Yolanda Williamsybowdrywilliams@gmail.comwww.linkedin.com/in/ybwilliams/March 1, 2011Marketing Plan: Carnival Cruises
Marketing Plan: CARNIVAL CRUISES Page iiTABLE OF CONTENTS1. EXECUTIVE SUMMARY................................................
Marketing Plan: CARNIVAL CRUISES Page 11. Executive SummaryCarnival is "The Worlds Most Popular Cruise Line", with 22 "Fun...
Marketing Plan: CARNIVAL CRUISES Page 2the same time strengthening Carnival’s position in the multi-nightvacation industry...
Marketing Plan: CARNIVAL CRUISES Page 3headquartered in Miami, Florida, with another headquarters in London,UK.Carnival Cr...
Marketing Plan: CARNIVAL CRUISES Page 43.Strategic Plan and FocusCarnival Corporation is considered the leader and innovat...
Marketing Plan: CARNIVAL CRUISES Page 53.1. Marketing Goals and ObjectivesIn support of its mission statement,Carnival’sgo...
Marketing Plan: CARNIVAL CRUISES Page 6Carnival is one of the profitable cruising companies. The companysaverage net incom...
Marketing Plan: CARNIVAL CRUISES Page 7In the middle of economic uncertainty Carnival has 13 ships underconstruction as of...
Marketing Plan: CARNIVAL CRUISES Page 8Carnival has been taking advantage of special tax loopholes to avoidpaying US corpo...
Marketing Plan: CARNIVAL CRUISES Page 9Consumers are less likely to buy, for instance, a Caribbean cruise ifa major hurric...
Marketing Plan: CARNIVAL CRUISES Page 104.4. Environment analysis• Political-Legal:o Increased regulations are issued by t...
Marketing Plan: CARNIVAL CRUISES Page 11Industry innovations--from bars of all types (pizza, sushi, ice cream,cappuccino, ...
Marketing Plan: CARNIVAL CRUISES Page 12alliancesalso includes Holland America Line, Princess Cruises, CunardLine, Costa C...
Marketing Plan: CARNIVAL CRUISES Page 13markets are (www.carnival.com) as well as a separate multilingualsite for internat...
Marketing Plan: CARNIVAL CRUISES Page 14cruise.The recommended strategy doesnt require any extensive changesin current pro...
Marketing Plan: CARNIVAL CRUISES Page 15ReferencesCarnival Cruise Lines.(2010). About Us. Retrieved on February22, 2011fro...
Marketing Plan: CARNIVAL CRUISES Page 1AppendixUtilizing my marketing plan: Sample Capital Budget Request to regain profit...
Marketing Plan: CARNIVAL CRUISES Page 2Expected Cash Flow PV 40% Present Value2012 415,390,787 0.714 296,707,7052013 444,6...
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Carnival Cruises Marketing plan and Business Case - Yolanda Williams

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by implementing and controlling the proposed fundamental marketing strategies and marketing mix strategies, Carnival will be able to achieve the stated objectives and maintain its leadership position in the multi-night vacation travel industry.

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  1. 1. Yolanda Williamsybowdrywilliams@gmail.comwww.linkedin.com/in/ybwilliams/March 1, 2011Marketing Plan: Carnival Cruises
  2. 2. Marketing Plan: CARNIVAL CRUISES Page iiTABLE OF CONTENTS1. EXECUTIVE SUMMARY.....................................................................................................12. HISTORY ..........................................................................................................................23. STRATEGIC PLAN AND FOCUS ...................................................................................43.1. Mission Statement ........................................................................................43.2. Competitive Advantage...............................................................................43.1. Marketing Goals and Objectives..............................................................54. SITUATIONAL ANALYSIS.............................................................................................54.1. SWOT Analysis ...............................................................................................54.2. Competitor Analysis .....................................................................................94.3. Customer analysis.........................................................................................94.4. Environment analysis ................................................................................105. MARKET-PRODUCT FOCUS .......................................................................................105.1. Target Market ...............................................................................................105.2. Positioning......................................................................................................106. MARKETING PROGRAM STRATEGY AND TACTICS...................................................116.1. Product Line...................................................................................................116.2. Packaging .......................................................................................................126.3. Promotion.......................................................................................................126.4. Place .................................................................................................................126.5. Pricing ..............................................................................................................137. IMPLEMENTATION PLAN............................................................................................138. EVALUATION AND CONTROL ....................................................................................14REFERENCES........................................................................................................................15APPENDIX...............................................................................................................................1
