D2 consulting team jenny wang suravij nakornthap henriette schiager ignacio gonz lez
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D2 Consulting Team Jenny Wang Suravij Nakornthap Henriette Schiager Ignacio González. ”Riding the storm for long term sustainability”. Company Profile. Premium cruise line Customer oriented Strong tradition of excellence $525M. renovation underway

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D2 consulting team jenny wang suravij nakornthap henriette schiager ignacio gonz lez

D2 Consulting Team

Jenny Wang

Suravij Nakornthap

Henriette Schiager

Ignacio González

”Riding the storm for long term sustainability”


Company profile

Company Profile

  • Premium cruise line

  • Customer oriented

  • Strong tradition of excellence

  • $525M. renovation underway

  • Wholly Owned Subsidiary of Carnival Corporation & PLC

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Agenda

Agenda

Situational Analysis

1

Issues Identification

2

Recommendation

3

Financial Projection

4

Conclusion

5

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Stock price has been underperforming the djia index and the ftse 100 index until recently

Stock price has been underperforming the DJIA Index and the FTSE 100 Index until recently

Carnival Corporation (CCL)

FTSE 100 (London)

Dow Jones Industrial Average

April 2008 to Present (% Change), with April 2008 = 0%

TRS*, CAGR Return

FTSE

-33.1%

CCL

-33.8%

DJIA

-35.6%

*TRS: Total Return to Shareholders

Source: Yahoo Finance

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Riding the storm for long term sustainability

Carnival Corporation is among the top performer in the cruise line industry despite underperforming the market

Carnival Corporation (CCL)

Walt Disney (DIS)

Star Cruise (0678.HK)

April 2008 to Present (% Change), with April 2008 = 0%

Royal Caribbean Cruise (RCL)

TRS*, CAGR Return

DIS

-33.4%

CCL

-33.8%

0678.HK

-46.8%

RCL

-66.3%

*TRS: Total Return to Shareholders

Source: Yahoo Finance

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Carnival s financial status is still strong fundamentally in comparison with competitors

Carnival’s financial status is still strong fundamentally in comparison with competitors

Source: Yahoo Finance & Reuters

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Opportunity for potential expansion in outside u s

Opportunity for potential expansion in & outside U.S.

Domestic:

  • The repeaters are the most important group

  • Retiree and Baby Boomer generation occupy the majority part of the customer base

  • Gen. X & Gen Y still open for capturing

International:

  • The international market is still wide open, especially in Europe

  • The product is pro ved to suits European tastes

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Global financial crisis has a negative impact on hal s performance and customer s base

Global Financial crisis has a negative impact on HAL’s performance and customer’s base

  • Global financial crisis has seen the biggest GDP contractions among the major economies around the world

  • US GDP fell 6.2% and Unemployment risen to 8.5% in 4th quarter of 2008

  • The dramatic fall in Stock market has created a negative “wealth effect” which has a devastating impact on typical HAL’s customer’s base

  • Massive discount is widely used in an attempt to fill the ship’s capacity, hurting HAL’s revenue, despite reduction in fixed cost such as oil price

  • Reduction in on-board spending per customer has also cause a negative impact to the company

Dow Jones Industrial Average: April, 2008 to Present

TRS* = -35.6%

*TRS: Total Return to Shareholders

Source: Yahoo Finance

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Treasury yield spread indicate that recovery would begin in mid 2010

Treasury Yield Spread indicate that recovery would begin in Mid 2010

  • The model suggest that the economy will recover along with higher spread between the 3-months and 10-years treasury bills, which indicate that the economy will recovery by mid 2010

  • The growth is expected to be less aggressive compare to the past due to tighter government policy which will be implemented to ensure sustainable economic foundation

  • Conservative nature of recovery could see the recovery last longer than 6 years, comparing to the previous Dot-Com recession

Source: Federal Reserve Bank of New York

  • Criticism occur that conservative spending behavior (Frugality) could resurface again as people are trying to avoid debt; however, this is unlikely to occur as globalization creates fast changing lifestyle where people need to constantly adapt to new environment

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Issues identification

Issues Identification

How can Holland America Line maintain its dominant status in the premium cruise line market?

