Posted On March 29, 2017
Environmental Analysis ??“ IFAS & EFAS
a. Internal Factors Analysis Summary
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Carnival Corporation is the leading company in the cruise ship industry as of today; it is considered a pioneer in its field and became more popular after the idea of shorter and affordable cruises. One of the slogans that Carnival uses to promote their vacation cruises is ???The Fun Ships???, which is the way the company refers to the cruise line. Carnival is well known for creating entertainment fun cruises targeting all ages,
But most of their accomplishments are the result of the marketing campaign aiming young people and even kids. The company created a mascot called ???Fun ship Freddy???, the mascot wears the company colors (red, white, blue) and the head is shaped like a whales tail. According to an article in FamilyTravelFiles.com, a vacation resource for families, they forecast that the number of children vacationing this year aboard Carnival Cruise Lines??™ ???Fun Ships,??? is expected to reach 600,000, a six fold increase from just 12 years ago. ???At Carnival, we take ???fun??™ very seriously and the ???Fun Ships??™??™ numerous kid-friendly amenities, enthusiastic youth counselors and spacious state-of-the-art facilities provide the ultimate family vacation,??? said Micky Arison, Carnival??™s CEO. Carnival, which carries more kids than any other cruise line, offers the cruise industry??™s top rated children??™s program, ???Camp Carnival.???.
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* Presently, Carnival uses a Divisional Structure that consist in two entities; Carnival Corporation and Carnival Plc, both of these run as separate legal entities. According to Google Finance, Carnival Corporation common stock is traded on the New York Stock Exchange under the symbol CCL. Carnival plc is traded on the London Stock Exchange under the symbol CCL and as an ADS on the New York Stock Exchange under the symbol CUK. Carnival is the only company in the world to be included in both the S&P 500 index in the US and the FTSE 100 index in the UK.
* As mention above, Carnival Corporation & plc is the largest cruise vacation group in the world, with cruise brands in North America, Europe, Australia and Asia, comprised of Carnival Cruise Lines, Holland America Line, Princess Cruises, The Yachts of Seabourn, AIDA Cruises, Costa Cruises, Cunard Line, Ibero Cruises, Ocean Village, P&O Cruises and P&O Cruises Australia.
* Carnival current management is constant with its plans to keep expanding internationally into growing markets, despite the global economic recession.
Commenting on the third quarter, Arison said, ???Despite ongoing economic concerns, cruise ticket prices remained strong close to sailing rewarding consumers that booked early. We enjoyed robust demand across all products during our seasonally strong summer period. Our North American brands experienced a significant rebound in peak season revenue yields, increasing more than 10 percent over weak 2009 comparisons. Revenue yields for our European brands, which absorbed an 8 percent capacity increase, were up 1 percent (constant dollars) cycling relatively strong performance in the prior year. At the same time, our ongoing cost control efforts continued to bear fruit as we drove down operating, selling and administrative costs globally.???
b. External Factors Analysis Summary
Carnivals market? share in the cruise industry is approximately 25%. The two main competitors are Royal Caribbean and Disney cruises. Stewart Chiron, a cruise industry expert who is nationally recognized as “The Cruise Guy,” says that Disney cruises have a good chance of growth because the recognized brand name. In addition, Disney is offering a very good deal called ???Kids Sail Free???, which includes passengers aged 12 and under sail free when accompanied by two full-fare paying guests in the same stateroom. This deal is targeting directly one of Carnival??™s strong market and may affect the sales of the company in the future.
On September 21, 2010, the company released a cautionary note relating to external factors that may affect future results.
These factors include the following:
* General economic and business conditions, including fuel price increases, high unemployment and underemployment.
* Rates, increasing taxation, and declines in the securities, real estate and other markets, and perceptions of the global economic conditions may adversely impact the levels of Carnival Corporation & plc??™s potential vacationers.
* Fluctuations in foreign currency exchange rates, particularly the movement of the U.S. dollar against the euro, sterling and the Australian and Canadian dollars.
* The international political climate, armed conflicts, terrorist and pirate attacks and threats thereof, and other world events affecting the safety and security of travel.
* Competition from and overcapacity in both the cruise ship and land-based vacation industries.
* Changing consumer preferences, lack of acceptance of new itineraries, products and services by Carnival Corporation & plcs guests.