  3. 3. Marketing Plan: CARNIVAL CRUISES Page 11. Executive SummaryCarnival is "The Worlds Most Popular Cruise Line", with 22 "Fun Ships"operating voyages ranging from three to 16 days in length to TheBahamas, Caribbean, Mexican Riviera, Alaska, Hawaii, Canada, NewEngland, Europe, and Bermuda.Carnivals success is attributed to itsmarketing programdirected toward the young, fun-seeking, first-timecruiser. Oneimportant aspect of the marketing program built upon theship as thedestination rather than some particular port of call. Themainadvertising theme has been that Carnival lines is a "Fun Ship."It’scurrent marketing motto: FUN FOR ALL. ALL FOR FUN. Carnivalprides itself on delivering fun, memorable vacations to our guests byoffering a wide array of quality cruises, which present outstandingvalue for the money.The current economic landscape is impacted by an aging populationwith disposable income as well as many external, environmentalforces. For instance, over 60% of worldwide cruise passengers areover the age of 40. Despite the risks associated with terrorism, risingoil prices, and natural disasters, cruises have and may continue tobecome increasingly popular as Baby Boomers enter retirement.Another growing segment has been family vacations.This situation therefore represents a daunting task for management toconnect to various market segments to maintain a competitiveadvantage in the destination vacation industry. On the other hand, ithas created a golden opportunity for the Carnival Cruise Lines toincrease market share in other areas and to make more money.In light of the circumstances, a plan has been prepared raiseawareness of the Carnival brand among new market segments, whileat
  4. 4. Marketing Plan: CARNIVAL CRUISES Page 2the same time strengthening Carnival’s position in the multi-nightvacation industry and achieving increased profitability year after year.A careful look has been taken of both our external and internalenvironments. The external analysis looked at the macro-environment,the market and the competition, while the internal analysis examinedthe Bank’s performance, staff, infrastructure and delivery, and itscustomers.A “SWOT” analysis was then performed, to identify strengths,weaknesses, opportunities and threats. This analysis lends to the viewthat it is imperative that we change our existing strategy and focus onother markets. It is not suggested that we ignore our existing marketof catering to the fun-loving, under 40 population sector, but ratherthat we re-focus our energies on the experienced professionals over 40years of age both single and with families, including doctors, lawyers,managers, entrepreneurs and retired persons.I firmly believe that by pursuing this avenue, and by implementing andcontrolling the proposed fundamental marketing strategies andmarketing mix strategies, Carnival will be able to achieve the statedobjectives and maintain its leadership position in the multi-nightvacation travel industry.2. HistoryCarnival Corporation & PLC is one of the largest global cruise andvacation companies in the world. Carnival primarily operates in NorthAmerica, UK, Germany, New Zealand, Spain, Brazil and Australia. It is
  5. 5. Marketing Plan: CARNIVAL CRUISES Page 3headquartered in Miami, Florida, with another headquarters in London,UK.Carnival Cruise Lines was set up as a subsidiary of the AmericanInternational Travel Service by Ted Arison. In 1972 Ted Arison, aformer executive with Norwegian Caribbean Lines, partnered withMeshulamRiklis of American International Travel Service (AITS) toform Carnival Cruise Lines. As an AITS subsidiary, they soon launchedits first ship, the Mardi Gras. The Mardi Gras experienced disaster oftencompared to the Titanic and the new venture accumulated heavy debt.In 1974 Arison bought out Riklis for almost nothing. By 1975,however, Arison had turned a profit by careful positioning with regardto Carnival’s target market. He added a second ship in 1976 and athird the following year. In the midst of a market depressed by highinflation during the late 1970s and early 1980s, Carnival prosperedunder the leadership of Arison and his son Micky, who became CEO in1979. By 1987, when it went public, Carnival was the leading cruiseoperator in the world.In the late 1980s Carnival diversified, adding short cruises to, and agambling casino in the Bahamas as well as land tours, a hotel chain/Following the 1989 purchase of Holland America Line, luxury cruiseswere added as well. During the mid-1990s the newly renamed CarnivalCorporation had established a heavy presence in Europe thatculminated with the early 1998 purchase of the upscale Cunard line ofGreat Britain for half a billion dollars.
