Carnival Corporation

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Carnival Corporation

founded: 1972

Contact Information:

headquarters: carnival pl., mseo 1000
3655 nw 87th ave.
miami, fl 33178-2428 phone: (305)599-2600 fax: (305)406-4700 url: http://www.carnival.com http://www.carnivalcorp.com

OVERVIEW

The Miami-based Carnival Corporation, also known as the "Fun Ships," is the world's largest and most profitable cruise company, holding approximately one-third of the North American cruise market. As a whole, the cruise corporation has interests in seven cruise brands including Carnival Cruise Lines, Holland America Line, Windstar Cruises, Cunard Line, Seabourn Cruise Line, Costa Crociere, SpA, and Airtours' Sun Cruises. Together, these lines operate a total of 42 cruise ships sailing to destinations such as the Caribbean, Bahamas, Mexico, Alaska, South Pacific, and Europe. The corporation has become the most affordable and popular line among families looking for a unique vacation experience. With cruise ships named "Tropicale," Fantasy," and "Sensation," the line focuses on budget minded individuals who are interested in participating in several activities and, at the same time, enjoy a relaxing holiday.

Carnival is the industry leader, with an estimated North American market share of 38 percent, maintaining a solid lead over its nearest competitor, Royal Caribbean, who acquired Celebrity Cruises. This increased Royal's market share to an estimated 27 percent. In addition, in 1998 the Walt Disney Co. entered the cruise market with the introduction of the first of two cruise ships. As reported in Carnival's 1997 Annual Report, "The U.S. Bureau of Economic Analysis predicts that by year 2000 there will be a 30-plus percent growth in the 41-59 age group, a prime demographic group for cruising, and a very positive indication for the cruise industry."

COMPANY FINANCES

Carnival Corporation reported net income of $109.9 million on revenues of $557.8 million for its first quarter 1998, which ended February 28, compared with net income of $85.4 million on revenues of $521.1 million for the same quarter in 1997—a 7.1-percent increase. Net income increased 28.8 percent for the first quarter in 1998, marking the twenty-seventh consecutive quarter in which Carnival has reported year-over-year earnings improvement.

Carnival's Board of Directors approved a two-forone stock split of its Class A common shares. Also, the Board reported a regular quarterly dividend of $.15 per share. In 1997 Carnival stock ranged from a low of $34.38 to a high of $76.50 over a 52-week period. The annual dividend was $2.32 and Carnival's price-earnings ratio was 29.08.

ANALYSTS' OPINIONS

In 1997 William Blair & Co. reported, "the cruise industry will be one of the faster-growing segments of consumer spending over the next 5-10 years, as major demographic changes dramatically shift consumer spending from goods to services, especially leisure." In fact, on March 23, 1998, The Wall Street Journal reported "strong demand for cruises" as Carnival's profits increased by 29 percent. The 1997 Value Line Investment Survey reported that the recreation industry would experience growth in 1998 and, therefore, many shares within the industry are expected to perform well. Some analysts believe Carnival, Princess Cruises, and Royal Caribbean Cruises will control 80 percent of the North American market share by the year 2000.

On April 3, 1998 Standard & Poor's Credit Rating Co. revised the outlook of Carnival Corporation to positive from stable. Standard & Poor's referred to Carnival as "reflecting continued strong operating results, improving credit measures, and favorable industry fundamentals." T. P. Razukas of Duff & Phelps Credit Rating Co. agreed and wrote, "The addition of new ships has driven company's growth and market share gains, as the North American cruise market continues to consolidate." Also, Carnival Corporation's "modern and cost-efficient fleet has enabled the company to attract customers and reduce prices when necessary without a significant adverse impact on earnings." Many analysts believe consolidation within the industry helps to strengthen it by removing the weaker players. In the same way, less competition should reduce price wars and make the industry more profitable for everyone.

HISTORY

Carnival Cruise lines began in 1972 when Ted Arison persuaded his friend, Meshulam Riklis, to lend him $6.5 million to purchase the ship "Empress of Canada." Arison, formerly with Norwegian Cruise Lines, and Riklis, owner of Boston-based American International Travel Service, set up Carnival as a subsidiary of AITS. They renamed the ship the "Mardi Gras," and it unfortunately ran aground on its maiden voyage. This sent the company into the red for the next three years. Arison bought out Riklis in 1974 for $1, and assumed the company's $5-million debt.

Arison wanted to create a cruise line that offered affordable vacations to young, middle-class customers. He invented an innovative way to cruise by offering live entertainment, gambling, and other activities on cruises. Within a month of this creation Carnival was profitable, the debt was paid off, and Arison bought a second ship. A third ship was purchased in 1977.