* Carnival Corporation & plc??™s ability to maintain good relations with employee unions; accidents, the spread of contagious diseases and threats thereof.
* Adverse weather conditions or natural disasters, such as hurricanes, earthquakes and volcanic eruptions, and other incidents.
* Oil spills, alteration of cruise itineraries or cancellation of a cruise or series of cruises or tours.
* Adverse publicity concerning the cruise industry in general, or Carnival Corporation & plc in particular, including any adverse impact that cruising may have on the marine environment; changes in and compliance with laws and regulations relating to the protection of disabled persons, employment, environmental, health, safety, security, tax and other regulatory regimes under which Carnival Corporation & plc operate.
Cruise Line Industry
Before the airline industry dominated the market and changed the way people used to travel from one place to another, the preferred mode of transportation was overseas travel. Ships were primarily used to get from point A to B, where the most common route was from New York to London. However, with the invention of the airplane and its introduction to the market by Boeing, boat traveling was no longer economically feasible and was considered old-fashioned. As a result, after the 1970??™s, cruise line companies launched the new idea of ???the cruise experience???, were people could take a cruise for a pleasurable vacation in modern luxury ships. Undoubtedly, this shift from necessity to luxury cruise vacation marked a new era for this industry and opened the doors for new companies to penetrate the market and be successful. The six forces model designed by Michael Porter is a business strategy tool used to analyze an industry and its structure trough the identification of diverse factors, such as threat of new entrants, rivalry among existing firms, threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers, and relative power of other stakeholders. The following analysis will allow us to examine the structure of the cruise line industry and the competitive strategies developed by its members that enable them to remain profitable.
1. Threats of New Entrants (Low)
Existing companies are always threatened by the presence of new competitors, which could influence customers??™ loyalty, product or service quality, and even prices at any time. Nevertheless, the threat of new entrants is usually dependent on the level of entry barriers that possesses each industry. For this specific industry, the threat of new entries is quite low because of the economies of scales, dominated mainly by the two largest companies in the market ??“ Carnival Corporation and Royal Caribbean Ltd., and the significant capital requirements necessary to operate.
1.1 Economies of Scale: companies like Carnival, Royal Caribbean, and NCL mainly contributed to the success of the industry by a massive market penetration. They dominated the market by implementing bigger ships to gain economies of scale, offering lower prices for the vacation packages, and generating revenues from on-cruise activities, such as bars, casinos, malls, spas, and nightclubs. For instance, a decade ago, the largest ship was about 70,000 tons; however, we now have ships as big as 220,000 tons. Moreover, another strategic movement done by cruise firms, which allow them to get economies of scale and reduce operation costs, was the acquisition and mergers between them. A good example is Carnival Corporation, who started acquiring cruise lines in 1980 and by 2003, they owned seven major companies.
1.2 Product Differentiation: cruise companies sell ???the cruise experience???. What differentiates one company from other competitors is the quality of services and activities offered onboard and unique destinations. For instance, Carnival Corporation, today considered is the market leader in the low-price cruise industry with an outstanding success for more than a decade. However, this tremendous success has encourage new entrants, such as EasyCruise, to penetrate the market and be profitable based on the same low-cost carrier model. In the same manner, Norwegian Cruise Line promotes the concept of ???freestyle cruising???, meaning that no-formal attire is required onboard neither they have formal eating schedule. In other words, nothing is formal during the whole experience when cruising with NCL.
1.3 Capital Requirements: the considerable amount of financial resources necessary to operate may hold new players to enter the market. The extremely high cost of acquiring or selling a single ship, and most importantly, the cost of operation and maintenance represent a critical barrier to new players. What??™s more, a new designed ship with innovative amenities usually attracts travelers and encourages them to pay extra money to enjoy these new activities. However, vacationers are only willing to pay these extra bucks when the vessel makes its debut; thereafter, competitors also come up with new ideas at no extra cost and force other companies to drive their prices down. For instance, Royal Caribbean experienced a similar situation when they introduced its Voyager-class ships with onboard attractive innovations, such as ice skating, roller-blading, and rock-climbing mountains. They attempted to charge an extra cost for these amenities, but this only lasted few trips.
