Carnival Corporation Business Information, Profile, and History
Our mission is to deliver exceptional vacation experiences through the world's best-known cruise brands that cater to a variety of different lifestyles and budgets, all at an outstanding value unrivaled on land or at sea.
History of Carnival Corporation
Begun with one ship that ran aground on its maiden voyage, Carnival Corporation has since grown into the most successful and prominent American cruise line. Carnival is the largest cruise company in the world with 12 brands in its arsenal, including Carnival Cruise Lines, Princess Cruises, Holland America Line, Seabourn Cruise Line, Windstar Cruises, Costa Cruises, P&O Cruises, Cunard White Star Line, Swan Hellenic, Ocean Village, Aida, and P&O Cruises Australia. Carnival has combined these cruise lines into an operating fleet of 79 state-of-the-art ships that sail the seven seas. Through innovative vacation packaging and extensive advertising campaigns, the family-operated company has changed the face of the cruise industry by coaxing thousands of middle-class customers aboard its floating resorts. After its purchase of P&O Princess Cruises plc in 2003, Carnival Corporation became a dual-listed company with U.K.-based Carnival plc.
Carnival was founded in 1972 by Ted Arison, an Israeli immigrant. After serving in World War II with the British Army and in Israel's War of Independence, in the late 1940s Arison founded a cargo line running between Israel and New York, but was put out of business by competition from the Israeli state-run shipping line. In 1954 he moved to the United States, where he took a position as cargo manager for El Al, Israel's national airline. He eventually founded his own air freight company, Trans Air System, which went public in the late 1960s.
In 1968, at the age of 42, Arison moved to Miami to operate a small Israeli-owned cruise ship running between Florida and the Caribbean. When the Israeli government impounded the boat to collect the owners' debt, Arison quickly filled a Norwegian Caribbean Line ship with the customers he had lined up. Convinced that he should own boats rather than operate them for others, in 1972 he entered into a partnership with former schoolmate Meshulam Riklis, who then owned the travel conglomerate American International Travel Service (AITS). They formed Carnival Cruise as a subsidiary of AITS, and for $6.5 million they purchased the ship Empress of Canada, which they renamed the Mardi Gras.
The ship's first voyage was less than spectacular: The Mardi Gras ran aground off the Florida coast with several hundred travel agents on board. Future voyages went more smoothly, however, and in 1974 Arison bought Riklis's share of Carnival for $1, also assuming the company's debt of more than $5 million. To cut costs, Arison sought to reduce fuel consumption by reducing the speed of the Mardi Gras and the number of stops it made. This simple economizing measure was to revolutionize the entire cruise industry. Since passengers would have to spend more time at sea between Caribbean ports of call, Arison added more on-board entertainment features, including a disco, casino, movie theater, and nightclubs. Carnival's marketing staff quickly dubbed the Mardi Gras the "Fun Ship," and other cruise lines soon followed Arison's lead.
Growth and Expansion: 1970-80
In the 1970s the hit television series The Love Boat helped revitalize the cruise industry, bringing people on board ships in larger numbers than ever before: Between 1970 and 1986 the number of people taking cruises soared from 500,000 to 2.1 million. By 1978 Arison had three ships running seven-day cruises from Florida to the Caribbean and in the Caribbean itself: the Mardi Gras; the Carnivale, which he bought in 1975; and the Festivale, which he bought in 1977. Despite a bad economy and high fuel prices, in 1978 Arison also contracted for a fourth ship, the Tropicale, which was completed in 1982. In 1979 Arison's 30-year-old son, Micky Arison, was named president and chief executive of the company.
The 1980s brought the cruise industry massive expansion: Between 1981 and 1991 the number of berths on North American cruise ships grew from 41,000 to 84,000. Carnival was the chief exponent and beneficiary of the boom. In 1982 Carnival's four boats carried some 200,000 passengers, with the firm earning $40 million on revenues of about $200 million. During the next decade the number of passengers carried per year nearly quintupled. Beginning in 1980, Carnival's revenues grew 30 percent annually, three times faster than the average for the cruise business as a whole. During the recession of the early 1980s, Carnival ordered three more ships, the first from the Danish Aalborg shipyard at a cost of $180 million and two additional ships from the Swedish state shipbuilding company, Svenska Varv, for a total of $262 million. With the completion of these three "superliners"--Holiday, Jubilee, and Celebration--Carnival had the world's largest cruise line fleet, with seven ships.
