A Carnival Quiz

I easily get excited about new businesses and what makes them tick. The industry on my mind over the last several days has been the cruise industry. And after having recently finished my first cruise, I thought this little cruise quiz would be a fun test of your cruise business intuition. Questions of this sort were on my mind between meals and while relaxing by the pool. Enjoy. Answers are posted at the end.


1. Which of the following cruise company does Carnival not own?

A) Princess
B) Holland America
C) Celebrity
D) Seaborn

2. The percentage of worldwide cruise passengers sourced from North America is....

A) 40%
B) 50%
C) 60%
D) 70%

3. Cruises have the well-deserved reputation as places to overeat. What percentage of total passenger ticket sales does Carnival spend of food for its chubby guests?

A) 8%
B) 16%
C) 24%
D) 31%


4. A great (and consistent) source of revenue is derived from other income (alcohol, casinos, souvenirs, land excursions, photos, etc.) True or false, this makes up 50% of total revenue?


5. ALBD means what in cruise economics?


6. Carnival and its publicly-traded rival Royal Caribbean have sales/debt ratios of:

A) between 20% and 49%
B) between 50% and 60%
C) between 61% and 90%
D) greater than 100%


7. What corporate action did the industry's cruise operators recently announce?


A) A near-term discontinuance of stock dividends
B) A huge drop in asset-backed securitizations
C) An increase in the share repurchase program
D) A move in corporate offices from Spokane to Atlanta.






Answer Key: 1) A, 2) D, 3) B, 4) False. It's closer to 25% of sales. 5) Costs per available lower berth day "ALBD". ALBDs assume that each cabin offered for sale accommodates two passengers and is computed by multiplying passenger capacity by revenue-producing ship operating days in the period. 6) C, 7) A.

A few words on public vs. private

After balance sheet concerns and the overall lackluster macro economic environment, the decision to be a public or private company must now keep executives wondering. Is it worth it to be a pubic company?

Most public companies have a culture of benchmarking and short-sided metrics. They are faced with quarterly grillings at the hands of mostly out-of-touch analysts who are more concerned about modeling next quarter's capital expenditures and whether earnings are off by a penny. I'm not just being cynical either. If you've listened to quarterly calls you get my point. Though some notable CEOs have the mettle to withstand the institutional imperative, most do not. A study by McKinsey & Co. shows that 50% of execs would forgo a positive NPV project rather than miss next quarter's numbers. My guess is if all were truthful it'd be even higher.

Public companies almost universally decide to grant top employees stock options. However, though these carry a tax benefit, the compliance savings of not having to abide by Sarbanes-Oxley (private co's don't have to follow this), would more than offset the tax advantage for most companies. An alternative to public stock options: a combination of cash incentives and private stock offerings. The only issue is they can't bail and sell with the ease of the the public markets. But who wants a short-term marriage anyway?

I would prefer to own a private business. I don't need to know my net worth every day. I'm in it for the long haul and I'd rather sacrifice next year's numbers for a long-term strategy that makes sense. If you're a company that needs constant access to the capital markets, a daily performace scorecard, and thinks high doses of liquid shares should be granted to top talent, stick with the public model. As for me, I prefer my privacy.

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Disclosure: I still think some public companies are awesome.
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