Carnival/Costa Deal Complete

Carnival Corporation and Airtours have successfully completed their takeover of Costa Crociere for approximately $275 million.

Costa reported net income of approximately $53 million on revenues of $660 million for the year ended Dec. 31, 1996, compared to net income of $29 million on revenues of $560 million for 1995. (Cruise Industry News estimated dollar amounts since Costa only provided the information in Liras.)

The financial results give Costa a net margin of approximately eight percent for 1996, compared to 25.6 percent for Carnival Corp., and 11 percent for Royal Caribbean International.

According to a spokesperson for Carnival, Costa also has a debt load of approximately $500 million. Combining the acquisition price and the debt, the total price tag for Costa is estimated at $775 million.

For that amount, Carnival and Airtours get four literally new ships and 5,420 berths for an estimated average per berth evaluation of $142,988.

In addition are three more ships which Costa operates under charter agreements.

Market Share

More importantly, the deal also includes Costa's good name and market position in Europe, its organization and European sales network, as well as its North American organization. At $142.988 per berth. this is a super deal for Carnival and Airtours.

The latest figures available show that Costa generated some 217,000 passengers in Europe during the first six months of 1996, plus 53,000 from North and Central America and 24,000 from South America. While Nicola Costa stays on as chairman of Costa Crociere, the Costa family has effectively sold its ownership interests in the company.

According to reports, a new chief executive will be appointed in the next few weeks. Meanwhlle, there are no words as to what, if any, changes are planned for Costa's North American operations.

In 1995, Costa Crociere derived approximately 70 percent of its revenues from cruise ticket sales; 13 percent from on-board sales; 11 percent from flights, cancellation charges and other cruise revenues, and six percent from other sources.

Meanwhile, Costa only provided a break-down of its sales for 1994. That year, the European markets accounted for approximately 71 percent of Costa's cruise sales, with 23 percent from North and Central America; six percent from Brazil and Argentina; and a fraction from Japan.

About 65 percent of the revenues were attributed to sailings in the Mediterranean and northern Europe; 20 percent in the Caribbean; six percent in South America; and nine percent in the Far East.

For the first six months of 1996, Costa reported net cruise revenues in the Caribbean, per passenger day, which, plus on-board spending and air, would bring revenues per passenger day to an estimated $170.00.

The comparable figure for Mediterranean sailings was estimated at $195.00.

(For 1996, Carnival Corporation's estimated per passenger day revenue was $209.07.)

Gambles that Failed

Costa Cruise Lines has gone through a series of changes in the last few years before the sale to Carnival and Airtours.

While Costa was one of the first lines to take part in the launching of the modem cruise industry in North America, the company faded in light of the new ships introduced by its competition in the Caribbean.

In the late 1980s, Costa tried to come back with the Costa Riviera which was a rebuilding of the 1961-built Guglielmo Marconi.

With a series of changes in top management, Costa also tried to reinvent itself in the North American market, but went from emphasizing its Italian heritage ("Cruising Italian-Style") to the failure of a 'Euro-class' (later 'Euroluxe') concept, and then back to its Italian roots.

While the company was reinventing its image(s), it was also building new ships. In an increasingly competitive environment, the resulting pressure on the bottom line eventually forced Costa out of the North American market where it became a seasonal operator. The reduced presence in turn lowered consumer awareness of Costa in the world's largest cruise market.

Instead, Costa based its future on being the leading cruise line in Europe, carrying European passengers aboard its ships in Europe during the summer, and flying Europeans to the Caribbean to sail on its ships there in the winter.

In addition, Costa targets the North American market for its summer cruises in Europe and markets several of it ships here during the winter months when they sail from Ft. Lauderdale.

Plus, the company has found markets in Central and South America. It also had a short venture in the Far East, when the company acquired Pearl Cruises, and helped pioneer the American family market with short-lived American Family Cruises. A joint venture with Sovcomflot, Prestige Cruises, was also short-lived.

Costa, a family-owned and controlled company, went public in 1989 and became listed on the Milan stock exchange. Four years later, the French owners of then Ocean-Paquet Cruises, Accor and Chargeurs, acquired a 24 percent holding for a reported $60 million and contributed its two ships to the company, the Mermoz and the Perl (Costa Playa).

Costa is now expected to be delisted. (If Carnival and Airtours make a new offering in Italy, they will probably raise more than what they paid for Costa. In effect acquiring Costa for nothing!)

Bottom Line

Finally able to put the turmoil behind, Costa arrived at stable and competent managements in both Genoa and in Miami, where Dino Schibuola was appointed president in 1993.

Costa's cruise product is now well-regarded, and the company has found a way of catering effectively to many nationalities aboard its ships at the same time.

But the years of management changes, the resulting image turmoil, and the cost of building new ships, all while competition intensified, took their toll.

In the end, the owners have seemed to arrive at the conclusion that Costa could not survive successfully as an independent company.


As part of the Carnival family, Costa's future is a lot brighter as it will be able to benefit from the resources of Carnival. including purchasing which alone should reduce costs from 10 to 20 percent. That is money that will flow directly to the net profit line.

Through Airtours and Costa, Carnival also becomes the largest cruise company in Europe, with the three ships of Airtours, being marketed mostly in northern Europe, and the seven ships of Costa, being marketed mostly in southern Europe.

But what happens in the North American market in the winter time, when most of the Carnival family ships descend on the Caribbean? Their product profiles should be sufficiently differentiated so that each represents a clear product choice.

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