By
Michele Witthaus |
This article appeared in the Spring/Summer 2015 issue of International Cruise & Ferry Review. To read the full article, you can subscribe to the magazine in printed or digital formats.
Not so long ago, the idea that the price of oil might drop below US$50 a barrel might have seemed very unlikely indeed – about as unlikely as the US government normalising relations with Cuba. Arnold Donald talked to ICFR in a week that saw oil make that psychologically significant downward adjustment – and just days after our conversation, the US government announced its intention to begin relaxing its long-running sanctions against Cuba. As it happened, during our interview Donald mentioned the opening up of Cuba to cruise as the ‘wild card’ that could shake up the business in the Caribbean in the foreseeable future. Even he probably did not realise just how soon the much-anticipated series of events that could trigger this scenario might begin to unfold.
Cruise line leaders have spent so many years bemoaning the rising price of fuel in interviews that it felt somewhat surreal to be talking through the pros and cons (admittedly more of the former) of dwindling prices.
With Carnival Corporation’s gross cruise costs dropping by more than 5% in 2014, in large part thanks to the lower price of fuel, it is easy to see the benefits to the global organisation of the extra breathing space. Fuel prices declined 13 percent to US$584 per metric ton for Q4 2014 from US$671 per metric ton in Q4 2013 and were better than the September guidance of US$635 per metric ton.
But is there a danger of becoming too comfortable with the short-term relief of reduced expenditure? “Fuel prices have dropped dramatically and we’re hoping they will stay low but they probably won’t,” says Donald. “Even with that, we still need to be very conscientious and just hone a good practice. Fuel conservation remains a focus for us.”
To hedge against the return of higher fuel costs – as well as to comply with increasingly strict emissions requirements – Carnival Corporation and its nine global brands remain committed to more fuel-efficient technology on the ships. A US$400 million investment in emission-busting scrubbers means the global company has several irons in the fire when it comes to balancing not just the books but the ever-increasing regulatory load following the introduction of ultra-low sulphur limits in Emission Control Areas this January. Fuel consumption decreased 4.8% in Q4 2014 compared to the previous year.
Donald remarks: “Since 2007 we have reduced our consumption by 1 billion gallons, saving US$2.5 billion dollars in fuel costs, which is about a 24% improvement in overall fuel efficiency.”
There are plenty of reasons for a bullish outlook in the light of a successful set of year-end results and approval from the global corporation’s all-important investors. “Our shareholders have had a good year as our share price has gone up substantially,” he says.
In December, Carnival Corporation announced significantly higher earnings for the full year 2014 than the previous year, with revenues of US$3.72 billion compared to US$3.66 billion in 2013. The year closed especially strongly, exceeding previous guidance with last-quarter operating profit more than doubled year-on-year due to higher ticket prices and onboard spending combined with lower costs. Carnival Corporation’s earnings per share (EPS) grew 25% last year and its guidance forecasts that the company’s EPS will grow the business another 25% in 2015.
In his Q4 earnings call, Donald said: “In 2014, we enjoyed some early wins on our cross-brand collaboration efforts, and we had a number of significant achievements. Importantly, the groundwork for continued progress is laid for 2015 and beyond, as we aggressively move towards double-digit return on invested capital.”
The cruise business in general has experienced a few months of the unprecedented and the unexpected, from major reshuffles at senior executive level to sneaky ship orders right through the usually quiet festive season. Internally, Carnival Corporation has experienced a few high-level changes in the last year. Since the formation of the Holland America Group under the leadership of Stein Kruse in November 2013, there have been noticeable benefits to cross-brand collaboration. And with the retirement of Carnival Cruise Line stalwart Gerry Cahill at the end of October, all eyes were on the empty seat leading up to the surprise appointment of former Cruise Lines International Association (CLIA) president and CEO Christine Duffy as president of the Carnival brand.
“We are very excited about Christine joining the Carnival family,” comments Donald. “She brings commitment, skill, deep knowledge and experience, having been a travel professional and a travel agent in the past. She has almost 30 years of experience in the travel business, and she has the personality, orientation and skills set that allow her to resonate with the target guests of the Carnival brand and to understand what needs to be delivered. She has excellent industry knowledge including on the regulatory side, as well as outstanding media relations skills.”
Acknowledging that Duffy comes from a completely different market sector than her predecessor, he says: “She has big shoes to fill. Gerry did a tremendous job for the corporation and on the outstanding recovery of the Carnival brand from incidents in the past and innovation onboard to enhance the brand.
“Christine will be surrounded in-house by a professional team with years and years of experience operationally, whether it’s technical, hotel, or back of house on financial control. She’s walking into a lot of powerful momentum.”
He says the choice of a brand leader with an agency background is fitting. “It’s a clear statement to travel professionals. I think they knew already – or at least I hope they did – that we feel that they are vital partners. If they don’t understand, there’s little doubt in my mind that after a short period they will.”
Meanwhile, a cruise outsider (rather as Donald himself was when he joined Carnival Corporation) has been appointed as president of Holland America Line (HAL). Orlando Ashford comes from a senior role in the talent business sector at global consulting company Mercer and Donald has praised the high-performance culture change skills he adds to the global cruise corporation’s leadership portfolio.