Issues

Objectives

Keep 100% capacity through a series of promotions in order to generate constant demand while maintaining a premium image

Weathering the Recession Storm

Creating Long Term Sustainable Growth

Expansion into new, untapped market and achieve incremental revenue of $11 million annually

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Recommendations

Recommendations

The EuroGrowth Strategy

The VALUE Strategy

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Value strategy

Value Strategy

Provide added value while maintaining brand image and price

  • Limit price discounts to 10%

  • Vouchers for onboard spending credit

  • Offer value packages to compensate for less discount

    • Onshore activities

    • Airfare

    • Loyalty Programs

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Value strategy1

Value Strategy

  • Job loss insurance as a confidence boost

    • Full refund for job loss cancellation

  • Advertising

    • Continue updating social network activity

    • Specialty cruise networking

    • Travel agents remain the most important channel

  • Bringing prices back up after the recession

    • Fade out the small discount when recovery is starting

    • Stop offering additional vouchers

    • Keep the value packages to maintain value and premium image

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Recommendations1

Recommendations

The VALUE Strategy

The EuroGrowth Strategy

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Euro growth strategy

Euro-Growth Strategy

Choosing a Region

Competition

Repeat Potential

Demand

Low

Low

Asia

Moderate

Europe

Moderate

High

Moderate

South America

Low

Low

Low

  • Europe presents viable growth opportunity

  • European cruise market increasing 18% annually

  • Competitors are expanding operations in Europe

  • Only 1%-2% European has cruising experience

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Euro growth strategy where in europe

Euro-Growth StrategyWhere in Europe?

Enter the UK, Germany, and Norway in 2010

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Euro growth strategy1

Euro-Growth Strategy

Alternative Entry Mode

  • International Branch

  • Send sales and marketing team to the area

  • Developing brand image prior to real entry

  • Increase distribution channels

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Euro growth strategy2

Euro-Growth Strategy

  • Older (45+) and affluent

  • 15% population growth from 2005 to 2015

  • Rationale

  • Established market in the U.S.

  • Repetition potential is high

  • Semi or full welfare states with high spending power

Target Market in Selected Countries

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Euro growth marketing strategy

Euro-Growth Marketing Strategy

  • Develop relationships with travel agents

  • Begin online marketing and advertising

  • Localized media & appeal

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Implementation

Implementation

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Incremental analysis

Incremental Analysis

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Riding the storm for long term sustainability

CAGR = 3.8%

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Riding the storm for long term sustainability

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Conclusion

Conclusion

Company profile

Situation analysis

Issue identification

Recommendation

Financial

Conclusion


Riding the storm for long term sustainability

Q&A

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Appendix

Appendix

Presentation Slides

Appendix Slides

WACC Assumptions

NI Assumptions

Calculations

Sensitivity Analysis, contd.

Whole Incre. Analysis

SWOT Analysis

Treasury Yield Spread

Overcapacity Concern

Financial Ratio

Risk and Mitigation

Rest of the World Strategy

Eurogrowth Supporting 1

Europe

Decision Table Europe-Raw Data

Implementation Schedule

Incremental Analysis

Incremental Revenue Graph

Sensitivity Analysis

Conclusion

Company Profile

Stock Performance – Index

Stock Performance – Competitor

Fundamental Ratio

Customer

Damage of Crisis

Economic Recovery

Issues Identification

Recommendation

Value Strategy 1

Value Strategy 2

Eurogrowth 1

Eurogrowth 2

Eurogrowth 3

Eurogrowth 4

Eurogrowth 5


Key assumptions

Key Assumptions

  • Debt weight: 28.83% (2008)

  • Equity weight: 71.17% (2008)

  • Cost of debt: 7%

  • Expected return on the market: 6%

    Cost of Equity: (.12)+[1.35(0.6-0.12)] = 7.68%

    WACC: (.7117)(7.68)+(.2883)(7)*(1-.35) = 6.78%

Company profile

Situation analysis

Issue identification

Recommendation

Financial Projection

Conclusion


Overcapacity concern

Overcapacity concern

Price

Price

D

S

A

B

Q

Time

5-7 years


Financial ratio

Financial Ratio


Financial assumptions

Financial Assumptions

  • All boast are at 100% capacity

  • Ticket yield per customer goes down by 10%; otherwise would have been down 20%

  • With vouchers onboard spending yield per customer stays the same, otherwise would have decreased 20%

