PHOTO ESSAY CARNIVAL
The series of storms that battered the East Coast and Caribbean late this summer sent all hands scurrying on deck at Carnival Corp. (CCL ) The world's largest cruise line operator had to reroute ships, change ports, and cut short some itineraries. The company figures refunds and storm-related expenses will cost it at least $40 million in lost earnings this year. But it could have been much worse. Unlike hotels and resort operators in storm-ravaged regions, Carnival was able to cut its losses by picking up and moving its business around. "A ship is faster than a storm," says the company's chairman and chief executive, Micky Arison.
Maneuverability is one of Carnival's greatest assets. And that means much more than just dodging storms. When the travel industry slumped after the September 11 terrorist attacks, Arison shifted boats to closer-in ports such as New York and Galveston, Tex. He also cut fares and offered shorter cruises to attract increasingly budget-conscious travelers. Then, when rival Royal Caribbean Cruises Ltd. inked a deal to buy P&O Princess Cruises in late 2001, Arison countered with a higher bid and ultimately won the company for $8 billion. With that deal and a bevy of previous acquisitions, Carnival now owns 12 cruise brands, a fleet of 78 vessels, and nearly half of worldwide industry revenues.
A TIGHT SHIP
Thanks in part to its penchant for dealmaking, Carnival has racked up 18% average annual revenue growth over the past three years. Its stock, at a recent $51 a share, has climbed 30% over the past year, compared with just 9% for the Standard & Poor's 500-stock index. And for fiscal 2004, which ends Nov. 30, analysts expect the cruise line to earn a record $1.8 billion on revenues of $9.5 billion. That performance helped Carnival sail to the No.46 spot on this year's BW50 list of best-performing companies.
Arison has always had a gift for running a tight ship. After the P&O merger, he consolidated back-office functions in the United Kingdom, Miami, and Los Angeles, helping to generate more than $100 million in cost savings. Later this year he plans to reconfigure one of Carnival's ships to sail under the P&O banner in Australia. The move will more than double the company's capacity in that fast-growing market to 150,000 passengers a year.
With an array of brands, Carnival can offer something for every breed of cruise fanatic. There's the high-end Yachts of Seabourn, which feature onboard lectures by Ivy League professors. At the other end of the spectrum are the Carnival "Fun Ships," which offer midnight buffets and dancing until 4 a.m. Carnival bought the 164-year-old Cunard Line in 1998 because of its nostalgic appeal. Indeed, the introduction earlier this year of the massive, $800 million Queen Mary 2 caused a sensation. The first new transatlantic liner to be built in 35 years, it's now Carnival's top-earning ship. "Even Donald Trump couldn't keep off it," says Arison, referring to the ship's recent cameo on The Apprentice.
Arison won't be adding many more new ships to his fleet anytime soon. The weak dollar has made it expensive to build new vessels in the foreign shipyards that specialize in cruise ships. Carnival says its capacity growth will slow to just over 5% a year through 2007 -- a third the rate of recent years. With fewer new ships and demand for cruises still climbing, Carnival's pricing power is increasing. And it recently took steps to ensure it gets its fair share of the profits by prohibiting independent travel agents from rebating portions of their commissions to customers as discounted fares. The average bill for two vacationers on a seven-day Caribbean cruise, at online travel agency CruiseDirect Inc., has jumped 39% to $1,870 since the beginning of the year.
Arison believes that compared with airfares and hotels, cruises are still a bargain and that there's room to grow. And now, the P&O merger will allow him to bring more ships to more people around the world. "In Germany they do 80 million packaged holidays a year," Arison says. "Only 250,000 of them are cruises. That number should be in the millions." Arison, of course, plans to get his share.
By Christopher Palmeri in Los Angeles