  6. 6. Marketing Plan: CARNIVAL CRUISES Page 43.Strategic Plan and FocusCarnival Corporation is considered the leader and innovator in thecruise travel industry. With 81 cruise liners carrying over 7 millionpassengers worldwide, the company controls around 44% of the globalcruise industry. The company makes money from ticket sales as wellas on-board revenue from gambling, shore excursions, bar revenues,and other amenities across brands including Carnival Cruise Lines,Princess, Costa, Holland America Line, P&O, AIDA, Cunard, andSeabourn.3.1. Mission StatementCarnival Cruise Lines, Inc. has the implied mission of sustaining anindustry leadership position as a market-orientedfirm in the cruise andleisure industry. Leadership meansproviding the best all-inclusivecruise vacation to customers in its targeted segments of the market.3.2. Competitive AdvantageCompetitive AdvantageCarnival has a tremendous advantage in size that generates economiesof scale. Second, New-ship construction has risen dramatically andthus only the largest cruise companies can afford the cost and obtainthe financing. This has allowed Carnvial to capitalize on its marketshare. Third, economies allow Carnival to profit in the present marketwhile being the low-price leader. Thus, Carnival has the advantage ofbeing further advanced on the learning curve.
  7. 7. Marketing Plan: CARNIVAL CRUISES Page 53.1. Marketing Goals and ObjectivesIn support of its mission statement,Carnival’sgoal going forward is tomaintain its leadership position in the multi-night vacation industry.In order to its goal, Carnivalhas the following marketing objectives:• Develop new cruise segments and innovative cruise packagesto reach a larger number of potential and past cruisers• Employ sophisticated promotional efforts to achieve a greaterawareness by the public concerning the availability andaffordability of cruise travel including, attracto the first-time and younger cruiserso experienced cruiserso upscale cruisers• Promote cruises as an alternative to land-based vacations4.Situational Analysis4.1. SWOT AnalysisStrengthsCarnival is one of the worlds largest cruise operators, has a largefleet capacity and operates 11 of the most recognizable cruise brandnames. Their portfolio of brand names appeals to almost everyniche market, from budget minded, contemporary to luxury cruises.Due to economies of scale, Carnival large company that they havesignificant cost advantages over most of their competitors.
  8. 8. Marketing Plan: CARNIVAL CRUISES Page 6Carnival is one of the profitable cruising companies. The companysaverage net income (FY2005 to FY2009) amounted to 18.1%compared to the industry standard of 6.3%.Carnival aggressively and effectively invests in print and televisionmedia. Their promotions target the lifestyles of each group ofcustomers. Carnival are "Fun Ships" Holland America, a premiumcruise, is promoted through the tagline "a signature of excellence"Seabourn, projects itself as "intimate luxury" while the OceanVillage projects as "the cruise for people who dont do cruises".Carnival supports its travel partners with training, online marketingand exclusive offers and savings to its secondary markets.WeaknessesThe vast majority of the companys sales come from travel agentswho arrange cruises on behalf of clients. Given the emergence ofinternet-based travel bookings and direct to consumer models ofselling airline tickets, their business in general has declined.Because the company depends on a broad base of going-concerntravel agents, any prolonged slump or major consolidation in thetravel agency business could adversely impact the company.The net profit was $1,790 million in FY2009, a decrease of 23.2%as compared to 2008.Carnival derives a majority of its revenue (nearly 52%) from UScustomers. In 2009 the revenue from the North American marketregistered a double digit decline. The over-dependence on the USmarket makes Carnival vulnerable to the economic fluctuations ofthe American economy and this company is dependent oncustomers’ disposable income.
