The Association of Case ima ountants and Financial Professionals in Business IMA EDUCATIONAL Case JournalStu SSN 1940-204X Sunk Costs: What Costs Do You Sea? Cari Edison Katy Hurt Marty Stubs Baylor University Baylor Unicersity and leisure activities to affluent passengers and generally were not designed to cater to the general population. In BACKGROUND Festival Craise Lines (FCLX a publicly traded company on the 1960s, cruise ship companies began shifting operations both the New York Stock Exchange (NYSE) and London Stock Exchange, is the largest cruise company in the world. FCL. serves as the parent company for four primary subsidiaries-a broad spectrum of cruise line brands that to attract a beoader spectrum of middle-income clientele. While premium ships were still available, the days of the afluent Titanic-style voyages were becoming a thing of the past. Price competition began to slowly enter the market and dramatically increased in recent years. Call it the "Walmart- ization" of the cruise ship industry. The recent downturm in the economy put real pressure on potential passengers cater to a variety of cruise vacationers. At the low end, the first FCL. subsidiary, Festival, offers an affordable cruise experience to a wide varicty of cost-conscious customers. Other FCL subsidiaries, like Goddess Cruise Lines American Swiss Cruise Lines, and Deanuc Cruise Lines, offer progressively higher-quality cruise experiences for correspondingly higher price premiums. FCL is domiciled discretionary income and, as a result, cruise ship prices. Containing and controlling costs in this environment is critical to a cruise ship company's success. The cruise industry is also a bigh-fixcd-cost industny. A cypical craise ship can.cost $500 million, and larger and intemationally and has two beadquarters located in Doral, Fla, an industrial area of Miami, and Southampton, England.larger ships are being built. Given the enormous fixed costs, FCLs Festival subsidiary began entertaining passengers on its Happy Boats in 1972. Today, it employs upwards of 90,000 crew members who serve more than 3.5 million cruise passengers annually on a fleet of 24 ships. Cruises generally range from three to 18 days in duration, and the cruise is the most common. Ships venture to a wide variety of world-wide destinations, including New Zealand, Tahiti, one of the greatest challenges facing the cruise ship industry today is utilizing capacity-filling ships with passengers and generating revenue. Festival's bottom line is extremely dependent on cruise ship passengers and ship occupancy levels, Projecting a healthy reputation to attract customers and maintain occupancy levels is important. Festival generally has an impeccable history of safety But increased competition and economic pressures in the industry recently created an additional bottom-line focus on cost control. Many safety repairs and investments had been New England, Alaska, the Mexican Riviera, Caribbean, Mediterranean, and many more. Festival finds itself in an industry that has evolved over the last century. The cruise ship industry was born in 184. tbled and delayed to increase ship turnaround, time at sea, Focus shifted from carrying cargo to pleasing customers, and superliners were being developed by the early 20th revenue utilization, and ultimately profits. In1998, Festival ran into its first instance of trouble with a passenger-filled ips provided an abundance of fine dining ship. Since that time, more than five ships have encountered IMA EDUCATIONAL CASE JOURNAL VOL. 7, NO.1 AST2, SEPTEMBER 2014 The Association of Case ima ountants and Financial Professionals in Business IMA EDUCATIONAL Case JournalStu SSN 1940-204X Sunk Costs: What Costs Do You Sea? Cari Edison Katy Hurt Marty Stubs Baylor University Baylor Unicersity and leisure activities to affluent passengers and generally were not designed to cater to the general population. In BACKGROUND Festival Craise Lines (FCLX a publicly traded company on the 1960s, cruise ship companies began shifting operations both the New York Stock Exchange (NYSE) and London Stock Exchange, is the largest cruise company in the world. FCL. serves as the parent company for four primary subsidiaries-a broad spectrum of cruise line brands that to attract a beoader spectrum of middle-income clientele. While premium ships were still available, the days of the afluent Titanic-style voyages were becoming a thing of the past. Price competition began to slowly enter the market and dramatically increased in recent years. Call it the "Walmart- ization" of the cruise ship industry. The recent downturm in the economy put real pressure on potential passengers cater to a variety of cruise vacationers. At the low end, the first FCL. subsidiary, Festival, offers an affordable cruise experience to a wide varicty of cost-conscious customers. Other FCL subsidiaries, like Goddess Cruise Lines American Swiss Cruise Lines, and Deanuc Cruise Lines, offer progressively higher-quality cruise experiences for correspondingly higher price premiums. FCL is domiciled discretionary income and, as a result, cruise ship prices. Containing and controlling costs in this environment is critical to a cruise ship company's success. The cruise industry is also a bigh-fixcd-cost industny. A cypical craise ship can.cost $500 million, and larger and intemationally and has two beadquarters located in Doral, Fla, an industrial area of Miami, and Southampton, England.larger ships are being built. Given the enormous fixed costs, FCLs Festival subsidiary began entertaining passengers on its Happy Boats in 1972. Today, it employs upwards of 90,000 crew members who serve more than 3.5 million cruise passengers annually on a fleet of 24 ships. Cruises generally range from three to 18 days in duration, and the cruise is the most common. Ships venture to a wide variety of world-wide destinations, including New Zealand, Tahiti, one of the greatest challenges facing the cruise ship industry today is utilizing capacity-filling ships with passengers and generating revenue. Festival's bottom line is extremely dependent on cruise ship passengers and ship occupancy levels, Projecting a healthy reputation to attract customers and maintain occupancy levels is important. Festival generally has an impeccable history of safety But increased competition and economic pressures in the industry recently created an additional bottom-line focus on cost control. Many safety repairs and investments had been New England, Alaska, the Mexican Riviera, Caribbean, Mediterranean, and many more. Festival finds itself in an industry that has evolved over the last century. The cruise ship industry was born in 184. tbled and delayed to increase ship turnaround, time at sea, Focus shifted from carrying cargo to pleasing customers, and superliners were being developed by the early 20th revenue utilization, and ultimately profits. In1998, Festival ran into its first instance of trouble with a passenger-filled ips provided an abundance of fine dining ship. Since that time, more than five ships have encountered IMA EDUCATIONAL CASE JOURNAL VOL. 7, NO.1 AST2, SEPTEMBER 2014