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Cruising back to calm waters: The Holland America Line Case

Cruising back to calm waters: The Holland America Line Case. Estafeta Consultants Juana - Alejandro – Belén - Gabriel. Mandate.

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Cruising back to calm waters: The Holland America Line Case

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  1. Cruising back to calm waters: The Holland America Line Case Estafeta Consultants Juana - Alejandro – Belén - Gabriel

  2. Mandate Maintain our global position as a reference in the Premium Cruise Industry by weathering the current crisis through the adaptation of our products and services, following current demand trends, and redefining our strategy to increase our presence in Europe in the next 5 years.

  3. Short Run Plan Boost on-board spending Allow and encourage payments in installments Profit: $ 22,907,402.01 Incentive travel agencies Focus on bolstering one-week cruise sales

  4. Immediate Action 1 2 3 • 2 months, 3 equal installments • Through Travel Agents or “click option” on Web • Cancellation Fees apply Allow & encourage payments in installments • $50 per passenger in Casino chips • 3 x 2 in Spas and Massage Boost on-board spending • “Windfall bonus” incentive scheme • $1,000 per 50 bookings for a limited time Incentive travel agencies

  5. “Trends” • Campaign: • “You deserve a break. You deserve a vacation.” Bolster One-Week Cruise Sales • Redistribute • ships: • -Increase Caribbean & Mexico during colder months • - Alaska – Bermuda • Price “reduction” without extremely compromising margin

  6. How long will the slide last? • 2009 Going on 2010 • Contraction in demand and increased uncertainty • -30% in price of luxury/leisure products • Risk Factors • Price of Oil • Lagged Crisis • Creating Precedents with Price Discounts • CAPEX Burden • In our favor: solid balance sheet of CCL • Dec 2008, liquidity of US$1.3bn of cash availability under revolving credit facilities. • All the company’s credit facility matures in 2012

  7. The European growth potential is significant and represent and important opportunity for the future Constraints that we will solve…

  8. Why has been the European market so far underpenetrated? Constraints that we will solve… 1 Limited number of destinations and poor logistics to serve certain ports due to high number of Inland population 2 Low quality of the service and not adapted to European tastes 3 Weather conditions in certain areas do not allow full coverage during the year More negative impact on the perception of Europeans and foreigners than in North America

  9. 45 Snapshot of the regional diversity of Europe Baltic NorwegianFjords NorthernEurope Black Sea & Mediterranean East Mediterranean West

  10. Dealing with the Euro Zone Baltics and Mediterranean East & Black Sea present an underpenetration compared to the northern regions

  11. 46 Existing mechanism to attract costumers Web Site • The company has a very professional web site where customers can choose their destinations and packages • Maturation of internet in long term (≥ 10years?) • No real interaction with the seller • Major channel of distribution engaged by regional partners based on commission (13%): • Outsourcing of a major component of the business Tour Operator

  12. Screening the tour operator universe Unfavorable Favorable All Leisure Group Plc Salamis Tours Public Ltd. Western & Oriental plc. Amathus Public Ltd. Travelzest plc. Criteria Product Offering (30%) Distribution Channels (30%) Operating Regions (15%) Sales Volume (15%) Brand Recognition (10%) TOTAL AVERAGE .30 .30 .55 .75 .95

  13. 7 Acquiring a pan european tour operator to enhance customer captation Operating performance • £19m of Enterprise Value of the company • £8m of current net debt • Wacc: 12% assuming a conservative scenario • 15% premium over EV Valuation Bid price of £22m • W & O is expected to sell over 150.000 trips over the next 4 years where 80% are cruise trips • Will facilitate transfer of clients from different regions • Decrease of number of commission fees (10-13% of the price!) Returns from acquisition

  14. Adaptingtoeuropean tastes European food and products 1 The industry has not made a good job in the past adapting to European eating habits. Important chefs on board 2 Typical food of the countries / cities that we visit 3 Tailoring the product will help to meet the tastes of European consumers The cultural aspect of a trip is important for an european tourist 4 • Cultural packages of the visited places • -Videos • - Books • - Guides 5 Payment facilities will always help to attract clients Payment facilities

  15. What’sNext Europe Horizon 35-10 years • Adapting to the European demand • Acquiring an European tour operator + American standards - Horizon 23-5 months Tailoring our products to the current demand t rends • Increase our short duration cruisers • Target the workforce Horizon 11 month Now Short Run Long Run Maintaining our short-term revenue • Commissions • Flexible paying conditions • Increasing yield on board

