Royal Caribbean

I.

Brief introduction Royal Caribbean International, owned by Royal Caribbean Cruises Ltd., is a cruise line brand founded in Norway and based inMiami, Florida in the United States of America. As of May 2012, with 21 ships in service, it controls a 17 percent share of the world cruise market.. All ships under the Royal Caribbean International brand have had names ending in "of the Seas" since 1991. Sister brands owned by Royal Caribbean Cruises Ltd. are Celebrity Cruises, Azamara Cruises, Pullmantur Cruises and CDF Croisières de France. 1 History -Royal Caribbean Cruises Ltd. (RCCL) was found in 1968. -In 1997, RCCL acquired Celebrity Cruises -In 2001, RCCL introduced its Voyager-class ships, the largest in the world.,beginning with Voyager of the Seas in November 1999; and since then three additional Voyager-class ships, each costing approximately $700 million; have been put into operation, with the latest, Mariner of the Seas. 2 Vision Statement "Providing the highest level of service and the best vacation experience on the land". 3 Mission Statement RCCL strives to: -Compete principally on the basis of quality of ships, quality of service, variety of itineraries, and price - Improve our competitive position with respect to the quality and innovation of our on-board product and state-of-the-art cruise ships. - Serve markets and provide itineraries worldwide - Value its employees as the company's most valuable asset. They are counted on to present the company professionally and so the utmost to serve the company's customers. -Value the environment and remain committed to protecting and preserving environment resources and preventing pollution. -Maintain strong relationships with travel agencies, the principal industry distribution system -Participate in and make grants to numerous community charity organizations with priority to those helping children and families and education and the environment.

II. Business environment assessment 1. External factors 1.1. PESTEL Sociocultural Once considered a vacation for the elite, cruises are attracting a much more diverse group of passengers. During the first half of 2000, an estimated 3.4 million people took cruise vacations, including young couples and families. According to recent reports, nine of 10 passengers indicated they would cruise again in the next five years. And service is one of the primary reasons they cited. Eager to meet the needs of "family folks," most major cruise lines have set up day camps on their ships. They not only offer children the chance to participate in supervised daytime activities but also hold special dinner and after-dinner events to keep children happily occupied, giving parents time to themselves. With growing single parent and double income homes, the demographic makeup of today’s family unit varies greatly from that of the past. Continually emerging trade relations also provide potential target markets not only for new cruisers, but also for previously unavailable ports of call. It is also vital to develop trusting relationships with these

emerging countries ensuring the breaking down of cultural barriers, while respecting local mores and customs. Economic The lagging economy, teamed with lower interest rates and rising consumer debt, may prove to be a challenge in the coming months to most companies and consumers. A higher cost of living along with little increase in the living wage could force many consumers to skip the family vacation all together, along with other "luxury" items, in an effort to maintain their current lifestyle. Another tax cut could spur spending on non-essentials such as cruise vacations. While many families now earn double incomes, this may leave them little to no time for leisure activities, especially with the approaching holiday season. Many holiday shoppers plan to decrease spending dollars the season, buying for the same people, but spending less. While consumers are concerned about their bottom line currently, they are not totally cutting off spending. Technological Today’s high tech living and working has many people stressed over staying in touch with the pulse of the world. They demand Internet connections and cellular capabilities even in the most remote locations. Technology is shrinking the globe, yet more and more people are demanding to "get away from it all," while remaining in contact with important interests. Those who feel stressed about getting "away from it all," even on vacation, needn't worry: the high seas have gone high tech. Most cruise ships are "connected" with 24-hour Internet cafes, onboard e- mail addresses and video postcards. Some lines feature staterooms wired for Internet access and many offer computer-learning classes. Friends and relatives back home can follow your progress via Web cams scattered throughout the vessel. Political With the addition of several new countries to NATO recently, the potential for new consumer markets is very promising. The introduction of the Euro has also stabilized many markets where consumers are now more comfortable with spending. President Bush finally has passed his homeland security bill and the War on Terror is picking up steam. Always looming in the background is a threat of an oil embargo, causing higher fuel prices and an increase in air and sea fares for travelers. Many businesses were affected after September 11, 2001 experiencing a drop in sales revenues. More than a year later most industries seem to be bouncing back from post 9/11 effects. Richard Fain, Royal Caribbean's chairman and chief executive, told analysts he was optimistic about improved business because "the industry and our company are proving to be very resilient" in recovering from the drop in business after Sept. 11. He echoed executives from other cruise lines who have reported a better-than-expected recovery in business. Environment Environmental groups: environmental and health and safety regulations could increase the cost of compliance. Financial supporting ocean conservation groups. In brief, stricter environmental and health and safety regulations brought about by this publicity, could affect RCCL operations thereby increasing the cost of compliance and adversely affecting the cruise industry. 1.2. Porter’s five forces In the case of the cruise line industry,where growth is evident, it is important to analyze the external reasons to the cause of their growth. With the help of the five forces by Michael E. Porter(1979), the structure of the market a can be determined and the different strategies used in the industry can be assessed, thus determine what influences the success of the growth of the