  9. 9. Marketing Plan: CARNIVAL CRUISES Page 7In the middle of economic uncertainty Carnival has 13 ships underconstruction as of November 2009, and the estimated cost of all thisgrowth is around $8.2 billion. It is difficult at best to justify such ahuge cash outflow in the middle of economic instability. This mayresult in consequences like huge debt burden on the balance sheetand reduced profitability.OpportunitiesThe cruise industry has grown considerably in the past 10 years butstill occupies a very small proportion of the global vacation market.Cruise lines accounted for only 4.5% of the $542.2 billion worth ofthe travel industry in 2009. While the revenue for cruises hasdeclined in the US, it is growing in Europe and Asia, leading to moreopportunities for Carnival to expand in these regions.They are planning to increase berth capacity for the Europeanmarket 37% by 2012.Customers in Asia are now looking for luxurious cruises as avacation option. Disposable income of the Chinese consumer hasgrown annually by 10% a year.Trends have shifted in the cruising industry towards the 45-60 yearold age group. As this age group grows in population, Carnival cantake advantage of the economies of scale and offer them the bestprices.Brand loyalty and loyalty to cruising are extremely high and shouldresult in a large number of repeat customers.Threats
  10. 10. Marketing Plan: CARNIVAL CRUISES Page 8Carnival has been taking advantage of special tax loopholes to avoidpaying US corporation taxes.Carnival is considered aControlled Foreign Corporation (CFC), which exempts shippingoperations of a corporation from income tax. In 2009 the USgovernment decided to look at closing those loopholes. If theseloopholes are closed, it could affect their financial statements andfiscal bottom line in the future.The U.S. Environmental Protection Agency has changed laws toreduce the sulfur content (emission) in fuel oil used aboard ships.This increases the demand for lower sulfur fuel, which raises theprices of the fuel. Carnival may have to deal with a significantincrease in fuel prices.In 2009, Carnival experienced bad press when three passengers felloff ships in a three week period. There were a total of 22 incidentsof passengers falling overboard in 2009. Such events reflectnegatively on the company and the industry.The company is at risk of declines in its business from terroristattacks and geopolitical unrest, even if not targeted specifically toits ships.In December 2008, passengers on the Carnival ownedOceania cruise ship were attacked by Somali pirates. The threat ofterrorism and pirates overtaking cruise ships is a concern forcompanies in this industry, and also negatively affect consumers’perceptions of cruising.The company can be adversely affected by particularly badhurricane seasons, natural disasters, and inclement weatherpatterns. Many of the companys cruises are to Caribbeandestinations, where hurricanes pose a major threat to business.
  11. 11. Marketing Plan: CARNIVAL CRUISES Page 9Consumers are less likely to buy, for instance, a Caribbean cruise ifa major hurricane is anticipated. Furthermore, the companydepends upon the availability of ports, so coastal weather patternscan limit CCL’s ability to procure ports. If inclement weather ordisasters hit port areas, the company can struggle to call on vitalports, which would adversely affect its business.4.2. Competitor AnalysisIts largest competitor is Royal Caribbean Cruises (RCL) whichcommands a nearly 23% market share. Other notable competitorsinclude Star Cruises, which operates Star Cruise Line and NorwegianCruises, and Mediterranean Shipping Company, which operates MSCCruises and Disney Cruise Line. However, morecompetitioncomesfrom outside the cruise industry in the form of land-based resorts andhotels.4.3. Customer analysisCarnival Cruise Lines targets families, singles, couples, fun-lovinghoneymooners, and travellers ages 25-54 that are interested in a funand affordable cruise. As the baby boomers continue enteringretirement, the company stands to benefit from the tailwinds of anincrease in senior traffic, as it derives a large percentage of its incomefrom passengers over 55. It is likely that seniors may continue togravitate toward warmer-weather vacations. Coupled with the fact thatretirement means more time to one’s self, and for many babyboomers, time to travel, the company has significant demographictailwinds working in its favor. Additionally, there is growth in the familymarket as Carnival moves to create brand recognition among youthand teens as future consumers.
  12. 12. Marketing Plan: CARNIVAL CRUISES Page 104.4. Environment analysis• Political-Legal:o Increased regulations are issued by the Coast Guard, U.S.Department of Health, and Federal Maritime Commission.o Periodic political tensions which occur in cruise areas (suchas the Mideast or Mediterranean) causes cruise competitionto intensify in safe waters until the tensionscease.• High Competitiono The competitive nature of the industry makes itunattractive to enter, and high start-up costs serve as abarrier to entry.o Rivalry between competitors is high, with six majorcompetitors (including Princess and Royal Caribbean CruiseLines) and eight minor competitors.5.Market-product Focus5.1. Target Market Online Travel Bloggers New customers Past customers Travel agents5.2. PositioningWhile Carnival Cruise Lines must constantly be aware of its industryposition, the brand is in andesirable position. Not only is Carnival theworlds most popularcruise line, but the Fun Ships brand is well knownto consumers.However, research by industry analysts at Bear Stearnssuggested that increasing similarity across brands in the design of newships and in the services offered has made it difficult for consumers todiscern differences between the brands.