  16. Cruising in troubled waters: The Holland America Line Case Estafeta Consultants Juana - Alejandro – Belén - Gabriel

  17. Thank You for Your Time. Questions? • Mandate • Short Run Plan • Immediate Action • Trends • How long will the slide last? • Why has been the European market so far underpenetrated? • The European growth potential • Snapshot of the regional diversity of Europe • Dealing with the Euro Zone • Screening the tour operator universe • Existing mechanism to attract costumers • Acquiring a pan European tour operator to enhance customer captation • Adapting to European tastes • What’s Next Appendix: Target Market Population Appendix: Ships and PassengerCapacity Appendix: Itineraries Offered Appendix: 7D-Route Trips by Ships Appendix: Average Ticket Revenue Appendix: Marginal Revenue Calculations Appendix: Marginal Cost Calculation Appendix: Have We Hit Bottom? Appendix: Expectations of Cruise Industry Appendix: CAPEX Burdens Appendix: Risk Factors Appendix: Impact of Economic Downturn Appendix: Vacation Average Appendix: Customizing Our Services Appendix: Country OperatorAnalysis Appendix: DCF Backup Appendix: Tour Operator Explanation Appendix: Key ideas

  18. Appendix: Target Market Population • TARGET MARKET US: 13,397,817 • Age Distribution of Upper 10 percentile of US Income Distribution • Type of Vacationers per Age Group

  19. Appendix: Target Market Population

  20. Appendix: Ships and PassengerCapacity

  21. Appendix: Itineraries Offered 405 Itineraries offered by Holland America Lines* * source: Holland America Lines

  22. Appendix: 7D-Route Trips by Ships • ALASKA • 8 ships and 30 cruises average per month • BERMUDA (starting 2010)

  23. Appendix: 7D-Route Trips by Ships • CARIBBEAN • 4 ships and 30 cruises average per month • MEXICAN RIVIERA • 1 ship and 3 cruises average per month

  24. Appendix: Average Ticket Revenue • Weighted Avge. Price 1W: $991 • Staterooms • Penthouse Suite: • PS • Deluxe Veranda Suite: • S • Veranda Suite: • A, B, BA, BB • Large Outside Staterooms: • C, D, DA, DD, E, EE, F, FF, G H • Large Inside Staterooms: • I, J, K, L, M, MM, N, NN Source: Holland America Lines

  25. Appendix: Marginal Revenue Calculations • Projected Increases in Passenger Volume • Cruise < 8 days: 5% / avge price $991 • Cruise 8-16 days: 3.7% / avge price $1,696.68 • Cruise 17+ days: 1.67% / avge price $3,634.69 • Total Incremental Profits: $2,870,592.41

  26. Appendix: Marginal Revenue Calculations Source: Holland America Line

  27. Appendix: Marginal Cost Calculation On-board Spending Boost profits: $20,872,500 Installment Payments Cost: $6,036.90 Publicity Campaign: $450,110 Windfall Commissions: $379,543.50

  28. Appendix: Have We Hit Bottom? Recovery*: 3Q, 09 Recovery: 2Q, 10 Sources: “Whistling in the Dark” – The Economist (April 8th, 2009) & “A Faint Sound of Applause” - The Economist (April 2nd, 2009) *Source: “Some Forecasters See a Fast Economic Recovery” - NYT.com (January 2nd, 2009)

  29. Appendix: Expectations of Cruise Industry Source: Goldman Sachs America Leisure Report (January 14th, 2009) Expected 2009 Net Yield for CCL: -15%

  30. Appendix: CAPEX Burdens Source: “Cruise Travel: New Ships” – Cruiserver.net TBD Pricetag: $425,000,000*

  31. Appendix: Risk Factors • Exposure to Increasing Fuel Prices and EPS sensitivity to price per passenger changes

  32. Price Decreases by Cruise Companies Appendix: Impact of Economic Downturn

  33. Appendix: VacationAverage

  34. Appendix: Customizingourservices

  35. Appendix: Country OperatorAnalysis Unfavorable Favorable Sea Vacations Ireland Cruise Neptune Russia O.F. Gollcher Malta Criteria Cosmorama Greece Sabra Tours Norway Size (40%) Distribution Channels (40%) Operating Regions (20%) TOTAL AVERAGE .25 .45 .50 .80 .65

  36. Appendix: Country OperatorAnalysis Unfavorable Favorable Holland America Line - UK Globetrotter Cruiser Sweden Un mundo de Cruceros Spain Delphi Reiser Switzerland Criteria Melair Portugal Size (40%) Distribution Channels (40%) Operating Regions (20%) TOTAL AVERAGE .70 .70 .15 .90 .10

  37. 7 Appendix: DCF Backup

  38. Appendix: Tour OperatorsExplanation Source: Ft.com

  39. Shorter Trips (less than a week) • Develop the Mediterranean journey vs Nordic Sea • Prepare winter trips to Canary Island, Azores and Africa Appendix: Key ideas to consider for 100-day planning Target numerous public holidays in Europe (long weekends) Higher possibilities of visits of cities and countries Decrease seasonality downturn in winter. 39

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