Keynote: Sustaining the upward trend at Carnival Corporation

A couple of years into one of the most demanding jobs in the cruise business, Arnold Donald can list a string of successes but still has big goals in his sights. He talks to Michele Witthaus

Keynote: Sustaining the upward trend at Carnival Corporation
This article was first published in the Spring/Summer 2016 issue of International Cruise & Ferry Review. All information was correct at the time of printing, but may since have changed.

There has been a sense in recent months that a level of confidence not seen since before the economic crisis is returning to the cruise business. Carnival Corporation & plc has accounted for many of the positive signals, reporting a 40% increase in full year earnings for last year along with a strong forward outlook. Earnings per share for the year ending 30 November 2015 hit US$2.70, compared to US$1.93 for the previous year, while cumulative advance bookings for the first three quarters of 2016 were reported as being well ahead of last year. Fourth quarter results nearly doubled year-on-year. And market capitalisation has grown from US$25 billion to over US$40 billion during the first two-plus years of Arnold Donald’s tenure as president and CEO of the company.

Donald attributes these figures to strong operational execution and the global company’s ability to drive demand in excess of capacity growth, with ticket prices continuing an upward trend. Shareholders are already enjoying a 20% increase in quarterly dividends and he believes that Carnival is well positioned to achieve its target of double-digit return on investment in the next two to three years.

Looking to 2015, he says: “We had a successful year in which we grew passenger cruise days, in no small part due to our expansion in China. We saw an increase in first-time cruisers to 34% of our nearly 11 million guest base. Through the hard work of the folks at the brands, we are building more awareness of cruise to get it into consideration when people are thinking about vacations.”

Carnival Corporation’s strategic agreements in China with China State Shipbuilding Corporation (CSSC) and China Investment Corporation (CIC) reflect the company’s belief that China and the Asia region will in time come to surpass the US in terms of cruise passenger numbers. Figures for 2015 tipped the half million mark, more than 40% up on the previous year.

In October, Carnival’s MOU with CSSC and CIC was officially announced as a Joint Venture. It will see the creation of China’s first domestic cruise brand (run by Carnival in conjunction with CSSC and CIC for Chinese guests) as the companies purchase and operate ships together in the Chinese market. Local shipbuilding is also part of the long-term vision.

“We were fortunate enough to execute those agreements on a global stage with China’s President Xi and Prime Minister Cameron from the UK,” says Donald, referring to the signing of the deal (worth £2.6 billion over 10 years) that took place during Xi’s state visit to the UK, attended on behalf of the company by Donald, Carnival Corporation chief operations officer Alan Buckelew and Carnival UK chairman David Dingle. “It was a great moment for us,” Donald says, “and I am very proud to have had David be the actual signatory.”

Senior personnel have been placed in the region to support these unprecedented investments. In January 2016, Carnival Corporation appointed Roger Chen as chairman in China, with responsibility for representing and growing the company’s China-based brands. This follows the announcement in August 2015 that former AIDA Cruises president Michael Ungerer would become chief operations officer-shared services for Carnival Asia, a newly created position for the company, to follow through on Carnival’s plans for growth of its brands and of cruising in general in Asia.

“We anticipate that China is going to be the largest cruise market in the world, just because of the sheer numbers,” says Donald. “It’s already the number one nation in the world for outbound tourism. With the launch of the new ship Majestic Princess in 2017 and then the joint venture agreement with CSSC and CIC, clearly there was a need to step up on the operations team. We have Alan Buckelew based in Shanghai to show our commitment to China and to have a very senior executive on the ground. Michael Ungerer is adding another level, joining Buhdy Bok, president of Costa Asia, and Anthony Kaufman, executive vice president, International Operations for Princess Cruises.”

Having been the first to enter the Chinese market with Costa Cruises in 2006, Carnival is now working towards having four brands in China by 2017 by adding ships from Carnival Cruise Line (Carnival Miracle and Carnival Splendor) and AIDA Cruises (AIDAbella) to join the Costa and Princess Cruises vessels already plying Chinese waters. By the end of this year, those two brands will allow Carnival Corporation to claim the distinction of being the first cruise company with six ships in China – close to half the market share.

Confidence in cruise growth, both in newly booming Asia and in the more established markets, has been reflected in big-ticket newbuild announcements on behalf of Carnival brands. New ship orders have been coming thick and fast, with almost 20 vessels due over the next five years. This year heralds the arrival of four ships for the global fleet: Koningsdam for Holland America Line in April, Carnival Vista and AIDAprima in May, and Seabourn Encore in December 2016. “It’s all about being able to exceed expectations,” comments Donald. “Each of those newbuilds has been further optimised for the guests. The thrill for me is watching our people as they work with the designers to create the guest experience. I am excited to watch these very differentiated brands cater to their guests and see the guest reactions.

“On Carnival Vista, everything has been engineered to create a community spirit that is the essence of the brand. With Koningsdam, the finishes for the design have remained true to the classic stylish feel and the size of ship is optimised for what HAL’s target guests are looking for.

