IE 11 is not supported. For an optimal experience visit our site on another browser.

Carnival CEO says industry faces challenges

Carnival Corp. Chief Executive Micky Arison said Thursday that improving infrastructure at ports of call, conserving fuel and knocking down perceptions that cruises are more dangerous than other vacations are some of the challenges facing the cruise industry.
/ Source: The Associated Press

Carnival Corp. Chief Executive Micky Arison said Thursday that improving infrastructure at ports of call, conserving fuel and knocking down perceptions that cruises are more dangerous than other vacations are some of the challenges facing the cruise industry.

Arison, speaking to The Associated Press for Carnival Cruise Lines’ 35th anniversary, also expressed optimism about the long-term health of the Caribbean cruise market and said Carnival would not engage its main competitor, Royal Caribbean International, in a race to build bigger ships.

Carnival Corp. owns 12 brands as the world’s largest cruise operator, with more than 7 million passengers taking trips on Carnival Cruise Lines, Princess Cruises, Costa Cruises and other lines in the Caribbean, Europe and Asia. The company will soon have 11 brands after announcing Thursday a deal to sell Windstar Cruises to Ambassadors International Inc. for $100 million, with closing expected later this year.

Arison pointed out that cruising continues to be a growth industry. The Cruise Lines International Association predicts that 12.6 million passengers will take cruises this year, an increase of 500,000 guests from 2006.

Carnival has 20 ships on order through 2011 and, according to its annual report filed in November, expects market growth of about 5 percent in North America and 9.5 percent in Europe for the next three years. The company was working hard to make Europe more of a year-round destination, Arison said.

“We have the right ships coming to the right brands at the right time,” Arison said. “Even if I could cancel, I wouldn’t cancel an order.”

Arison noted that pricing is down in the Caribbean — where the industry has seen a general softness in demand — and that was negatively affecting net revenue yields. Yields are a key profitability gauge that measure net income earned from passengers per day from cruise tickets and onboard sales.

But he said that while Wall Street analysts may not like that yields and prices are down, the consumer is benefiting from lower prices. Arison said the key Caribbean market would be fine in the long run, but that the company’s marketing arm is working on sparking demand for Caribbean cruises in the short term.

“I’m sure we’re going to carry a record number of guests to the Caribbean this year ... because the industry is growing,” he said.

Another issue affecting the industry is what Arison considers overblown media coverage of stomach illnesses and crimes on cruise ships. Media outlets should not make such a big deal about outbreaks of norovirus on cruise ships because they happen less frequently there than they do in everyday life, he said.

According to Centers for Disease Control and Prevention, Carnival’s brands had 15 reported norovirus outbreaks in 2006. But CDC estimates that 23 million people, or 8 percent of the U.S. population, develop symptoms of norovirus each year, while less than 1 percent of cruise passengers are affected by norovirus.

“It is something that is a struggle for us,” Arison said. “There’s no question that there’s a perception out there by X number of people that there’s a higher risk of getting sick on a cruise ship than another form of vacation, which is terrible. It’s unfortunate and we just have to continue to do what we do and try to minimize the impact.”

Arison said Carnival and other companies had been reporting all crimes before last year’s congressional hearings on cruise safety that stemmed from the highly publicized disappearance of a man from a Royal Caribbean cruise. While he supports working with federal law enforcement on formalizing crime reporting standards, Arison is against the idea of posting those reports on the Internet because no other industry that caters to vacationers — resorts, airplanes, restaurants — is held to the same standard.

“If everybody does the same thing, we’re happy,” Arison said.

Carnival also has put together a team to develop strategies for keeping fuel costs down. Among those are finding more efficient ways to operate lighting, water and air conditioning on cruise ships, and maximize itineraries to reduce fuel consumption.

“Captains in the past may not have been sensitive to the issue of fuel and just go from one port to another and not use their engines the most efficient ways,” Arison said.

Another issue is improving infrastructure in and around ports of call to accommodate more passengers, and ease the strain on heavily traveled destinations. Carnival has developed a port in the Turks and Caicos Islands and is discussing a project in Honduras. Also, Holland America has developed an island in the southern Bahamas called Half Moon Cay, which is also used by Carnival Cruise Lines.

“As we’re adding ships of such big size, we’re putting a lot of strain on that and we have to work with destinations and invest in destination to develop that infrastructure,” Arison said.

Along with the infrastructure issue is the trend of building huge “superliners” led by Royal Caribbean, which currently has the largest cruise ship ever built, the 160,000-ton Freedom of the Seas. Royal Caribbean also has announced plans to build a 220,000-ton ship for $1.24 billion.

Carnival will present its new 110,000-ton ship Carnival Freedom on March 4 in Italy and has exercised its option for a 130,000-ton vessel. However, Arison seems content to let his main cruise competitor own the world’s largest cruise ship.

“The reality is that we’re looking to build the right products for our brands,” Arison said. “There comes a time where there’s so many inherent issues with size, flexibility, strain on infrastructure, we’re putting a lot of strain on ports of call.”