1.4 Switching Costs: in this particular industry, prices, onboard amenities and destinations represent what drive cruising travelers to buy a vacation package. Therefore, switching from one company to another is very common. Loyal customers are mainly present in those luxury lines such as Seabourn, Silver Sea, or Regent Seven Sea, which offer a ???first-class??? and truly ???all-inclusive??? cruising experience.
1.5 Government Policy: there exist stringent state, federal, and international standards that the cruise industry must abide. Numerous acts and treaties have been signed that regulate and penalize waste discharge from vessels and oil pollution. For instance, the U.S. Resource Conservation and Recovery Act (RCRA) of 1986, oversee landfills and waste disposal from all commercial ships. Similarly, the U.S. coast guard is in the final stage of enforcing a law that prevents foreign aquatic species to penetrate internal waters. In addition, the International Maritime Organization is an agency of the United Nations that is in charge of international safety regulations and standards of ship??™s operations.
2. Rivalry Among Existing Firms (High)
This force emphasizes the level of competition among existing companies in a given industry. Certainly, high levels of pressure forces competitors to battle on prices, margins of profitability, and the quality of products or services offered. The cruise line industry is a very competitive market around the world. The companies within this industry usually try to make the most profit out of onboard amenities and by owing a considerable portion of the businesses established at the cruise ports. In addition, cruise line companies have even acquired inhabited islands, which allow them to have full control of every dollar spent and the flow of visitors.
2.1 Rate of Industry Growth: since the foundation of Carnival Corporation, the cruise line industry has experience significant growth and success. This also has contributed to fierce competition on prices and amenities offered by competitors. This industry is categorized as one of the fastest growing travel industries, accomplishing a 2100% growth since 1970. According to the Cruise Line International Association (CLIA), 13.5 million people went in a cruise vacation in 2009, and an approximate 14.3 million travelers are expected to cruise in 2010. Since 1990, the industry presents an annual growth of approximately 7.5%. In spite of the economic crisis of 2008, the industry remained strong and growing. The fact that cruising is more a global phenomenon allowed cruise companies to somehow protect themselves from harsh economic times in the U.S.
2.3 Product or Service Characteristic: the cruise experience has been incredibly diversified, where there exist a cruise vacation package that meets almost everyone needs. Cruise companies have focused on market research to explore the customers??™ needs, which have contributed to the addition of new vessels, innovative designs and sizes, new onboard and off-shore activities, and new attractive port destinations. Companies such as Royal Caribbean are changing the way everyone in the ship has access to any place, no matter the category of the stateroom booked. Instead, the CEO pointed out that those guests paying the price for top-accommodations must receive a special treatment outside their stateroom. Similarly, Norwegian Cruise Line posses their own villas with private pool and courtyard access. What??™s more, Carnival is innovating and trying to attract different targets by including adults-only decks spaces or family friendly water parks. Certainly, destinations by itself are not the main selling point; instead, travelers are more into the whole experience of being on board.
3. Threat of Substitute Products or Services (Low)
The existence of alternate products may intimidate companies if these are affordable at lower prices or provide better performance compared to the product or service in question; thus, affecting the sales volume and prices of existing firms. Even though, the launching of commercial jets in 1960s really impacted the cruise line industry, today, the prices of cruise vacations are approximately ???20% to 50% cheaper than land-based vacations???. The idea of selling a cruise-vacation experience, where people can have it all in one place and at the same time visit various destinations, makes the cruise line industry very attractive and not comparable all the hassle that people must go through when air traveling to reach to a specific destination and going to a resort in order to make a pleasure trip. Potential substitute products, such as all-inclusive hotels, rental homes, and timeshares do not really threatened the market, since none of these products alone offered the same cruise experience.
4. Bargaining Power of Buyers (High).
Traditionally, the primary buyers of cruise vacation packages are travel agents. They had significant influence over cruise travelers by recommending the best cruise line in the market. However, in today??™s world, the access to the Internet and the creation of cruise line websites have allowed travelers to have direct access to their pages and shop around to find the best prices. Nonetheless, the Cruise Line International Association (CLIA) reported that 90% of the cruise vacations are still booked through travel agencies.
