Carnival Corp. Boss On Environmental Rules, Cuba, And Cruise Technology

Sep 9, 2019

Arnold Donald says he planned to be in federal court on June third in Miami. That was the date of a hearing in front of a judge overseeing the probation of the company he leads -- Carnival Corporation.

 

The company plead guilty in 2016 to several pollution charges and in 2017 it was put on five years probation. One of the conditions of the probation was that a court-appointed monitor would watch over the company’s environmental practices. In the first year of probation, the monitor found several violations including Carnival sending in its own teams to ships before independent environmental inspections, dumping plastic mixed with food waste in protected waters of the Bahamas, and falsifying training records. 

In April, the judge hearing the case threatened to ban Carnival ships from docking in the United States and was frustrated by the absence of Donald and other top Carnival executives. 

“The people at the top are treating this as a gnat,” the judge said at the time. 

She wound up issuing a court order requiring Donald and Carnival Chairman Micky Arison to be in court in June -- the hearing Donald says he already had planned on attending without the court order.

 

Carnival's troubles with environmental rules was just one topic he spoke about with The Sunshine Economy.

 

READ MORE: Carnival Corp. Boss 'There Were Some Gaps' In Environmental Oversight

 

Donald also spoke about Carnival's business, what it says about the U.S. economy, the ban on cruises to Cuba, and the company's push into new onboard technology.

 The Cruising Business 

Carnival Corp. reduced its earnings per share forecast this summer for the second time this year. But unlike in March, when it cut its profit outlook because of higher oil prices, in June the company argued mechanical problems with one of its newer ships and the Trump Administration's sudden banning cruises from the U.S. to Cuba were to blame.

This kind of trouble is new for Carnival. The company had been on a roll. It had grown profits at a double-digit rate almost every year since Donald became CEO in 2013. In his five years, profits have dropped year-over-year only once -- in 2017 -- thanks to a busy hurricane season in the Caribbean.

This year, the company has warned investors that profits per share will be about the same as last year.

 

But unlike 2017 when the company’s business was held back by Mother Nature and the hurricane season, this year, the challenges are man-made.

One is the impact from ending its cruises between to Cuba. That business ended in early June, when the State Department stopped allowing people to travel to the island by water, including cruise ships. Carnival was the first cruise operator to sail into Havana when that restriction was first lifted in 2016. 

Cruise ship operators were forced to scramble to change itineraries, deal with passenger cancelations and offer discounts. For Carnival, it means $35 million less in earnings this year.

 

When the White House announced the ban, it gave cruise companies and passengers just one day notice. Donald says they learned about it along with everyone else.

 

"We knew that there were considerations under the way. We had known that for some time. We tried to proactively weigh in on those things as an industry and as an individual company, "said Donald. "But we learned when the world learned and it was a bit of a surprise to us."

Donald maintains Carnival is ready to have Cuba added back to its itineraries if U.S. regulators allow for it. He thinks the company's position toward cruising to Cuba is "well understood" by the Trump Administration.

The second problem for Carnival’s profits is one of its newest ships -- the Carnival Vista. It was launched in 2016 and sails out of Galveston, Texas. In July, it was sent to a floating drydock in the Bahamas and missed three cruises. It had a problem with its propulsion that slowed the ship down. Before it went in for repairs, other cruises were affected. 

In all, the loss of the Vista for about three weeks in July is expected to cost Carnival $63 million in lost profits this year.

 

"Each vessel is a significant contributor" to revenue, said Donald. "It is not unusual for any one ship to be taken out for a period of time. [But] it gets compounded that if you take it out unscheduled, you have a lot of guests that are booked on that ship. We have to give consideration to our guests if we're potentially disrupting their vacation plans."

 

Rumors of a coming economic recession have worried investors. Carnival’s stock price is down about 25 percent in the past year, but Donald says they don’t see any indication the American cruiser is slowing down.

 

"We see things are robust here in the US," said Donald in August. "The U.S. market remains robust for us. While we're not recession proof, we're probably a little more recession resilient than a lot of other industries."

 

He credits the nature of the company -- that it can move its ships around the world to find strong cruising markets. But one of those destinations in the Caribbean has been eliminated from Carnival’s itineraries -- Cuba.

 

Carnival Corporation Arnold Donald introduced the Ocean Medallion technology and device in 2017. Four Princess brand ships off the service.
Credit courtesy: Carnival Corp.

  Onboard Technology

The big cruise companies have been in an arms race over ships, amenities and technology. The competition has led to bigger ships, new diversions on board like a 10-story water slide, wave pools, and new devices that tie in with passenger smartphones.

 

Just because cruisers are at sea doesn’t mean they have let go of their phones.

 

There has been a rush to use technology to ease the check-in process, find friends, family and activities on ships and integrate technology into the entire on-board experience from dinner reservations to poolside drinks. 

 

Carnival unveiled its Ocean Medallion technology at the 2017 Consumer Electronics Show.  It is a device passengers wear allowing them to unlock their cabin door without a keycard, buy stuff without cash or a credit card, find people on board, and it knows what passengers like to eat and drink. The device itself is about the size of a quarter. Today, four of Carnival's Princess brand ships have the technology onboard. Donald expects that to grow, and have an impact on the company’s bottom line. "A ship is what? It is a hotel. It is a restaurant. It is an entertainment venue. It is a spa. It is all these things and all those things exist on land."