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Carnival woes

The lessons have been learnt

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By Mike Jarrett

When Micky Arison took on the job of CEO at Carnival in 1979 the company had just three cruise ships. The Carnival brand was generating less than US$50 million in annual revenues and was holidaying less than 200,000 passengers a year. In less than 10 years, under his leadership, Carnival Cruise Lines had become the largest cruise ship line on the planet.

The shrewd Arison made the company a public corporation and thereafter led an aggressive growth strategy which saw Carnival acquiring a number of its competitors including Costa, Cunard, Holland America and Seabourn. By the turn of the century, Carnival was already moving to the next level and by 2003 the world became aware of its merger with P&O Princess Cruises, a public limited company comprising Princess Cruises, P&O Cruises (UK), P&O Cruises (Australia) and the German cruise line AIDA. 

Arison led the process that made Carnival into the first global cruise line. From three ships, fewer than 200,000 passengers and annual revenues of less than US$50 million, Arison took the company to dizzying heights – over 100 ships across all brands, 10 million passengers a year and annual revenues surpassing US$15 billion.

The cruise world was understandably in a state of shock, therefore, when Carnival announced earlier this year that Micky Arison was no longer to be CEO. His name had been linked to the brand and its meteoric growth for almost its entire history. He had been board chairman and CEO; but, as the company announced, the two roles were to be separated. Arison would be retained as board chairman but Arnold W. Donald, a Carnival director for 12 years, would assume Micky’s day job.

Arison vacated the office with Carnival’s second-quarter profits at five cents a share, more than twice its value over 12 months. However, revenues were down by 1.7% to US$3.48 billion according to some sources. The decline in revenue was not the only problem the new CEO found on his desk. On top of this was a litany of woes including dozens of dead passengers; lawsuits for compensation; malfunctioning ships; and a tsunami of bad publicity across its entire global market.

Accident

• On 13th January 2012 its Costa Concordia (operated by a unit of Carnival) ran aground and capsized off the coast of Italy, killing 32 persons and triggering a mass of lawsuits and criminal charges brought against the crew. In July last, a court in Italy convicted five crew for manslaughter resulting from the accident off Giglio Island. Two officers, the helmsman, the head of cabin service and the head of the crisis team were given sentences of up to two years and 10 months in jail for multiple manslaughter, negligence and shipwreck. Capt. Francesco Schettino, being tried separately, was facing multiple manslaughter charges and for abandoning the ship with thousands of passengers on board. His case was scheduled to resume on 23rd September 2013 and his request for a plea bargain was rejected.

Gunpoint

• In February last year 22 passengers of the Carnival Splendor were robbed at gunpoint in Mexico as they travelled by bus from a nature hike in the jungle to the Mexican port city of Puerto Vallarta, according to cruise ship officials and local media reports. A little more than a year previously, on 8th November 2010, on the second day of a sailing from Long Beach, California, to the Mexican Riviera, the number five diesel generator on this ship had ‘a mechanical error’ (as reported by the US Coast Guard) which ultimately caused a fire and disabled the ship.

• In February this year an engine room fire resulting in a power outage on the Carnival Triumph left more than 4,000 passengers and crew stranded in the Gulf of Mexico for five agonizing days. The resulting hardships for passengers included blocked toilets; and the disgustingly graphic images of sewage running down corridors were published and broadcast all over the world, earning the nickname ‘the poop cruise’.

The Carnival Triumph nightmare of February was followed just a few weeks later by more distress for passengers and bad publicity for Carnival involving three other vessels: Carnival Legend, Carnival Dream and Carnival Elation.

• In March 2013 a seven-day cruise by the Carnival Legend was brought to an abrupt end. The ship was unable to sail at optimal speed and the cruise was cut short off the coast of Honduras, bringing the Caribbean holiday to a premature end for its approximately 2,500 passengers. There were no safety issues here, the company announced. The Carnival Legend had technical problems with one of its Azipod propulsion units which affected the vessel’s sailing speed.

• On 14th March the Los Angeles Times reported: “Carnival Cruises has another stalled ship, this one beset with an emergency power malfunction, and is preparing to fly passengers home from the Caribbean island of St. Maarten.” Passengers on the Carnival Dream were, indeed, taken off the ship after their cruise from Port Canaveral, Florida, stalled at port with a generator problem. Carnival officials said the ship never lost power but they admitted there were problems with elevators and toilets after some passengers complained and started posting comments on the internet.

• The Carnival Elation also ran into problems early in March 2013 with its Azipod propulsion/steering units and had to be escorted back to port by a tug as it began its voyage from New Orleans. Carnival officials said the Carnival Elation had “a minor issue with the steering function of one of its two Azipod units”; that both units were operational; but that “the steering function of one has been temporarily taken offline until it can be repaired”.

By the end of March, Carnival had announced cancellations of a number of voyages as it moved to fix the problems.

US Senate takes interest

Even as Carnival announced plans to set this right, the United States Senate began to take an interest. In May the Senate Committee on Commerce, Science and Transportation made public that its chairman, Jay Rockefeller (Democrat, West Virginia) had written to the three largest cruise liners about their passenger safety, security, and health practices.

“The cruise industry enjoys many advantages operating out of the United States, but the advantages to American consumers and taxpayers are less clear,” said Mr. Rockefeller.