5. Bargaining Power of Suppliers (High-low):
On the one hand, the manufacturers of vessels have a significant power over this industry having only three major manufacturers of these giant ships. Additionally, a rise in the price of fuel considerably affects the cruise line industry; thus, the power of fuel suppliers play a critical role and can potentially manipulate the cruise companies to increase their ticket prices. On the other hand, the cruise sector is part of network of suppliers that provides from food to security services. These vendors do not specifically have a significant impact, since cruise companies can obtain these products and services from the supplier that offers the best price.
6. Relative Power of Other Stakeholders (Low):
Even though, the economic downturns, rising of fuel prices and armed conflicts have not potentially threatened the market, cruise companies have been forced to reconsider their investments in new and innovative vessels and reduce their staff. On the other hand, environmental issues, living, and working safety conditions are now a serious concern for this particular industry. For instances, individuals working on board usually sign contracts for months (4 to 6 months), where they literally have to work seven days week during the contract period. The people who live at port cities usually observe how clean and neat these ships look, but in reality we do not realize at what cost these ships are so nice and neat. Workers, such as those in the laundry room, galleys, and below deck are usually brought from third-well countries and paid substandard wages, with marginal living conditions, and inadequate alimentation. Cruise companies must take an ethical and responsible position to address these issues, in order to maintain the particular success and profitability that it has experienced since 1980.
The Carnival Corporation & PLC mission statement can be found on their website.
???Our mission is to deliver exceptional vacation experiences through the worlds best-known cruise brands that cater to a variety of different lifestyles and budgets, all at an outstanding value unrivaled on land or at sea.???
A mission statement cannot be found on any of the web sites for the individual cruise lines that Carnival Corporation & PLC operates.
This case will limit the analysis to the ???cruise experience??™ portion of their mission and thus interpret all findings with that focus in mind.
Opportunities and Threats (SWOT)
Natural Physical Environment: Sustainability Issues
* Threat of Hurricanes and Earthquakes
* Global Warming is a big issue
* Still haven??™t recovered from recession.
* Not much disposable income, cheap airfares, threat, fuel prices uncertain which might cause the prices to go up
* Internet, Cell Phone coverage on ships
* New Passport requirements to destinations where it was not required before.
* The baby-boomers generation retiring
Strategic Alternatives and Recommended Strategies
Functional- Human Resources / Pause (Proceed with Caution Strategy)
Human Resource Concern
Exploitation of people from developing countries has been brought to the attention of the public. This draws negative attention to the cruise giant and these accusations have hindered the maximum guest capability for the corporation.
Carnival Corporation is an organization based out of the United States. The company has been accused of hiring employees from different countries for the purpose of exploitation. The issue arrives when there is query of taking advantage of these workers. Some of these individuals are never seen by ship sailing guests because they work below deck. Carnival has a strict Codes of Business and Ethics policy that enforces ethical treatment of all employees. Carnival strictly adheres to their business and ethics policy. Carnival Corporation applicants exceed the demand for all cruise positions and ???records showed that employees remained with the company for approximately eight years??? therefore many employees are content with their quality of work and treatment.
* They coin themselves as being extremely diversified and comprised of over 100 different nationalities.
* Carnival provides medial healthcare to its employees onboard the ship
* Carnival is the only cruiseline in the industry to offer a retirement plan and a career center for the training of new professionals into cruiseline careers for enrichment opportunities
* Carnival employees work 10-16 hour days, six days per week.
* Carnival admits, ???Many shipboard employees earn much more than they would in their home countries??? which means compared to wages paid in the United States cruise employees get paid significantly below the average wage
Functional- Research and Development
In 2002 Carnival Cruise Lines plead guilty in South Florida to federal charges associated with improperly disposing of waste and for falsifying records. This disposal included dumping of oily residue, trash and sewage in the ocean. This was not the first or last altercation with regulators for this type of conduct. Carnival can lose a rather large quantity of business if competitors begin to promote a more earth friendly cruise line. This problem lies in the controlling phase. Carnival has made attempts to correct this issue. It is recommended that Carnival Corporation continues to be a part of organizations such as The International Council of Cruise Line and maintain to adhere to the organizational guidelines with promote measures that fosters a safe secure and healthy cruise ship environment.
* Carnival Corporation no longer disposes of any waste at sea, it offloads all waste materials from its ships on land.
* The firm installed recycling containers throughout its ships to allow guests to dispose of food, glass, aluminum and plastics.
