Saturday, February 23, 2013

Costs Mounting for Carnival Triumph

A Wave of Expenses
Hitting Carnival

In the middle of Wave Season, typically the heaviest booking quarter of the year, Carnival Corporation is being hit by what must seem like a tidal wave as costs continue to mount in the wake of the latest disaster for the line, the fire February 10th on Carnival Triumph.

The cause of the fire is still under investigation and the cost to repair the ship have not been disclosed, but there have been several other financial impacts that have been identified.

Incident Response

As soon as Carnival Corporation learned of the fire, they mobilized a team of more than 3000 people at their headquarters in Miami, Florida and elsewhere to respond to the situation, coordinating efforts and seeing to the safe return of the ship, passengers, and crew. There were more than 200 staff on hand in Mobile, Alabama to assist in getting the passengers home.

We have just learned that a team of technical personnel and guest services staff that Carnival dispatched to the stricken Carnival Triumph on Monday, February 11 never made it to the ship. Recall that the ship drifted about 90 miles north of Progresso, Mexico. The small chartered boat that was taking the personnel to the ship had to turn back for fear of running out of fuel.

Ships & Boats Responding

The U.S. Coast Guard had Coast Guard Cutter Vigorous on scene from February 11th until the ship arrived in Mobile, AL. Three of the lines ships, Carnival Ecstasy, Carnival Legend, and Carnival Elation made stops bringing food and other supplies. The Coast Guard also air-lifted supplies, including generators to supplement the limited power onboard.

Carnival contracted with two tugs initially and added three more to tow the ship back to a port. Initially it was going to be Progresso, Mexico, but as the ship drifted 90 miles without power the destination was changed to Mobile, AL.

Mobile, Alabama Costs

As mentioned there were more than 200 staff on hand in Mobile, Alabama, including CEO Gerry Cahill, when the ship finally arrived in port.  Carnival arranged for buses, hotels, and chartered planes to accommodate the passengers as they disembarked.  The line indicated that more than 1,500 hotels rooms in Mobile and New Orleans had been booked and 10 charter flights had been secured to fly passengers to Houston on Friday.

The City of Mobile and the Port Authority also have their hands out for expense recovery:

The city will charge Carnival for the overtime costs of police, fire and public works employees who put in long hours the Thursday the ship arrived at the Mobile cruise terminal. The city also plans to charge the cruise line a wharfing fee as well as a charge for each passenger who used the gangway that led off the ship and into the terminal. The total cost has not been disclosed at this time.

Passenger Compensation & Lost Revenue

Passengers got a free cruise, most expenses credited, $500 additional reimbursement, and a 25% future cruise credit.  Complete details can be found in Carnival Triumph Additional Cancellations & Compensation

The Carnival Triumph will be out of service for an unknown period of time.  Cancellations have been announced through mid-April, but the down time could be increased depending on the results of the fire investigation and the necessary repairs.

Bottom Line Impact

Financial analysts estimate that the Carnival Triumph’s woes will have a 5-to-10 cents a share impact on CCL stock for this quarter, a sum that includes repairs, reimbursements and lost revenue.

As expected, there already are two suits filed as a result of the Carnival Triumph fire and the events following.  Some experts say that the Carnival (and other cruise line) contract protects the company from being sued, while others indicate it could be possible to make a case against the line.   We suspect that there could be some sort of settlement out of court. 

Reputation & Industry Impact

Despite the media hype surrounding this entire story, it doesn't appear to be having a major impact on the cruise industry.   The cruise industry is well regulated and self-correcting.  Yes, there may be lessons learned from this incident, but safegurds that were put in place, as recently as 2010, contributed to the outcome here, where there was no loss of life or serious injury.  The fire was contained by automatic fire fighting mechanisms which further protected the crew and passengers.

These incidents are rare and the cruise industry enjoys one of the highest safety and approval ratings of any other travel offering. We'll take a closer look at this in another article.

Cruise Lines International Association (CLIA) Vice President of Technical and Regulatory Affairs Bud Darr responded to media statements defending the safety of the cruise industry ships in the wake of the Carnival Triumph fire.

“There's no doubt that cruising is one of the safest, affordable and enjoyable vacation experiences available today, which explains why a record 20.6 million passengers worldwide enjoyed a cruise vacation in 2011,” he said.

There's still a little more than a month left on most of the Wave Season offers, so we recommend taking advantage of them before prices go up. Yes, prices will go up, not just on other lines, but Carnival as well. Carnival Triumph will be out of service, most likely for several months, which will put high demand on the remaining ships for all lines. The rule of supply and demand always impacts the cruise fares and this will be no different.

Note that Carnival Destiny is about to go into a 49 day dry dock for the most complex cruise ship refit ever undertaken by Carnival.

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