  13. 13. Marketing Plan: CARNIVAL CRUISES Page 11Industry innovations--from bars of all types (pizza, sushi, ice cream,cappuccino, wine, martini, and cigar) to the indoor shoppingpromenades and pool-deck movie screens--were imitated in one formor another by competitors, leading to no real sustainable advantage forthe innovator. Carnivals signature elements, from the showpieceatriums to the in-cabin towel animals, are now commonplace as rivalshave integrated them into their own ship portfolios. There is moreimportant the ever to increase the brand positioning efforts particularlyonline as that is where consumers usually begin research intovacations.As an example, a Google keyword search for Carnival Cruise Linesresulted in about 4,270,000 results (0.12 seconds), and a search forRoyal Caribbean Cruise Lines returned About 1,940,000 results (0.11seconds). This is despite the fact that the core brands are about thesame size. To manage the way its brand is represented in connectionwith these 4 million hits, Carnival should use the full potential of theInternet to reach its cruisers. Instant messaging, podcasting, andweblogs are just three examples of nontraditional marketingcommunications options Carnival should be continually explored.6.Marketing Program Strategy and Tactics6.1. Product LineCarnival is the largest and most popular cruise line in the world, with22 "Fun Ships". Recently, the line had three new ships on order,including the 113,300-ton Carnival Splendor, set to launch Carnival’sfirst Northern European cruise program July 13, 2008, and both the130,000-ton Carnival Dream and Carnival Magic – to be the largest“Fun Ships” ever constructed when they enter service in June 2009and October 2011, respectively. They also maintainexclusive
  14. 14. Marketing Plan: CARNIVAL CRUISES Page 12alliancesalso includes Holland America Line, Princess Cruises, CunardLine, Costa Cruises, and The Yachts of Seabourn.6.2. PackagingCarnival consistently shares a passion to please each guest, and acommitment to quality and value, our member lines appeal to a widerange of lifestyles and budgets. They offer exciting and enriching cruisevacations to the world’s most desirable destinations.6.3. PromotionCarnival offers a first customer-loyalty program in the form of aguest-recognition card. When guests embarked on a Carnival cruise,they received a "Sail & Sign" card that was identification for boardingthe ship, a cabin key, and a credit card for purchasing almost anythingonboard.Another great promotion includes the “Carnival is breaking records”campaign, where Carnival breaks world records to be included in theGuiness Book of World Records and local, national and internationalrecognition of its achievements. Some have included the world’slargest beach ball and world’s largest piñata. This campaign futherprojects awareness of the “fun, fun, fun” vacation image the Carnivalwants to project.For additional information on the “Fun Ship” vacation experience,customers can contact any travel agent, call 1-800-CARNIVAL or visitcarnival.com.6.4. PlaceCarnival Cruise Lines has been a pioneer in the use of the Internet.Carnival main website platforms to communicate with its target
  15. 15. Marketing Plan: CARNIVAL CRUISES Page 13markets are (www.carnival.com) as well as a separate multilingualsite for international markets (www.carnivalcruise.com). Theseoffer information for their guests, clients, and travel professionalsalike. Carnival values the travel agent channel enormously and believeagents are a knowledgeable guide and an invaluable resource forpotential Carnival guests, and they encourage customers to use anagent, if they so choose.Funshipisland.com highlights unique products/ship features and servesas a prospecting tool.Carnivalconnections.com focuses on communityand helps guests connect with other cruisers and to Carnival.Carnivals international site offers separate sections for guests and fortravel professionals. Travel professionals are provided withdownloadable sales and marketing materials in 8 languages, hundredsof ship images, pricing and product information, press releases, as wellas the latest promotions. Guests are presented with links to Carnivalspreferred partner(s) in their country of choice. Carnival also offerscomplete online booking engines for travel agents (B2B) and guests(B2C) where live inventory can be seen up to the last cabin level.6.5. PricingCarnival offers guests a "fun, whimsical" environment at a pricecomfortable for middle-income households.A seven-night cruise in lateJanuary 2010, costs twice as much as the new 3,600-passengerCarnival Dream. People are willing to pay more for whats consideredthe industrys latest-and-greatest cruise at a great price. To that end,prices range from $399 for a 3-day weekend excursion to over$10,000 for a state of the art, high-end 14-day travel destination tour.7.Implementation PlanThe original objective of the site was to increase bookings by encouragingguests to invite their friends and family to join them on their FunShip
  16. 16. Marketing Plan: CARNIVAL CRUISES Page 14cruise.The recommended strategy doesnt require any extensive changesin current programs.• Monitor the industry andgeneral economic trends to determinewhether demand willrebound as expected.• Continue to build relationships with bloggers, online travel bookingcompanies such as expedia.com and priceline.com.• Continue and expand its usage of social media and interactivetechnologies:Additional social media components are:• Blog: John Heald’s (corporate) Blog• Virtual, interactive tour: FunShipIsland.com• Online community/ social network:CarnivalConnections.com. Photo / story sharing andscrapblogging, trip planning, event organizing, Q&A• Twitter: CarnivalCruise• Flickr photostreamsThe only recommendation is to regain profitability. Instead of buildingnew ships, upgrade and expand existing ships for future growth.8.Evaluation and ControlThe companys information systems are sufficient to evaluate theperformance of the recommended strategy and to separate costsassociated with the expansion. In closing, if Carnival carefully monitorsfuture demand andmakes necessary adjustments, I think it is in a goodpositionto maintain its leadership position in the industry andcontinueto be financially successful.
