Carnival’s CEO Faces Fallout From Worst Accident in 40 Years

Tuesday, 17 Jan 2012 07:36 AM

 

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Carnival Corp.’s Micky Arison, who built his company to almost $16 billion in annual revenue as he helped popularize cruise-ship vacations, must now deal with the fallout from the worst accident in the company’s history.

Arison is chairman and chief executive officer of Carnival, owner of the Costa Concordia cruise ship that ran aground off the coast of Italy Jan. 13 and left at least six dead with 29 missing. Company officials have joined local authorities in blaming the captain for getting too close to the island of Giglio in the Tyrrhenian Sea.

Arison, whose father founded the cruise company in 1972, must now work to soothe public concerns about the safety of such voyages in the midst of the peak-booking season, while addressing the financial and legal costs of the accident. Arison is in Miami, where the company is headquartered, with Chief Operating Officer Howard Frank, helping coordinate the response with authorities on site in Italy, Carnival said in an e-mail.

“How you respond affects your company and your industry,” said Peter Hirsch, director of reputation risk at Ogilvy Public Relations Worldwide. “You want to be very clear with people about what caused the problem. You want to be able to reassure them that it’s not going to happen again.”

Arison, 62, became Carnival’s CEO in 1979 and chairman in 1990. He has expanded Carnival into the world’s biggest cruise group via acquisitions of individual ships and ultimately entire cruise lines -- including the biggest cruise merger -- while building new vessels to accommodate thousands.

His wealth has grown along with Carnival, which went from $564 million in revenue in 1987 to $15.8 billion for the fiscal year ended in November. He had a net worth of $4.2 billion last year, according to Forbes magazine, making him the 75th wealthiest person in the Forbes 400 list of richest Americans.

Worst Accident

“Our priority is the safety of our passengers and crew,” Arison said in a statement. “We are deeply saddened by this tragic event and our hearts go out to everyone affected by the grounding of the Costa Concordia and especially to the families and loved ones of those who lost their lives.”

Carnival has said the crash this month is its worst ever. The Costa Concordia, which is owned and operated by the company’s Costa Crociere SpA, was carrying more than 4,000 passengers and crew when it struck rocks, ripping a hole through its hull.

Costa CEO Pier Luigi Foschi held two press conferences in Genoa, Italy to address questions about crash. Top executives from the company may still come to the scene to help, he said.

“Carnival’s management has already offered to come here if we believe it’s appropriate for them to come,” said Foschi. “We’ll decide together.”

‘Human Error’

Foschi’s voice cracked with emotion and eyes welled with tears during one press conference, as he defended the performance of the crew during the two-hour emergency evacuation of passengers. He explained that the vessel’s route had been set electronically before it left Civitavecchia near Rome.

“We can’t deny that there was a human error,” he said. “The route had been properly programmed in Civitavecchia. The fact that the ship strayed from that course can only be due to a maneuver that was not approved, not authorized nor communicated to Costa Crociere by the captain of the ship.” Captain Francesco Schettino, who is in custody amid a criminal probe, may have steered the boat closer to Giglio to give passengers a better view of the Tuscan island, Foschi said.

Residents React

Residents on the island said they fear an oil spill may worsen the disaster.

“Inside it there are 2,500 tons of fuel, not 10 liters,” said Michele Cavero, 67, a pensioner and a former head of oil tank operations. “That would be an environmental disaster, we have among the cleanest waters in the Mediterranean Sea.”

Luca Milani, 38, is the owner of a building company on the island.

“Giglio is a pearl of the Mediterranean and we are running the risk of losing it,” he said. If the ship sinks further, “Who’s going to pull the fuel out?”

It can be challenging for companies in crisis situations to convey information quickly and accurately, said Ogilvy’s Hirsch.

“It’s important to be honest with people about what you know and what you don’t know,” said Hirsch, who was commenting generally rather than specifically about Carnival.

Carnival senior management “has been in constant contact with the leadership of its Costa unit,” COO Frank said in an e- mailed statement. Carnival’s “Maritime Policy and Compliance team are also helping to coordinate the environmental protection effort surrounding the offloading the ship’s fuel and the preparation for salvage.”

