Strategic leadership plan for Carnival Cruise Lines

Carnival Cruise Lines is one of the largest cruise ship lines in the world. Headquartered in Miami, the company operates under the Carnival, Holland America, Cunard, Princess, Seabourn, P&O and Costa brands. The cruise ship industry is highly-competitive, and risks being at overcapacity, but Carnival has been consistently profitable over the years, earning $15.4 billion in revenue and $1.07 billion in net income (MSN Moneycentral, 2014). It is estimated that Carnival is the largest company in the industry, with a share of around 47.7% by passengers, and 41.8% by revenues (CMW, 2014).

Despite this success, there are still several challenges for Carnival. First, the company needs to extent both market share and profitability. The company's share has dipped slightly, and so has the company's profitability (MSN Moneycentral, 2014). This is a function to many large new boats from competitors starting to eat away at Carnival. The market is growing, and there is a though that maybe Carnival is not growing fast enough. Further, there have been several knocks on the brand in recent years. The Carnival Triumph's power failure in the Gulf of Mexico brought a lot of unwanted attention to the company's flagship brand (Rosenbloom, 2013) and the sinking of the Costa Concordia has many cruise enthusiasts wondering if they can trust that brand. Given that Costa is the 3rd-largest brand within Carnival, this is a serious issue that the company's two of the biggest brands have faced public relations nightmares in the past couple of years (Rosenbloom, 2013).

Strategy

It is reasonable, and conceivable, that the financial issues are a direct result of the publicity issues. First, the company lost an entire boat, the Costa Concordia. Second, it is facing tremendous liability in relation to that disaster. Third, the Triumph incident cost the company a lot of money as well. Fourth, there are going to be long-run impacts from the damage that has been done to the brand's reputation.

So the strategy needs to address these specific issues. Carnival has to make some structural adjustments to improve the oversight of its vessels, including how Costa recruits its captains, and how the company overall handles the maintenance function. Rosenbloom (2013) notes that power failures do occur, but are rarely as severe as the one on the Triumph. The customer does not care about that -- the customer is concerned that if they take a Carnival cruise the could be stranded in the middle of the ocean, or get run aground by a drunk captain who then abandons ship.

The company has to repair its reputation, which will involve a marketing and public relations strategy. It has used pricing to keep its passenger numbers up, but it has the worst revenue per passenger figures in the industry, by far (CMW, 2014). As a short-term fix to produce contribution to fixed costs, discounts are okay, but with a better reputation the company would not need to discount heavily or so frequently. So improving the company's reputation is an essential component to getting profits and revenues back on track.

Carnival should consider what to do about Costa. Clearly, this is a company that is poorly run, and damaging Costa's reputation. As a result, it may be better to divest Costa. However, Costa has a primarily European customer base, which differentiates it from other Carnival offerings. In addition, selling Costa now would be selling low. Thus, there is a case to be made that Carnival should simply get some new leadership into Costa and restore its reputation and improve its operations.

Financial Situation

Right now, Carnival still has a favorable financial situation. The company has been consistently profitable, and its net income is still over $1 billion. This is at risk in terms of the fact that it has high fixed costs, and must continue to fill bookings. But there is cause for concern with respect to solvency. Carnival faces a condition where its current ratio is very low, and that means it may have problems meeting its coming obligations. So one of the priorities for leadership is to restructure the company's debt in order to maintain solvency. This should be easy to do, in that Carnival has many good assets in its ships that it can liquidate, an entire division in Costa that it should be considering to liquidate, and a steady revenue stream. In other words, there is no particular reason Costa should face an escalating solvency situation; it just needs to resolve its temporary one.

Strategy

There are a few elements to the strategy. The silver bullet version of the strategy is to sell off Costa. This will generate cash flow, and rid the company of a bad asset, an asset that has caused it significant reputational damage. The corporate culture at Costa seems to have contributed to its multiple service failures, and that might make it difficult to turn that unit around. Costa was acquired in 2000, and while it may seem strange to sell low on this asset, it is perfectly reasonable that Carnival might want to divest itself of a company that has given it nothing but trouble.

There is another alternative strategy. Carnival is fortunate that it does not need to sell Costa, that is has other options. One such option is that Carnival can first restructure its debt, because there is no need for it to have a cash crisis with its revenue streams. The second factor is that Carnival needs to address the operational and cultural issues that have plagued the company. A change of senior executives, especially on the operations side, might be required here. It is worth considering that Costa still maintains a significant portion of revenues and profits in the industry, and gives Carnival a strong presence in the Mediterranean, Baltic and Norway cruise markets. But a change of leadership at Costa will be highly beneficial to ensuring that crises do not occur again, and also as a means of reinstating customer confidence in the brand.