industry. Industry Rivalry In the case of the cruise line industry, there are several disadvantages and advantages of being part of an oligopolistic and horizontal integration market. The result of merging smaller companies to a parent company is that there are not a lot of players. There are few major players and therefore the market is reasonably transparent (easy to the competition).The few players are usually well established and knowledgeable of the services and product.They are able to build new ships, develop itineraries and attract market segment without much threat from smaller lines.Generally a company will engage in horizontal integration to increase its share of the market for a certain kind of product or service. In this case the industry is able to produce a large number of the same product or similar product and to control a large share of the market;this is also referred to as economies of scale. However, if the company gets too big, it can be more difficult to run and to manage because there is more that needs to be taken care of. To be more specific, Carnival Corporation ( as a competitor ) RCCL's principle competitor is Carnival Corporation. They compete on the basis of cruise pricing and on the types of ships and services they offer. Due to Carnival's larger market share ( 52% ) vs RCCL ( 33% ) and Carnival wide portfolio of cruise's brands, it has stronger financial flexibility and greater access to capital markets than RCCL. Carnival also has better access to the travel agency distribution network and to berthing facilities in various ports throughout the world. Carnival Corporation is a global cruise vacation and leisure travel company that offers various cruise brand serving the contemporary cruise sector through Carnival Cruise Lines and Costa Cruises Threat of new entrants As mentioned above, the size of the cruise line industry is relatively small due to the fact there are a few major companies. Therefore, the threats of new entrants are relatively low.This gives the industry an opportunity to watch the competition closely for potential threats and if you are a new player in the market, market entry may be difficult. This would also provide companies with broader access to different unreached markets, resulting in an increase in demand of their product. However it can be argued that there can be a lot of price war/competition, as it is easy for customers to shop around and look for the best bargains. This can put a strain in profitability. Another disadvantage of having few players is that of product differentiation. This can be a struggle for the cruise industry as most amenities, excursions and ships can be imitated. However, horizontal integration encourages the construction of niche brands. For example, Carnival Cruise Lines, alongside other cruise lines, are able to attract younger passenger 's interest. Bargaining power of buyers Since there are so many buyers and the industry can get enough customers to fill the ships,that means the industry has most control over buyer, however the more ships that are built,the more beds need to be filled, and unless demand increases at the same rate, this will give the customer some bargaining power because with more ships they need more customers. If they can get enough customers to fill the ships, then the cruise line is in more control, but they are also competing against other forms of vacationing. Airlines are offering cheap flights as well and you can get cheap charter trips. Once the ships are built there is a certain capacity in the market. If some negative factor happens (war, disaster etc.) demand may suffer, which means less customers, and then the customer can "control" the price, as everyone will fight to get the customer, and that usually means lower prices.

