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Carnival – Floundering Or Rebounding

Written by: Kuki

Carnival Cruise Line has certainly had a stretch of bad luck and bad PR with a number of on board incidents; all falling in relatively short time frames, following the grounding of the Costa Concordia.

Carnival Cruise Line, as well as Costa Cruise Line, fall under the umbrella of Carnival Corporation (and its subsidaries); as do Holland America, Princess, Seabourn, Cunard, Aida,  P&O, and Ibero Cruises.

On Tues. May 23, Wells Fargo downgraded shares of Carnival (NYSE: CCL)from an outperform rating to a market perform rating.

Carnival Corporation, itself, announced a lowering of its earning guidance. The company now expects full year 2013 earnings per share to be in the range of 1.45 to 1.65 compared to its previous earnings guidance of 1.80 to 2.10; much of this having to do with incidents occurring on it’s Carnival Cruise Line ships I believe.

It’s been reported that Carnival itself blamed the drop on a higher-than-expected rise in voyage cancellations. In turn, this weaker demand resulted in downward pressure on ticket prices.

I am not a financial analyst, or have I ever staked a claim to being a shrewd investor, so I’ll make no comment on these developments from that point of view. Rather, I think it’s worth taking a look at from a customer/ consumer’s point of view, and in this case, specifically look at Carnival Cruise Line.

My  own perspective is I’ve always viewed a cruise on a Carnival Cruise Line ship as offering excellent value for the dollars spent on a cruise ticket.

And that should hold even more true today, as pressures have caused Carnival to cut pricing on many different ships and sailings.

From a corporate perspective this means that though volumes may be higher, profits are not. The question is, does the corporate reaction to that situation adversely affect the final product delivered to the customer?

Mike Driscoll, editor of Cruise Week, an industry publication,said, “that while repeat cruisers have not been deterred by the bad headlines, cruise-sellers are reporting that “first-time business remains challenged,” meaning that it’s still hard to get consumers who never cruised before to try it”.

Reading this comment flashed me back to last July ’12, where while on the Carnival Breeze, I ran in to Bob Dickinson, retired CEO of Carnival Corporation (and present day member of the CCL Board of Directors), and had the opportunity to interview him.

read that full interview.

During that interview he said,  ”the success has come somewhat because of our ability to attract large numbers of repeater customers fairly easily”. “Maybe we are not doing as well, or enough, to attract new first timer passengers”.

So, 10 months ago, after the “Concordia disaster”, yet before several other incidents with Carnival ships, which resulted in  horrible media coverage, and a badly handled Public Relations nightmare, at least Bob Dickinson, and probably the entire Board of Directors, recognized the problem.

These situations caused Carnival to react by increasing their advertising budgets significantly in an attempt to rejuvenate interest in their products, and renew the public trust in their product.

All necessary steps, but it seems to me, another way to build a recovery of interest and trust is to improve and monitor the delivery of the on board product.

The incident of a fire on Royal Caribbean’s Grandeur of the Seas this past Monday, no doubt exacerbates this problem of attracting first time cruisers, and making them feel it safe to cruise. This could possibly impact Royal Caribbean Cruise Line’s ability as well, but it will also serve as a reminder of past incidents on Carnival. for anyone considering a cruise.

Royal Caribbean has managed to avoid the public relations mess faced by Carnival. Partially through better management choices as the situation developed, and likely also partially because the Grandeur of the Seas was able to make it to Freeport under its own power.

Now, last July, while on board the Carnival Breeze, I reported, loving the ship, and viewing it as a real step forward in the Carnival product. But I was on a port intensive European itinerary, and there are some things on board that have drawn more criticism from passengers since she began sailing in the Caribbean.

On our message boards the common complaints we’re seeing are “cutbacks”; specifically the lack of live bands entertaining on the pool deck (on my sailing, on sea days, a solo artists would entertain for an hour or two),  and another common complaint is cutbacks in the numbers of service personnel; with bar service hard to find without actually going to a bar counter.