* Received the Greater Miami Chamber of Commerce??™s ???Innovation in environmental Practices??? award for its recent efforts to overshadow their past
* Cruiseships emit three times as much carbon dioxide as airplanes
* Carnival Cruise Lines pleaded guilty to federal charges and paid $18 million in fines
Corporate Income Tax
Financial Strategy / Pause (Proceed with Caution Strategy)
Pay Government percentage of earnings
Carnival is the biggest cruise company in the world. Carnival is incorporated in the country Panama. Currently the cruise corporation does not pay income tax to the United States even though its head Carnival is registered as a foreign corporation. The corporation has encountered many challenges with evading paying United States taxes. Carnival had profits of over 1.85 billion dollars in 2009 and the government wants it??™s share.
* There is no threat mentioned by the United States Securities and Exchange Commission that a change in Carnival??™s United States tax status could significantly affect Carnivals future profit growth.
* Some employees are paid mostly in cash, which is difficult to document for bookkeeping purposes.
* Carnival has never paid government taxes and the government may enforce to be paid back taxes
Corporate-Directional-Stability- Pause (Proceed with Caution Strategy)
Safety and Security
Carnival Cruise lines have a track record of suicide attempts and disappearance of passengers. A cruiseship is a floating destination. Cruise ships employ personnel to handle missing persons. These ship officials have been badgered by the media in regards to solving missing persons cases because there have been more than two offenses per year in which there is no final resolution of the case. Cruise officials follow FBI protocols; railings on ships are required to have a height of 39.5 inches high. Records and research indicates that most missing persons from cruise ships ???commit suicide??? or are involved in a ???drinking related incident??? however the family of victims are relentless and want more investigations into their loved one missing.
* Carnival has specific cruise officials to handle disparities
* Carnival employs healthcare professionals (doctors and nurses) onboard ships
* Ships have not been known to report missing people to family immediately.
* There are published cases of ship authorities not searching for a victim immediately
* More cameras are needed on board ships
* Even though cruise officials follow FBI protocols they are not trained FBI officials
Pause (Proceed with Caution Strategy)
The operation of Carnival Corporation is to deliver an extraordinary vacation experience while preserving the marine environment in which they travel. By not disposing of waste at sea the company will be more socially responsible and respected in the industry. It would also save Carnival thousands of dollars in fines and clean up relief. In this day in age, many people are going ???green,??? and want to use a company that has the same beliefs as they do. By cleaning up their act, and being socially responsible and caring for the environment, Carnival may also pick up a new set of clientele.
Carnival is warranted to encourage its current employees to earn more than they would in their homeland, it can deemed as exploitation if persons are held to work against their will without remittance but employees are happy and business is thriving. Carnival Cruise Lines is hiring employees from other countries which are perfectly legal. These people come to work for Carnival in hopes of a better life that they can then provide for themselves or for a family back in their home country. Since Carnival is based out of Panama, one cannot say that Carnival is an American company and therefore cannot be forced to pay the United States minimum wage that they may try to impose on Carnival. Carnival is also not the first company to hire people from very poor countries where one may not have opportunities that other more privileged people in the world may have. Hotels all over the world pride themselves on having a multi-ethnic workforce, so why can??™t a cruise line be the same way
It is also recommended that Carnival use FBI procedures to conduct investigations. FBI officials are hired to ensure that a more diligent and thorough investigation that is concerned with missing persons and suicide cases so that more cases can be resolved then left unanswered. Cruise employees can also be proactive in the effort of solving a case and work with coast guards and other officials to ensure and maintain the safety and security of passengers at all times. With all of these recommendations Carnival Corporation will satisfy its stakeholders financially, ethically
A. PROGRAM OBJECTIVES
To implement an updated recycling system, enhance employee benefit program and incorporate security procedures.
