Date: Jan 4, 2013
To: The Board of Directors of Coast4Life Cruises
From: Pat Brown
Subject: Analysis of key issues, alternatives, and recommendations
The cruise industry is expected to face an imminent risk of heading into a downturn as a result of the September 30th terrorist attacks. As well, Coastal Native’s hull repair needs to be addressed for the 2013 season. This report will analyze and compare the four alternatives available and identify the recommendation that will not only allow Coast4Life to remain profitable in the short-term but strengthen the business in the long-term by focusing on its core capabilities.
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Divesting will bring incremental cash of $6.4MM in 2013 and incremental incomes of $2.5MM in 2014. The extra cash will help to fund hull repair costs of $3MM. Keeping the dry dock would only make sense in the best case scenario when there are revenues generated from servicing other ships. But that is not always successful and in those times there is a big fixed cost associated with running the dry dock.
a) May impact Coast4Life’s good reputation for safety in the industry
b) Would lose control over quality of maintenance
c) Could damage relationships with BC communities
d) Foregone revenue from servicing other ships
Alternative 2: Targeting a more profitable market segment
a) Can likely increase utilization of unique services and features by targeting repeat customers
b) Can reduce passenger acquisition cost by targeting repeat customers
c) Canadian destinations for cruises have a small market so changing the customer mix could increase profitability
a) Hard to implement due to insufficient detail regarding passengers and crew in the database that prevents understanding consumer preferences and profitability of each market segment
b) Limited advertising to sports and outdoor magazines may not reach everyone
Alternative 3: Registering ships in Liberia and hire unskilled hospitality workers from underdeveloped countries for low wages