Carnival Shuffles The Decks

CARNIVAL SHUFFLES THE DECKS

By Shawn J. Dake

Carnival Funnels, photo © Shawn J Dake
Carnival Funnels, photo © Shawn J Dake

The stunning announcement today, June 25th, that Carnival Corporation Chairman and CEO Micky Arison is stepping down from the leadership position as CEO is the latest episode in an ongoing saga following a series of troubling events that have seen public opinion of the world’s largest cruise shipping firm in a state of decline. Arison has been CEO at Carnival Cruise Lines for 34 years since assuming that position in 1979, following in the footsteps of his father Ted Arison, the company’s founder. Effective July 3rd Arnold Donald will become the new CEO of Carnival, marking the first time since the line’s founding in 1972 that an Arison has not been at the helm. Of course the corporate structure of today’s Carnival is a far cry from the one-ship company Ted Arison created and built beginning with the MARDI GRAS. Across their 10 brands, Carnival Corporation & PLC now has 102 vessels with more still to come.

It has been quite a week for Micky Arison with the Miami Heat basketball team winning their second consecutive NBA victory. He owns the sports franchise and has been actively involved with the team over the years. In 2011 he skipped the christening ceremony of the SEABOURN QUEST to attend a playoff game against the Dallas Mavericks in what turned out to be The Heat’s last losing effort. This week the Carnival Board Of Directors voted him out of the CEO position although he will remain as Chairman. The company downplays the significance of the event saying it is simply a realignment of corporate responsibilities splitting the roles of Chairman and CEO. A statement from Arison says “I have been discussing this with the board for some time now and feel the timing is right to align our company with corporate governance best practices and turn over the reins after 34 years as CEO.”

Not too much is known within the cruise industry about the new CEO Arnold Donald, although he has been a member of the Carnival board since 2003. He has no previous operational experience in the cruise industry. He is currently a principal in a private investment firm and sits on the board of directors for Bank Of America. Previously the 58-year old executive has served as president of Monsanto’s nutrition and consumer divisions followed by a stint from 2000-2005 as chairman of the Merisant Company, the manufacturer of sweetener products such as Equal. The thinking at Carnival appears to be that the company will benefit from someone with an outsiders perspective.

CARNIVAL TRIUMPH, courtesy Carnival Cruise Lines
CARNIVAL TRIUMPH, courtesy Carnival Cruise Lines

Both Carnival as a cruise line and Carnival as a corporation have suffered from a series of negative events over the past two years. Carnival received especially bad publicity with a trio of breakdowns resulting in cancelled cruises beginning with the 113,300 gross ton CARNIVAL SPLENDOR losing power off Baja California in November, 2010 and being sidelined for four months. This was followed by the engine room fire, February 10th of this year on the 101,509 gross ton CARNIVAL TRIUMPH. The blaze left the ship without power, adrift in the Gulf Of Mexico with 3,143 passengers and 1,086 crew aboard . Horror stories of the odor from non-functioning toilets and the heat onboard were widely covered by all forms of media and don’t need to be repeated here. Just a month later the 130,000 gross ton CARNIVAL DREAM, built in 2009, found itself stranded at Phillipsburg, St. Maarten following a breakdown of the backup emergency generator. Rather than risk the publicity of another ship without power at sea, Carnival chose to have the vessel remain in port and flew the 4,363 passengers onboard home. All of these incidents pale in comparison to the spectacular grounding and loss of the 114,147 gross ton COSTA CONCORDIA in February 2012 resulting in the deaths of 32 passengers. Unquestionably the public’s trust in cruise lines, and Carnival in particular, has continued to drop. A Harris poll shows that 56% of respondents who had never taken a cruise were now less likely to take one than they had been a year ago. It also showed that the trust level in Carnival specifically had declined by 26% since before the CARNIVAL TRIUMPH incident. While Carnival Corporation is still reporting massive profits, $41 million in net income for the second quarter, the number of advance bookings are lagging. The problem is at the corporation’s largest brand, Carnival Cruise Lines. The other nine brands in the corporate portfolio are actually performing well. “Booking volumes for Carnival Cruise Lines during the same period are running behind the prior year at lower prices,” Carnival stated.

In an attempt to rectify the situation Carnival Cruise Lines has initiated a $300 million fleet improvement program, primarily in an attempt to avoid many of the technical problems encountered this year. Enhancements will include additional emergency power capabilities, introducing new fire safety technology, and improving the level of operating redundancies which includes a separate generator specifically to operate all of the toilets, elevators and fresh water systems aboard each ship. All twenty-four-ships in the Carnival fleet will receive the upgrades. Amidst all the turmoil, in early June it was announced that former president Bob Dickinson, who retired in 2007, would be brought back as a consultant for the parent company. Following a corporate review, he is already attempting to initiate better communications with the travel industry. Relations with travel agents in particular have been strained in recent years. What were once euphemistically referred to as port charges are now inflated under the much more direct name of “non-commissionable fees” which are sometimes as high or higher than the fare itself, decimating earnings. The field sales force has been virtually eliminated and most reservation functions must be performed on Carnival’s website rather than handling even the most complex tasks by telephone, which are just a few of the many onerous changes to the supplier-retail relationship. Along with the public, those that book the cruises will need to be won back.

Management shakeups have been going on amidst other companies in the Carnival group recently. Seabourn Cruise Line moved from Florida and was fully integrated into the Holland America Line offices in Seattle. Not surprisingly, last year saw changes in the senior management at Costa. Most recently Cunard Line saw the firing of president Peter Shanks who was replaced in June by Carnival UK chief executive David Dingle who takes over as chief executive for both Cunard and P&O Cruises. Sales volumes and revenues are both down at the British-based lines, but that may have much more to do with Carnival’s cutting commission compensation to the travel trade to 5% in the U.K., while their competition maintains the widely accepted rate of 10%. The new head also plans to diminish the dependence on the older, traditional clientele of Cunard Line, saying “I want to bring in newcomers to the brands and newcomers happen to have a lower average age.” It remains to be seen just how much improvement or damage the British lines will see under these new policies.

Major shifts in corporate realignment or deeper internal troubles, these recent actions clearly show a company in turmoil trying to regain their footing in an industry that they have dominated. The departure of Micky Arison as CEO is the most dramatic event to occur in the board room following a string of problems on the high seas.

Shawn Dake

Shawn Dake

Shawn J. Dake, freelance travel writer and regular contributor to MaritimeMatters, worked in tourism and cruise industry for over 35 years.  A native of Southern California, his first job was as a tour guide aboard the Queen Mary.  A frequent lecturer on ship-related topics he has appeared on TV programs.  Owner of Oceans Away Cruises & Travel agency, he served as President of the local Chapter of Steamship Historical Society of America.  With a love of the sea, he is a veteran of 115 cruises.
Shawn Dake
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