Bargain power of suppliers The bargaining power of the industry for the suppliers is both low and high. There are few ship builders in the industry, and therefore the industry must take the prices and cost that are offered to them and the large number of supplier of equipment, fuel, and food products allows them to bargain for the best price. However, there are many different suppliers of food and equipment in the industry, so companies can shop around for the best prices. Threat of substitute products To date the greatest competition for a cruise line is land-based resorts, which has a significant impact on the attractiveness and profitability of the cruise line industry. Among those factors, the industry also has to compete with travel agencies offering good package deals which play a big part in the purchasing decision of consumers in the leisure industry. Therefore the cruise industry must offer competitive prices to secure sales. However,research also indicates that cruisers have expressed great a satisfaction rate.The size of global cruise industry still represents a small integral of the tourism industry. An example of how small the cruise industry actually is can be compared to the number of visitors coming to Las Vegas. In 2010 Las Vegas attracted around 37 million visitors, while the global cruise industry at that time carried about 18 million passengers. Now that the industry has been analyzed thoroughly giving good reason for its success, it is interesting to see what the customers perceive of the cruise line industry and understand why there is a strong demand for cruise trips. 2. Internal factors The Value Chain Analysis

Primary Activities: Inbound Logistics Royal Caribbean Cruise Ltd (RCCL) has two distinct supply chains which create a unique

challenge. Each supply chain is managed by a Provision Master. The first supply chain includes all food, beverage, and lodging inventories that needed for the trips. The second supply chain encompasses “corporate spend” materials, such as office supplies, printing services, hardware and software, printed materials, computer supplies, marine consumables (spare parts, fuel, lubricants, any and all services associated with the ship maintenance and etc). The Provision Master for the first supply chain is required to prepare a list of materials needed for the next cruise or sometimes for a few upcoming cruises and to disperse the inventory to various cost centers on the ship which based on the cost center’s requisitions. The Provision Master is facing a challenge jobs because the Provision Master must analyze the previous trips experiences, the season, and the current customer base so that enable to come out a list which can satisfy the passenger’s need. The Provision Master may need to consider where the passengers from like US based, European based or Asian based because different region passengers consume different things. The Provision Master also has to consider the number of child passengers on the cruise because they consume less than adult passengers. When the list is finalized, it is transmitted to RCCL’s procurement department, which then does an extract in the system and sends purchase requisitions to suppliers via electronic data interchange (EDI), fax or e-mail. “We want to work very closely with our suppliers so that we can effectively plan for the deliveries of truckload quantities of materials to key strategic locations. In this way, we can fulfill requirements to the fleet as needed,” explained by Michael Allsup, RCCL’s VP of supply chain management. Besides that, RCCL do not specify on one supplier who provided goods or services in excess of 10% of RCCL’s expenditure because avoid suppliers access power on the prices. Operation These are the activities related to the production of products and services. This area can be split into more departments in RCCL such as the marketing department responsible for promotion and advertising, human resource department responsible for recruiting potential employees, financial department responsible for the financial support and etc. Each department is work closely with another department so that integration is made and achieves the company goal. After the purchasing on materials is made, then it turns to operation part which is transforming the raw material into finished food and services. Each ship contains up to six galleys that produce high quality foods for different venues. The average Celebrity Cruise ship stores approximately 21, 600 pound of various cuts beef for an average seven-night cruise. The chefs on the cruise will work together and transforming the raw materials into delicious food according to the menu. After that, the food will be prepared and served on cruise. The crews will provide the best vacation experience to the passengers based on their professionalism. Outbound Logistics These are all the activities concerned with distributing the service to the customers. For example, RCCL would entail the unweaving commitment to service and a desire to deliver the best cruise vacation possible. Besides that, RCCL improve their competitive advantage by improving innovation of on-board products and state-of-the-art cruise ships. Marketing and Sales

