Business Monday

New leaders at the helm at top North American cruise lines

Christine Duffy, president of Carnival Cruise Line.
Christine Duffy, president of Carnival Cruise Line. Miami Herald staff

During a conference call in February typically reserved for updates on business performance, the top leaders of Norwegian Cruise Line Holdings each took a moment to offer some details about themselves.

None of the three — Frank Del Rio, Drew Madsen or Jason Montague — had spoken during an earnings call before, and two had stepped into their positions since December. Since that call, there has been yet another change at Miami-based Norwegian: Madsen resigned earlier this month, replaced by company veteran Andy Stuart.

Upheaval at Norwegian is the most recent (and extreme) example of an industry-wide sweeping of the decks that has been underway for more than a year.

When cruise industry players gather this week at the Miami Beach Convention Center for the annual Cruise Shipping Miami conference, attendees will have to get to know some new faces and familiar faces in new roles. Observers say it’s still too early to identify new trends that have come from the changes, but experts and insiders both say they expect the new blood and recent assignments to bring fresh ideas and priorities to the industry, which contributed $44 billion to the U.S. economy in 2013.

“I don’t ever remember a time when there has been so much change at the most senior levels,” said Lisa Lutoff-Perlo, recently named president and CEO of Celebrity Cruises. “This has been unique.”

The spate of changes started when longtime Carnival Corp. Chairman and CEO Micky Arison stepped down from his executive role in July 2013 and named Arnold Donald, a businessman and board member, to replace him.

Since then, more than a dozen executive shuffles have taken place within the world’s three largest cruise companies, all based in Miami. Smaller independent lines in North America have also seen change at the top, along with the emergence of a new competitor.

Within Carnival Corp.’s North American operations, Donald promoted some brand-level presidents to corporate positions, moved executives within brands to top roles and made new hires to lead some lines. Jan Swartz moved up from an executive vice president role to president of Santa Clarita, California-based Princess Cruises after former president and CEO Alan Buckelew became chief operations officer for the parent company. Orlando Ashford, a consulting firm executive, became president of Seattle-based Holland America Line in December, and former Cruise Lines International Association CEO Christine Duffy started as president of Doral’s Carnival Cruise Line in February.

Royal Caribbean Cruises tapped Royal Caribbean International president and CEO Adam Goldstein to fill a long-vacant chief operating officer position at the parent company in April 2014. Several months later, Michael Bayley, who headed Celebrity Cruises, moved into Goldstein’s old job, while Lutoff-Perlo took the helm at Celebrity.

The transitions allow the Miami-based company to draw from years of experience, Lutoff-Perlo said, while empowering new leaders to put their stamp on the individual cruise lines.

“It’s continuity, but at the same time it gives new and fresh perspectives at all the different brands,” she said.

And at Norwegian, Del Rio — who was only committed to stay at the company through the end of 2015 — took over at the top after former president and CEO Kevin Sheehan’s sudden resignation in January. Montague became president and COO of the Prestige subsidiary in December after predecessor Kunal Kamlani stepped down. And Stuart replaced Madsen after Del Rio restructured the role and responsibilities, prompting Madsen to resign.

Outside the big three Miami-based corporations, Los Angeles-based Crystal Cruises hired Edie Rodriguez, who had worked at Royal Caribbean’s Azamara Club Cruises, as president and COO in October 2013 after the former president resigned. Genting Hong Kong, which owns Star Cruises and 22 percent of Norwegian Cruise Line Holdings, announced plans earlier this month to buy Crystal from parent company Nippon Yusen Kabushiki Kaisha for $550 million. The deal is expected to close next quarter.

Upstart company Virgin Cruises, which plans to locate in South Florida although it is still years away from launching its planned pair of ships, brought Tom McAlpin, former president and CEO of The World, Residences at Sea on board. And Pamela Conover, a longtime Carnival Corp. executive who most recently had been CEO of Miami-based SeaDream Yacht Club, was named recently to replace McAlpin.

UNPRECEDENTED CHANGE

“The pattern is there’s no pattern,” said Mike Driscoll, editor of the trade publication Cruise Week. “That’s the truth. The number of changes is simply unprecedented.”

The shifts follow an unsettled time for the industry dating back to January 2012, when the Costa Concordia shipwreck in Italy drew harsh attention to safety issues — and to Arison, who kept a low public profile after the disaster.

A series of mishaps followed into 2013, most involving fires or technical glitches. The disabling blaze aboard Carnival Triumph was the most notorious, leaving passengers without working toilets or hot food on a trip that became known as the “poop cruise.”

Driscoll said many of the people named to top roles are short on operations experience but rich in people skills.

“And I think the industry had a PR problem, so they’re putting people up who can deal with all this,” he said. “It started with Arnold Donald and it’s continued. Here’s someone who can deal with issues and he’s personable.”

Morningstar analyst Jaime Katz said she believes the stretch of bad press led to at least some of the leadership moves.

“A lot of these businesses, because they’re so ingrained with people that have been with the firm for so long, when everything is really good there’s no catalyst for change,” Katz said. “When either investors start putting on more pressure or there’s this media scrutiny, it sort of facilitates the movement of the management teams.”

Katz said she believes shareholders have pressured the publicly traded companies to be more transparent about their business plans and to make sure visionary leaders are in place.

Over the past 18 months, she said, cruise companies have responded. Royal Caribbean Cruises announced a plan last year to increase the company’s return on invested capital to double digits and double its earnings per share by 2017. Carnival Corp. has been focusing on cost reduction and finding more ways for brands to join forces with an ultimate goal of delivering double-digit returns on invested capital in three to five years. And Norwegian recently forecast that earnings per share would double to reach $5 by 2017.

