M1A1 - 1029450

COAST4LIFE Inc.
M E M O R A N D U M
To: Board of Directors From: Pat Brown , Controller
Subject: Increased cost savings and revenue Date: September 26 2013

Introduction:
Coast4Life Inc has successfully grown its business from a $9.4 million company in 2002
to $55.7 million company in 2012. Unfortunately due to a terrorist attack in September
2012 on another cruise line the industry as a whole expects bookings to drop by 50 % to
55% globally over the next six months and 30% to 35% annualized over the next year.
Recovery to 2012 levels is projected to occur by 2014. (See Appendix A)
The Board of Directors has mandated that Cruise4Life continue to remain profitable
during the downturn in business.
The purpose of this report is to analyse and identify risks and suggest alternative
solutions.
Identification of issues
An expected drop in bookings for 50% to 55% over the next six months and 30% to
35% over the next year. This would result in a decline in revenue of approximately $19
million.
They have proposed the following four options to meet the mandate of the Board of
Directors :-
1. Divest the Fraser Dry dock
2. Target a more profitable market segment
3. Register its cruise ships in Liberia and hire unskilled, cheap labour
4.Implement a web based booking system



Analysis of Alternatives
Alternative 1 - Divest Fraser Dry Dock
Pros:
1. The Current book value of the drydock is $2.6 million and if they accept the offer
to sell at a price of $4.3 million will definitely produce an instant source of cash
flow.
2. Should they choose to sell the dry dock the cruise line would realise a cost
savings of$1.374 million dollars in 2012. (Sale Price $4.3 million less operating
costs $ 5.674 million).
3. The sale will also eliminate layoffs and generate future cash flow
4. Outsourcing the maintenance will reduce costs - $2.0 million versus $2.16 million
per ship.
5. This will allow them to focus on their core business of promoting cruises.
Cons:
1. The manager is of the opinion that selling the dry dock could harm the cruise line
as its passengers may be concerned about safety. Since the repairs and
maintenance has to be out sourced and Coast4Life would have little or no
control of the quality of work performed.
2. Maintenance fees of $2.0 million not guaranteed
3. There could be potential loss of revenue from external maintenance contracts
4. Termination of employees would hurt the company's reputation within the
community and the local government agencies.



Alternative 2 - Target a more profitable market segment
Pros:
1. Increase repeat traveller rate from 20% to 40% (See Appendix B)
2. Target a more diverse age group by offering unique services and features
3. More value for their money
Cons:
1. Target segment for repeat travellers may be very small due to aging population
2. There is a cost associated with diversifying its target market - advertising,
incentives
3. A younger age group may not have access to the financial resources that more
mature travellers would limited on board sales and extras on cruises.

Alternative 3 - Register its cruise ships in Liberia and hire unskilled,
cheap labour
Pros:
1. Cost of labour would be reduced by as much as 20% to 30%
2. Availability of a large labour force to draw from.

Cons:
1. Unskilled labour would compromise the quality of service.
2. If customer service is poor returning travellers would be reduced.
3. Local un-employment rates increase and cause social issues for the cruise ship
within the community.
4. Loss of foreign exchange


Alternative 4 - Implement a web based booking system
Pros:
1. Eliminate travel agency costs by 10%
2. Younger generation communicate via electronic means which could facilitate
more bookings.
3. Convenient for the busy consumer - easier to book cruises
4. System fully integrated eliminating additional accounting costs.
5. Allow for web based advertising of Cruise4Life services
6. Easily accessible from any computer with internet access
Cons:
1. May lose the market share of the less electronic savvy consumer
2. Cost associated with the set up and the monthly fees which may prove to be
expensive in the long term.
3. Subject to security breach causing loss of personal and financial data of customers
Recommendations:
1. Sell the dry dock as it would generate a significant cash flow to help Coast4Life
weather the current expected down turn also reduce labour and maintenance
costs which would be a cost savings.
2. Implement a web based booking system as this would expand its target market
as the rewards outweigh the costs
3. Do not register in a foreign country as this may have adverse social nad political
ramifications on the company.
Conclusion:
Despite the fact that the cruise business expects to face a down turn because of the
terrorist attack, the industry expects to rebound within a year. Cruise4Life has a
good reputation not only for safety and exceptional service but also the fact that it
provides unique services and special amenities.
It can certainly harness that reputation by using electronic media to promote itself via
you tube video advertising , face book and twitter which are in constant use.

























Appendix A
Actual Projection Projection
2012 2013 2014
Revenue
Ticket revenue 33,122 21,529 33,122
On board sales 12,691 8,249 12,691
Ship rental 5,100 2,295 5,100
Dry Dock revenue 4,740 4,740 4,740
55,653 36,813 55,653
Expenses
Wages and salaries 12,871 8,396 12,918
Fuel 3,813 3,813 3,813
Direct Materials 4,854 3,165 4,869
Docking fees 1,566 1,566 1,566
Other operating costs 2,973 2,973 2,973
Credit card commission 866 866 866
Travel agent commission 2,146 2,146 2,146
Advertising 1,484 1,484 1,484
Administration 3,590 3,590 3,590
Insurance 1,007 1,007 1,007
Interest 2,511 2,511 2,511
Amortization 4,334 4,334 4,334
Total expenses 42,015 35,851 42,077
Income before taxes 13,638 962 13,576
Taxes 5,183 367 5,160
Net Income 8,455 596 8,416

Appendix B
FRI Report

First time Repeat Total
Number of passengers 19,570 4,892 24,462
Total revenue (projected) $35,584,000 $10,229,000 $45,813,000
Revenue from pre-booked
Extra services $2,100,000 $1,400,000 $3,500,000