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Author: Rebecca Gibson/Tuesday, March 6, 2018/Categories: Interview, Cruise news, Carnival
This article was first published in the Spring/Summer 2018 issue of International Cruise & Ferry Review. All information was correct at the time of printing, but may since have changed.
“The best way to grow and develop, both professionally and personally, is to ask questions and then listen very carefully to what people have to say with the aim of learning new information and gaining a better understanding of any given topic – everyone has something to teach you, even if their point of view or opinion is different from yours,” says Arnold Donald, president and CEO of Carnival Corporation.
By all accounts in the cruise industry, Donald is certainly one to practice the valuable lessons he preaches. When he first took the helm of Carnival Corporation in July 2013, his first priority was to embark on an extensive corporation-wide ‘listening tour’ that saw him talk with anyone who had something cruise-related to say.
“Although I’d managed large companies before and held a policy role on Carnival Corporation’s board for 12 years, I was a cruise outsider and that could potentially have been a big disadvantage when it came to spearheading the corporation’s operations,” admits Donald. “I listened to our employees, stakeholders, investment groups, government officials, the media, locals in the communities our ships visit, and of course, our guests. I wanted to understand the inherent capabilities of the business, so we could find new ways to leverage them and produce outstanding financial results and deliver an even better holiday experience.”
It’s an approach that has proved fruitful for Carnival Corporation and its nine brands – AIDA Cruises, Carnival Cruise Line, Costa Cruises, Cunard, Holland America Line, P&O Cruises Australia, P&O Cruises UK, Princess Cruises and Seabourn. Prior to Donald’s appointment, Carnival Corporation had some operational issues and voyage disruptions that were reported extensively in the news, and it had also fallen back to generating a 4.5% return on invested capital, despite peaking at double-digit return in the mid-2000s. Rather than being deterred by these challenges, Donald simply took the insights he’d discovered during his listening tour, looked beyond the media hype and pinpointed several opportunities to reinvigorate Carnival Corporation and its brands.
“I quickly realised that Carnival Corporation had many advantages – it offered guests great value for money, an outstanding experience, and it was a big company with multiple brands in a small industry,” Donald says. “However, we weren’t effectively leveraging this scale from a cost or value creation standpoint in terms of harnessing the skills and expertise across our brands. We had to change that.”
The second thing that struck Donald was that all his employees (more than 120,000 people) were passionate about travel and cruising, and fully committed to exceeding guests’ expectations at every opportunity.
“We had fancy ships and visited amazing destinations, but what our guests remembered the most from their cruise are the crew members who went that extra mile to make their holiday special and memorable,” he says. “Both our shoreside employees and our shipboard crews are truly amazing, and they are the key ingredient that enable our nine brands to reach their full potential. Happy crew equals happy guests, hence my job was to build on their dedication, not mess it up!”
For Donald, this meant hiring diversely. Today, the corporation is one of a few Fortune 500 global companies to have an African-American CEO, it has four brands run by women, multiple high-level executives from ethnic minorities, and it was named in 2016’s 50 Best Companies for Diversity list by Black Enterprise Magazine. However, Donald doesn’t view diverse hiring as a box-checking exercise, but rather as a corporate imperative that fuels the kind of innovative thinking that leads to ground-breaking guest experiences and drives business success. This forward-thinking attitude earned him top spot in the Financial Times Empower 100 Ethnicity Minority Leaders list in 2017.
“To be innovative, we need to think outside the box when solving operational challenges or creating something new for guests,” he says. “A homogenous group of people with similar family, cultural, educational and work backgrounds are likely to approach problems in the same way and come up with the same staid solutions. But if you bring in people from all walks of life and give them a common goal and work process, they’ll build on each other’s experiences and perspectives to develop an innovation that none of them would have thought of individually. Plus, our brands travel to the seven continents and welcome passengers of all nationalities, so we need a broad understanding of cultural differences.”
Donald has no doubt that identifying business needs and then thinking diversely to find people with the skills to meet them has paid dividends for Carnival Corporation. His choice of Cruise Lines International Association’s (CLIA) former president and CEO Christine Duffy to lead Carnival Cruise Line, for example, has significantly boosted the brand’s image with guests and the wider travel industry.