In 1978 fuel and shipbuilding costs were high, but Arison stunned the industry by announcing that Carnival would be building a ship that would set sail in 1982. In 1979 Arison's son Micky took over as CEO, and it was his motivation and Carnival's success that led the company to build three more ships. Carnival continued to grow and became the number one cruise line, and in 1987 the company went public.

During the course of the company's growth, the line added three- and four-day cruises to the Bahamas. In 1988 Carnival opened the Crystal Palace Resort in the Bahamas, and after purchasing Holland America Line (HAL) in 1989, began offering luxury cruises. HAL offered cruises to Alaska and the Caribbean. Carnival also acquired Windstar Cruises, which offered trips to the Caribbean and the South Pacific. During this time, the corporation also ran Westours and the Westmark hotel chain.

Carnival continued to add new ships in the 1990s, and in 1991 purchased Premier Cruise Lines. That same year the company started a joint venture with Seabourn Cruise Line. They sold one of the Crystal Palace Resort hotels to the government-owned Hotel Corporation of the Bahamas, and put the rest of the resort up for sale in 1992. A total of 82 percent of the resort/casino was sold in Nassau in 1994. That year the company changed its name to Carnival Corporation to distinguish between the entire company and the cruise line of the same name. Carnival also announced that it would merge with Continental Companies to form Carnival Hotels and Casinos, which increased Carnival's land interests. Besides these business endeavors, Carnival and HAL planned to launch seven new ships—three in 1996, one in 1997, and three in 1998.

STRATEGY

The company markets the Carnival Ships as the "Fun Ships" and incorporates themes such as "Carnival's Got the Fun" and "The Most Popular Cruise Line in the World." Carnival's strategic approach to advertising is directed to consumers on network television and through extensive print media. Carnival believes its advertising generates interest in cruise vacations generally and results in a higher degree of consumer awareness of the "Fun Ships" concept and the "Carnival" name in particular.

INFLUENCES

To attract other cultures to Carnival, the company began FiestaMarina cruise line for Latin travelers. This turned out to be a difficult venture because of marketing and equipment problems—the project was discontinued in 1994. Even with this disappointment, Carnival purchased a stake in United Kingdom's Airtours, which consisted of airplanes, cruise ships, hotels, and travel agencies.

FAST FACTS: About Carnival Corporation

Ownership: Carnival Corporation is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: CCL

Officers: Micky Arison, Chmn. & CEO, 47, 1997 base salary $1,211,000; Gerald R. Cahill, Sr. VP Finance & COO; Howard S. Frank, VC & COO, 56, 1997 base salary $897,000; Roderick K. McLeod, Sr. VP Marketing

Employees: 18,100

Principal Subsidiary Companies: Carnival's principal subsidiaries include Holland America Line West-ours Inc. and Crystal Palace Hotel Corp.

Chief Competitors: Carnival Corp.'s primary competitors include: Accor; Canadian Pacific; Carlson; Club Med; Costa Cruise Lines; Overseas Shipholding; Peninsular and Oriental; Princess Cruises; Royal Caribbean Cruises; Sea Containers; Thomson Corp.; Trafalgar House; Vard; Viad; and Walt Disney.

In 1996 Carnival Corporation announced that it would be participating in a joint venture with Hyundai Merchant Marine to create "Carnival Cruises Asia." This would develop the Asian cruise market and would begin with Carnival Cruises' MS "Tropicale" in the spring of 1998. Initial cruises were to be from Inchon, Korea, to China, and possibly Japan. The "Tropicale" was a 1,022-passenger ship scheduled to undergo a multimillion dollar renovation before entering the Asian service. The 36,674-ton vessel was also set to be repositioned to other ports throughout southeast Asia. Scheduled cruise operations were set for the spring of 1998, however, the joint venture was dissolved in September 1997.

CURRENT TRENDS

From 1995 to 1996 Carnival experienced a slow period, but in 1997 the cruise industry outlook seemed to improve. CEO Micky Arison felt that demand was actually the strongest he had witnessed since he entered the industry in the early 1980s. Some analysts felt that the extensive advertising by Disney Cruise Lines for their spring 1998 launch heightened industry awareness among consumers. Due to the success of the "Rotterdam," introduced in November 1997, Holland America Line announced it had contracted for a sister ship for delivery in the year 2000. The company's confidence in the future led them to undertake the largest passenger shipbuilding program ever, with new ships planned for each of their major cruise brands. Additionally, Carnival was expected to debut the world's first smoke-free cruise ship, the "Paradise," in November 1998.

In 1997 Carnival Cruises announced it would be starting a new advertising campaign to attract individuals who were looking for a fun vacation. The television advertisements focused on a combination of real and animated imagery. The commercials, created by HMS Partners, were 30 seconds long and aired nationally. Both consisted of music and visuals until the end, when television personality Kathie Lee Gifford made an endorsement. (Gifford is a longtime spokesperson for Carnival.) The first spot was entitled "Fish," and contained underwater scenes of different species of fish, swimming around a Caribbean reef. The fish hear Mambo music coming from a nearby Carnival cruise ship, and the fish begin to dance. The voice-over by Gifford begins and the phrase "I guess some vacations are just more fun than others" is heard. The second commercial was similar, but the dancing fish are replaced by dancing palm trees on a deserted Caribbean island.

