CORAL DIVERS RESORT Professors Paul W. Beamish and Kent E. Neupert prepared this case with assistance from Andreas Schotter solely to provide material for class discussion. The authors do not intend to mustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, NEG ON1; (1) 519.651.3208; (e) cases@vey.ca; www.iveycases.com. Copyright @ 2008. Richard Ivey School of Business Foundation Version: 2014-11-19 Jonathon Greywell locked the door on the equipment shed and began walking back along the boat dock to his office. He was thinking about the matters that had weighed heavily on his mind during the last few months. Over the years, Greywell had established a solid reputation for the Coral Divers Resort as a safe and knowledgeable scuba diving resort that offered not only diving but also a beachfront location. Because Coral Divers Resort was a small but well-regarded, all-around dive resort in the Bahamas, many divers had come to prefer Greywell's resort to the other crowded tourist resorts in the Caribbean. However, over the last three years, revenues had declined; for 2008, bookings were flat for the first half of the year. Greywell felt he needed to do something to increase business before the situation worsened. He wondered whether he should add some specialized features to the resort to help distinguish it from the competition. One approach would be to focus on family outings. Rascals in Paradise (Rascals), a travel company that specialized in family diving vacations, had offered to help him convert his resort to specialize in family diving vacations. Rascals had shown him the industry demographics indicating that families were a growing market segment (see Exhibit 1) and suggested the changes that would need to be made at the resort. Rascals had even offered to create children's menus and to show the cook how to prepare the meals. Another potential strategy for the Coral Divers Resort was to focus on adventure diving. Other resort operators in the Bahamas were offering adventure-oriented deep-depth dives, shark dives and night dives. The basic ingredients for adventure diving (i.e., reef sharks in the waters near New Providence and famous deep-water coral walls) were already in place. However, either of these strategies, creating a family vacation resort or an adventure diving resort, would require changes and additions to the current operations. Greywell was not sure whether any of the changes was worth the time and investment or whether he should instead try to improve on what he was already doing. A final option, and one that he had only recently considered, was to leave New Providence and relocate elsewhere. At issue here was how much he might be able to recover if he sold Coral Divers Resort and whether better opportunities existed elsewhere in the Bahamas or around the Caribbean.Page 10 9808M041 prevent child injuries. Rascals always tried to use existing equipment or equipment available nearby. Other non-structural changes could include the addition of educational sessions, play times and other structured times for entertaining children while their parents were diving. The report also included an implementation proposal. Then, after implementation, the resort could decide whether or not to list with Rascals for bookings. Under the second option, Rascals provided the consulting service at no charge to the resort; however, any requests for family bookings were referred to Rascals. Rascals would then list and actively promote the resort through its brochures and referrals. For resorts using the Rascals booking option, Rascals provided premiums, such as hats and T-shirts, in addition to the escorted activities. This attention to the family differentiated a Rascals resort from other resorts. Generally, companies that promoted packages received net rates from the resorts, which were 20 per cent to 50 per cent lower than the rack rates. Rascals, in turn, promoted these special packages to the travel industry in general and paid a portion of its earnings out in commissions to other travel agencies. Rascals tried to work with its resorts to provide packaged and prepaid vacations, an approach that created a win-win situation for the resort managers and the vacationer. Packaged vacations, also known as all- inclusive vacations, followed a cruise ship approach that allowed the inclusion of many activities in the package. For example, such a package might include seven nights' lodging, all meals, babysitting. children's activities and scuba diving. This approach allowed the vacationer to know, upfront, what to expect. Moreover, the cost would be included in one set price, so that the family would not have to pay for each activity as it came along. The idea was to remove the surprises and make the stay enjoyable. The resort operator could bundle the activities together, providing more options than might otherwise be offered. As a result, the package approach was becoming popular with both resort owners and vacationers. In its bookings, Rascals required prepayment of trips, which resulted in higher revenues for the resort since all activities were paid for in advance. Ordinarily, resorts that operated independently might require only a two- or three-night room deposit. The family would then pay for the balance of the room charge on leaving. after paying for other activities or services they used. Although vacationers might think they had a less expensive trip this way, in fact, pre-paid activities were generally cheaper than a la carte activities. Moreover, purchasing individual activities potentially yielded lower revenues for the resort. Rascals promoted prepaid vacations as a win-win, low-stress approach to travel. Rascals had been very successful with the resorts it listed. Fifty per cent of its bookings