1980-90: An Innovative Marketing Campaign
To help fill these ships, Carnival adopted aggressive marketing and advertising strategies. In 1984 Carnival initiated the memorable "Fun Ship" advertising campaign, which featured talk show host Kathie Lee Gifford partaking of shipboard amenities and singing "We've Got the Fun." In 1984, for what was then the largest network television advertising campaign in the cruise industry, Carnival spent $10 million to advertise during The Love Boat and network news shows.
To gain support from travel agents, Carnival routinely sent representatives to travel agencies to inquire about vacation options. If the agent recommended a cruise as a first option, the representative would give the agent $10. If the agent's first recommendation was a Carnival cruise, he or she would get $1,000. By the end of 1989 Carnival had given away more than $500,000 with this program.
In an attempt to attract younger, more middle-class customers to cruises, which had traditionally been the preserve of older, upper-class travelers, Carnival offered cheaper, shorter trips--in 1988 the company's low-priced air and sea packages were approximately 20 percent below industry averages. Advertising efforts targeted toward the younger market included a 1988 Fourth of July party on a Carnival ship that was broadcast on MTV. These strategies paid off: In 1989 the annual household income of passengers was between $25,000 and $50,000, and 30 percent of the passengers in the early 1990s were between the ages of 25 and 39. In addition, Carnival's ships were consistently running at full capacity.
In 1987 Ted Arison sold 18 percent of the shares of his private empire, raising nearly $400 million for the company, and Carnival went on a spending spree. The company entered into a contract for the Ecstasy, sister ship to the Fantasy, which had been ordered earlier in the year. In addition, Carnival attempted to buy the cruise ship business of Gotaas-Larsen Shipping Corporation, which owned part of Royal Caribbean and a majority of Admiral Cruise Lines, but the sale did not go through.
In 1988 Carnival purchased the Holland America Line for $625 million. A longstanding company with four cruise ships and about 4,500 berths, Holland America sailed to the Alaska coast in the summer and the eastern Caribbean in the winter. Holland's trips were aimed at higher-income travelers--its Caribbean cruises cost 27 percent more than a Carnival cruise of the same length. In addition, as part of the package, Carnival acquired two other companies that Holland America owned: Windstar Sail Cruises and Holland America Westours, which included Westmark Hotels.
The acquisition greatly expanded the company's operations. Windstar Sail Cruises, whose three large passenger sailing ships operated in the South Pacific, Mediterranean, and Caribbean, served the luxury market. Westours operated Westmark's 18 hotels in addition to five dayboats, 240 motor coaches, and eight glass-domed railcars in Alaska and the Canadian Northwest. Already the world's largest cruise operator based on passengers carried, with this single purchase Carnival boosted its number of berths by more than 50 percent. During the year following the acquisition, Carnival carried 579,000 passengers, generating $600 million in revenues and earning profits of $196 million.
In 1989 Carnival completed the Crystal Palace Resort & Casino, a lavish 150-acre resort in the Bahamas, which cost Carnival $250 million to develop. The 1,550-room hotel had many extravagant features, including a $25,000-per-night suite that included a robot that brought bath towels and an aquarium with a stingray. With its 13 restaurants, golf course, tennis courts, and other recreational facilities, the Crystal Palace was the biggest resort in the region. Carnival's 1989 revenues surpassed $1 billion, and the firm earned profits of $193 million while carrying 783,485 passengers.
Change and Growth: 1990-2000
The following year Ted Arison, at the age of 66, stepped down as chairperson of Carnival and was succeeded by his son Micky. Shortly thereafter, the industry's boom of the previous decade began to taper off. The war in the Persian Gulf brought higher fuel and airline costs and deterred tourists. The effects were reflected in Carnival's stock price, which slid from 25 points in June 1990 to 13 points late in the year. At the same time, it became apparent that the Crystal Palace would be an unprofitable venture. At the end of fiscal year 1990, Carnival incurred a $25.5 million loss from the resort and casino operation and not long after began attempting to sell the Crystal Palace. In 1991, with no prospective buyers, Carnival agreed to turn over a large portion of the resort to the Bahamian government, in exchange for cancellation of some of the debt incurred during construction. Carnival took a $135 million write-down on the Crystal Palace for that year.
Still, in 1991 Carnival enjoyed a 26 percent share of the passengers in the $5 billion cruise ship market, with revenues of $1.4 billion. Its average occupancy level stood at 103 percent, well above the industry's average of 90 percent. In April 1991 Carnival signed a $300 million contract for a ship, the Sensation, to be delivered in 1993. In September of the same year the Fascination, to be ready in late 1994, was ordered at a cost of $315 million. In an effort to gain more working capital, Carnival offered 7.85 million Class A common shares for sale in 1991.