The intended function of the commercials was to promote an idea of fun. Carnival's president, Bob Dickinson stated, "We were seeking a fresh approach to advertising yet one that continued our efforts to convey the single most outstanding feature of a Carnival cruise vacation-fun." They designed the commercials so the viewer would draw their own conclusions regarding the type of fun they would experience on a Carnival cruise. Many cruise lines showed how they would pamper their guests, but Carnival wanted the spots to induce a personal response. They showed the commercials during "Good Morning America," the "Today" show, "CBS This Morning," and "The Tonight Show." They also showed the commercials during prime time throughout the week.

PRODUCTS

Primarily, the Carnival Corporation offers fun as its most lucrative product. Its ships offer a variety of activities ranging from shuffleboard to swimming and exercising in their famous Nautica Spas. Carnival has 3-, 4, and 7-day cruises to the Bahamas and the Caribbean. There is also a Walt Disney package available that includes lodging at a Disney World Resort, admission to the theme park, and a 5-, 6-, or 7-day cruise. In 1996 Carnival added an 11-day cruise to Hawaii, 10- or 11-day cruises to the southern Caribbean, and 10- or 11-day cruises to the Panama Canal. Seven-day cruises to Alaska are also available. Each cruise ship offers an around-the-clock buffet that includes several different edibles. They also offer 24-hour room service. The chefs are masters at preparing several varieties of international cuisine and traditional favorites. The food is included in the price of the cruise, so the travelers can indulge at no extra cost.

Each ship has live entertainment, dancing, and casinos. Gambling is available throughout the day and evening, and Carnival boasts the world's largest cruise ship jackpot. The ships have Las Vegas-type shows that consist of singing and dancing. Airfare, accommodations, meals, entertainment, ports of call, and activities are all included in the price of the cruise. In 1996, to guarantee satisfaction, Carnival offered a program to passengers who were dissatisfied with their trip. A first in the industry, this program would reimburse those individuals who were unhappy with their cruise. To make it easier for consumers to take a cruise, Carnival incorporated Princess Cruises' policy and started a financing program in 1997. In addition, to attract more business the company launched a new site on the World Wide Web in April 1998.

Carnival also tries to accommodate younger passengers. To do this, they started "Camp Carnival," which offers activities that appeal to children and teens. A children's pool and slide, teen club and video game room, and a special children's menu are some of the items available with "Camp Carnival." This program also offers babysitting at a nominal fee.

CORPORATE CITIZENSHIP

CEO Mickey Arison set up the Arison Foundation under the "corporate umbrella." The foundation contributes heavily to the arts, an area in which he exhibits extreme interest. Through the Carnival Cruise Line, the company set up the Carnival Cruise Foundation, which funds many charitable organizations.

CHRONOLOGY: Key Dates for Carnival Corporation

1972:: Ted Arison borrows $6.5 million from Meshulam Riklis to buy a cruise ship and start a company; Carnival Cruise is formed as a subsidiary of Riklis' company American International Travel Service
1974:: Arison buys Riklis share of Carnival for $1, but also got its debt of $5 million
1979:: Ted Arison's son Micky becomes president and CEO of Carnival
1984:: Carnival initiates the "Fun Ship" advertising campaign featuring Kathy Lee Gifford
1987:: Carnival goes public
1990:: Ted Arison steps down as chairman and Micky takes over
1994:: Carnival Cruise becomes Carnival Corporation and merges with Continental Companies to form Carnival Hotels and Casinos
1997:: A joint venture with Hyundai Merchant Marine to create Carnival Cruises Asia is dissolved

GLOBAL PRESENCE

Originally, Carnival Corporation had a market presence primarily in North America. In 1996 the company began to expand into Europe and partnered with U.K.-based, Airtours. Airtours sells packaged tours in the British, Belgian, French, Dutch, Scandinavian, and North American markets. In 1997 Carnival expanded its global presence with its 50-percent interest in Costa Cruises, headquartered in Italy, which sells most of its cruises in southern Europe, primarily Italy, France, and Spain. In addition, The Holland America Westours offers cruises in the Caribbean, Alaska, Panama Canal, Europe, the Mediterranean, Hawaii, the South Pacific, South America, and the Orient. Carnival hoped to acquire Cunard Line, which operates five luxury cruise ships, by July 1998. Carnival entered this agreement with a group of Norwegian investors, however, Carnival would be the majority shareholder. This acquisition was an attempt to further Carnival's global expansion.

SOURCES OF INFORMATION

Bibliography

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