64.28%Equity Multiplier =Total Assets/Stockholder's Equity 162.76 163.32 163.65ROE = Net Income / Total equity 5.09% 4.39% 5.42%ROE = (Net Income / Total Asset ) * (Total Asset / Total Equity) ROE = ROA * Equity Multiplier

3.13% * 162.76 2.69% * 163.32 3.31% * 163.65

ROE = (Net Income / Sales) * (Sales / Total Asset) * (Total Asset / Total Equity) ROE = Profit Margin * Asset Turnover * Equity Multiplier

7.78% * 40.18% * 162.76

6.97% * 38.54% * 163.32

8.44% * 39.28% * 163.65

Appendix K: Carnival Corporation Financial Analysis

35

Operating efficiency - as measured by profit margin.Asset use efficiency - as measured by total asset turnover.Financial leverage - as measured by the equity multiplier.

In 2013, Carnival's profit margin was 6.97%. it decreased from 2012, meaning the company didn't do good on cost-control. In 2014 that changed and they controlled their cost better which increased to 7.78%.

In 2012, the company's asset turnover was 39.28%. It decreased to 38.54% in 2013, showing they generated less revenue from each dollar's worth of assets. In 2014, their asset turnover increased to 40.18%, meaning the company gained more revenues for their amount of assets in 2014. From 2012 to 2014, the company's total revenue's trend increased. This could be a sign that the company were "overinvested" in assets. The company's property and

equipment was 32,137 in 2012, 32,905 in 2013, and 32,773 in 2014; this means the company added capacity in fixed assets meaning more equipment isn't being used.

An equity multiplier shows how much leverage a company is using to fund its assets and shows the relationship between the value of a company's assets and the value of its shareholders' equity. The company's equity multiplier in 2012 was 163.65, 163.32 in 2013, and 162.76 in 2014. From 2012 to 2014, the company's liabilities were 15,232, 15,548, and 15,244 respectively. Also, the company's equity was 23,929, 24,556, and 24,288. The companies with higher leverage as determined by a leverage ratio are thought to be more risky because they have more liabilities and less equity. A lower equity multiplier indicates lower financial leverage, which means the company is relying less on debt to finance its assets.

PositiveNegative

Key

Appendix L Key Success Factors Ranking Scale


Based off of share world wide passengers

1. > 2% 2. 2-3%3. 4-5%4. 6-7%5. 8-9%6. 10-15%7. 15-19%8. 20-29%9. 30-39% 10. > 40%

Generating On Board Revenue

Based off percentage of onboard revenue per original fare revenue

1. < 1% 2. 1-4%3. 5-9%4. 10-14%5. 15-19%6. 20-24% 7. 25-29% 8. 30-34% 9. 35-39%10. > 40%

Partnering With Travel Agencies

Based off of percentage of bookings through travel agents

1. < 1% 2. 1-4%3. 5-9%4. 10-14%5. 15-19%6. 20-24% 7. 25-29% 8. 30-34% 9. 35-39%10. > 40%

36

external analysis of the cruise line industry

Documents

cruise line industry

industry analysis

key success factors

industry market presence

royal caribbean cruises

united states cruise

global markets

carnival corporation