Carnival Corp. eyes interbrand cooperation

By Tom Stieghorst
Carnival Corp. will step up efforts to have its 10 brands cooperate to produce cost savings and take advantage of the company’s scale of operations to boost profits, CEO Arnold Donald told analysts last week.

In a conference call to discuss fourth-quarter earnings, Donald indicated that strategy would be a cornerstone of his management of the $30 billion company.

“We do plan to change the focus of our efforts and how we work together,” Donald said. “The brands were fiercely independent in the past and even protected information from each other. So it is a culture change.”

But he reiterated that he will not merge any of the brands.

“Operating our brands independently has been successful, and it has led to our industry-leading position,” he said. “The brands will remain independent, especially at the guest-interface level as they become increasingly distinct in the psychographics of the guests they service.”

ArnoldDonaldDonald made his comments as Carnival reported a 29% drop in Q4 net income, to $66 million. Revenue fell to $3.6 billion, from $3.7 billion.

Carnival forecasted that 2014 profits will be in the range of between $1.08 billion to $1.39 billion after falling 16.8%, to $1.1 billion, this year.

Carnival Corp. Chairman Micky Arison said that having both Carnival Cruise Lines and Costa Cruises in recovery mode led to a fairly wide range in potential profitability in 2014.

“How Wave season shakes out becomes increasingly important,” Arison said.

To date, 2014 bookings for all Carnival brands are running behind the same period a year ago at comparable prices. Carnival said it expects revenue yields in the first quarter to be down 3% to 4% and to recover throughout the rest of the year, entering positive territory in the second half.

In Q4, ticket prices were down 3% and onboard spending was up 1%, producing a 2% decline in yield.

But yields from North American brands, primarily Carnival Cruise Lines, were down 6%. Donald said that public perception and recognition of the Carnival brand have recovered 75% from their low point, according to surveys.

He said the recovery has been faster than originally anticipated. A 6.5% jump in cruise costs in Q4 throughout Carnival Corp. was attributed partly to higher advertising.

Donald said Carnival will continue greater-than-usual marketing expenditures in 2014.

One analyst asked about a critical CNN report on the Carnival Triumph that aired last week. The story, based on discovery in a negligence lawsuit filed by Houston lawyer Frank Spagnoletti, alleged that Carnival officials knew the ship had a “propensity for fires.”

Donald called the lawsuit “frivolous” and said the CNN report “mischaracterized the situation.”

Asked about installing scrubber technology to reduce air pollution, Carnival Corp. CFO David Bernstein said the company now expected that the technology would save a “majority” of the $265 million Carnival had previously estimated it would cost to comply with 2015 requirements of the North American Emissions Control Area.

The company didn’t quantify savings from its planned interbrand collaboration initiatives but said onboard spending and price optimization would be two areas where revenues could be enhanced, while procurement, inventory management and port planning were among cost centers being studied.

Follow Tom Stieghorst on Twitter @tstravelweekly.
 
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