  • Starting 2011 customer yield for onboard expenses + other increase at 10% per year. Otherwise yield onboard per customer would have only increased 6% (change from 2006 to 2008)

  • Starting 2011 customer yield per ticket increase back to 1369.91 and increase 10% per year afterwards (change from 2006 to 2007). Otherwise yield per ticket would only have increased 3% per year

  • Ticket sales from Europe increase at 25% (average for Carnival from 2006 to 2008) beginning 2012; otherwise would have been 10%

  • Packaging costs for bundling activities packages are 15% of onboard per-customer yield

  • Assume 1 in 100 booked guests will cancel and require job insurance refund and ticket will NOT be able to be made up with further purchases

  • Loyalty programs give all customers next $100 off their next cruise. 45% of customers will redeem this in 2 years from their original cruise.

  • Airline partnerships cost HAL an average of $150 a round-trip ticket per customer. We increase these partnerships by 20%.

  • 6% is the estimated market return


Key calculations

Key Calculations

Carnival Current customer yield (tickets) = 11,210 M

Carnival Current customer yield (onboard + other): 3,436 M

Carnival 2008 customers: 8,183,000

Carnival Advertising: 524 million in 2008

HAL Current capacity: 21,088

HAL ticket yield per customer: 11210/8.183 = 1369.91

HAL onboard + other per-customer yield: 3436/8.183 = 419.84

HAL added capacity in 2010: 2,106

HAL cruises per year: ~500

HAL cruise ships: 14

Cruises per cruise ship: 500/14 = 35

HAL average capacity per ship: 21,088/14 = 1506

HAL passengers per year: 1506*35=52,720


Swot analysis

SWOT Analysis


Risk and mitigation

Risk and Mitigation

Risk

Mitigation

  • Offering lower discount could lead to competitive disadvantages (compare to competitors)

  • Cannibalizing Carnival’s Corporation other cruise line in Europe

  • Exchange Rate Risk for International operation

  • Recession could last longer than expected which could delay expansion plan into Europe

  • In addition to providing more value to the product, psychological effect of “discount” is still applicable for use in advertising.

  • Work closely in CCL to try to avoid operating in the same route at the same time

  • International Portfolio for currency hedging

  • Still able to send sales team to establish a market and develop a relationship with local travel agencies and necessary media channel and prepare to capture the market when recovery begins


Rest of the world strategy

Rest of the world strategy

Asia, Middle East, South America, Australia / Oceania, and Africa

The emerging of new economies has present a good opportunity for expansion; however, there are still doubts whether these countries would be able to generate constant demand for the long run or not (repetition)

Therefore, the current strategy in these areas is to target ultra high income group through international travel agencies

  • Establish relationship with international travel agency which specialized in ultra high net worth individual  these people are very price inelastic

  • Offer high class tour package (Once in a lifetime experience) which would generate abnormal revenue to the company.

In the future (5-10 Years), strategy in these areas can be revaluated for potential expansion, pending the change for favorable market condition.


Eurogrowth supporting 1

EuroGrowth Supporting 1

  • Travel Weekly (UK); 10/30/2008 TW Cruise Supplement, p5-5, 1/2p, 1 color


Europe

Europe


Citation for eurogrowth

Citation for EuroGrowth

  • ECC chairman and chief executive of Carnival UK David Dingle.

  • "Cruise statistics 2008." Cruise Norway Web.17 Apr 2009. <http://www.cruise-norway.no/CDA/storypg.aspx?id=1776&zone=48%20&parentzone=0&version=1>.

  • "BabyBoomersPopulation | AgingBabyBoomers | WomenBabyBoomers." PRLog 22 Aug 2008 Web.17 Apr 2009.


Decision table europe

Decision Table Europe


Citation for value

Citation for Value

  • http://www.forrester.com/Research/Document/Excerpt/0,7211,46294,00.html

  • http://blog.nielsen.com/nielsenwire/online_mobile/twitters-tweet-smell-of-success/

  • www.hollandamerica.com


Appendix n sensitivity analysis

Appendix NSensitivity Analysis


Riding the storm for long term sustainability

Treasury Yield Spread Model

  • Prior to recession, the spread will become negative, creating high probability of recession

  • After recession, widen yield spread indicate the sign of recovery


Treasury yield spread model continue

Treasury Yield Spread Model (Continue)


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