“Although Christine had never run a cruise brand, her role at CLIA, her experience as a travel agent and her executive roles at Visit Florida and the U.S. Travel Association mean that she fully understands the cruise industry and how we can engage travel agents, and thereby their clients, more effectively,” Donald says. “Under Christine’s leadership, the brand has performed very well and completely overturned its reputation among travel agents – in fact Reader’s Digest ranked Carnival Cruise Line as ‘Most Trusted Cruise Line in America’ in 2015, 2016 and 2017. Christine is also the line’s first female president and is actively involved in promoting women’s leadership in the industry, so she’s an inspirational role model for our female employees.”
Meanwhile, hiring African-American Orlando Ashford as president of Holland America Line based on Carnival Corporation’s need for a human resources expert has vastly improved processes. “Orlando hadn’t led a major business, or even been on a cruise ship, when he took over, but his human resources knowledge has produced great results at Holland America and across the corporation,” notes Donald. “Another thing that probably never would have happened without Orlando is Holland America’s exclusive partnership with O, The Oprah Magazine, which has resulted in [US talk show host, producer and philanthropist] Oprah Winfrey promoting our Alaska cruises.”
To effectively harness the diversity of perspectives in the corporation, Donald encouraged collaboration between all nine brands – something that had never been done before.
“One of Carnival Corporation’s major advantages is that it has nine separate cruise brands, each with a specific guest demographic, but I wanted to empower them to share their skills so they could improve Carnival Corporation as a whole,” says Donald. “I had ideas about how we could improve the brands, but I wanted the leaders to work together to come up with their own solutions so they’d be more invested in finding new opportunities, and more excited about capitalising on them. I brought the leaders together, made them play silly games and get to know each other, and then challenged them to answer three basic questions. What does success look like for you and your family five years from now? What does success look like for your brand and your team five years from now? And what does success look like for Carnival Corporation five years from now?”
Fortunately for Donald, they all came up with similar business goals and multiple ideas about how they could achieve them.
“If you put the same facts and problems in front of intelligent people, they usually come up with very similar answers, and that’s what happened,” he comments. “Immediately the leaders wanted to implement actions, but their teams had never worked together before so they needed to see the potential for themselves and feel a sense of ownership over the ideas. A group of 70 employees from the brands spent several days collaborating and choosing the best ideas using an anonymous live voting system. It was a magical moment for me when I popped up at the end of the process to reveal that they’d all voted to take exactly the same actions as their senior leaders and myself – that’s when I knew everyone in our company was on the same page.”
To keep collaboration on track, Donald has brought in short-term expert coaches. To ensure everyone remains motivated to deliver the best possible cruise product, he follows two key management philosophies. The first is that there are no excuses.
“Every year, the world faces geopolitical tension, economic malaise, natural disasters, disease scares and more, but these factors can never be a reason as to why Carnival Corporation isn’t performing as it should and exceeding our guests’ expectations,” explains Donald. “Our business is inherently capable of producing double-digit return on invested capital in lots of different operating environments. It’s our job to do everything we can to unleash that potential, not make excuses as to why we’re falling short on our goals. We have to assume that the fates will conspire against us to produce challenging scenarios – such as fuel prices rising just as currencies go against us – so we can proactively organise around them and always deliver the cruise experience our guests want.”
Donald’s second management philosophy is that his employees must be held accountable for both their own professional development, and the growth of their brand and Carnival Corporation.
“When I became CEO, I changed the incentive plans for the top leadership teams – now 50% of the compensation is calculated by the performance of their area within the business and the other 50% is generated by overall company performance,” he says. “Now they have a real financial incentive to motivate their colleagues to do well because they want the overall company to develop.”
When combined with his diverse hiring policy and cross-corporation collaboration initiative, Donald’s management philosophies are helping Carnival Corporation to attain the goal that has been central to its operational strategy from the very beginning: continually exceeding guest expectations. With that aim in mind, one of Donald’s first priorities was to initiate the corporation’s largest-ever cruise market segmentation study across all the brands.
“How can each of our brands create the best possible cruise experience if they have no idea what resonates best with their guests in terms of dining, entertainment, destinations, service and more?” asks Donald. “The market segmentation study allowed us to develop psychographic customer profiles for each brand, and for the past five years, we’ve been doing everything we can to engineer the cruise experiences that meet their preferences, interests and expectations.”
