Carnival Corp. on Wednesday announced the extent of fixes needed to ensure its 101-ship fleet avoids the kind of problems that have caused high-profile headaches for the world’s largest cruise ship company over the past few years.
The price tag, to be spread over the next two or three years, is steep: As much as $700 million, or more than half of what the company reported in annual profits last year.
Upgrades to Carnival Cruise Lines alone — which address emergency power, fire safety and operating redundancies — are expected to cost more than $300 million.
In February, the Carnival Triumph was disabled in the Gulf of Mexico with thousands of passengers aboard following an engine room fire. For five days, the ship was powerless at sea as passengers dealt with uncomfortable and unsanitary conditions including a lack of air conditioning, hot water and working toilets.
That followed a crippling fire in late 2010 on the Carnival Splendor.
“We’ve had two cruises that have not been good experiences for our guests; that’s two too many,” said Carnival Cruise Lines President and CEO Gerry Cahill in an interview Wednesday morning. “We’re making this effort because we are the biggest cruise line in the world. If we’re not going to lead the way and say we’re going to provide a great guest experience every time, I don’t know who will.”
Cahill emphasized that the cruise line is safe and that the upgrades are targeting comfort. No one was injured in either fire, but the Triumph ordeal generated intense media coverage that led to jokes on late-night talk shows and negative chatter on social media.
The situation had a “short-term impact on some of our pricing,” Cahill said, but added that some ongoing promotions are not unusual.
Last month, the company lowered its earnings forecast for 2013, in part due to lower prices and higher costs from the Triumph fire.
The announcement was made Wednesday morning before parent company Carnival Corp. held its annual shareholder meeting in London, which executives including Carnival Corp. Chairman and CEO Micky Arison attended. At the meeting, Vice Chairman and Chief Operating Officer Howard Frank discussed the upgrades.
Doral-based Carnival said just over a month ago that it was conducting a fleetwide review, and announced initial repairs on March 19. But the full costs were not clear then. Earlier, executives had detailed $80 million for expenses related to the Triumph and a further $40 million in 2013 for repairs related to the review. A spokeswoman said the tally of $600 million-$700 million released Wednesday includes about $100 million a year beyond what the company had planned to spend on maintenance.
The announcement was received well by some industry observers.
“It doesn’t appear that they’re going to be cutting corners on this project,” said Jaime Katz, equity analyst for Morningstar in Chicago. “I think it shows the goodwill that they really want to fix whatever problems may be out there.”
She said the investment could also pay off: “If they could avoid having these incidents, then ultimately it allows them to raise prices and improve profitability.”
Every Carnival ship already has one backup generator to run safety systems in case of power loss, but to ensure there is enough power to operate toilets, water and elevators an additional emergency generator will be placed on each of the line’s 24 ships over the next several months. Carnival will eventually replace those temporary generators with permanent ones, which should also provide power to store food, cook and run communications systems. Fire prevention, detection and suppression systems on each Carnival Cruise Lines ship also will be bolstered, specifically with improved water mist systems.