“Recent cruise ship incidents underscore the need for a strong commitment to passenger safety and security from the entire cruise industry, not just those that wind up on the news most frequently. The responses from the cruise companies will help Congress make sure the rules governing the cruise industry provide passengers with the safe and comfortable travelling experiences they expect and deserve, instead of giving the companies a free pass at taxpayer expense.”

According to a published news release from the US Senate, the letters were part of Mr. Rockefeller’s efforts to provide ‘robust oversight’ of the cruise industry.

And so, in July, the presidents of both Carnival Cruise Lines and Royal Caribbean found themselves before the Senate Committee, fielding questions about operations and safety. Royal Caribbean’s president, According to the Associated Press (AP), Adam Goldstein testified before the committee chaired by Senator Jay Rockefeller about a fire on board the Grandeur of the Seas. According to AP, members of the Senate committee also raised issues pertaining to the reporting of crimes which take place on cruise ships; and, the committee’s chairman introduced a Bill on 23rd July which he referred to as the ‘Cruise Passenger Protection Act’.

Fixing the problems

To its credit, Carnival moved quickly to address all the issues and to protect passengers and its brands. By the end of March the company was already in ‘fix it at all costs’ mode and in the midst of a fleet-wide review. It had already implemented initiatives and new strategies to improve fire prevention, detection and suppression. It had already started to install and/or upgrade back-up systems and had moved to expand the range of passenger amenities that could be supported by emergency power.

In April, the company announced ‘a major initiative encompassing technical, safety and reliability enhancements’.

Carnival Cruise Lines chief executive Gerry Cahill told Reuters: “We are fully committed to applying the recommendations stemming from our fleet-wide review and to make whatever investments are needed despite the difficult decision to impact people’s vacations.”

By mid April, Carnival had announced its willingness to reimburse the US government for the cost to taxpayers of US Coast Guard responses to the crippling incidents on board the Carnival Triumph and Carnival Splendor.

According to published news reports (Los Angeles Times, 17th April 2013), the company announced its intention to spend $300 million to add an extra generator in each ship and to upgrade fire suppression systems. In addition, according to other reports, the line indicated it planned to spend up to US$700 million in improving its ships to avoid incidents like the one which disabled the Carnival Triumph in February.

The system-wide improvements outlined included an increase in emergency generator power across Carnival Cruise Lines’ fleet of 24 ships and additional investments in the newest and most technically advanced fire prevention, detection and suppression systems. There was also unconfirmed talk of all Carnival Cruise Lines ships to have two separate, redundant engine rooms.

Review board

In July it announced the establishment of a new Safety and Reliability Review Board and the appointment of four ‘esteemed maritime and transportation industry experts’: Rear Admiral Mark H. Buzby, Rear Admiral Joseph F. Campbell, Mr. Ray Valeika and Dr. John K. Lauber. According to Carnival, the review board was created to provide independent third-party perspective and to drive continuous improvement across the line’s fleet. The core objectives of the board were to review Carnival Cruise Lines’ current policies, practices and performance and to guide the company in incorporating best practices from other relevant fields and industries.

Rear Admiral Buzby was scheduled to retire from the US Navy on 1st August 2013 after a 34-year career as a Surface Warfare officer. Rear Admiral Campbell was an engineering duty officer in the US Navy for 32 years and commanded Norfolk Naval Shipyard for two separate periods from 2003 to 2006 and from 2012 to 2013. 

Ray Valeika is an aviation operations expert with more than 40 years of experience in managing large airline maintenance operations. Dr. Lauber served as senior vice president and chief product safety officer for Airbus SAS in Toulouse, France, and was vice president for safety and technical affairs for Airbus North America in Washington, DC. The review board will also include technical experts from within Carnival Cruise Lines.

Looking ahead

Will this wave of bad publicity regarding cruise and cruise ships affect the growth and profitability of the rapidly growing worldwide industry? Will Caribbean nations which have invested heavily in cruise port infrastructure and superstructure over the years suffer as a result of Carnival’s string of woes?

Hardly likely. Whereas Carnival may see a decline in profitability over the short term, the future of cruise business is solid and secure. Carnival itself will return to profitability and its misfortunes in 2013 will be soon forgotten once it has fixed the problems and can record a long run of incident-free voyages.

Cruise vacations remain as popular as ever. More than 16 million passengers went on cruises in 2011 on more than 200 ships. This market is not likely to disappear in a hurry or even diminish significantly in the short term. Carnival’s competitors may benefit from its 2013 nightmares, but not for long. Indeed, as soon as Carnival fixes its problems and gets to the next level of prevention and installation of system redundancies, it will be able to resume aggressive and effective marketing strategies.

The lessons for the cruise industry provided by incidents over recent years were many and varied. Collectively, they provided a wealth of information and have awakened the industry to probabilities and potential problems. They have exposed many deficiencies and triggered reviews of procedures and systems. In many respects, the incidents in recent years, and particularly this year, have already contributed to improved safety and reliability of cruise ships.

The cruise industry is better for the tragedies, calamities and setbacks of the recent past. All players – including the industry giant Carnival Corporation – and cruise passengers the world over will benefit from a safer, more reliable industry.

The precious lives lost off Giglio Island and the discomforts suffered by passengers in subsequent incidents were not in vain. 

The lessons have been learnt.