LONDON -- Some travel agents thought it already was too large.
P&O Princess Cruises said it made a proposal that was
undeliverable. Royal Caribbean Cruises claimed its actions were a
But in the end, industry giant Carnival Corp. was victorious in
the merger battle for P&O Princess, which terminated its
long-standing agreement for a friendly merger with RCCL.
If Carnival's newly proposed deal with P&O Princess is
accepted by the board and its shareholders next year, analysts say
Carnival Corp. will have something new: global reach.
"P&O Princess is well diversified; it has worldwide
coverage," said Tony Peisley, an independent cruise analyst in the
U.K. "What Carnival gets is a foot in the door in some source
markets it doesn't already have."
Joe Hovorka, an analyst for Raymond James in St. Petersburg,
Fla., agreed, pointing out that markets where Carnival is strong --
such as with Costa Cruises in Italy and France -- complement
P&O Princess strongholds in the U.K. and Australia.
And, he emphasized, Carnival is getting the Princess brand.
"Arguably, it may be the strongest brand following the Carnival
[Cruise Lines] brand."
At P&O Princess' urging, Carnival dropped plans for an
outright acquisition of P&O Princess in favor of a dual-listed
company arrangement that would allow P&O Princess to retain its
shares and stock listing in the U.K.
Carnival would control about 74% of the dual-listed company's
shares; P&O Princess would control about 26%.
The new proposal cannot be formally recommended by P&O
Princess' board until January. But if the board accepts it, as
expected, P&O Princess shareholders will vote on the Carnival
deal on Feb. 14.
RCCL is no longer an option; it agreed to drop its merger
agreement and accept a $62.5 million break-up fee from P&O
Princess. The two also dropped their plan for a joint venture in
Now that the battle is over, analysts and industry executives
believe that the cruise industry won't see too much change in
pricing or consolidation.
"I don't think it will change fundamentally," Peisley said.
"[Carnival] buys things and leaves them more or less be."
Bob Simonson, an analyst with Chicago-based William Blair and
Co., said there is a chance that travel agent pay could be affected
But he added, "You need an effective distribution system. If
[cruise lines] cut commissions, they might be cutting off their
nose to spite their face."
Andrew Stuart, the senior vice president of sales and marketing
for Norwegian Cruise Line -- which would be the industry's new No.
3 -- said the cruise market still is competitive.
"NCL has a strong position," he said. "We have a very defined
strategic plan [and] ships that are different from other cruise
The biggest impact on operations may be in Alaska, where
Princess and Carnival's Holland America Line control much of the
tonnage as well as the two major ground operations.
There may be opportunities in Alaska for the combined company to
eliminate some overlap, and Carnival has said there likely will be
a "reduction in duplicated costs from the combined support
infrastructure of ... Alaskan land-based operations."
And, of course, a combination would give Carnival more economies
of scale in purchasing, sales and administrative costs. Carnival
said the combination would enable the company to save $100 million
RCCL and Carnival have been vying for P&O Princess for
nearly a year, but Carnival said its interest in a combination with
Princess pre-dates the public takeover battle that began last
A Carnival spokesman said the November 2001 agreement between
P&O Princess and RCCL forced Carnival to make a hostile
"We either could sit back and let it happen, or hop in," the
spokesman said. "It was the only choice we had."
Q&A with Micky Arison
Carnival Corp. is poised to add P&O Princess Cruises to
its roster of brands early next year. Northstar Travel Media
editorial director Alan Fredericks caught up with Micky Arison, the
company's chairman and CEO, to talk about the combination.
TW:Carnival Corp. is getting so big that
some agents are worried you may change your distribution
Arison: We don't manage distribution in a
centralized way. Agents deal with our individual brands and we
allow the brands to set their own policies of distribution and
compensation. We're not going to centralize that process.
TW:Some travel agents in the West worry
that Princess, based in L.A., will come under strong influence from
your corporate office in Miami and lose its affinity with the
Arison: That hasn't been the case with Holland
America, based in Seattle, and it won't happen with Princess. We
view individual brand management as critically important.
TW:So you won't be moving Princess
headquarters to Miami?
Arison: We have no plans to move it to
TW:You'll be operating the two biggest
competitors to Alaska. How will you rationalize that?
Arison: We have been operating brands that
compete in various markets for a long time. Carnival has competed
with Holland America in Alaska and the Caribbean but we don't try
to manage that competition. What we will do is look at the
infrastructure in Alaska to try to operate as efficiently as
possible in terms of hotels, buses and rail.
TW:Some competing cruise lines worry that
you will control the infrastructure in Alaska.
Arison: Alaska isn't a market that companies
can't enter. Royal Caribbean hadn't been there in the past, and
they were able to enter without problems.
TW:There is speculation that your overall
market share at Carnival Corp. will allow you to drive up
Arison: That has nothing to do with prices.
American Classic Voyages was the only cruise line in the
intra-Hawaii market ... they had a monopoly, and they went
We currently are the only company doing three- and four-day
cruises out of Los Angeles with Carnival Ecstasy, and if we try to
drive the price up too high, people make a left turn and go to the
Mirage in Vegas. We are part of an overall vacation market, and we
have to compete in that market.
TW:The P&O Princess alliance puts you
in the international cruise market in a much bigger way. How do you
Arison: We will have high awareness in many
world travel markets. In the U.S., Carnival Cruise Lines is No. 1
in consumer awareness and Princess is No. 2; in the U.K., P&O
is No. 1 and Cunard is No. 2. Aida Cruises is No. 1 in Germany, and
Costa is No. 1 in Italy, Spain, France and in South America.
So we have a unique foundation and a great opportunity
everywhere we operate around the globe.