Business Monday

More than 7 months after Triumph fire, Carnival tries to correct course

Smiling children wave. A happy couple dances by the pool. Family members play miniature golf with a view of the ocean, and a man asks a woman to be his wife. There are sunsets, kisses and giant ships serving as backgrounds for vacation snapshots.

“We never forget the moments that matter,” a woman’s voice says. “We hang them on our walls. We share them with everyone we know and hold on to them forever.”

Carnival Cruise Lines is hoping those moments, provided by past guests, matter more than the images that dominated cable news after fire turned a four-night Western Caribbean trip into the infamous “Poop Cruise” aboard the Carnival Triumph in February.

The $25 million advertising campaign was announced just a week after a new guarantee that promises passengers 110 percent of their money back plus transportation home if they are unhappy with the first day of their cruise. Those two initiatives followed Carnival’s launch this summer of a new travel agent outreach program and, in the spring, the announcement of a $300 million investment in fire safety and reliability upgrades.

“They’re all bits and pieces of the puzzle to get the message out to consumers we take the events that occurred very seriously; we’re taking the steps needed to fix those issues,” said Gerry Cahill, president and CEO of Carnival Cruise Lines.

Taken together, the steps signal that Carnival is very much in rebuilding mode. And while executives say polls show that attitudes are improving toward the Fun Ship brand faster than anticipated, all indications are the recovery will continue for some time.

Parent company Carnival Corp., with headquarters in Doral, saw its stock price plummet last week after revealing that the financial outlook is still gloomy. The world’s largest cruise ship company owns nine brands in addition to Carnival Cruise Lines, including Princess Cruises, Holland America Line, Costa Cruises, Cunard and Seabourn.

In a quarterly earnings release, the company said profits dropped 30 percent compared to a year earlier. And due largely to weak demand and pricing from the namesake brand, yields — revenue per berth per day — aren’t expected to show positive growth until the second half of 2014.

When demand drops, cruise lines typically cut prices to spur demand, ensuring that ships sail with every cabin full. But in a call with analysts last week, Carnival Corp. executives said the company has recently adopted a strategy on some itineraries to avoid slashing fares, even if occupancy drops.

“It’s not great when you have falling prices sometimes because you end up in situations where people just wait and wait and wait to book,” Cahill said in an interview. He said so far, the decision seems to have led to some pricing stability. “It gives people more confidence to go ahead and book. It’s not something you’re going to do on a grand scale.”

In addition to a sinking stock price, the financial news last week generated a fresh wave of negative headlines and warnings from analysts.

“We cannot ignore that trends at the Carnival brand are the weakest in the industry and that will take time to fix,” Harry Curtis, senior leisure analyst at Nomura Equity Research, wrote in a note to investors.

Arnold Donald, who replaced Micky Arison as Carnival Corp. president and CEO in July after Arison stepped down from the role, said he sees the brand as being in the middle of an evolution.

“I think there’s a lot of positive things about Carnival, the brand. It’s still doing great despite the negative noise that happened for a short period of time,” Donald said. “To me, it’s a learning. When those perceptions are very positive, we’ll still need those learnings because we have to continuously improve.”

At the beginning of this year, executives at Carnival were looking forward to stability after a difficult 2012. The parent company was a year removed from the fatal shipwreck of the Costa Concordia, which drew widespread attention in Europe and hurt business there. Carnival Cruise Lines was focusing on keeping costs low while raising prices and promoting its Fun Ship 2.0 enhancements, including a burger joint from Guy Fieri, comedy curated by George Lopez and a host of other new food, drink and entertainment venues.

Then, on Feb. 10, fire broke out in an engine room on the Carnival Triumph, which was sailing in the Gulf of Mexico with more than 4,200 passengers and crew. The blaze was extinguished quickly and no one was injured, but propulsion systems were knocked out. Although the ship had two engine rooms, shared cabling between the two was damaged by fire, leaving only emergency backup power available.

Passengers spent five uncomfortable days as the ship was towed to Mobile, Ala., without hot water, widespread working bathrooms or air conditioning. Some slept in hallways; others told stories of floors covered in sewage and of bags handed out in lieu of toilets.

The slow-moving ship and onboard ordeal made for perfect cable news fodder (and became a punch line on late-night talk shows). And the public’s perception of cruising — especially on Carnival Cruise Lines — sank like an anchor. People who had never been on a cruise before, a key target group for the cruise line, were especially affected.

Carnival soon announced a company-wide review of ships to prevent a similar situation in the future — an announcement soon followed by an unrelated technical problem on the Carnival Dream that forced an early end to a sailing.

In April, the company said it would invest $300 million to add more fire safety systems, increase emergency backup power capabilities and reroute cabling, if needed, to improve operating redundancies.

Mark Jackson, the cruise line’s vice president of technical operations, said the company is tripling the number of smoke and flame detectors in engine rooms, adding more water mist flooding systems and putting an emergency backup generator on each ship to make sure that passengers would stay comfortable if a ship loses power.