“Seabourn Encore has the Thomas Keller touch, which will be added to some of the other ships,” he says, referring to the celebrity chef whose menus will be featured on the Seabourn newbuild and others in the brand’s fleet. “And AIDAprima is a very distinct ship, with industry-first technology innovations, and consistent with the brand, targeted at a German source market and featuring enhancements for that market.”

2016 is already shaping up to be another groundbreaking year in key personnel deployments for Carnival Corporation, with high-level appointments across the brands continuing the form set by Donald since he took up his own post. Christine Duffy reached her one-year mark in February as president at Carnival Cruise Line, having transitioned from her CEO role at CLIA. Jan Swartz’s internal promotion in November 2013 to head the Princess Cruises brand and Orlando Ashford’s arrival at the top of HAL in December 2014 as a newcomer to cruise are two other Donald-led appointments that are bearing fruit for their brands.

The March 2015 appointment of Julia Brown to the new position of chief procurement officer fits in with a trend toward leveraging efficiencies across the brands in the Carnival stable. Brown brings 25 years of global procurement experience to the role. Donald points out that this new function at the global corporation is about encouraging brand collaboration, not consolidation.

“Julia is a seasoned, proven chief of procurement operations. The role is for a coach and a guide: control still resides within the brands. She facilitates the brands working together. Things are going very well and inflation is at a minimum – this is from working together, collaborating, and approaching things differently.”

Carnival Corporation invests heavily in research to ensure guests can find the experiences they want on the cruise line they choose from amongst its 10 brands. Chief Strategy Officer Josh Leibowitz is responsible for what the corporation claims is the largest ever market analysis done in the travel and leisure sector, with over 40,000 participants. Analysis emerging from this cross-brand research is applied to help understand guest demand, in turn shaping brand strategy and business decision making.

Another new role created within the global corporation is that of chief customer experience officer. Former Disney guest experience leader John Padgett has been appointed to this role. “We have built a next-generation innovation centre under John’s leadership and we are very excited about the possibilities we see,” says Donald. “We are looking at truly transformational innovations.”

It’s not just human resources that have been deployed in innovative ways lately in the Carnival global fleet. Late in 2015, Costa Cruises revealed that it would deploy the first robot crew member, a Japanese creation named Pepper, on Costa Diadema and AIDAprima in 2016. Donald says it’s not out of the question for novelties such as this one to find their way onto other cruise lines in the Carnival group. “That’s the great thing about brands communicating, collaborating and coordinating for cool things which add to a cruise experience. But in the end it’s not about features; it’s all around the guest experience onboard – everything we do to create a certain experience.”

In addition to new job descriptions, Donald has presided over the introduction of an entirely new travel category in recent months. Fathom was launched in June 2015 to practice ‘social impact travel’. Following a model that has more in common with voluntourism than with traditional cruising, Fathom will offer one-week voyages from Miami to the Dominican Republic and Cuba on the ex-P&O Cruises’ Adonia, giving guests the chance to participate in community projects along the way.

April 2016 sees the start of Fathom’s itineraries. “It’s about people seeking personal enrichment by working alongside others,” says Donald, who is excited about the broadening of Fathom’s remit from its initial Dominican Republic focus to include Cuba, with Cuban Government approvals pending at the time of going to press for planned activities in that country. Donald says: “It’s a creative possibility for Cuba. We are very excited about being given approval as there is a lot of pent-up demand for meaningful experiences among the multiple groups we anticipated from day one. These include members of the millennial generation looking to connect in a meaningful way with people from other cultures, mindful families that want to give themselves impactful experiences, and people at a different stage of life with successful careers, who have travelled around the world and want to leave a lasting impact.”

Fathom differentiates itself from traditional cruise lines by focusing primarily on the world beyond the ship, and certainly what guests experience when they step off any Carnival brand ship is very much in Donald’s sights. He is proud of Carnival’s new purpose-built cruise terminal in the Dominican Republic, Amber Cove, and the expanded Puerta Maya facility, both of which were unveiled last year to support itineraries in the Caribbean region. “I am very pleased with and excited about Amber Cove as it has refreshed the Caribbean for cruises and for the many tours you can take out of that facility,” he says.

“We are always looking at how to deliver more of what the guests want; to immerse and enrich them in destinations. We pay very detailed attention to the architecture, the pace of things, music, and the connection to the local community. Most of the shops in our destinations are staffed, manned and owned by locals, with locally produced wares. In the beach and pool areas, we try to maintain a natural feel and environment. We want to ease the connection between leaving the ship and being able to go into the country. It is very easy and painless for guests to quickly go into a destination or on an excursion, and we like to make our destinations a part of the environment.”

In December 2015, the Paris agreement on climate change saw an unprecedented consensus among global players regarding the urgent need to reduce carbon emissions with the aim of keeping global temperature increases below the critical level of 1.5 degrees above pre-industrial levels. Although shipping was not included in the final document that emerged from the Paris conference, the event itself saw plenty of discussion of the role of shipping in both causing and limiting pollution. Sustainable tourism also got plenty of air time.

