By
Michele Withaus |
By mid-2012, with the sparkling new Carnival Breeze launched to an enthusiastic reception and bookings on the rise across all its ships, Carnival could have been forgiven for thinking the tide had turned for the better following the Costa Concordia nightmare of early that year. Offering immersive movie experiences, giant water slides, suspended rope courses, miniature golf and outdoor fitness options, Carnival Breeze put the focus back firmly on fun and on Carnival’s ability to keep on taking it to new levels in its expanding fleet. There are advantages to being part of the largest cruise company in the world and global reach is not the least of these. Carnival Corporation and plc is the only group in the world that can boast inclusion in both the S&P 500 and the FTSE 100 indices. Yet even that power base was rattled during the course of 2012 by the events of January, with reports of significant costs to the company. The continued impact on the leisure industry of the global recession was an added complicating factor.
Yet when the year-end results were announced, the losses to the Carnival group that had been predicted following Concordia had failed to materialise to the expected extent. Revenues for the full year 2012 were US$15.4 billion compared to US$15.8 billion for the prior year – far from the disastrous fall some had feared. The increasing cost of fuel represented a significant proportion of that drop as the company dealt with net unrealised losses on fuel derivatives of US$5 million in the fourth quarter alone – but even here, Carnival had turned it around with savings on fuel consumption (4 per cent) that would stand it in good stead going forward.
With earnings reduced by US$300 million compared to the previous year, the company said stronger than expected revenue yields – combined with lower than expected fuel costs – more than offset higher than anticipated operating costs. All told, the company appeared to have bounced back from the financial and reputational shocks it had received in the dark days of January.
During the fourth quarter, the return to a feel-good mood was confirmed as Carnival Corporation and plc announced it had reached an agreement for the construction of two new cruise ships – a 2,660-passenger ship for its Holland America Line brand to be delivered in 2015 and a 4,000-passenger vessel (the first in a new class) for Carnival Cruise Lines, to be delivered in 2016. This will bring CCL’s total fleet size to 25 out of the group’s 100-plus ships. Both will be the largest ships ever built for their brands. The new ship announcement came almost in lock step with newbuild revelations from Carnival’s two biggest rivals – a day after Royal Caribbean’s order for a sister ship to Oasis of the Seas and a week after Norwegian Cruise Line’s announcement of two new ships for delivery in 2015 and 2017.
So when the news broke on 10 February this year that Carnival Triumph, which entered service in 1999, was becalmed in the gulf of Mexico following an engine fire, it might have seemed as though the cruise line had once again fallen under some dark star of bad luck. Carnival acted quickly to manage the emerging crisis, promising around-the-clock action to get the passengers home – cold comfort to those onboard during the painfully slow progress to shore but the most that was possible under the circumstances. Cahill issued statements assuring compensation and appropriate action and was present on the dock as passengers disembarked at last in Mobile, Alabama. His reaction to the news of the crisis was swift and to the point, touching all the right notes of concern for the line’s guests and commitment to protecting shareholders. “The situation onboard was difficult and we are very sorry for what has happened,” Cahill said. “We pride ourselves on providing our guests with a great vacation experience and clearly we failed in this case.”
Almost as soon as Carnival Triumph’s engines stopped running, the company set out to get the guests home as quickly and safely as possible. Guest compensation and free cruises were the least of it – the vessel would be out of service for at least 14 cruises. Just over a week after the incident, a profits warning was issued by the parent company to shareholders with the reason given as costs due to vessels out of service. The incident underlined how close to the wire the cruise line business can be at any given time. Having the biggest cruise brand on the planet does not provide immunity from the impact of a single unit being knocked out of play for just a few weeks. Drydock and repair fees, combined with the lost revenue from cancelled cruises, add up relentlessly and it takes a strong leader to ride out the storm.
In an industry that is more aware of safety issues than ever before in its history since the Titanic disaster, even the most powerful cruise conglomerate could not make the problem go away overnight. The analogy that springs to mind is the time it takes to bring one of these hulking megaships to a halt; cruise emergencies are often disasters in slow motion.
Although it is possible to see the Carnival Triumph debacle in the more positive light of an averted tragedy, since the safety measures onboard did work to the extent of preventing any deaths or injuries, there is no escaping the hard financial realities that follow this kind of incident.
As president and CEO of Carnival Cruise Lines since July 2007 and previously EVP and chief financial officer for Carnival Corporation & plc, Cahill is no stranger to either the pressures of the business or the legendary resilience of the Carnival brands. On the subject of the economic slowdown facing all cruise companies for the last few years, he sees plenty of reason for optimism. “Carnival Cruise Lines continues to perform well despite the challenging economy both in North America and in Europe,” says Cahill. “We expect to carry a record 4.5 million passengers this year aboard our 24 ships, which is a testament to the quality and value of our product.”
Carnival Breeze, in fact, broke several records: the 130,000-ton, 3,690-passenger ship was the first of the line’s vessels to feature all of the new Fun Ship 2.0 entertainment elements; it also holds pride of place as the largest in Carnival’s European fleet and the biggest South Florida-based ship.
Carnival’s parent company remains committed to what it has called a ‘measured growth strategy’ through the introduction of two to three new ships per year across its 10 brands. The reduction in new ship orders that caused concern in the industry when the global economic crisis began to impact on cash flow available for newbuilds has become the ‘new normal’. However, a trend that has been noticeable over the last couple of years is that, with fewer ships to introduce to the market, operators are investing more in each one that does appear.
This is an abridged version of an article that appeared in the Spring/Summer 2013 edition of International Cruise & Ferry Review. To read the full article, you can subscribe to the magazine in printed or digital formats.