Stock Drop

Estimated Costa Concordia losses of as much as $95 million may be exacerbated by other lost bookings. About one-third of all cruise vacations are arranged during the peak so-called wave season from January to March, which is also the most profitable booking period, said Sharon Zackfia, an analyst with William Blair & Co. in Chicago. Costa Concordia’s shipwreck follows a November 2010 engine fire aboard Carnival Splendor that stranded the cruise ship off the California and Mexican coasts for days, with more than 4,400 passengers aboard.

Carnival fell the most in more than 11 years in London trading yesterday. Shares dropped 16 percent to 1,878 pence, the biggest decline since 2000. Royal Caribbean Cruises Ltd., the second-biggest cruise line, fell 7.7 percent in Oslo. U.S. markets were closed for the Martin Luther King Jr. holiday.

Carnival has continued to advertise its cruises, though the company wouldn’t comment on whether the level of ad spending has changed. Carnival’s other cruise lines, including Seabourn, Princess and Cunard, are operating their regular schedules, the company said.

Track Record

The international cruise-ship industry’s safety record is better than the aviation industry’s, said Peter Wild, a maritime consultant whose firm provides information on the industry to banks, governments, cruise lines and banks. Fatalities between 2005 and 2010 averaged less than 0.1 per million of passengers, compared with 0.3 fatalities per million passengers in aviation.

“Carnival is pretty much in line with the industry as a whole, and has an excellent record,” said Wild. “The track record of the industry speaks for itself, although it’s not to say that human error can’t happen.”

The company estimated yesterday it would have to pay at least $40 million in insurance deductibles, plus up to $95 million in lost earnings this year without the use of Costa Concordia, and “anticipates other costs to the business that are not possible to determine at this time.”

Carnival Growth

Carnival raised $400 million in a 1987 initial public offering, and continued its expansion via acquisitions. Arison engineered Carnival’s 1989 purchase of Holland America Line, then bought Cunard Line, Seabourn Cruise Line, and Costa Cruises.

In April 2003, Arison merged Carnival’s six cruise lines with P&O Princess Cruises, adding brands including Princess Cruises, P&O Cruises, and AIDA. He later expanded in Spain with Iberocruceros.

He has benefited from a surge in cruise vacations. Global cruise passenger numbers jumped to 14.8 million in 2010, from 3.8 million in 1980, according to data from the Cruise Lines International Association, the biggest industry group.

Arison’s honors include the insignia of “Onorificenza al Merito della Repubblica Italiana” presented by Italy’s president, that country’s highest title for a civilian; and “Officer of the French Legion of Honor” by then French President, Jacques Chirac, that country’s highest civilian honor.

Miami Heat

Arison bought the National Basketball Association’s Miami Heat in 1988 for $32.5 million. The franchise is worth $425 million, seventh among the league’s 30 teams according to the annual Forbes ranking. Today’s team features All Stars LeBron James, Dwyane Wade and Chris Bosh, and entered this season favored by oddsmakers to win the championship.

Arison was active in the recent offseason labor negotiations during the lockout. He was fined $500,000 by the NBA for a comment he made on his Twitter account about the stalemate between the league and the players’ union.

Carnival’s bookings had been “strong” heading into the wave season, Arison said in a Dec. 20 statement, with “slightly higher prices with slightly lower occupancies.”

For the year ended in November, revenue rose 9.2 percent to $15.8 billion, Carnival said on Dec. 20. The company projected then that net income would rise to $2.55 to $2.85 a share this year, adjusted for one-time items, from $2.42 in fiscal 2011.

Europe Bookings

Europe generated about 38 percent of Carnival’s revenue in fiscal 2010, the last full year for which geographic results are available. Its Genoa-based Costa Crociere unit has 15 ships and is the continent’s largest cruise line based on passengers and ship capacity, according to Carnival.

Arison may have to boost his profile if the crisis in Italy continues. Companies in similar situations usually benefit from having their top executives addressing the public, said Hirsch.

“Whenever there are fatalities and serious injuries, it’s important for the most senior leadership to be visible,” he said. “Some visibility is certainly a good thing.”

© Copyright 2014 Bloomberg News. All rights reserved.

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