Carnival Drops as CEO Oversees Shipwreck Response From Miami

Carnival Corp. CEO Micky Arison
Micky Arison, chief executive officer of Carnival Corp. Photographer: Patrick McDermott/Getty Images

Carnival Corp. dropped the most since September 2001 after the cruise company’s worst accident, as Chief Executive Officer Micky Arison oversees the response from Miami, 5,000 miles (8,000 kilometers) from the Italian site.

Company officials have joined local authorities in blaming the Costa Concordia’s captain for getting too close to the island of Giglio in the Tyrrhenian Sea. Arison, who built Carnival to almost $16 billion in annual sales, has so far left it to regional cruise managers to face the press since the ship ran aground Jan. 13, leaving at least 11 dead and 24 missing.

Public appearances by CEOs are generally important in helping companies regain consumer confidence following accidents, said Peter Hirsch, director of reputation risk at Ogilvy Public Relations Worldwide. For Arison, 62, the need to soothe concerns may be urgent as this is the peak season for cruise bookings.

“Whenever there are fatalities and serious injuries, it’s important for the most senior leadership to be visible,” Hirsch said, without specifically commenting on Carnival. “Some visibility is certainly a good thing.”

Arison, whose father founded Carnival in 1972, and Chief Operating Officer Howard Frank are helping coordinate actions with authorities in Italy from Florida, the Miami-based cruise operator said. Carnival has hired communication consultants Burson-Marsteller, PRWeek reported.

Shares Fall

Carnival fell 14 percent to $29.60 at 4 p.m. in New York, the biggest one-day drop since Sept. 17, 2001, when U.S. markets reopened following the Sept. 11 terrorist attacks. Royal Caribbean Cruises Ltd., the second-biggest cruise line, declined 6.2 percent to $26.97. U.S. markets were closed yesterday for the Martin Luther King Jr. holiday.

Arison indirectly owns more than 110 million U.S. shares, Carnival regulatory filings show. Today’s decline wiped about $515 million off the holdings.

The Costa Concordia, owned and operated by Carnival’s Costa Crociere SpA unit, was carrying more than 4,000 passengers and crew when it struck rocks, ripping a hole through its hull.

“Airplanes sometimes fall out of the sky, but people still fly,” said Petter Narvestad, an Oslo-based analyst at Fondsfinans ASA, who recommends buying Royal Caribbean shares and doesn’t rate Carnival. “The effects of Concordia are short-term. There’s no threat to the cruise liners or the cruise industry.”

‘Constant Contact’

The company’s senior management “has been in constant contact with the leadership of its Costa unit,” COO Frank said in an e-mailed statement.

Pier Luigi Foschi, CEO of the Costa unit, said top group executives may still come to the scene to help.

“Carnival’s management has already offered to come here if we believe it’s appropriate for them to come,” Foschi said at a weekend press conference in Genoa. “We’ll decide together.”

Captain Francesco Schettino, who was granted house arrest amid a criminal probe, may have steered the boat closer to Giglio to give passengers a better view of the Tuscan island, Foschi said. Carnival called the accident its worst ever.

Arison, who also owns the Miami Heat basketball team, became Carnival’s CEO in 1979 and chairman in 1990. He has expanded the company 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.

Arison’s Net Worth

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.

“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.”

Costa CEO Foschi today held a press conference near the shipwreck scene in Giglio, where he met with some survivors and rescue workers.

“Our ships are safe just as they were on Friday,” he said. “It has nothing to do with security at sea nor does it have anything to do with our policy, training or the quality of our personnel.”

‘Human Error’

During a weekend press conference, Foschi’s voice cracked with emotion and eyes welled with tears as he described the performance of the crew during the two-hour emergency evacuation. 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.”

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

Environmental Protection

“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?”

Efforts to prevent fuel leaking into Europe’s biggest marine park are under way. Smit Salvage, a unit of Royal Boskalis Westminster NV, has been contracted and is ready to begin inspecting the ship as soon as tomorrow before removing fuel and salvaging the wreck, executives said on a conference call today.

Carnival’s maritime policy and compliance team are helping to coordinate the environmental protection effort surrounding the offloading the ship’s fuel and the preparation for salvage, COO Frank said in his e-mail.

Peak Booking Time

Carnival estimated yesterday it would have to pay at least $40 million in insurance deductibles following the wreck. It may also face as much as $95 million in lost voyage earnings this year without the use of Costa Concordia. The company further “anticipates other costs to the business that are not possible to determine at this time.”

Direct losses may be exacerbated by the disaster deterring holidaymakers from booking cruises. About one-third of all cruise vacations are arranged during the 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.

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

Safety Record

The international cruise-ship industry’s safety record is better than aviation’s, said Peter Wild, a maritime consultant whose company provides information on the industry to banks, governments and cruise lines. 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,” Wild said. “The track record of the industry speaks for itself, although it’s not to say that human error can’t happen.”

In November 2010, an engine fire on the Carnival Splendor stranded the cruise ship off the California and Mexican coasts for days, with more than 4,400 passengers aboard.

Carnival raised $400 million in a 1987 initial public offering, and continued its expansion via acquisitions. Arison engineered the 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.

Cruise Vacation Surge

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 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.

The billionaire’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.

Costa Crociere

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.

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.

The Concordia crash may damp Carnival’s operating results this year, according to Standard & Poor’s. The cruise company’s BBB+ grade wasn’t affected by the crash, it said in a Jan. 15 note.

To retain customers in the long term following an accident or other failing, companies should keep the public informed quickly and accurately even as they face the challenge of dealing with crisis situations, Ogilvy’s Hirsch said.

“It’s important to be honest with people about what you know and what you don’t know,” he said. “You want to be able to reassure them that it’s not going to happen again.”

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