”Riding the storm for long term sustainability”

1. D2 Consulting Team Jenny Wang Suravij Nakornthap Henriette Schiager Ignacio González ”Riding the storm for long term sustainability”

2. 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

3. Agenda Situational Analysis 1 Issues Identification 2 Recommendation 3 Financial Projection 4 Conclusion 5 Company profile Situation analysis Issue identification Recommendation Financial Projection Conclusion

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. Recommendations The EuroGrowth Strategy The VALUE Strategy Company profile Situation analysis Issue identification Recommendation Financial Projection Conclusion

12. 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

13. 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

14. Recommendations The VALUE Strategy The EuroGrowth Strategy Company profile Situation analysis Issue identification Recommendation Financial Projection Conclusion

15. 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

16. Euro-Growth StrategyWhere in Europe? Enter the UK, Germany, and Norway in 2010 Company profile Situation analysis Issue identification Recommendation Financial Projection Conclusion

17. 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

18. 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

19. 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

20. Implementation Company profile Situation analysis Issue identification Recommendation Financial Projection Conclusion

21. Incremental Analysis Company profile Situation analysis Issue identification Recommendation Financial Projection Conclusion

22. CAGR = 3.8% Company profile Situation analysis Issue identification Recommendation Financial Projection Conclusion

23. Company profile Situation analysis Issue identification Recommendation Financial Projection Conclusion

24. Conclusion Company profile Situation analysis Issue identification Recommendation Financial Conclusion

25. Q&A Company profile Situation analysis Issue identification Recommendation Financial Projection Conclusion

26. 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

27. 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

28. Overcapacity concern Price Price D S A B Q Time 5-7 years

29. Financial Ratio

30. 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

32. 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

33. SWOT Analysis

34. 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

35. 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.

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

37. Europe

38. 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.

39. Decision Table Europe

40. 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

41. Appendix NSensitivity Analysis

42. 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

43. Treasury Yield Spread Model (Continue)