were repeat business, and many inquiries were based on word-of-mouth referrals. All in all, Rascals provided a link to the family vacation market segment that the resort might not otherwise have access to. It was common for Rascals-listed resorts to average annual bookings of 90 per cent. CORAL DIVERS RESORT Coral Divers Resort (Coral Divers) had been in operation for 10 years. Annual revenues had reached as high as $554,000. Profits generally had been in the two per cent range, but for the past two years, the husiness had experienced losses. The expected turnaround in profits in 2007 had never materialized (see Exhibit 6). Although the resort was not making them rich, the business had provided an adequate income for Greywell and his wife, Margaret, and their two children, Allen, age 7, and Winifred, age 5. However, revenues had continued to decline. From talking with other operators, Greywell understood that resorts with strong identities and reputations for quality service were doing well. Greywell thought that the Coral Divers Resort had not distinguished itself in any particular aspect of diving or as a resort.Page 11 9808M041 The Coral Divers Resort property was located on a deep-water channel on the southwest coast of the island of New Providence in the Bahamas. The three-acre property had beach access and featured six cottages, each with its own kitchenette, a full bath, a bedroom with two full-sized beds and a living room with two sleeper sofas. Four of the units had been upgraded with new paint, tile floors, a microwave, a color TV and a DVD player. The two other units ranged from "adequate" to "comfortable." Greywell tried to use the renovated units primarily for families and couples and housed groups of single divers in the other units (see Exhibit 7). Also on the property was a six-unit attached motel-type structure. Each of these units had two full-sized beds, a pull-out sofa, sink, a refrigerator, a microwave and a television. The resort had the space and facilities for a kitchen and dining room, but neither a kitchen nor a dining room was in use. A small family-run restaurant and bar was available within walking distance. Greywell had three boats that could each carry from eight to 20 passengers. Two were 40-foot fiberglass V-hull boats powered by a single diesel inboard with a cruising speed of 18 knots and a protective cabin with dry storage space. The third was a 35-foot covered platform boat. Greywell also had facilities for air dispensing, equipment repair, rental and sale, and tank storage. Coral Divers Resort, which was affiliated with PADI and NAUI, had a staff of 11, including two boat captains, two mates, a housekeeper, a groundskeeper, a person who minded the office and the store, and four scuba diving instructors. Greywell, who worked full-time at the resort, was a diving instructor certified by both PADI and NAUL. The three other diving instructors had various backgrounds: one was a former U.S. Navy SEAL working for Coral Divers as a way to gain resort experience, another was a local Bahamian whom Greywell had known for many years and the third was a Canadian who had come to the Bahamas on a winter holiday and had never left. Given the size of the operation, the staff was scheduled to provide overall coverage, with all of the staff rarely working at the same time. Greywell's wife, Margaret, worked at the business on a part-time basis, taking care of administrative activities, such as accounting and payroll. The rest of her time was spent looking after their two children and their home. A typical diving day at Coral Divers began around 7:30 a.m. Greywell would open the office and review the activities list for the day. If any divers needed to be picked up at the resorts in Nassau or elsewhere on the island, the van driver would need to leave by 7:30 a.m. to be back at the resort for the 9 a.m. departure. Most resort guests began to gather around the office and dock about 8:30 a.m. By 8:45 a.m., the day's captain and mate began loading the diving gear for the passengers. The boat left at 9 a.m. for the morning dives that were usually "two tank dives," that is, two dives utilizing one tank of air each. The trip to the first dive site took 20 to 30 minutes. Once there, the captain would explain the dive, the special attractions of the dive, and tell everyone when they were expected back on board. Most dives lasted 30 to 45 minutes, depending on the depth. The deeper the dive, the faster the air consumption. On the trip down, divers were always accompanied by a divemaster, who supervised the dive. The divemaster was responsible for the safety and conduct of the divers while under water. After the divers were back on board, the boat would move to the next site. Greywell tried to plan two dives that had sites near each other. For example, the first dive might be a wall dive in 60 feet of water, and the second might be a nearby wreck 40 feet down. The second dive would also last approximately 40 minutes. If the dives went well, the boat would be back at the resort by noon, which allowed time for lunch and sufficient surface time for divers who might be interested in an afternoon dive. Two morning dives were part of the resort package. Whether the boat went out in the afternoon depended on the number of non- resort guest divers contracted for afternoon dives. If enough paying divers were signed up, Greywell was happy to let resort guests ride and dive free of charge. If there were not enough paying divers, no afternoon dive trips were scheduled, and the guests were on their own to swim at the beach, sightsee or just relax.Page 12 9808M041 When space was available, non-divers (either snorkelers or bubble-watchers) could join the boat trip for a fee of $15 to $25. Greywell's Options