This functional area essentially analyses the needs and wants of customers and is responsible for creating awareness among the target market of the company about the firm’s products and services. RCCL make use of marketing communications tools like advertising, sale promotions and etc to attract customers to their cruise service. The target market of RCCL is focuses on active families and adults who are vacation enthusiasts interested in exploring new destinations and seeking new experiences. The advertising campaign brings together a variety of media, including print, television, and Internet to increase the name recognition for RCCL. Service RCCL commit to provide best quality service and best cruise vacation experience to the passengers. The crew is the most valuable assets to RCCL because they counted on to represent the company professionally and serve the company’s customers. RCCL also handling the complaint issues from the passengers to unsure that improvement are continuously. Support activities Procurement This function is responsible for purchasing the materials that are necessary for the company’s operations. An efficient procurement department should be able to obtain the highest quality goods at the lowest prices. To improve processes within both supply chain, RCCL decided to institute a collaborative commerce approach. “We want to work very closely with our suppliers so that we can effectively plan for the deliveries of truckload quantities of materials to key strategic locations. In this way, we can fulfill requirements to the fleet as needed,” explained by Michael Allsup. The closer of RCCL work with the suppliers, the better of reducing overall cost in the supply chain. The company saw that it needed to provide much more guidance and much more timely information about inventory positions, itinerary changes, or even menu changes that could drive or change consumption patterns. RCCL then needed to translate the needs of these operations programs into purchasing and supply chain requirements. RCCL’s procurement and logistics processes together spend in excess of $600 million of the company’s $2.9 billion in total revenue. Technology Development Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. RCCL develop the E-Commerce which operate web sites with customer booking capabilities or provide electronic documents to the customers. RCCL is using the latest information technology software to manage its operations. These software packages enable the company to optimize decisions about pricing, inventory, and marketing actions. Besides that, RCCL was the first company in the cruise industry to develop an automated booking system. Human Resource Management

RCCL realized that employees are an expensive and vital resource. RCCL value its employees as the company’s most valuable asset. They are counted on to represent the company professionally and do the utmost to serve the company’s customers. Hence, RCCL would manage recruitment and selection, training and development to the employees. Firm Infrastructure The RCCL infrastructure includes planning and control systems, such as finance, accounting, corporate strategy and etc. For example the Provision Master planning and forecast the customer’s need and make purchasing on raw material to avoid wasted. SWOT Matrix STRENGTHS

WEAKNESSES

1. 2. 3. 4.

Increase net revenue yields Revenues growing Capital expansion of Celebrity Cruise Line Expanding passenger capacity deal sign Finland’s Kvaerner-Masa Yards to build bigger Ultra Voyager ships with capacity of 3,600 5. Using latest information technology software to manage operations

1. During 2002 & 2003 RCCL experienced weaker margins due to pricing pressure caused by a weak U.S. economy, traveler safety concerns, and increasing capacity 2. Net income falling 3. Higher marketing costs due to reduced demand because of weak economy and ongoing conflict in the Middle East 4. RCCL financed recent shop acquisitions by issuing debt 5. Highly leveraged with LT debt-to-equity ratio of 1.31

OPPORTUNITIES

THREATS

1. Expansion of fleet has allowed RCCL increasing amount of destinations, itineraries, and markets 2. Flexible strategy, moving their fleets throughout the year to meet the seasonal demand 3. RCCL operates the websites with customer booking capabilities for both Royal Caribbean and Celebrity Cruises 4. Offers competitive price on goods and services offered from suppliers in packaged deals. 5. Demand for cruises has increased and is predicted to continue to increase

1. 2. 3. 4. 5. 6. 7. 8.

Terrorism Viral outbreaks Decreased tourism since 9/11 Challenging U.S. economy Environmental lobbyists Illnesses aboard cruise ships Reports of physical attacks while on board Carnival Corporation

Solution S-O Strategy

O-W Strategy







S4O1O2: Expand Fleets with more passenger Capacity to fit the flexible demand S5O4O5: Using top of the line software technology to keep the competitive edge to keep demand increasing

S-T Strategy 

III.