“Number one, we never want to lose power,” Donald said. “Number two, if we lose power, we never want our guests to be uncomfortable.”

Some systems are being installed while ships are in dry dock for routine maintenance, so all of the enhancements won’t be completed for another couple of years. But all 24 ships in the fleet will have at least a temporary emergency backup generator installed by the end of this year.

Jackson, who was hired in December but started the job in March, said that while no one was hurt in the Triumph fire, Carnival knows passengers were “extremely inconvenienced.”

“The company is making a huge investment to make sure that it never happens again,” he said. “And we’re putting redundancy upon redundancy upon redundancy to make sure that never happens.”

After outlining the improvements to the fleet, Carnival shifted its attention to another key area: travel agents, who are essential to driving business to cruise lines.

The relationship between the brand and agents had already been strained before the Triumph ordeal for a host of reasons.

Mike Driscoll, editor of the trade publication Cruise Week, said agents were discouraged because they had trouble making money on Carnival sales and felt a lack of support from the cruise line. Competitors, meanwhile, had stepped up to court travel sellers.

“I would get emails from agents saying, ‘At some point, they’re going to regret this — they’re going to need us,’ ” Driscoll said.

In June, the company announced it was launching a program called “Carnival Conversations,” aimed at hearing and addressing concerns from travel agents. The initiative started with a series of road shows around the country and has resulted in several changes already. Since July, Carnival has granted bonus commissions on some sailings, beefed up its website for agents, offered free sailings and made other gestures to improve relations.

Lynn Torrent, the line’s executive vice president of sales and guest services, said Carnival is also working on adjusting the way fare codes are structured in response to feedback that pricing was too complicated. And the company is also investing more in call center workers who help travel agents, hiring more people, giving them better training and having managers listen to calls to make sure service is good.

While Torrent said some agents have been doubtful that Carnival will continue its agent-friendly approach, she urges them to give the company a chance.

“Actions speak louder than words,” she said. “We are making these changes, we’re not going to roll them back. It’s hard not to sound defensive. Just give us a shot, stick with us and you’ll see.”

David Crooks, senior vice president of product and operations for cruise distributor World Travel Holdings, said that while some agents are dubious, they are glad Carnival is listening to their feedback.

Crooks said he thinks one of the best moves Carnival has made for agents is introducing the “Great Vacation Guarantee,” a promise of a 110 percent refund as well as free transportation home if a guest decides they want to leave a cruise within the first 24 hours.

“I think the vacation guarantee is brilliant because what better way to close a sale?” he said. “If the customer’s on the fence, the agent can say, ‘They have the guarantee.’ ”

Carnival followed the guarantee with the “Moments that Matter” advertising blitz, which started airing on network and cable TV on Sept. 23. Jim Berra, the line’s chief marketing officer, said Carnival knew it needed to promote its cruises in a new way. Using footage contributed by past guests, he said, “was probably the most emotional and authentic way to express the brand and begin to reignite consumer interest.”

Berra said he believes the $25 million campaign, which also has radio, digital and direct-mail components, will appeal both to people who have been on a Carnival cruise and those who have thought about a cruise vacation but are still uncertain. He expects the ads to drive business for the fourth quarter of this year and into the first quarter of 2014.

The extent of the campaign is unusual for the fall; cruise lines typically roll out their biggest ads during the “wave season” at the beginning of the year. Berra said the company was encouraged to move forward by signs that brand perception was recovering over the summer and into early September.

Henry Harteveldt, travel industry analyst for Hudson Crossing, thinks Carnival has been on the right track with the investments in safety and money-back guarantee. But he thinks the new ads are a misstep.

“It comes off as trite; it lacks the credibility,” he said. “Frankly, it lacks the gravitas that Carnival needs to have. Carnival is still in rebuilding mode. I don’t think it would be fair to say it has yet regained the public’s trust or the trust of travel agents. I think its marketing communications should be more circumspect.”

Harteveldt said he believes the line would be better served by highlighting its investments in serious things like safety as well as improvements to make guest experiences more fun.

“I just think that Carnival has to be very careful right now to rebuild trust,” he said. “And to make people know that it hasn’t either forgotten or that it’s not ignoring the very serious issues that have plagued the line.”

Cahill said he views the problems from earlier this year as an opportunity for the company to re-examine everything it does.

“My goal as a result of all this is to take what happened and to improve Carnival as a brand and to improve Carnival as a company,” he said. “I think we’re taking the steps to do that. We learned a lot of things, we corrected course, and I think the steps we’re taking ... are all going to make us a better company and a better product for our guests.”

The next phase, Cahill and other Carnival insiders say, will be to roll out new innovations to make the guest experience better. Cahill wouldn’t go into specifics, though Berra said entertainment, dining and youth programs will be included.

Cahill said the plan for future announcements is “to reinforce the whole idea of what a great product, what a great vacation experience we provide to guests.”

Carolyn Spencer Brown, editor in chief of the website, said she senses “much more of a positive great energy” coming from Carnival lately.

“The safety was the most important issue to tackle first,” she said. “But now it’s time for the fun stuff. And that feels great.”