Week 8 Assignment - OLB 7002 v4 - Examine Organiztional Capacity - Heather Cappiello 11.19.2023

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1 Examine Organizational Capacity Heather M. Herr Cappiello National University OLB-7004 v4 Dr. Smock November 19, 2023

2 Examine Organizational Capacity: Carnival Cruise Lines Throughout this course, we have explored all the ways that organizational capacity is invaluable to an organization’s success (or failure if not executed properly). Early in the course, organizational capacity was defined for us as “an organization’s ability to successfully apply its talent and resources to accomplish stated goals and satisfy stakeholder expectations” (Weber, B. & Smith, C., 2023). However, through the course, it was easy to gather very quickly, that sometimes getting organizational capacity streamlined is much easier said than done. Many obstacles get in the way and organizations have to be agile and able to pivot at any change in the market. “Organizations are asked to deliver services, products or value, as well as strengthening resilience, when so much effort has been focused on reducing costs rather than building capacity” (Cox, K., Jolly, S., Staaij, S., Stolk, C., 2018). For this assignment, I have selected a publicly traded company, Carnival Cruise Lines and will develop key requirements and examine measures for improvement in regards to organizational capacity. This assignment will delve into Carnival as a whole and then expound upon its capacity as well as what plans may already be in place to grow capacity in the future. Company Overview: Carnival Cruise Lines Carnvial Cruise Lines, operating under the name Carnival Corporation & plc, is one of the largest global cruise organizations in the world operating today. Headquartered in Miami, Florida with a secondary headquarters in London, UK, the company has operations in the United States, United Kingdom, Contiental Europe, New Zealand and Australia

3 (carnival.com, 2023). Carnival has many competitors, the most recognizable being MSC Cruises, Royal Caribbean International, and Disney Cruise lines, just to name a few. Mission The mission of Carnival Cruise Lines is “to deliver unforgettable happiness to our guests by providing extraordinary cruise vacations, while honouring the integrity of every ocean we sail, place we visit and life we touch” (Carnival Cruise Lines, 2023). The mission statement is exceptionally important because it helps the company stand out amongst its competitors and make it more attractive to its customer base. The mission statement has the potential to influence the behaviors of customers as well as external partners as it is motivation for them to partner with organizations that share values that align with their own. Moreover, the mission statement should stand as a support for its employees in which it guides them to make decisions or perform in a way that is aligned with the company achieving its mission. Carnival prides itself on providing the highest level of customer service which unifies its employees in providing that level of service to keep those customers returning. Vision The vision of Carnival Cruise Lines is as follows: “As the global leader in the cruise industry, we will lead the way in innovative and sustainable cruising to deliver memorable vacations and build borderless connections” (Carnival Cruise Lines, 2023).

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4 Service Provided by Carnival: Cruise Vacations Cruises have become more and more popular amongst vacation travellers who are looking to get the best value for their dollar. “Cruise tourism has witnessed substantial growth in the tourism market over the last few decades” (Chang, Y., Lee, S., & Park, K., 2016). The increased passenger spending utilizing cruise lines is a great indicator that the cruise industry has become a substantial player in the market with tremendous potential for growth. To understand Carnival’s organizational capacity, it is important to know where the company excels as well as where it has room to improve and where its vulnerabilities lie. SWOT Analysis: Carnival Corporation Strength Carnival has a command on its brands providing its services to a diverse consumer base as well as having operations globally keeps them from becoming vulnerable in the event one of their operating markets is interrupted. “A diverse brand portfolio helps Carnival expand its addressable markets besides strengthening its position in the global cruise industry” (Carnival Corporation SWOT Analysis, 2016). Weakness

5 Cruise lines are held to many standards, especially environmentally, but Carnival suffers in the category of safety records. This can potentially have adverse impacts on the organization reputationally. For example, a fire broke out on the Carnival Triumph in 2013, resulting in the ship being stranded in the Gulf of Mexico until another vessel could rescue it. “Such accidents could affect the company’s reputation and a customer’s confidence on the safety of the company’s cruise lines” (Carnival Corporation SWOT Analysis, 2016). Opportunity The higher demand in the demographics that are choosing cruises as vacations is increasing, as stated earlier in the paper. The cruise ships can only hold a set number of passengers in addition to the crew. In order to become more market competitive, it is in the best interest of Carnival to add additional ships to the fleet to meet the customer demand. “Adding new ships and improving the existing fleet will strengthen the company’s leadership position in each of its brands” (Carnival Corporation SWOT Analysis, 2016). This proved especially true with the release of the Carnival Mardi Gras, Carnival Celebration and the Carnival Jubilee from 2020 to 2023. Threat With the world becoming more environmentally cautious, new legislation can prove costly operationally. Tax changes or new regulations can also be a substantial threat due to Carnival having their ships flagged/registered as operating in foreign countries.

