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Originally published Wednesday, April 30, 2014 at 3:02 PM

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Carnival, the heavy hitter in cruise world, changes course

After some high-profile disasters that cut into the bottom line, Carnival takes a look at its 10 brands and business practices.

The Miami Herald


A small storage room stuffed with torn-up mattresses in the Doral, Fla., headquarters of Carnival Corp. offers a glimpse into the evolution of the mammoth cruise company.

In an effort to create the most comfortable and durable beds for the operator’s 101 ships, a global sourcing manager at the corporate office has ripped open mattresses from across the company’s 10 brands to see exactly how they deteriorate.

Using that information and carefully mined customer feedback on beds, Carnival Corp. and its brands are working with manufacturers to come up with the ideal cruise ship mattresses — and then order directly for all the lines, cutting out distributors and getting a better deal for the mass purchase.

“We’re going to build the best mattresses at sea,” said Josh Leibowitz, hired in September for the new role of chief strategy officer.

The mattress project is just one of nearly 30 initiatives under way across Carnival Corp. that signal a more unified way of doing business at a company that has long fostered a sense of individuality and even competition among its brands. Areas ranging from beverages to brochures to global deployment and shore excursions are under consideration for how they might benefit from a broader look.

More than ever before, Carnival is now embracing “three C’s” — communication, collaboration and cooperation — between brands, while at the same time digging deeper into market research about customers to ensure that individual lines maintain their identities.

The shift follows a rough patch in Carnival’s history due to high-profile disasters that cut into the company’s bottom line. The changes are being swept in under the watch of a new CEO, Arnold Donald, and a revamped corporate structure.

“As we went from very, very strong financial performance pre-crisis to what has been weakened with highly publicized incidents, we had that need to become a little bit more focused on efficiencies and where you can do things that don’t harm the product and don’t in any way, shape or form negatively influence the brand perception,” said Stein Kruse, CEO of Holland America Group.

Alan Buckelew, former president and CEO of Princess Cruises who was named the parent company’s chief operations officer in November, said the changes have come about because the company needed to do several things: manage costs, take full advantage of scale; raise ticket revenue; understand customers better; and keep brands differentiated.

“To accomplish all this, we needed to really change our business approach and that meant in many ways changing our culture,” Buckelew said. “We just can’t operate as silos any longer.”

Carnival Corp. got its start in 1972 when Ted Arison founded Carnival Cruise Lines in Miami with one ship. Fifteen years later, with Arison’s son Micky serving as president and CEO of the company, Carnival went public and soon started amassing a portfolio of global lines that would eventually mushroom into the world’s largest cruise ship company.

By 2003, when Carnival won a hard-fought battle with competitor Royal Caribbean Cruises to acquire P & O Princess Cruises, the company included brands with long histories such as Cunard Line and the Italian Costa Cruises, as well as former rivals Holland America Line and Princess Cruises. The portfolio also includes luxury Seabourn, P & O Australia and European lines Ibero Cruises, AIDA Cruises and P & O Cruises.

“Micky Arison really respected the people who built these brands over the years,” said Mike Driscoll, editor of the trade publication Cruise Week. “They were fairly strong brands in general, well run, but they succeeded by doing business in their own ways and he didn’t break it up — and it worked.”

But then, said Driscoll, “it sort of reached a point where it wasn’t working as well as it could have.”

The past several years have presented challenges that took a toll on the company’s finances, from economic recession in the United States and Europe to incidents that damaged the reputation of individual lines.

Carnival is shifting course after a vexing couple of years in which high-profile disasters drew negative publicity and annual profits dropped 43 percent. The deadly Costa Concordia shipwreck in Italy killed 32 and forced Costa Cruises to heavily discount sailings in order to fill ships. In February 2013, fire broke out on the Carnival Triumph, leaving the ship without power for days at sea and leading to the now-infamous “poop cruise” nickname.

Last summer, the company announced that it was splitting the chairman and CEO roles; Arison, who had filled both positions, announced he would step back as chief executive while remaining chairman. Although Arison said his departure from the role was not prompted by the incidents, he typically preferred to stay out of the limelight and let individual brands handle their crises publicly.

Longtime Carnival board member Arnold Donald, whose background included executive roles at a chemical company and nonprofit leadership positions, was named CEO.

Chief operating officer Howard Frank, who had served nearly 25 years at the company, announced his retirement late last year; with his departure, Donald rearranged several corporate positions and grouped some operating companies in ways that would make collaboration easier.

“I think there have been a lot of changes in the very top level in the company already,” said Teijo Niemela, editor and publisher of Cruise Business Review. “It’s not only the new CEO; it’s a new structure. We have seen very powerful figures retiring.”

Donald said his 12 years on Carnival’s board of directors left him familiar with the company’s operating style, but he realized the potential for greater leverage of scale as he spent time with staff at each brand.

Depending on whom he spoke to, Donald said, there was some disconnect between individual brands and the corporate level.

“There was a general feeling of, ‘There needs to be more control in the center,’ ” he said. “And the brands, of course, were feeling there was too much control in the center. The main thing was to blow all that up. We have brands and then we have all brands as opposed to corporate. It’s one for all and all for one.”

David Dingle, CEO of Carnival UK, remembers one of those early town-hall sessions.

“Arnold said to everybody, ‘You only work for one company, and that company is Carnival,’ ” he recalled. “And of course that, I think, rather came as almost a surprise to some people whose singular allegiances had been to their operating company to the exclusion of everyone else.”

Dingle and Buckelew both joined Carnival from P & O Princess, which shared more back-office centralization. Buckelew said he told Donald that he worried the company was missing out on potential by not “managing our brands like a true portfolio.”

Donald agreed — and asked Buckelew to leave his Princess Cruises post in California to help him make that change as COO, a position that would require him to split his time in Miami.

“I said, ‘I’ve complained about it for 10 years, so I’d be a hypocrite if I said no,’ ” Buckelew recalled.

In the months since Donald stepped into the chief executive role, top leaders have already spent significantly more time with each other, starting with a retreat in Asheville, N.C., late last year for the executive team. That was followed by a first-of-its-kind gathering in Miami of about 64 people in senior leadership from the parent company and all the brands.

Also new: Every week, Donald holds a meeting by video conference with some of his top executives from the corporate office and brands around the globe.

“Because we are now sharing all our issues, both day-to-day ones and strategic, it’s fascinating to watch the dynamics of the call to see how more and more people are willing to chip in on other people’s issues,” Dingle said. “You really get this excellent dynamic at the working level.”

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