On an average day, about 50,000 people around the world board cruise ships to start their vacations. Half of them set to sea on a vessel owned by Carnival Corp, the industry leader based in Doral.
Those odds help explain why analysts think the world’s largest cruise company will suffer only a temporary setback as it grapples with the Costa Concordia, a shipwrecked Italian vessel blamed for at least 12 deaths.
Costa is the third-largest of Carnival’s cruise lines, so experts say the short-term woes will be expensive for one of South Florida’s largest employers. Forecasts by Barclays and UBS agree the dramatic capsizing will cost Carnival about 20 percent of its profit this year —roughly a $400 million loss.
But with 99 remaining ships spread out over nine brands, Carnival’s profits should still approach $1.5 billion by December. That’s thanks to a projected $15 billion in revenue, more than is spent each year in South Florida’s $10 billion hospitality industry.
The Concordia loss will be “a lot of money,’’ said Robert Kritzman, a Miami maritime lawyer who served as Norwegian Cruise Line’s general counsel and headed its Hawaiian operations for 13 years. “It’s not significant to a company that size...It’s not going to have a major impact on the company.”
Beyond the bottom line, the Concordia crisis promises to be a milestone moment for Carnival, the Miami company largely responsible creating the modern cruise-ship industry.
Thirty-three years after taking over the company from his late father, Ted, and turning it into a global leader, Carnival CEO Micky Arison faces perhaps the biggest test of his tenure. The 62-year-old is one of the country’s more recognizable CEOs given his added celebrity as the owner of the Miami Heat. But 10 days into the crisis, Arison has stayed out of sight and communicated only in written statements offering condolences and assurances that Carnival ships are safe.
Meanwhile, Costa’s senior executives in Italy have led the public response: meeting with survivors, holding press conferences and offering the company’s take on a grounding they -- and maritime authorities -- are blaming on a rogue captain.
Industry watchers say that approach meshes with Arison’s philosophy of letting Carnival’s various fleets, including its flagship Carnival brand, operate with autonomy. Unlike the top-down approach at Carnival’s hometown rival, Royal Caribbean, Carnival lines have much more leeway to plot their own strategies.
“The way Carnival operates, each brand tends to be managed separately,” said Matt Jacobs, who tracks the cruise industry for Investment Technology Group. “In some ways, each brand is allowed to compete with each other.”
Carnival now must balance that approach with the need to assure the public of the company’s competency at preventing disasters like the Concordia.
While Costa blames Captain Francesco Schettino for steering an unauthorized course that took the Concordia to shallow waters, the Lloyds List maritime news reported tracking data shows the Concordia steering even closer to the same shore in August. Costa acknowledged the earlier trip, but said maritime authorities approved the course. On Sunday, Reuters reported Schettino told prosecutors that Costa headquarters requested he sail a similar course the day of the accident.
Last week, Carnival announced a review of all safety procedures companywide, amid reports of botched lifeboat deployments and general chaos on a sinking ship where no emergency drills had been held since leaving port at least two hours earlier.
Last week, Carnival Cruilse Lines posted a message on its Facebook page suggesting the drill would have already occured on a vessel run by the flagship brand. “All of our ships comply with international rules that require these drills to be done within 24 hours of departure,” the message stated, “and in almost all cases, Carnival Cruise Lines’ ships do it prior to sailing.”
In announcing the safety review, Arison said in a statement that “this tragedy has called into question our company’s safety and emergency response procedures and practices...”
Ten years ago, Carnival oversaw less than half the fleet it does now from its Doral headquarters. In 2002, the company reported revenue of about $5 billion, not even a third of 2011’s expected results. .
Its $15.8 billion in annual revenue would give it the No. 159 slot on the Fortune 500 list if it was incorporated in the United States. (Carnival lists its headquarters as Panama, allowing it to avoid some U.S. taxes as a foreign ship carrier.) That’s well behind South Florida’s top performer on the rankings, No. 133 World Fuel Services, but ahead of AutoNation (197), Office Depot (211) and Ryder (437).
“Even during these lean times, their capacity has grown,’’ Jacobs, the ITG analyst, said of Carnival. “They’ve actually had to hire in the last few years.”
Carnival’s Wall Street clout wasn’t a sure thing when the company’s first ship set sail from the Port of Miami in 1972. The 158-foot Mardis Gras promptly ran aground on a reef off Goverment Cut.
The ship managed to free itself, and Ted Arison went on to reposition cruise ships from luxury liners crossing the Atlantic to floating hotels offering cheap vacations to the islands. That strategy of cruises “for the masses” made Ted Arison one of the wealthiest men in the world. In 1979, Ted named Micky, then still in his 20s, head of the company. A string of acquisitions followed as Carnival pursued both wealthier vacationers at home and cruisers of all income levels abroad.
In 1989, Carnival made its first big purchase with the Holland America Line. The 1990s brought a bid for wealthy cruisers with Cunard, home to the QE2. Carnival also expanded its European horizons by purchasing the popular Italian cruise line, Costa, then the top line in the Mediterranean. In 2003, Carnival cemented its dominant role atop the industry by beating out Royal Caribbean in a hostile takeover of Princess, then Britain’s largest cruise line.
Today, Carnival employs about 3,500 people in Miami-Dade, making it the eighth largest private employer in the county, according to the Beacon Council. Carnival stock plunged 14 percent on the first day of trading after the Jan. 13 accident, but has since recovered about half of that loss. Its stock ended Friday down 8 percent from its price before the accident, closing at $31.56 a share.
Carnival’s 15 Costa ships account for about 16 percent of the company’s 186,000 cabins, with only Princess Cruises and the Carnival line boasting more capacity. The Concordia, which carried about 3,200 passengers on its last voyage, was one of Carnival’s three largest European ships, giving it a key role in a crucial market. With Caribbean ships saturated with veteran cruisers, Carnival sees Europe and the Mediterranean as ripe for new business
“The majority of our growth in the next three years will come from our European brands,’’ Carnival wrote in its annual earnings report from January 2011. Now the company expects lost bookings, insurance deductibles and other direct costs tied to the Concordia to cost it $90 million this year. That’s far less than what analysts predict, though Carnival said in a statement that the full financial damage from the incident “are not possible to determine at this time.”
Analysts agree, saying the Concordia presents such disturbing images and stunning circumstances that they can’t predict with total confidence where the crisis will leave Carnival or cruising in general.
“This whole incident is so bizarre, one in a million,’’ said Bob Levinstein, who runs cruisecompete.com, where travel agents bid on vacationers’ requested itineraries. “If you told me a week ago this was going to happen, I would have told you it’s impossible.”
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