Health Cruises, Inc. packages exclusive cruises to Caribbean islands. Like conventional cruises, the packages are designed to be fun. But the cruise is structured to help participants become healthier by breaking old habits, such as smoking and overeating. The Miami-based firm was conceived by Susan Isom, 30, a self-styled innovator and entrepreneur. Prior to this, she had experience promoting a behavior-modification clinic. Isom determined that many people were very concerned about developing good health habits, yet they seemed unable to break away from their old habits because of the pressures of day-to-day living. She reasoned that they might have much greater success in a pleasant and socially supportive environment, where good health habits were fostered. Accordingly, she established Health Cruises, Inc., hired 10 consulting psychologists and health specialists to develop a program, and chartered a ship. DeForrest Young, a Miami management consultant, became the chairperson of Health Cruises. Seven of Isoms business associates contributed an initial capital as follows: Initial Capital 401,000 Of this amount, the team placed deposits and/or entered in to non-refundable / non-cancellable contracts for the following; Advertising 119,000 Admin. 18,000 Ship Rental 250,000 Mary Porter, an overweight Denver schoolteacher, has signed up to sail on a one-week cruise to Nassau, departing December 19. She and her shipmates will pay an average cabin cost for the voyage as follows: Avg. Cabin Cost 1,900 The most desirable staterooms cost over $3,000. Mary learned of the cruise by reading the travel section of her Sunday newspaper on October 16. On that date, the Pittsford and LaRue Advertising Agency placed promotional notices for the cruise in several major newspapers. Mary was fascinated by the idea of combining therapy sessions with swimming, movies, and an elegant atmosphere. Pittsford and LaRue account executive Carolyn Sukhan originally estimated that the boat capacity 300 people would sign up for the cruise after reading the October 16 ads, but as of November 14 only 200 had done so. Isom and Health Cruises, Inc. faced an important decision. Heres the situation as I see, explained a disturbed Ms. Isom at the Health Cruises board meeting. Weve already paid out more than a two hundred thousand to get this cruise rolling, plus the weekly per passenger cost (mostly for food), as detailed below: Weekly Cost Per Passenger 225 Pittsford and LaRue predicted that 300 people would respond to the advertising campaign, but weve only got 200. I see three basic options: (1) we cancel the cruise and take our losses; (2) we run the cruise with the 200 and a few more that will trickle in over the next month, or (3) we shell some more money and hope that we will pull in more people. My recommendation to the board is that we try to recruit more passengers. There are simply too many empty rooms on that ship. Each one costs us a bundle. At this point, Carolyn Sukhan addressed the board: Ive worked out two possible advertising campaigns for the November 20 papers. The first, the limited campaign is detailed below: Cost of Promotion 6,000 # New Passengers 20 The more ambitious campaign, which I personally recommend is detailed below: Cost of Promotion 15,000 # New Passengers 50 I realize our first attempt was somewhat disappointing, but were dealing here with a new concept, and a follow-up ad might work with many newspaper readers who were curious and interested when they read our first notice. One thing is absolutely certain, Sukhan emphasized. We must act immediately if theres any hope of getting more people on board. The deadline for the Sunday papers is in less than 48 hours. If our ads dont appear by this weekend, you can forget it. No one signs up in early December for a December 19 sailing date. Isom interrupted, shaking her head. I just dont know what to say. Our funds are tight and our investors are nervous. I get calls each day, asking me where the 300 passengers are. It wont be easy to squeeze more money out of these people. And to ask them for $15,000 well, I just dont know how were going to be able to justify it.

1. What is the minimum number of passengers Health Cruises must sign up by November 20th to break even? [show your Break-Even calculations]

2. Should Health Cruises go ahead with the cruise since 200 people have signed up by November 14th? Why or why not? Several options/ideas were discussed. Consider each of the following three ideas independently of each other.

3. The advertising agency has proposed two alternative campaigns to help fill the boat (as listed in the directions). Which one of these campaigns would you suggest? [again, show your Break-Even calculations (in # of passengers) and how you came up with your decision].

4. Some board members suggested discounting the remaining cabins and running a price promotion. a. Should Health Cruises consider running a discounted price promotion for remaining cabins? b. Why or why not? c. What other factors could impact the go/no-go decision in addition to the breakeven?

5. Starting with the next cruise, Health Cruises has been approached by the On-a-Whim Agency to act as travel agent and representative in booking the Health Cruise. On-a-Whim requires a selling commission of 20% of the cruise price. Health Cruises fixed and variable costs will remain the same due to on-going expenses and advertising.

a. How much revenue would Health Cruises receive from each customer? [Hint You must factor in the On-a-Whim commission.

b. What is the new break-even [show your Break-Even calculations in # of passengers]?

c. Would you recommend that Health Cruises hire On-a-Whim and why or why not?