6 “Cruise lines pay minimal corporation tax because of their overseas status” (Carnival Corporation SWOT Analysis, 2016). While this practice is common amongst all cruise line operators, it still can have an impact on the company’s bottom line. In regards to environmental compliance, all cruise lines must abide by MARPOL. “MARPOL is an international convention for prevention of pollution to the marine environment by ships from operational or accidental causes” (Carnival Corporation SWOT Analysis, 2016). MARPOL, for example, specifies requirements for fuel emissions, specifically sulphur emissions. Cruise lines must comply with these regulations, which may result in increased operating costs in the future that will be imposed not only on the cruise lines, but the passengers as well. Components of Organizational Capacity Staff/Crew A huge component of Carnival’s capacity is it’s crew, as it cannot operate such a large undertaking without them. With the advent of the COVID 19 pandemic, Carnival suffered just as any other service organization did with a steep decline in employment as well as cruise voyages. In fact, the cruise industry was shut down in 2019 and slowly began to come back in 2021 after further protection measures were put in place to allow cruises to resume. As of 2022, Carnival had 85,000 employees which was a growth of 113% from the same time in 2021 at 40,000 employees (Stock Analysis, 2023). Vessels/Portfolio Management

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7 Without ships to cruise on, there would be no vacations. Currently, Carnival operates 25 vessels (Carnival Cruise Lines, 2023). Operating the ships is an important component to customer satisfaction, but keeping those vessels maintained is also a consideration that is well worth mentioning as maintenance plays a huge role in capacity. Logistics Having vessels and people to staff them are equally important, but another factor is getting those guest fed and loading materials each and every journey. Everything is time sensitive and has to work like a well oiled machine, because if anything is forgotten, there is no convenience store or hotshot that can bring missed items to the ship once it has left port. “Loading activities can take between six and eight hours on the pier, and easily involve more than 100 different stakeholders” (CNN Travel, 2023). This process is vital to the successful operation of the ships and there has to be very seasoned personnel in place to execute these tasks. Leadership/Corporate Culture Carnival’s leadership are the defining partners in its success. The structure that is set up at Carnival advocates strongly for transformational leadership. Transformational leadership is a powerful strategy as it keeps the company innovative and competitive (Ciulla, 2020). The leaders at Carnival are very involved and hands on in the ways that they approach solving problems. Leaders see value in empowering their teams and driving home the mission and vision of the company, allowing their teams to perform to their full potential.

8 It is this high performance that has made Carnival so successful and giving it the ability to grow. Strategic decision making, especially during the COVID 19 pandemic, allowed Carnival to still be successful because they considered insight from everyone involved (customers, employees, stakeholders), before making decisions that affected everyone form the board members down to the customers. This also allowed leadership to maintain their values of humanistic culture where all voices are heard. Capacity Needed for Growth in 2023 The CEO of Carnival is quoted remarking in the third quarter financial results of 2023 “I continue to be encouraged with our revenue trajectory heading into next year as we see no signs of slowing from our customers” (Carnival Cruise Lines, 2023). Capacity growth is noted in 2023 at 4.5%, which is tremendous when compared to the 3.1% capacity growth in 2019 in the pre COVID 19 operating metrics (Carnival Cruise Lines, 2023). The outlook for 2023 remains strong as the company is quickly accelerating debt repayments suffered from the COVID 19 pandemic shutdowns. In the third quarter of 2023 alone, the company reduced their debt balance over ten percent, or roughly $4 billion. The current forecast is to gain cash flow and liquidity and continue to eliminate debt. Even though debt is being eliminated and the future is looking bright for the cruise line, it’s important to note that there are distractions that can impede continual and further growth, so there is an element of reality that comes into play. Capacity regarding making major organizational changes will have to remain at a hold out of an abundance of caution, meaning, political climate, pandemics, ship incidents/accidents, compliance, fluctuations in employee counts or loss of tenured staff, vendor management, etc. The cruise line reflects, “forward looking statements should not be

9 relied upon as a prediction of actual results” (Carnival Cruise Lines, 2023). The situation of capacity is definitely fluid even though the trajectory is showing as moving in a positive direction. “While overall fleet capacity growth is constrained, we will benefit from an exciting roster of new ships spread across our brands to capitalize on the pent-up demand and drive even more enthusiasm, excitement and demand to our restart plan…nearly every band will soon have a new ship welcoming guests for the first time beginning with our namesake brand Carnival” (Cruise Industry News, 2021). Measures to Improve Capacity As observed above, Carnival is making tremendous strides not only to pay off incurred debt, but to increase customer bookings and metrics to allow debt to be paid off quicker and improve upon its capacity delivery models. Carnival, in particular, has created a three year plan that will address their organizational capacity targets via financial and sustainability targets. “Together with implementing a well-planned operation, cruise companies need to leverage their profits through appropriate financial strategies” (Chang, Y., Lee, S., & Park, K., 2016). SEA Change Program The SEA Change Program ties into the SWOT Analysis completed earlier in the paper, namely in its financial and environmental goals, which were noted as threats. This program develops a roadmap for Carnival to reach key goals by the end of 2026.