Greywell's bookings ran 90 per cent of capacity during the high season (December through May) and 50 per cent of capacity during the low season (June through November). Ideally, he wanted to increase the number of bookings for the resort and dive businesses during both seasons. Adding additional diving attractions could increase both resort and dive revenues. Focusing on family vacations could increase revenues because families would probably increase the number of paying guests per room. Break-even costs were calculated based on two adults sharing a room. Children provided an additional revenue source since the cost of the room had been covered by the adults, and children under 10 incurred no diving-related costs. However, either strategy, adding adventure diving to his current general offerings or adjusting the focus of the resort to encourage family diving vacations, would require some changes and cost money. The question was whether the changes would increase revenue enough to justify the costs and effort involved. Emphasizing family diving vacations would probably require some changes to the physical property of the resort. Four of the cottages had already been renovated. The other two also would need to be upgraded. which would cost $15,000 to $25,000 each, depending on the amenities added. The Bahamas had duties of up to 35 per cent, which caused renovation costs involving imported goods to be expensive. The attached motel-type units also would need to be refurbished at some point. The resort had the space and facilities for a kitchen and dining area, but Greywell had not done anything about opening these facilities. The Rascals in Paradise people had offered to help set up a children's menu. He could hire a chef, prepare the meals himself or offer the concession to either the nearby restaurant or someone else. He would also need to build a children's play structure. An open area with shade trees between the office and the cottages would be ideal for a play area. Rascals would provide the teacher/escort for the family vacation groups, and it would be fairly easy to find babysitters for the children as needed. The people who lived on this part of the island were very family-oriented and would welcome the opportunity for additional income. From asking around, Greywell determined that between $5 and $10 per hour was the going rate for a sitter. Toys and other play items could be added gradually. The Rascals people had said that, once the program was in place, Greywell could expect bookings to run 90 per cent capacity annually from new and return bookings. Although the package prices were competitive, the attraction was in group bookings and the prospect of a returning client base. Adding adventure diving would be a relatively easy thing to do. Shark Wall and Shark Buoy were less than an hour away by boat. Both of these sites featured sharks that were already accustomed to being fed. The cost of shark food would be $10 per dive. None of Greywell's current staff was particularly excited about the prospect of adding shark feeding to their job description. But these staff could be relatively easily replaced. Greywell could probably find an experienced divemaster who would be willing to lead the shark dives. He would also have to purchase a special chain mail suit for the feeder at a cost of about $15,000. Although few accidents occurred during shark feeds, Greywell would rather be safe than sorry. His current boats, especially the 40-footers, would be adequate for transporting divers to the sites. The other shark dive operators might not be happy about having him at the sites, but they could do little about it. Shark divers were charged a premium fee. For example, a shark dive would cost $115 for a two-tank dive, compared with $65 for a normal two-tank dive. He figured that he could add shark dives to the schedule on Wednesdays and Saturdays without taking away from regular business. Although he needed a minimum of four divers on a trip at regular rates to cover the cost of taking out the boat, 10 or 12 divers would be ideal.Page 13 9808M041 Greywell could usually count on at least eight divers for a normal dive, but he did not know how much additional new and return business he could expect from shark diving. A third option was for Greywell to try to improve his current operations and not add any new diving attractions, which would require him to be much more cost efficient in his operations. For example, he would have to strictly adhere to the policy of requiring a minimum number of divers per boat, and staff reductions might improve the bottom line by five per cent to 10 per cent. He would need to be very attentive to materials ordering, fuel costs and worker productivity in order to realize any gains with this approach. However, he was concerned that by continuing as he had, Coral Divers Resort would not be distinguished as unique from other resorts in the Bahamas. He did not know the long-term implications of this approach. As Greywell reached the office, he turned to watch the sun sink into the ocean. Although it was a view he had come to love, a lingering thought was that perhaps it was time to relocate to a less crowded location.Page 14 9808 Exhibit 1 U.S. POPULATION DEMOGRAPHICS 1980, 1990 AND 2000 25000 T 20000 15000 11980 0 1990 10000 02000 5000 0 85+ 5 to 9 15 to 19 50 to 54 20 to 24 30 to 34 65 to 74 40 to 44 60 to 64 75 to 84 10 to 14 55 to 59 45 to 49 25 to 29 35 to 39 Ape Grow Note: Numbers are in the thousands Source: U.S. Bureau of the Census, 2000. Retrieved from http:/factfinder. census.gowserviet/QTTable?_bm=y&-geo_id=01000US&-qr_name=DEC_2000_SF1_U_DP18- ds_name=DEC_2000_SF1_U. accessed on April 10, 2008 Exhibit 2 US DIVER DEMOGRAPHICS: AGE OF DIVERS 25% T 20% + 15% 10% 5% 0%+