Tag Archives: Arnold Donald

Carnival Corp. CEO: Competitors’ newbuilds may hurt pricing

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By Tom Stieghorst
MSC Cruises’ order book of four big new ships is an example of a trend that could spell trouble for an industry struggling to raise prices, Carnival Corp. CEO Arnold Donald said.

“We’ll have to see how it all plays out,” Donald said in a recent teleconference with reporters. “In an ideal world, you wish it wasn’t happening.”

Arnold DonaldDonald was not singling out MSC’s expansion for criticism, but he happened to be making his comments on the day the line ordered two 4,170-passenger ships. That came on the heels of an order for two 4,500-passenger ships, part of a plan to double MSC’s capacity by 2022.

Asked how prices can rise if Carnival Corp. restrains its own brands’ capacity growth while other lines don’t, Donald said he was confident that Carnival’s strategy was sound. It includes incremental growth in onboard revenue and ticket prices spread over 78 million passenger days, coupled with shrinking expenses by employing best practices culled from its 10 brands.

But, he said, if any competitor resorts to “super-aggressive pricing” to fill its ships, “then it can become a problem for the industry.”

Donald said travelers come to view the industry’s lowest prices as a gauge of how much they should pay for any cruise.

“People say, ‘I’m not going to go on that ship, but cruises only cost this much, and I don’t want to pay more than that because I don’t want to get ripped off.'”

On the other hand, he said, the upside of new capacity is more attention being paid to cruise products.

“It just allows them the opportunity to put cruise front and center, to help all of us close on [those] new to cruise,” he said.

MSC Cruises USA President Rick Sasso said that the real pricing stress this year has been in the Caribbean and that MSC wasn’t the initiator of the fare discounting there.

“It should not be a surprise to anybody that we’ve been successful and we’re going to continue to invest in our brand,” he said.

Carnival CEO downplays MSC growth but sees pricing risk

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Donald - Impact of MSC newbuilds depends on how they're positionedDonald – Impact of MSC newbuilds depends on how they’re positioned

Addressing how the big MSC newbuilds may reshape the competitive climate, given they are headed to ‘the most sought-after warm weather destinations in the Mediterranean, South America and Caribbean,’ Carnival chief Arnold Donald first downplayed the impact then conceded there may be risk for pricing.

‘It’s four ships. We have 102. In the scheme of things, you’re looking at a tiny percent impact, depending how they’re positioned in the market,’ the Carnival Corp. & plc CEO said Thursday, shortly after MSC’s orderbook went from two to four big ships, all above 150,000gt.

MSC ordered today at Carnival’s traditional builder of choice—Fincantieri—and broke the news just as Donald headed into the second informal media call of his tenure as CEO.

After his initial remarks, Donald was pressed on the potential impact to the Caribbean business of large capacity increases. And how can pricing go up for Carnival if it constrains capacity growth but competitors don’t?

Cruising’s major players have reported lower net yields in the industry’s most important region this year. Recently Norwegian Cruise Line CEO Kevin Sheehan singled out MSC Divinaas a big factor in the softer Caribbean rates.

The Caribbean issues weren’t due to one new ship, Donald told reporters, adding: ‘It was a 20% increase in a market that’s highly saturated anyway’ and coming during a period of recovery from incidents.

Yet Donald allowed there is the ‘risk of a psychological impact’ on customers. If they see very low pricing they may think ‘cruises only cost so much and I’m not going to pay more.’

Also, the Carnival chief said MSC, or any single brand that adds new ships, risks ‘cannibalizing’ its existing vessels.

‘On a positive note,’ he added, ‘I’m sure they will be nice ships’ and newbuilds create ‘energy and excitement.’

As for Carnival’s strategy to raise pricing, the company is looking at best practices of all the brands for ways to push up on-board and ticket revenue. Given its scale, if Carnival can do so by even a small amount, ‘we will generate extraordinary returns,’ Donald said.

At the same time the company will leverage its scale to cut costs. As an example, Carnival is the fifth largest purchaser of airline travel in the world yet ‘we never behaved like that. We behaved like 10 brands.’

The greater focus, though, is on revenue. ‘Best practices across brands will lift us a dollar, 2 dollars or 3 dollars. An extra few dollars on cruise tickets means a lot with 78m cruise days,’ Donald said.

These efforts are needed to get back to double-digit returns, ‘where we should be.’

Two Holland America ships will move to P&O Australia

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By Tom Stieghorst
Holland America's RyndamCarnival Corp. said it will transfer two of Holland America Line’s ships, the Ryndam and Statendam, to its P&O Australia subsidiary to capitalize on growth prospects in that country.

The ships will depart the HAL fleet in November 2015.

HAL is scheduled to take delivery of a 2,600-passenger newbuild in 2016, and that will more than replace the capacity of the two smaller, older ships.

Statendam and Ryndam, delivered in 1993 and 1994, respectively, each carry 1,260 passengers at double occupancy.

After the move and the delivery of the newbuild in 2016, HAL would have 14 ships in its fleet, and P&O Australia would have five.

The move fits a trend towards replacing a number of smaller ships with fewer, larger ones. Seabourn, a Carnival Corp.-owned luxury line, last year sold three of its 212 passenger ships to Windstar and is taking delivery of a 604-passenger ship in 2016.

Cruise industry capacity has been expanding rapidly in Australia. For Carnival Corp., growth has gone from two P&O ships 10 years ago to six full-time ships, including three from P&O, two from Princess Cruises and one from Carnival Cruise Lines.

The return of the Sun Princess full-time to Australia next year and the two additional P&O ships will increase that number to nine.

Other companies have made similar moves.

The number of Australians taking a cruise has grown 130% in five years, Carnival said. The total of 800,000 last year is projected to grow to 1 million by 2016.

“Our ability to work among our brands to make strategic deployment decisions is a great example of our focus on leveraging our scale and increased collaboration,” commented Carnival Corp. CEO Arnold Donald. “This is an exciting development on many levels.”