When President Barack Obama launched a new strategy of engagement with Cuba, the official White House announcement came with a nautical-themed headline. It read: “Charting a New Course in Cuba.”
an appropriate title considering less than a year after beginning on that course, cruise ship giant Carnival Corporation hopes to sail into Havana harbor next spring with its Fathom brand.
The expansion has been led by CEO Arnold Donald. He spent 12 years on the board of directors before taking over as CEO in July 2013, replacing Micky Arison. Arison remains chairman of the board.
WLRN-Miami Herald news spoke with Donald about how the company’s business has turned around — including what’s changed since a ship ran aground and capsized in a fatal crash, and another lost power for days — and his perception of the business climate as one of the largest publicly traded companies calling South Florida home.
Q. May of 2016 was the original date for Carnival’s Fathom brand to begin cruising from Miami to Cuba. Are you still on schedule?
A. We’re still on schedule. We’re very excited about Fathom. Fathom initially sails to the Puerto Plata region of the Dominican Republican. That will occur in April of 2016 and then in May of 2016, hopefully we will be going to Cuba. We have the U.S. approval required to do that and we are awaiting approvals from Cuba.
Q. What are you hearing back from the folks inside Carnival who are engaging directly with the Cuban government officials?
A. Our people are doing everything that is being requested of them. Everything’s very encouraging. Everyone’s very positive. And we are very confident by cooperating fully and giving a longer-term view, because we’re not interested in only sailing to Cuba with the one ship, that we will be granted the approvals required so we can begin sailing by May of 2016 with Fathom.
Q. What is the tone of those conversations Carnival is having with the Cuban government?
A. On the whole, very positive. Extremely encouraging. Very fact-based.
Q. What are some of the issues that have come up?
A. There have been no real issues in terms of engaging directly. Here in the U.S., we’ve visited with the Cuban representatives in the Cuban Embassy. Frankly, there have been no big obstacles.
Q. Have you engaged directly with Cuba officials?
A. I have not been to Cuba.
Q. Has the opening of the U.S. embassy in Cuba impacted your conversations on the island?
A. Not unto itself. The opening of relationships obviously has paved the way for us to have the opportunities that we have and to the historical moment when we became the first cruise company in well over 50 years to be granted a license by the U.S. to sail to Cuba and back. [That U.S.] requirement is no longer there because things have opened up even more. But still we’re awaiting approval on the Cuban side.
Q. Do you have any sense of a timeline for that Cuban approval?
A. Sometime before our initial sailing in May of 2016.
Q. The Cubans are not telling you to stop those plans or to push it back?
A. No, not at all. We have not been granted approval. And just like everywhere else in the world we go, we have to have approval. We have every confidence, but we are very respectful of what the requirements are and are very happy to meet them.
Q. What are your engineers encountering in terms of the infrastructure in the Old Havana Harbor that your Fathom ship would dock?
A. We have a lot of experience in our company with Cuba. Costa, our Italian brand, actually managed the Havana terminal for a number of years prior to our acquiring the brand. Once we acquired it we had to cease and desist operations within six months of acquisition, but there are still people around who were very involved in those operations. Moreover, because we’re a global maritime entity, we have our own simulator in the Netherlands where we chart waters all over the world and run simulations for cruise ships.
We will know a lot more once we’re granted rights to cruise.
Q. Do you anticipate Carnival having to make capital investment at all in Havana?
A. We are fully prepared to make capital investments if that’s what’s required. We are anticipating there may some requirement. We’ll see what they want to do.
Q. Do you mean the Cubans could require the capital investment?
A. The Cubans might say, “Yes, we understand what your needs are, but if you want that done in this time frame we may need some assistance.” On the other hand, they may not.
There’s other capital required, though. If we’re going to bring 700 guests there, they have to be transported from whichever terminals they arrive. So ground transportation has to be tended to. And not just in Havana, because we’re not going to go to one city. The ship will sail there for a week with at least three ports of call.
Q. Major legacy U.S. air carriers hope to have regularly scheduled commercial flights in and out of Cuba. If they’re granted that, would that impact potential business opportunities Carnival sees in Cuba?
A. We think anything that fosters travel to Cuba from the U.S. is a good thing for us. The easier it becomes to travel and the more familiar people become with traveling to Cuba, the better. The advantage we have as a cruise company is that our ship is the hotel. One of the shortages that currently exists there is accommodations. Even with Airbnb, there is still a shortage of accommodations. There’s hundreds of thousands of American citizens now that go to Cuba. And of course Cuba’s been open to the rest of the world this entire time. Our ships provide a fantastic accommodation experience. They also provide an easier way to get from place to place in Cuba. There are 11 ports in Cuba. We’re going to visit three in our initial itinerary. We may modify that over time.
Q. Criticism to the new age of engagement on commerce between the United States and Cuba focuses on that commerce winding up with the Castro regime. How do you answer those critics who say a floating hotel may answer the business challenge of the lack of accommodations, but it keeps those dollars on the ship, not into the pockets of regular Cubans?
