Carnival Exec Sees Good Indicators for 2010, Full Recovery Further Out

Speaking at the CruiseOne and Cruises Inc. joint National Conference onboard Carnival Pride, Gerry Cahill, president and CEO, Carnival Cruise Lines, told hundreds of agents and agency owners in a “State of the Industry” presentation that “it’s been a tough year for all the cruise suppliers and a tough year for everybody in the business.”

Gerry Cahill, CEO of Carnival Cruise Lines, on stage aboard Carnival Pride in casual attire at CruiseOne and Cruises Inc.'s national conference

But he also stressed: “We’re all here and we’re all going to make it through.” That said, “we’re going to make less money than we did before, Cahill said, noting that 2009 has shown the most pressure on pricing that he’s seen in his 15 years in the cruise industry: “Many cruise lines are reporting their pricing is down 15 to 20 percent over the prior year over the previous years.”  

State of the Industry

Scares about the H1N1 also had an impact earlier this year. “We were affected by H1N1 because at the time that broke [the news coverage of the Mexico outbreak], we had 22 ships … 16 of which went to Mexico.” Carnival and other operators scrambled to change itineraries. 

Agents should know “the strong operators are going to be okay,” said Cahill. “Nobody is happy with the pricing. Nobody is happy with what we’re [the cruise industry] making.” But the volumes are pretty good, he said.

Cahill said Carnival has worked with agency partners to upsell – offsetting some of that price pressure. “We’ve actually increased the percentage of our higher cabin categories sold this year by 50 percent,” Cahill stressed.

Automation too is helping improve efficiency. The good news is that, from an industry perspective, “we think we’ve found pricing stability," Cahill said. "From our perspective, volumes have been very, very strong. For the last 12 weeks, we are pacing well over last year. So I think we have found the bottom.”

As far as the economy and cruise industry in general, Cahill said most economic indicators are more positive right now, although some indicators are still negative. “The scariest part for most people is that unemployment is now up around 10 percent and there are predictions it’s probably going to go higher,” he said. “Personally, that concerns me more than anything, as our customers generally work for a living and if they don’t have a job, that’s a big issue.”

But “I think we are on the road to recovery,” said Cahill. In recent weeks, Carnival has moved pricing a bit higher on many itineraries. Cahill believes agents will continue to see fares continue to strengthen through the end of 2009 and certainly through 2010, although not on every itinerary.

“But I do not believe it’s going to be a one-year recovery … this is going to be a drawn-out period of time,” he stressed. “The history of this industry is that ‘you don’t get it back that fast.’” Agents might expect two years before full recovery.

What’s the best way out of the current situation? Cahill said agents and cruise lines need to continue to work to bring up pricing: “That is the only way out of what happened in 2009. There is no other way. We have to work together to get our pricing up.”

Update on Carnival Cruise Lines

After telling the CruiseOne and Cruises Inc. agents about his general perspective on the industry, Cahill then turned specifically to the Carnival Cruise Lines brand. “We’re a very simple company,” he said. “We’re very, very focused.” He cited three brand elements that set Carnival apart from other lines -- Fun, Memorable Experiences and Great Value.

Appealing most to “middle America” type clients, Carnival wants to be known as a great value product, said Cahill. “We don’t want them to think of [Carnival for] luxury, as every other brand in the world wants to go up market. We have no desire to go up market. What we want to own is ‘fun’.” 

He stressed that both “fun” and “memorable experiences” are delivered by crew and the guests themselves – not by the hardware [ships per se].  Cahill also expressed his pleasure that the CruiseOne and Cruises Inc. agents were seeing those elements during a real cruise with regular guests this week –- not just attending a one- or two-night trade-only cruise.

He talked about cost cutting and stressed Carnival would not exit the economic mess of 2009 by cutting costs. Cahill pledged to specifically avoid cost cutting in two areas -- marketing and the onboard product.

“We have two things we’re trying to do,” Cahill says. “We want to get people who have never taken a cruise to try their first cruise. You need marketing to get those people interested and to drive them to the Web site.”

As a result, Carnival didn’t cut a dollar from its marketing expenditures in 2009, nor will it do so in 2010. Cahill said: “I believe this is the primary pump to get the engine going.”

He also wants to keep retention and frequency strong. “I desperately need the people to come back and come back a lot,” he stressed. He cited Carnival’s dining options including the Lido Buffet stations as well as new entertainment options as helping keep the product diversified for repeat guests. 

On the entertainment side, he cites these new offerings: card tricks at dinner; small groups of performers around the ship; and a new Comedy Club and Laser Show on the Carnival Dream. If the Comedy Club is successful on Carnival Dream, he says the line will consider rolling it out to the rest of the fleet. 

“We really care how the guests react to our product,” Cahill stressed. “I’m a big believer in trust. I’m a straight shooter. You have to be honest with people.”

Carnival started a program two years ago to make sure standards for maintaining ship hardware the same across the fleet, despite age and design differences the fleet. A shoreside team visits and audits every ship annually. “I want the guest to say “it’s clean, it’s neat, it’s well-maintained,” said Cahill.

Also he pointed to a new focus on resolving any complaints onboard -- before the guest goes home, gets more bothered about the issue and talks to family and friends. The line has upped its onboard resolution of complaints by 100 percent from the recent past.

On the first day guests check in, they’ll also see crew wearing red shirts that say “Just Ask Me,” an important part of Carnival’s strategy to make it easy for first-time guests who may have never cruised to feel comfortable onboard.

To entice consumers to sail, “we want to offer as much variety as possible” in terms of home ports and itineraries, Cahill said. Carnival has continued to introduce new home ports to give guests more choice – and avoid the costs of flying. For example, Carnival Pride is now sailing year-round from Baltimore, and Charleston, SC, is Carnival’s next year-round home port.

Cahill gave an update on Carnival Dream, noting that it was delivered on September 18. “Pricing is very good and bookings are even better,” says Cahill. 

“In my mind, it’s the best ship in the fleet,” he said, noting that it’s perfect for the family market. Approximately 100 cabins have two bathrooms – one a full bathroom, the other a sink and combination shower/small tub for kids. Also new are Cove Balcony Cabins on Deck 2, which are closer to the waterline

Among the other Carnival Dream highlights? Ocean Plaza is a new area that extends across the vessel with two concave glass walls on either side providing opposite sea views. The Fun Hub is a social networking area where clients may communicate at no charge with other guests; Internet access is available there as well, but there is a charge for that.

On Deck 5, the line has a promenade that goes all the way around the ship with four cantilevered whirlpools. The huge Waterworks area features six different slides including a 300-foot-long Twister slide. The Carnival Dream also has the biggest children’s area in the fleet. And, the ship boasts a two-level, adults-only Serenity area.

Cahill stressed the need for agents and suppliers to work together. “People have said over the years, ‘Well Carnival has direct business,’ and … [yes] we do have direct business,” he acknowledged.

But he also said the agent distribution channel is critical. Why? “We don’t have and never will have the reach that you have. You can reach people we can’t.” He stressed that cruise lines and agents who work together, upsell and push pricing higher will all reap the revenue rewards.

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