Unlike me, it seems many people are not enjoying the new Playlist Production shows. Personally, I really enjoyed the new shows, and their creation of more technological entertainment to enhance the shows of a smaller troupe.  But, it seems the reaction to less live music on board also applies to the productions shows.

I’m not certain if the cutbacks on board are totally real, or not. But the perception of their reality is a real problem for Carnival. And likely one they have to find a way to react to, to combat.

Another development is one I wrote about a short while ago, relationships between travel agents and cruise lines.

This was when American Express Travel (and all of their affiliated agencies) removed Carnival from their preferred supplier list.  Carnival cut the rate of commissions paid to travel agents for their bookings.

It’s not that these agents will not still sell Carnival cruises. After-all, all of the remaining Carnival Corporation brands remain on the American Express Travel Agencies preferred supplied list. But, it is less likely that an agent affiliated with American Express Travel will be less likely to direct a customer to cruise Carnival, and less likely to promote Carnival cruises.

So there has been a confluence of events, actions and policy decisions, which have undoubtedly contributed to giving Carnival Cruise Line a “three Tylenol headache”. Some of it was simply bad luck, some it their own doing, when combined with the bad luck, leading to developments of further stresses.

A step forward for Carnival may be with the recently floated, totally refurbished, Carnival Sunshine.  If public reaction to her is more positive, it will likely begin the healing process, restoring faith in the Carnival product.

Frankly, based on my most recent experience sailing on the Carnival Breeze, as well as many previous experiences, I wouldn’t hesitate to sail a Carnival ship. And, while pricing is incredibly low, and very likely to rebound in 2014, I don’t hesitate recommending a Carnival Cruise. But others may need more convincing by Carnival.

There is still excellent value there for what you are going to spend on your cruise fare on a Carnival cruise. Carnival still has to convince the public their ships are safe, and their customers are important to them.

- A View From The Kuki Side of Cruising -

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Comments

Comment from Mike Mastellar
Time May 29, 2013 at 8:54 am

The entire cruise industry has taken a blow because of the recent “highly reported” incidents. The Concordia disaster was a true disaster and Carnival, Costa, and Captain, Chicken Heart, Schettino need to be held accountable. However, some of the other incidents have been overblown by the media. The Carnival Dream incident was the best example. The ship was seaworthy but for the sake of safety they canceled the voyage and flew everyone home.

What has bothered me in reading the accounts of Enchantment Of The Seas fire is that Carnival is mentioned as much or more in the reporting as Royal Caribbean is. I have non-cruise enthusiast friends who believe that the fire was on a Carnival ship.

I would not think twice about booking a Carnival cruise. I was with you on the Breeze cruise and, I too, loved the ship. I’m not a steel drum type of guy and the shows were different, and after 40 cruises, you want different. You can only see “Sea Legs Goes Hollywood” so many time before you throw yourself overboard. :)

I hate to feel like a vulture but I have and will take advantage of the lower fares brought on by the uneducated or misled cruise population. However, the first-second-third time cruiser is the core demographic for cruise lines like Carnival. These are the people who spend the most money. After a number of cruises the on board accounts get smaller. You don’t buy the pictures, the drinks of the day in souvenir glasses and take the shore excursions. If the cruise lines lose the novice cruisers it will make a big difference to their bottom line.

Lets just hope that the cruise industry goes incident free for a long while and they can continue to offer a great product at a good price.

Take care,
Mike

Comment from Kenneth Eden
Time June 10, 2013 at 7:21 am

So, think carnival will always have its problems as they seem to have manifested over the past year?

Think again.

Bob Dickinson, perhaps the most prominent name in the cruise indusrty, has returned from retirement to Carnival and will be a consultant, an I am sure he will also place his expert hands on other timely matters with the company, as Carnival will most certianly benefit from his expertise.

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