A. The reality is we’re in the cruise business and we cruise to over 700 ports a year. Every port we enter, we’re an economic multiplier. The ships have to be provisioned. There are port charges that go along with it. And then the local communities thrive because it creates jobs. It creates opportunities, whether it’s a taxi driver, a local restaurant, etc. So that won’t be any different in Cuba than it is in any of the other 700 ports we go to around the world.
Q. You anticipate taking on provisions from the three ports of call in Cuba?
A. We have to work all that out, but it would be very surprising to me if we were there for a week that we aren’t buying some provisions locally. We have no doubt we will be an economic boon to the local citizens.
Q. How is doing business in Cuba any different than other emerging markets that Carnival has identified, especially China?
A. It’s interesting we would call China an emerging market. For us, it’s not very different. Every country we go to has its own regulations, and we have to honor those wherever we go. Wherever we go, we want to be a welcome guest. We want to be a proactive partner. We want to be a benefit to the communities we touch. That’s our objective while exceeding our guests’ expectations.
Q. Assuming you get the OK from the Cuban government to dock that first ship in May of 2016 in Havana, will you be on it?
A. Oh, absolutely. I’ll be on our inaugural cruise. I most definitely will be. Yes.
Q. Let’s talk about the financial performance of Carnival. Wall Street has rewarded you and your shareholders significantly since you have taken over as CEO of Carnival. In June, Jim Cramer of CNBC called it ‘one of the most impressive turnarounds of our era.’ He said you masterminded the entire turn. The stock price of Carnival Corp. is up 45 percent since you were named CEO. How is business for Carnival?
A. Business is great. I have to point out, as I did to Jim, that I inherited a great company with a great foundation founded by a great leader in Micky Arison and his father. Micky continues to be our chairman, so I have the world’s expert in cruise at my beck and call 24/7. We grew our earnings 2014 over 2013 by 25 percent. Our guidance for this year is to grow 35 percent on top of that. Things are going very well.
Q. Perhaps a couple of years ago, even after the Great Recession was over, there was a discount in your share price because of the lack of continuity in business operations where there was commonality among Carnival’s 10 brands. That’s been a focus of your turnaround efforts, including simple things like a conference call on executives’ calendars.
A. We meet weekly with all the top executives. We cover health, environment and safety first. We ensure that [to cover] any learning from the week to further improve on the great safety record that exists in our industry. Then we go through the financials. Then we go through the challenges, and more importantly, the opportunities that exist. Shared experiences sharing best practices.
Q. Under your leadership, revenues have grown, but you’ve really focused on costs. Energy costs, especially, have dropped; I’m assuming you don’t have any magical powers over the price of oil, but you’ve been able to take advantage of that. You’ve also seen your cost of payroll drop year over year in the last quarter. And your cost of food has dropped.
A. It’s cost containment that we’re chasing. Our mission is to deliver a double-digit return invested the capital over the next three to four years for our shareholders’ benefit. We have to do that with revenue growth, but costs can be a drag. If we contain costs, we free up dollars to invest to drive the revenue. How we do that is through communicating, collaborating and coordinating across our 10 brands.
One of every two people who cruise in the world cruise on one of our brands. All of the cabins in the world from all the cruise companies make up 2 percent of the hotel rooms in the world. So our challenge is not other cruise companies. Our competition is land-based vacations.
We can buy airline travel together. Pulling all the brands together, we are the fifth-largest purchaser in the world of airline travel. We can buy mattresses smarter. We have a lot of mattresses on board. Uniforms, food, beverages — it goes on and on. We buy a quarter of a million pairs of shoes a year for the crew. Obviously, we can leverage and take advantage of our scale. But the way to deliver for the shareholders, ultimately, is to create more demand for cruising and to give our guests more of what they want when they’re on board. Understanding what they want is the trick. We’ve had a nice increase over the last couple of years of on-board revenues.
Q. Onboard revenue is something you spend money on on board other than the ticket. That’s an incremental retail sale opportunity. You’ve said if every passenger on board a Carnival brand spends $12 more per day, that’s $1 billion annually in extra revenue.
A. Absolutely. We have roughly 80 million passenger cruise days a year.
Q. In your last quarterly announcement during the fiscal third quarter, you said 2016 bookings were running 20 percent higher than a year ago, with capacity up just 3 percent. You’re seeing demand increase and you’re not increasing supply. Does that mean higher prices?
A. I would encourage people who want to cruise to book [travel] sooner rather than later. I know historically people have thought, if I wait, maybe I can get a lower price. But if you want the cabin you want, the itinerary you want at the time you want it, I would recommend booking earlier.
Q. We talk to a lot of CEOs of big and small companies, and almost across the board, they talk about the difficulty of recruiting a quality workforce here.
A. Our attitude is, if we create the right work environment and create the right growth opportunities, we will be able to hire the people we need to hire in.
Q. Are you finding them locally or are you bringing them from other locations?
A. We do both. Obviously, when you get to some of the more senior managers in your ranks, there are not a lot of other corporations here, so then that pool shrinks dramatically.
Q. Carnival operates around the world and sees business climates across the world. Is Miami the home for Carnival for the future?
A. Yes. I don’t see any reason in the world why we would consider relocating our headquarters from Miami. It’s a great place to call home.