  17. 17. Marketing Plan: CARNIVAL CRUISES Page 15ReferencesCarnival Cruise Lines.(2010). About Us. Retrieved on February22, 2011from www.carnival.comCarnival Cruise Lines.(2010). Company Profile.Retrieved on February22,2011fromhttp://www.wikinvest.com/stock/Carnival_(CCL)Datamonitor.(2010). Carnival Information. Retrieved on February22,2011from www.datamonitor.comGreenburg, P. (July 2009). Three Passengers Fall Off Carnival CruiseShips In Three Weeks. Retrieved on onFebruary22, 2011fromhttp://www.petergreenberg.com/2009/06/17/three-passengers-fall-off-carnival-cruise-ships-in-three-weeks/Sloan, G. (2008). Cruise ship passengers describe pop, pop, pop ofgunfire as pirates attacked. Usatoday.com.Retrieved on February22,2011fromhttp://travel.usatoday.com/cruises/legacy/item.aspx?ak=59427724.blog&type=blogAll About Marketing Tactics of Carnival Cruise Lines.Allaboutcruisesandmore.com.Retrieved on February22,2011fromhttp://www.allaboutcruisesandmore.com/marketing-tactics-of-carnival-cruise-linesFun Ships Campaign (2008).Retrieved on February24, 2010fromhttp://marketing-case-studies.blogspot.com/2008/05/fun-ships-campaign.htmlCarnival Cruise Lines: burnishing the brand(2006).Entrepreneur.comRetrieved on February24, 2010 fromhttp://www.entrepreneur.com/tradejournals/article/149214178.htmlCarnival Cruise Lines: charting a new brand course(2006).Cornell Hotel &Restaurant Administration Quarterly. Retrieved on February26, 2010fromhttp://www.entrepreneur.com/tradejournals/article/149214179_1.htmlCarnival Successfully Sets Guinness World Record for “World’s LargestBeach Ball”(2008). Cruisetalk.org.Retrieved on February24, 2010 fromhttp://cruisetalk.org/2008/11/carnival-successfully-sets-guinness-world-record-for-%e2%80%9cworld%e2%80%99s-largest-beach-ball%e2%80%9d.html
  18. 18. Marketing Plan: CARNIVAL CRUISES Page 1AppendixUtilizing my marketing plan: Sample Capital Budget Request to regain profitability. Instead of building new ships, upgrade and expand existing ships for future growth.Yolanda Williams Corporate Advance FinanceCapital Budget Request - Upgrade and Expand to increase revenueHurdle Rate (or Discount Rate) 40% Marginal Tax Rate 42% Year Built 200950% Tonnage 128,000 tonsNew Asset: Depreciation Method MACRS Registry PanamaCost of Asset $300,000,000 Passenger Capacity $3,626 Length 1,004 feetShipping 0 Avg Cost per Berth 2,800 Beam 121 feetWorking Capital 0 Annual growth 5% Passenger Capacity 3,646Depreciable Life 5 Crew Size 1,369Useful Life 10 Total Inside Cabins 688Total Outside Cabins 1,079Cabins & Suites w/ verandas 7752012 2013 2014 2015 2016Cruise Sales 361,642,736$ 379,724,873$ 398,711,116$ 418,646,672$ 439,579,006$Cost of Goods sold 300,000,000$ 306,000,000$ 312,120,000$ 318,362,400$ 324,729,648$Maintenance Expense 11,100,000$ 11,322,000$ 11,548,440$ 11,779,409$ 12,014,997$Earnings Before Depreciation & Taxes 672,742,736$ 697,046,873$ 722,379,556$ 748,788,481$ 776,323,651$5-year MACRS 300,000,000$ 300,000,000$ 300,000,000$ 300,000,000$ 300,000,000$% 0.200 0.320 0.192 0.115 0.115Annual Depreciation 60,000,000$ 96,000,000$ 57,600,000$ 34,500,000$ 34,500,000$EDBT 672,742,736$ 697,046,873$ 722,379,556$ 748,788,481$ 776,323,651$Less Depreciation (60,000,000)$ (96,000,000)$ (57,600,000)$ (34,500,000)$ (34,500,000)$EBT 612,742,736$ 601,046,873$ 664,779,556$ 714,288,481$ 741,823,651$Taxes (42%) (257,351,949)$ (252,439,687)$ (279,207,414)$ (300,001,162)$ (311,565,933)$Earnings After Taxes 355,390,787$ 348,607,186$ 385,572,143$ 414,287,319$ 430,257,717$Plus Depreciation 60,000,000$ 96,000,000$ 57,600,000$ 34,500,000$ 34,500,000$Cash Flow 415,390,787$ 444,607,186$ 443,172,143$ 448,787,319$ 464,757,717$Ship StatisticsIncome Statement ImpactData SectionPrincess Cruise Lines owns five cruise ships that operate continuously in the Carribean Sea. Although the Western Hemisphere markets are decreasing, demand in the Europeanmarket is increasing. They are planning to increase berth capacity for the European market 37% by 2012. Currently each ship has 3626 berth (beds) with an avg cost perpassenger of $2800 at full capacity. This plan will increase berth to 4968. The firm is upgrading and expanding the berth (number of beds) of the ships in order to accomodate itsplans in the European market. The expansion with cost an average of $60,000,000 per ship for a total of $300,000,000. There is no shipping cost, because it is a ship or workingcapital costs because this will be funded with the firms cash reserves. The anticipated first year sales is $361,642,736 with 5% annual incremental increases thereafter. The firmis also expecting an annualized maintenance cost increase of 3.7%, which is 10% of the anticipated capacity increase the first year with 2% annual cost increases eachsubsequent year. The equipment will be depreciated over a 5-year period using MACRS. Princess currently owns all ships that are receiving the expandsions and upgrades.Princess uses a hurdle rate of 40% for itsequipment expansion capital budgeting projects; its marginal tax rate is 42%.
  19. 19. Marketing Plan: CARNIVAL CRUISES Page 2Expected Cash Flow PV 40% Present Value2012 415,390,787 0.714 296,707,7052013 444,607,186 0.510 226,840,4012014 443,172,143 0.364 161,505,8832015 448,787,319 0.260 116,823,0212016 464,757,717 0.186 86,414,462888,291,473 PV Inflows(300,000,000) PV outflows588,291,473 Net Present ValueExpected Cash Flow PV 40% PV 50% Present Value - 40% Present Value - 50%2012 415,390,787 0.714 0.667 296,707,705 276,927,1912013 444,607,186 0.510 0.444 226,840,401 197,603,1942014 443,172,143 0.364 0.296 161,505,883 131,310,2652015 448,787,319 0.260 0.198 116,823,021 88,649,3472016 464,757,717 0.186 0.132 86,414,462 61,202,662sum 2,216,715,152 888,291,473 755,692,659 PV InflowsAVERAGE 443,343,030 (300,000,000) (300,000,000) PV outflows588,291,473 455,692,659 NPVPV 40% 888,291,473PV 50% 755,692,659Difference 132,598,814PV 40% 888,291,473Cost of Equipmt (300,000,000)588,291,473IRR 62.18%40%+((D74/D70)*5%)ConclusionReferencesVacation To Go - Carnival Dream http://vacationstogo.com/ticker.cfm?r=0&sa=495Ship technology - Carnival Dream http://www.ship-technology.com/projects/carnival-dream/Marketing Teacher - Carnival SWOT http://www.marketingteacher.com/swot/carnival-swot.htmlThe $300,000,000 has a payback of less than 2 years. The NPV at the 40% hurdle rate is $888,291,473and the IRR is 62.18%, which is 12.1% above the hurdle rate. This analysis confirms that thisexpansion of the product line would be a good investment. Expanding the passenger capacity of 5cruise ships would add profits to Carnvials bottom line.Net Present ValueInternal Rate of Return

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