Carnival Corporation’s 2014 Sustainability Report, released in December 2015, was prepared in accordance with the Global Reporting Initiative (GRI) G4 ‘core’ level. It explains what the global company is doing to promote sustainability across its 10 cruise line brands and states its 2020 sustainability goals. From developing and installing exhaust gas cleaning systems to increasing cold ironing capacity and reducing harmful emissions, the goals are reflected in much of the newbuild and retrofitting activity that the Carnival brands are undertaking. The company has renewed its goal of reducing CO2e emissions by 25% below 2005 levels by 2020.

Donald remarks: “We’ve been focused on clean air and clean maritime environments for a very long time and have reduced our consumption of fuel by quite a bit, achieving a 25-27% reduction of fuel consumption on a like-for-like basis. We have made the fleet more efficient, and will continue to do so; we’ve installed exhaust gas cleaning systems in our ships where we need to, to reduce carbon emissions. Our carbon footprint has gone down as we conserve water. We take it seriously – we know we are a teeny tiny part of it, but we must all do our part. It is important to us, which is why we put out a sustainability document.”

In June 2015, Carnival Corporation released the news that it would build the industry’s first LNG-fuelled ships with four newbuilds out of the nine previously announced. Two of these will be built for Costa Cruises at Meyer Turku and a further two for AIDA Cruises at Meyer Werft in Papenburg. These ships will generate 100% of their power requirements from LNG, both in port and at sea. Each of the ships will also boast the largest guest capacity ever achieved on cruise ships.

“I’m very excited by the new technologies,” says Donald. “It’s wonderful to have options to burn fuel in a clean and environmentally protective way.” Regarding the challenges of being first into the market for LNG-powered cruise vessels – and the attendant questions about ensuring the availability of the fuel in cruise ports – he says: “We are very confident and have no concerns. It is important to see how things evolve to see how much of the future fleet could be fully serviced with itineraries that go all over the world.”

The launch of the Carnival Maritime facility in Hamburg in 2015 represents a major step forward for Carnival’s ability to achieve its sustainability goals, while greatly enhancing day-to-day management of its fleet in real time. This is just the beginning, says Donald. “Eventually we will have multiple fleet operations centres around the world, to manage the fleet in the regions. It’s another big advancement for us to be able to provide real-time data to ships, to show and anticipate consumption patterns on fuel.

“It’s part of an additional layer of fact-finding that has always gone on in the maritime industry, making a safe industry even safer. I’m very excited about the leading-edge technology and approach and I’m looking forward to continuing to refine the Hamburg centre and use the learnings from it.”

Seattle and Miami are under consideration for further facilities of this nature, and Donald says that that there will ultimately be one in Asia as well.

Global operations will be further boosted by the new CSMART training centre in Almere, near Amsterdam in the Netherlands. The current facility has been in operation since 2009 and last year conducted progressive training for some 4,000 deck and engineering officers. Its success in providing training across brands led the company to build a new state-of-the-art facility, also in Almere, that is scheduled to open in the third quarter of 2016 and will provide annual training for up to 6,500 officers.

The high quality of monitoring and training that Carnival espouses through Carnival Maritime and CSMART is both facilitated by, and part of the motivation for, continuing advances in connectivity for ships. Guests, of course, are benefiting from the technology now in ways that they could never have imagined during the many years when being on a cruise meant switching off from land-based communications. Today, Carnival Corporation boasts of having the cruise industry’s largest wifi network – and it is keenly aware of the potential this holds for onboard revenue opportunities and customer touchpoints across all of its brands.

Donald says that the growth in opportunities for guests to use their devices onboard is a logical trend. “The expectation of guests rises with the ability on land to have instantaneous access to things like video streaming on your watch, let alone on your phone. We are expanding bandwidth and service on our ships, with onboard features on Carnival Cruise Line and a couple of the other brands, providing local access that doesn’t burden the bandwidth. For us it’s a great promotional tool, even just to allow people to send a photo to friends immediately.”

He notes, however: “On some of the brands, people aren’t looking for more access. They like the ability to get away and to legitimately say: ‘I can’t be reached, or if you really need to reach me, you can phone the ship.’”

So are there times when Donald himself would prefer not to be reached – and indeed, is it even possible to shut work out when you are at the head of a global organisation of this size and complexity? “I’m in the vacation business so every day for me is a vacation,” is his diplomatic reply. He insists: “I love the work. It’s always daytime somewhere so it’s a 24/7 experience.” However, he adds: “When I do have some personal time or down time I enjoy good music and binge-watch TV series such as House of Cards. Before that it was Breaking Bad and Game of Thrones. And I read – primarily business books, but I like both fiction and non-fiction.” His music playlist reveals eclectic tastes, from 70s and 80s soul to Top 40, symphonic music, jazz and even hip-hop. Family occupies an important place in his private life. “I have six grandbabies, who live in Chicago, and I see them almost every month.”

That refreshingly down-to-earth list of off-duty activities does seem to suggest a surprisingly healthy work-life balance for a person with the level of business stress that one imagines someone in Donald’s position must carry. But then again, it is possible that this man really does enjoy his job – which bodes well for the company, its shareholders and the brands under his care as he continues to pursue new levels of achievement.

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Michele Witthaus
By Michele Witthaus
Friday, March 25, 2016