B. PROGRAM ACTIVITIES
1. Update Recycling system, including a daily waste sheet
2. Enchantments of employee benefits
3. Work with the FBI agents on security
ISSUE: Update recycling program, including a daily waste sheet
WHAT HOW WHO WHEN HOW MUCH
Review previous recycling systems in place | Create daily waste sheets | Top management | January 1,2011 | |
| Invest in recycle equipments | Top management | January 15,2011 | |
Implement updated systems | | Top management | February 1,2011 | Establish budgets |
ISSUE: Enchantments of employee benefits
WHAT HOW WHO WHEN HOW MUCH
Increase employee benefits | The money saved from dumping fines and other wastes fines | HR/Top management | January 1,2011 | Determine the budgets for the employee benefits |
ISSUE: Work with the FBI agents on security
WHAT HOW WHO WHEN HOW MUCH
Work with FBI | Use the procedures that are used by the FBI for investigations | All employees | ASAP | Work with the finance department for security department budget |
VII. EVALUATION AND CONTROL
Timeline of events
1972 | Carnival Cruise Lines is founded by entrepreneur Ted Arison. The company??™s first cruise ship was TSS Mardi Gras. |
1974 | Arison purchases Carnival for $1 and the assumption of AITS??™ $5 million in debt. |
1980 | After growing steadily through the acquisition of existing tonnage, Carnival stuns the cruise industry with its plans to build the Tropicale, which entered service in 1982 and fueled an industry-wide shipbuilding boom. |
1987 | Carnival completes an initial public offering of 20 percent of its common stock, generating approximately $400 million. This influx of capital allowed the company to begin expanding through acquisition |
1989 | Carnival purchases premium cruise operator Holland America Line, niche operator Windstar Cruises, Westours (now called Holland America Tours), a leading tour operator in Alaska and the Canadian Rockies |
1993 | The company changes the name of its parent company to Carnival Corporation to distinguish between it and its flagship cruise line. |
1997 | Carnival acquires 50 percent of Costa Cruises, Europe??™s leading cruise company and takes 100 percent ownership of the Italian cruise operator three years later. |
1998 | Carnival acquires a 68 percent stake in the venerable Cunard Line, operator of the famed Queen Elizabeth 2 (Carnival purchases the remaining 32 percent share of Cunard in 1999 and simultaneously takes 100 percent control of Seabourn). |
2003 | A combination of Carnival Corporation and P&O Princess Cruises ??“ comprised of Princess Cruises, P&O Cruises, Ocean Village, AIDA, P&O Cruises Australia, and tour operator Princess Tours ??“ is completed, creating the first global cruise company. |
2008 | Carnival and Spains Orizonia Corporation finalize a new multi-ship joint venture serving the Spanish cruise market. Carnival acquired full ownership of Iberocruceros in 2009. |
2010 | Carnival Corporation & plc is comprised of a portfolio of distinct brands operating in North and South America, the United Kingdom, Germany, Italy, France, Spain and Australia, which account for nearly 90 percent of cruise passengers worldwide. Carnival Corporation & plc??™s fleet comprises 97 ships with 10 new vessels scheduled for delivery between now and May 2014. |
VIII. Evaluation and Control
Carnival Cruise Corp. is continuing to raise their net and gross cruise revenues from 2009, into 2010. Performance measurements are a vital part of a company??™s survival. Many companies find it challenging to determine which method or methods to choose because they have a key role in developing strategies, evaluating organizational objectives, and achieving profitability. As a company, Carnival uses ALBD??™s to measure passenger capacity for the period. They determine the non-capacity driven factors that cause their revenues and expenses to vary with perform rate and capacity variance analysis. Carnival assumes two passengers will occupy each cabin, so they multiply passenger capacity by revenue producing ship operating days in each period. Some companies find it resourceful to measure their performance with non-financial measures to get a better understanding of their performance. Carnival has taken advantage of this theory by using the net cruise revenues per ALBD and net cruise costs per ALBD as a non-GAAP financial measure to segment financial performance. The result allows the company to split the impact of predictable changes from the more unpredictable rate changes that affect company??™s performance. They have come to trust this way of measurement is a better test to measure their revenue and cost performance compared to U.S. GAAP based financial measures. Since a large part of their operations utilize the euro, Carnival monitors the currency exchange rates from the pervious year to ensure the comparative information will be accurately accounted for when measuring revenues and expenses. Carnival??™s continued preservation of a strong balance sheet has been the primary objective of their capital structure. As a company, Carnival is committed to keep an acceptable level of liquidity of available cash and cash equivalents. In addition, they sustain financings for short and long term liquidity needs along with a maturity profile spread out over a number of years to maintain their capital structure.
[ 1 ]. http://www.msnbc.msn.com/id/23674324