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Is it the beginning of the end for the Carnival Group or can the new CEO Donald turn it around?

The Cruise Ship industry is a small world and anyone within it acutely understands that the past 2 years or so have been a Roller Coaster ride for the world's largest group Carnival Corp.

Disaster first struck with Costa Crociere, when the Costa Concordia sank off the coast of Italy back in 2012, which caused over 30 passenger fatalities. Then it was the engine-room fire on board the Carnival Triumph (pictured above), which deprived the ship of its power. In this scenario for 5 grueling days, passengers lacked life's bare essentials such as air conditioning, hot food and the use of most toilets on board. Naturally, the mass media had a field day and went to town on Carnival.

Subsequently, the demand for cruises within the group as a whole plummeted in 2013. Carnival responded by slashing prices to fill all of its 102 ships and thereafter announced a $700+ million project to install emergency generators, along with improving its fire suppression systems.

Then in June 2013, the major figurehead of the group Micky Arison (son the founder and CEO since 1979), moved aside. In came an emergency substitute for a wounded Corporation, with the charismatic charm of Anold W. Donald, who spent no less than 12 years on the company’s board.

For Donald, it's simple, the “great camaraderie” passengers find on board his ships matters more than all the fancy restaurants or countless amenities. However, that quintessential yet intangible feeling is not so easily promoted to the public at large, especially under these crisis circumstances.

In many ways Donald was a strange choice, as he made his career at the hotly contested company of Monsanto Co. managing of all things Roundup weed killer. He later led a company manufacturing the artificial sweetener Equal.

Donald was first drawn to Cruises in 1982 by the thrill of the Casino, especially so as he openly admits to be a Blackjack card counter. He claims that business is business and he now pitches his Cruises as a hassle-free, affordable vacation. Donald even went on record to say “We are actually, for a lot of people, more cost effective than visiting the relatives and we’re probably more fun”

Donald wishes his Cruise Guests to spend at least $20 USD more per day, divided between the Cruise ticket and On Board Revenue. This equates to an extra Cocktail and a fine dining meal or an additional shore excursion. This extra $20 USD per day would secure Carnival an additional $1.5 USD billion per annum.

Sure enough Carnival need the money, because the Corporation generated $1.08 billion in the last fiscal year of 2013 which is actually the lowest annual profit since way back in 2002. However, 2014 figures are looking better and the share price has regained strength closing the year around 2,857, which is close to the 3000+ high of the last 5 years.

Donald responded by shuffling his executives around, with the aim of harnessing the company’s 10 brands (Carnival Cruises, Princess Cruises, Costa Cruises, AIDA Cruises, Holland America Line, P & O Cruises UK and Australia, Cunard Line, Iberocruceros and Seabourn) to better synergize, especially where cost control is concerned. The formula is not so easy find however, as each Cruise Line has its own unique history, demographics of Guests and personality. As a result Costa is becoming more like AIDA every day, Iberocruceros seems to be ready to close and a general dilution of the brands may in reality be on the cards.

Donald admits however that “The brands are king,” and “People don’t sail on a corporation.” Nevertheless, the target is for Carnival to capitalize on its massive size by negotiating cross Cruise Line procurement deals with one set of vendors for key cost areas such as food, cleaning supplies, Port Agent services, Shore Excursion activities and mot service providers in general. Donald claims that when he took over, the leaders of the 10 brand never even met together!

The risk however, is by sourcing food, Shore Excursions and certain aspects of the operation from one unique supplier, the differentiation of each individual brand may be affected along the way, as each Cruise Line previously arranged its own supplies and provisions tailored to its own unique brand style and needs.

Cruise suppliers, concessionaires and service providers across the world are noticing the great Carnival squeeze, whereby there are winners and losers. Perhaps with more lateral thinking, the best way forward for Carnival in the future, is to shift the context from defensive austerity style cost control, towards truly proactive growth, which is how the success of the brands were created in the first place!

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