Donald notes that this psychographic profiling is currently empowering several of the corporation’s brands to design the 19 newbuilds they will collectively launch between 2018 and 2022. This includes the four that will debut in 2018: Carnival Cruise Line’s Carnival Horizon in April, Seabourn’s new Seabourn Ovation in May, and AIDA Cruises’ AIDAnova and Holland America Line’s Nieuw Statendam, both in December.
“From a practical standpoint, the new ships will help us achieve our 5% projected growth capacity over the next five years, and building them will be more financially rewarding than continuing to invest in older vessels that are no longer relevant to our guests,” he says. “However, we also view each newbuild as an opportunity to find new ways to take the cruise experience to an even higher level for guests.”
First, the newbuild team uses the brand’s psychographic profile to identify exactly what onboard experience its customers want, then looks at what features and amenities can be put on the ship, or how onboard spaces can be designed, to meet and exceed their expectations.
“Carnival Cruise Line, for example, attracts young families or groups who like socialising with other passengers, participating in group activities and partying with the crew, so everything on Carnival Horizon is meticulously geared towards creating a fun community feeling,” explains Donald. “Meanwhile, Seabourn’s guests expect high-end luxury and personalisation, so Seabourn Encore and Seabourn Ovation have suite accommodation, more refined entertainment, sophisticated dining options and a highly personalised service to make every guest feel as though the cruise experience has been designed just for them.”
Psychographics also plays a key role when the brands are developing the onboard experience, particularly when it comes to implementing new technologies.
“We start by asking what guests are really looking for on their cruise ships and then look at how we can use digital technologies and other things to provide it,” says Donald. “Our newest ships are full of cool venues, activities and technologies, but every single innovation has been developed primarily because it elevates the guest experience and/or empowers our crew to work more efficiently. For example, our customers wanted to board ships more quickly, so we found a way to use mobile apps to facilitate digital embarkation.”
Carnival Corporation’s most ambitious digital initiative to date – the O•C•E•A•N Experience Platform – was designed purely because Donald wanted to find a new way to tap into guests’ growing interest in digital entertainment and immersive experiences. True to form, Donald kicked things off by hiring diversely, going outside the cruise industry to employ John Padgett, who was responsible for creating the game-changing Fast Pass and MagicBand guest engagement tools at Walt Disney Parks and Resorts. The corporation then built an innovation centre around Padgett.
“Padgett’s team quickly identified that people want personalised travel experiences, so it explored how to deliver a mass-customised cruise offering and this evolved into Ocean Medallion, a first-of-its-kind device that can be worn or carried by passengers to anticipate their every onboard need,” says Donald. “Ocean Medallion will make the cruise feel like it has been specifically engineered to each individual guest thanks to touch-free access to staterooms, personalised dining experiences, interactive entertainment, transaction-free payments and expedited embarkation and disembarkation. The platform will introduce a completely new dimension to the guest experience, both onboard the ship and in the cruise terminal. We’re currently trialling it with select guests on Princess Cruises’ Regal Princess to ensure it truly helps us exceed their expectations, before we proceed with the full roll out.”
Considering the guests’ needs as the starting point for all digital innovation also helped Padgett’s team develop more powerful ways of communicating with guests. Mobile gaming platform PlayOcean, which can be used onshore for free or in the ships’ onboard casinos to win real money, answers guests’ desire for more opportunities to interact with the brand in a fun way. Meanwhile, OceanView, the world’s first digital streaming travel channel for land and sea, speaks to their desire for on-demand entertainment. OceanView will bring over 100 of Carnival Corporation’s ‘Ocean Originals’ shows to more than 60 cruise ships and to people worldwide via the Amazon Fire TV, Apple TV and Roku digital streaming platforms. They include video collections from the corporation’s cruise brands, four award-winning original series that have been broadcast on network and cable TV in the US, and two new direct-to-digital streaming original series – ‘Go’ and ‘Local Eyes’.
“These shows provide compelling and authentic storytelling, allowing existing and potential guests to see the exciting adventures, exotic cultures and global destinations they will experience, and the various people they will meet, if they sail with Carnival Corporation’s brands,” comments Donald. “We sail with more millennials, Generation X, baby boomers and other generations than any other cruise company, so we need to ensure that we provide onboard and onshore experiences that cater to every demographic. OceanView is a convenient and powerful way to show them that we can do this, and it’s perfect for exposing people to cruising in a way that resonates best with them so they get excited about this type of travel as a holiday option.”