W3W5O1O3: Cut debt by having increasing online bookings on website rather than through travel agents which will also help decreasing marketing costs by showing more about Royal Caribbean on website

W-T Strategy

S3S4O8: Use capital expansion to increase amount of tourists to keep ahead of Carnival Cruiselines

SPACE analysis

Financial Strengths 1. Negative working capital $ -974.7 million 2. Net income as on 2003 is $ 280.7 million compared to $ 351.3 million in 2002 3. Earnings per share of $1.45 compared to last year $1.8 4. Return on Equity is 6.5% Average

Rating 1.0 2.0

Industrial Strengths 1. Passenger growth of 9% in 2003 2. Annual growth rate of 9% in North America Average

Rating 5.0 5.0 10/2 = 5

Competitive Advantage 1. Market share of 33% in 2003

Rating -2.0

2.0 3.0 8/4 = 2

2. Quality of services 3. Leader in cruise design Average Environmental Stability 1. Inflation rates in 2003 remained low 2. High barrier to entry 3. Risk involved in business Average

-1.0 -1.0 -4/3= -1.3 Rating -3.0 -3.0 -4.0 -10/3 = -3.3

SPACE Matrix FS Conservative - Market penetration - Market development - Product development - Related diversification CA

Aggressive -Vertical integration -Market penetration -Market development -Diversification IS

Defensive -Liquidation -Divestures -Retrenchment

Competitive -Horizontal integration -Product development -Market penetration ES

Strategies for RCCL: 1. Acquiring smaller cruise companies 2. Expanding more new destinations in Asian 3. Increasing marketing activities

IV.

QSPM

After using many tools to analys the internal and external factor of RCCL to find the solution for RCCL’s issue, we had given many recommendation for company, and we also dicided two best strategies for company in this time. Expanding fleets by two boats with larger capacity for passengers and Capital expansion to increase the amount of revenue to surpass the larger competitor Carnival Cruiseline are the suitable strategies in this case. Althouth we find two best strategies for the company but they can do the both in the same time because of their current capabilities do not allow. Therefore, it is important to find out the final decision to be the right direction for the company. To solve this problem, we choose QSPM tool. Capital expansion AS TAS

Expanding fleets AS TAS

0.05

3

0.15

4

0.2

0.05

3

0.15

4

0.2

0.05

2

0.1

3

0.15

Key factors

Weigth

External Opportunities Expansion of fleet has allowed RCCL increasing amount of destinations, itineraries, and markets Flexible strategy, moving their fleets throughout the year to meet the seasonal demand RCCL operates the websites with customer

1

booking capabilities for both Royal Caribbean and Celebrity Cruises Offers competitive price on goods and services offered from suppliers in packaged deals. Demand for cruises has increased and is predicted to continue to increase Threats Terrorism Viral outbreaks Decreased tourism since 9/11 Challenging U.S. economy Environmental lobbyists Illnesses aboard cruise ships Reports of physical attacks while on board Carnival Corporation Internal Strengths Increase net revenue yields

0.05

3

0.15

3

0.15

0.15

3

0.45

4

0.6

0.1 0.05 0.1 0.05 0.05 0.05 0.05 0.2 1

1 2 2 3 2 2 2 4

0.1 0.1 0.2 0.15 0.1 0.1 0.1 0.8

2 2 2 3 2 3 3 3

0.2 0.1 0.2 0.15 0.1 0.15 0.15 0.6

0.07

3

0.21

4

0.28

Revenues growing

0.2

4

0.8

4

0.8

Capital expansion of Celebrity Cruise Line Expanding passenger capacity deal sign Finland’s Kvaerner-Masa Yards to build bigger Ultra Voyager ships with capacity of 3,600 Using latest information technology software to manage operations Weaknesses During 2002 & 2003 RCCL experienced weaker margins due to pricing pressure caused by a weak U.S. economy, traveler safety concerns, and increasing capacity Net income falling Higher marketing costs due to reduced demand because of weak economy and ongoing conflict in the Middle East RCCL financed recent shop acquisitions by issuing debt Highly leveraged with LT debt-to-equity ratio of 1.31

0.2 0.03

0 3

0 0.06

3 4

0.6 0.12

0.1

3

0.3

4

0.4

0.1

2

0.2

3

0.3

0.05 0.05

2 2

0.1 0.1

3 0

0.15 0

0.1

4

0.4

0

0

0.1

2

0.2

0

0

TOTAL

5.05

5.6

Decision: We have decided to add two other boats to the entire fleet and they will be finished by 2Q 2006