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10 Carnival plans to reduce their carbon intensity by over 20% as well as a target in achieving a 50% increase in its earnings before interest, taxes, depreciation, and amortisation (EBITDA) from 2023 numbers, which would represent the highest target in two decades (Travel Weekly Asia, 2023). Carnival also plans to achieve a 12% return on invested capital, which is more than double the return on invested capital goals set in 2023. These goals are extremely lofty considering that Carnival is still recovering from the COVID 19 pandemic shut down as well as the construction and delivery of new ships. However, there is a plan in place to keep the roadmap in place. “To accomplish these targets, the company plans to maintain measured net capacity growth of less than 2.5% annually from 2023. This approach allows Carnival Corporation to focus on initiatives that drive net yield growth, optimise cost structures and improve fuel efficiency” (Travel Weekly Asia, 2023). Portfolio Strategy – Transfers of Costa Acquired Ships In 2023, Carnival acquired two Costa Cruise ships that were originally slated to be placed in the Asian cruise market, but were kept for the North American market instead. “The added capacity to Carnival Cruise line will not only generate outsized returns for the company, but rightsizing the Costa brand is also having these desired effects of supporting its revenue profile confirmed by recent booking and pricing trends” (Cruise Industry News, 2023). Additional Sustainability Goals

11 In addition to the fuel emissions goals, Carnival announced via its website that it will focus on two of its six total sustainability focus areas, those being the climate action and circular economy with their 2030 targets. In regards to climate action, Carnival sets forth the following points:  40% carbon reduction rate  Expand alternative fuel strategy from relying solely on diesel to liquefied natural gas and biofuel  Increasing shore power connection capability to minimally 60% of the fleet by 2030  Get to carbon neutral operations by 2050 In regards to the circular economy actions, Carnival sets forth to:  Reduce single use plastic items by 50%, measured against 2018 figures  Achieve 50% food waste reduction by 2030, measured against 2019 figures  Get to zero emissions by 2050 “The new set of 2030 sustainability targets and 2050 aspirations build on the momentum of the company’s performance relative to its 2020 sustainability goals, which were achieved and surpassed in 2019, a full year ahead of schedule” (Carnival Cruise Lines, 2023). Conclusion Carnival Cruise lines has set themselves up for success to maintain and even surpass their organizational capacity. Being successful even in times of pandemic or any other time of significant loss of business takes at toll.

12 Amidst challenges and setbacks, Carnival seems to have it together. Plans are in place to continue success in the long term as well as in the short term. Constant monitoring of these processes and goals that are set to be implemented will contribute to their success. Leadership remains committed through their transformational leadership style, to make sure that all stakeholders feel that their voices are being heard, whether that feedback be positive or negative. That feedback is taken to heart to make everyone better, so that everyone can shine, not just those that are seated to gain the most. Based on what Carnival has proposed to be a constant player in the market, they are well on their way to effectively maintaining as well as growing their capacity with success for years to come.

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13 References (2023, November). Retrieved from Carnival Cruise Lines: https://www.carnivalcorp.com . Carnival Corporation SWOT Analysis. (2016). Carnival Corporation SWOT Analysis, 1–7. Cox, K., Jolly, S., Staaij, S., & Stolk, C. (2018). Understanding the drivers of organizational capacity. https://www.rand.org/pubs/research_reports/RR2189.html . Cruise Industry News (2023, June 28). Retrieved from Cruise Industry News: https://cruiseindustrynews.com/cruise-news/2023/06/weinstein-more-carnival-cruise- line-capacity-generating-outsized-returns/ Cruise Industry News (2021, June 25). Retrieved from Cruise Industry News: https://cruiseindustrynews.com/cruise-news/2021/06/carnival-corp-lowers-capacity- growth-rebalances-fleet/ Ciulla, J.B. (2020). The importance of leadership in shaping business values. The search for ethics in leadership, business and beyond (pp. 153-163). Springer, Cham. https://link.springer.com/chapter/10.1007/978-3-030-38463-0_10 Ros, Miquel. (2019). Feeding the largest cruise ships in the world. https://www.cnn.com/travel/article/cruise-ships-food-supplies/index.html Stock Analysis. (2023, November). Retrieved from https://stockanalysis.com/stocks/ccl/employees/ Suhyung Lee, Young-Tae Chang, & Hyosoo Park. (2017). Efficiency analysis of major cruise lines. Tourism Management, 58, 78–88. Travel Weekly Asia (2023, July 5). Retrieved from Travel Weekly Asia: https://www.travelweekly-asia.com/Cruise-Travel/Carnival-s-bold-plan-to-transform- the-seas-and-the-bottom-line

14 Weber, B., & Smith, C. (2019). Organizational capacity defined. InBusiness. https://inbusinessphx.com/in-business/organizational-capacity-defined

Week 8 Assignment - OLB 7002 v4 - Examine Organiztional Capacity - Heather Cappiello 11.19.2023

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