Carnival takes a PR hit, but veteran cruisers stay loyal

By Tom Stieghorst

While there is no question Carnival Cruise Lines' image has been stained among the public at large by recent malfunctions on its ships, cruise sellers said last week that its reputation remains solid among experienced cruisers.

On the other hand, they said, consumers who have never before cruised are growing more leery of cruising in general following a series of incidents on Carnival ships, several of which were widely sensationalized by 24-hour TV news channels.

"People who have not sailed before, it makes them more fearful of sailing," said Karen Gurley, of Athena Travel in Laurel, Md.

To mend a hole in bookings that opened after the Carnival Triumph incident, Carnival is offering promotions, including a "Friends and Family" discount of up to $600.

But while that might well fill Carnival cabins, the anticipated hit to fares, plus new costs associated with planned fleet-wide safety improvements, led two top credit agencies to revise parent Carnival Corp.' s ratings outlook to "negative."

Carnival wasted no time implementing the safety enhancements. It has scrubbed 10 additional cruises on the Carnival Triumph, and the first two cruises of its newly remodeled ship, the Carnival Sunshine, keeping them in drydock longer to add more redundant safety features.

"We sincerely regret canceling these cruises and disrupting our guests' vacation plans," Carnival President Gerry Cahill said.

A string of glitches that, independent of each other, might seem minor has instead evolved into a public relations challenge for Carnival as it seeks to weather recent hits to its reputation and emerge in calmer seas.

Its difficulties started with the Feb. 10 engine room fire that disabled Carnival Triumph. Then, a balky emergency generator on Carnival Dream resulted in that ship ending a cruise prematurely in St. Maarten.

As Dream passengers were flown home, reports of minor propulsion and steering problems on Carnival Legend and Elation raised reliability questions that were fueled by hyperactive media coverage.

"Sadly, we've just been hit by a run here that is very unfortunate," Carnival Corp. Vice Chairman Howard Frank said in a conference call to discuss the company's first quarter results.
In the same call, Carnival Corp. Chairman Micky Arison sought to put the run in perspective, both in numbers and guest satisfaction.

"The Dream was 4,000 passengers on a base of 4.4 million passengers that Carnival Cruise Lines carries," each year, he said. "And they come back 98%, 99% very happy."

Frank said a review of 10 years of incidents revealed that the number involving Carnival Corp. brands was no greater than the worldwide fleet average. But he added that since the 2012 Costa Concordia accident, it has been "a little bit higher."

Carnival's business suffered at least a temporary setback as a result of the series of incidents.

Arison said there was a double-digit decline in bookings immediately after the Triumph fire. But there were few cancellations, and price promotions have worked to restore interest.

"Price always makes a difference," said Heather Morris, owner of Onderland Travel, in Lancaster, Pa. "If people believe they're going to get an excellent deal, people will choose to go."

Still, Morris said some travelers who haven't cruised before "adamantly refuse" to consider it. "They will not do it," she said, adding that she suggests all-inclusive resorts to them as an alternative.

Kyle Miller, a CruiseOne agent in North Little Rock, Ark., agreed it is people unfamiliar with cruising who are spooked by the incidents.

"People keep hearing, 'Oh, another one's happened,' and they don't understand it's not the same thing that happened on the Triumph," Miller said. "They're completely minor issues that shouldn't even be on the news and ordinarily wouldn't be."

Miller said only one customer had called to cancel, though she added, "It's hard to know if there were people who didn't call at all because of this, but overall we're still getting bookings. We're still fairly busy."

Carnival launched its Friends and Family promotion on March 18 to help persuade reluctant cruisers. The sailings are mostly close-in dates, with sample fares ranging from $249 for an interior cabin on a four-night cruise from Tampa departing April 11 to $929 for a balcony on an eight-day Carnival Breeze sailing from Miami in late May.
Several agents said the offers are lighting up the phones, but they're coming more from previously booked guests seeking a match than from new customers.

Jill LaBarre, of Cruise Brothers in Orlando, said she spent four hours on the phone with Carnival one day trying to rebook clients at lower prices. Although one got a substantial price reduction, others were offered small upgrades. In one case, they were offered an upgrade from interior to oceanview cabins, but at $40 more per person, LaBarre said.

The clients had been anticipating a lower price or equivalent onboard spending credits.

LaBarre was most upset about the 90 minutes she spent on hold waiting to talk to a Carnival representative. "I'm spending all my time and making less money for it when I could be doing other things for my business," she said.

Carnival has not said how much the price promotions would reduce earnings, but Arison said the promotions are no greater than the reductions it made last year.

Even so, both Moody's Investors Service and Standard & Poor's revised the ratings outlook on Carnival Corp. to negative, citing the potential for lower yields and higher costs as ships get upgrades after the Triumph fire.

If ratings on Carnival Corp.'s debt are lowered, it could raise the company's cost to borrow money.

Carnival is already signing contracts to improve the Triumph and Sunshine ships. It has identified three areas it will improve: fire prevention, detection and suppression; redundancies in operations; and a wider scope of hotel services that can be run from emergency power.

The Carnival Triumph, already being repaired in Mobile, Ala., after its engine room fire, had been scheduled to resume sailing April 13 but will now stay in drydock until early June to get the new upgrades.

The Carnival Sunshine, the former Carnival Destiny, is at the Fincantieri shipyard in northern Italy, where its 49-day drydock has been extended to add the new safety features to the list of improvements it was already getting.

Scheduled to emerge in mid-April, the Carnival Sunshine will now make the first of its nine- and 12-day Mediterranean sailings on May 5.

Carnival said the sourcing of supplies and scheduling of improvements will take less time for the other ships in its fleet because the company will have greater familiarity with the process.

It expects to take each of its ships out of service sometime in 2013 or 2014 for improvements that emerge from reviewing the Carnival Triumph experience. It has a capital improvements budget of $800 million for refurbishment and maintenance in 2013 but isn't saying how much of that will go toward fleetwide safety upgrades.

"Hopefully, in the next couple of weeks, we'll have a full plan with estimated costs to doing all this work," Frank told analysts. "I don't see it as being enormous, but it will be some amount of money."