“Everybody is being much more transparent,” Katz said. “The goals are there. Whether or not you think they can reach them is another story. They’re striving for ambitious earnings and return on invested capital across the industry.”

Two trends Katz sees emerging are data-sharing between brands — something Carnival and now Norwegian, following the acquisition of high-end Oceania and Regent Seven Seas, have embraced — and trying to avoid last-minute price cuts to fill ships.

“There are different shared best practices that can work for those brands,” she said. At Norwegian especially, executives have talked about the potential of using data about past cruisers to market a new cruise experience.

“Those sort of analytics are becoming more and more important across all sort of consumer companies,” Katz said.

FIRM PRICING

Del Rio has also questioned the tendency of players in the industry to discount sailings as a way to stimulate demand.

“I think Frank coming out and really building Prestige from a brand angle and bringing that over to Norwegian was something that was really interesting because it’s all about holding price firm,” Katz said. “And while everybody says it, these guys do it in a different way: ‘We’ll give you anything for free, but we want to hold the price firm.’ ”

At Norwegian, which acquired Prestige last year, Del Rio said one of his main goals involves making sure each brand learns from the other. Oceania can help Norwegian up its foodie game, he said, while Norwegian can school Oceania on what makes great entertainment.

“Let’s just say that one of the wonderful opportunities of having the next generation come on board, so to speak, at the C-suites is they’re not burdened by what’s always been done,” he said. “Because we’ve had cruise line companies being run by the same individuals for a long, long time. You get a little parochial, you get a little within the box and I think now we’re looking outside the box. You see new designs in ships. You see new onboard activities. You see new designs on staterooms. You see sourcing of customers from yonder lands.”

Jason Montague, who worked with Del Rio at Oceania from the time the cruise line was “an underfunded startup,” said he believes the industry’s focus will turn to increasing yields, or the amount of money passengers spend on a cruise per day.

“The cruise industry has typically grown by adding ships, and yield hasn’t really moved,” he said. “Oceania took on capacity and grew yields at same time, especially on older ships. ... I think that’s one of the things the industry really needs to work on.”

“Change is never a bad thing,” Montague said. “People are afraid of change. I think it’s a great opportunity for the entire industry, to be honest with you, not just the changes that are happening with us. I think it brings a fresh look.”

Carnival Corp.’s Donald said in an email that the industry has reached a “potential watershed moment” as more people choose cruising as a vacation, new executives join the industry and veterans move into new roles.

“I’m a big believer in diversity of thinking, taking a different look at things with fresh eyes, getting input from various points of view and backgrounds, and looking at the entire business in new ways,” he said. “All of which are positives for the industry as we work to accelerate our growth by creating amazing vacation moments for guests and unlocking demand from people who are new to cruising.”

At the parent company, Donald has brought a couple of cruise line newcomers to top brand positions, although Carnival’s Duffy has a long history with the travel industry and spent four years running cruising’s main trade group.

Duffy, who was president and CEO of Cruise Lines International Association before starting as president of Carnival Cruise Line on Feb. 1, said she believes the industry has entered a new phase with an emphasis on diversity. More women have been named to top leadership roles — five since late 2013 — and more minority executives have been hired.

“I also believe there’s real diversity that’s emerged here at Carnival with people who have been here in the industry for a long time and bring a tremendous amount of passion and understanding now being married up with people who may come from completely outside the travel industry or another part of the travel industry,” Duffy said. “And I think that is the diversity of thinking and perspective that this industry needs at this point.”

Newcomers especially can offer a fresh look at long-held industry beliefs and cultural norms.

“There’s a certain lingo and certain beliefs we have about what makes cruising great because we’re all cruisers,” Duffy said. “The assumption that that translates to people who have never cruised is a problem.”

For Ashford, who led a global consulting practice before Donald tapped him to serve as president of Holland America Line, being new to the company and industry lets him ask a lot of questions like “why do we do that?”

“I’m allowed to do it because I’m brand new,” he said. Sometimes the answers just fill him in, he said, but other times they allow him and staff an opportunity to consider new solutions to old problems.

Recently, he sent a note to staffers asking for their ideas on ways to innovate within the 140-year-old cruise line. Within an hour, more than 50 responses had poured in, and as of last week there were several hundred.

“I’m really focused on creating a culture where we tap into the collective intelligence of everyone,” Ashford said. “And that process will make us better.”

Del Rio said that if history is any indicator, the industry should see a new surge of ideas follow the recent management changes.

“The sidewalk is littered with the cadavers of executives who have joined cruise lines at high levels,” Del Rio said. “Some haven’t made it; some have. Those that have made it have made significant contributions to the evolution of those companies because they have brought in fresh perspective. There’s a balance between being staid and being completely revolutionary. The right balance is to have some experienced anchors and some folks coming in with some new bright ideas.”

The big three

Miami-Dade is home to the world’s three largest cruise ship companies. Here are some details on each:

CARNIVAL CORP.

Brands (North American): Carnival Cruise Line, Princess Cruises, Holland America Line, Seabourn.

Market capitalization: $35.2 billion.

Revenues in 2014: $15.9 billion.

ROYAL CARIBBEAN CRUISES

Brands (North American): Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises.

Market capitalization: $17 billion.

Revenues in 2014: $8.1 billion.

NORWEGIAN CRUISE LINE HOLDINGS

Brands: Norwegian Cruise Line, Oceania Cruises, Regent Seven Seas Cruises.

Market capitalization: $11.6 billion.

Revenues in 2014: $3.1 billion.

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