Carnival Corporation is also turning to technology to help it reduce its carbon footprint and ensure it meets, and exceeds, environmental regulations. Not only does more than 62% of the fleet have exhaust gas cleaning systems (scrubbers) to decrease sulphur and diesel particulate emissions, but around 43% of the ships have cold ironing capabilities so they can connect to shore power in ports. The corporation is also investing heavily in the world’s cleanest burning fossil fuel, ordering eight of the world’s first fully LNG-powered cruise ships from German shipyard Meyer Werft and Finnish shipbuilder Meyer Turku. To be delivered between 2018 and 2022, two of the 5,200-guest vessels will go to Costa, two to AIDA, two to Carnival Cruise Line and two to P&O Cruises UK.
Another initiative will see Carnival Corporation opening a third Fleet Operations Center (FOC) in Miami, Florida this year. The three FOCs will use tracking technology and data analysis to share real-time information between the corporation’s global fleet and specialist onshore teams, helping to improve operational efficiencies and support the corporation’s environmental efforts. New shoreside technology also allows the corporation to monitor real-time navigational performance and energy use across the fleet.
“We set 10 environmental sustainability goals, implemented programmes to help us achieve them and we’ve honoured those commitments, sharing what we’ve done, and what we will do to further improve in future, with our guests and the media,” says Donald. “To track our progress, we compile a sustainability report every year, and the last one was rated number one by independent group Corporate Register. I’m very proud of our team’s dedication to significantly reducing our carbon footprint.”
These efforts have certainly been worth it. Carnival Corporation has reduced unit fuel consumption by 28% since 2006 and is ahead of schedule in achieving a nearly 25% reduction in equivalent carbon dioxide relative to its 2005 baseline figure.
“Environmental sustainability is core to our business – no guests want to go to polluted marine environments, see destroyed coral, sit on unkempt beaches, or go to overcrowded destinations where locals are fed up and unwelcoming,” says Donald. “Not only is it in our self interest to take our environmental responsibilities seriously, but we also see it as our duty to our guests, the inhabitants of the destinations and the oceans. People see huge cruise ships and they think we burn a lot of fuel, which ruins the destinations we visit, so we have to show them that we’re successfully doing everything we can not to.”
According to Donald, the fact that Carnival Corporation is beating its environmental goals, while continuing to exceed guest expectations, keep employees happy, successfully launching newbuilds and building on its now-stellar reputation, shows that he’s running Carnival Corporation properly. And, if the company’s nearly 12 million annual guests and impressive financial performance in 2017 are anything to go by, he’s right. Last year, Carnival Corporation generated US$17.5 billion in revenue – US$1 billion higher than the previous record in 2016 – and it was also the most profitable year in the corporation’s 45-year history, with full-year adjusted net income reaching US$2.8 billion – US$200 million higher than 2016.
“Five years ago, I told industry analysts that Carnival Corporation was inherently capable of delivering double-digit return on invested capital in all kinds of operating environments,” says Donald. “We finished 2017 on about 9.4% invested capital and this year, we should achieve double digit return. Of course, there will be challenges and headwinds like every year, but our management, hiring, innovation, shipbuilding, itinerary planning and other strategies have positioned us for further sustainable growth well into the future. We’ll continue to think diversely to overcome any challenges and drive growth in a sustainable way that not only benefits our bottom line, but also our employees and guests.”
In 2018, Carnival Corporation will introduce four new ships, upgrade the onboard experience on older vessels, continue to roll out Ocean Medallion and other onboard innovations, enhance private island destinations like Grand Turk, and much more. Most importantly, adds Donald, he will keep listening.
“I’ll listen to anyone who wants to talk!” he quips. “From industry analysts and experts, to our partners, financial stakeholders, brand leaders, shoreside employees, onboard crew and our guests – everyone has valuable ideas that could have a real impact on the way we grow our business, meet our corporate goals and exceed guest expectations in the future, so I’ll always make the time to listen to them. If everyone tells me they love what Carnival Corporation and its brands are doing, then we’ll continue to do it, and if they don’t, we’ll go back to the drawing board and think of something else. It’s a very exciting time for the global cruise industry and our guests can bet that we will continue to do everything we can to make their experiences with us better than ever before.”
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