The company also entered into an agreement in 1991 to acquire Premier Cruise Lines for $372 million. Though smaller than Carnival, Premier had a lucrative contract with Walt Disney Co. to be the official cruise line for Walt Disney World in Orlando, Florida. The deal fell through, however, when a final agreement could not be reached on the price.
In 1992 Carnival agreed to acquire a percentage of Seabourn Cruise Lines. Seabourn, operated in partnership with Atle Byrnestad, served the ultra-luxury market, running tours to locations such as South America, the Baltics, the Mediterranean, and Southeast Asia. The company also signed a contract for a $330 million ship, the Imagination, to be delivered in the fall of 1995. Perhaps the most impressive ship introduced in the modern era was the Carnival Destiny, the largest passenger ship afloat at 101,000 tons and room for 2,640 people. Its maiden voyage was in 1996.
In 1997 Carnival purchased a 50 percent interest in Costa Cruise Lines, in partnership with Airtours, a travel company. These acquisitions strengthened the company's presence around the world, but especially in the Caribbean. Yet the company's most important acquisition came in 1998 when it purchased a controlling interest in the Cunard White Star Line. Cunard's five ships, including the QE2, the Vistafjord, the Royal Viking Sun, and Sea Goddess I and II catapulted Carnival into the super-luxury cruise line business.
By 1998 the company had changed its legal name to Carnival Corporation, to emphasize the growing diversity within its cruise lines. Yet when every indicator seemed to point the way toward uninterrupted and uneventful prosperity for the company, disaster struck. In July 1998, the cruise ship Ecstasy caught fire after leaving the port in Miami, Florida bound for Newport News with 2,575 passengers on board. Although no one was injured during the fire and evacuation, the ship suffered extensive damage to more than 100 cabins, while heat and smoke damaged adjacent sections of the ship. The precise cause of the fire remained unknown, but the Ecstasy was examined meticulously and refitted in drydock; it re-entered cruising service not long afterward.
Carnival did not suffer financially or from a public relations standpoint because of the fire on the Ecstasy, and it continued to look forward to further growth, building on its name recognition, which was the highest in the industry. Since studies showed that only 5 percent of the 70 million Americans who could afford cruises chose that type of vacation, Carnival seemed to have plenty of room for expansion.
Sailing into the New Millennium
While Carnival dealt with challenges in the early years of the new millennium, it managed to make its largest purchase to date in 2003. Before that, however, the company and its peers found themselves exposed to a slowdown in the travel industry brought on by the terrorist attacks in 2001, the ensuing war in Iraq, and the outbreak of illnesses, including severe acute respiratory syndrome (SARS). At the same time, Carnival's deal to purchase timeshare company Fairfield Communities Inc. fell through as its share price fell and profits waned. The company's venture with Star Cruises to acquire NCL Holding, the parent of the Norwegian cruise line, also was canceled.
To make matters worse, Carnival came under fire for covering up illegal dumping practices. During this time period, the cruise industry as a whole felt pressure from environmental groups to clean up their act. According to these groups, sewage from cruise ships contributed to a host of problems, including contamination of the world's oceans. In April 2002, Carnival pled guilty to dumping pollutants into the ocean. It paid an $18 million fine and faced five years of probation.
Meanwhile, the company was preparing to significantly bolster its holdings. In 2001, Carnival set its sights on P&O Princess Cruises plc. P&O, formed by the demerger of The Peninsular and Oriental Steam Navigation Company in October 2000, had more than 150 years of experience in passenger cruising and had become a leader in the United Kingdom and Australian cruise markets. A bidding war with competitor Royal Caribbean Cruises Ltd. began in 2002. In the end, P&O shareholders accepted Carnival's $5.67 billion bid.
Upon completion of the deal in 2003, Carnival controlled more than 43 percent of the $11 billion cruise market. It had far surpassed Royal Caribbean, which held a 24 percent share of the market. Carnival Corporation became a dual-listed company with U.K.-based Carnival plc; P&O adopted the Carnival name after the deal. Both companies shared the same executive team, with Micky Arison as chairman and CEO.
Carnival's union with Princess showed early signs of paying off. In 2004, the company achieved record financial results with revenues of $7.68 billion and net income of $1.46 billion. The company launched eight new ships that year including the Queen Mary 2, the world's largest cruise ship; Costa Magica; Carnival's Miracle and Valor; Princess Cruises' Diamond, Sapphire, and Caribbean Princesses; and Holland America Line's Westerdam. The company planned to have an additional 12 ships in operation by 2009.
Revenue and profits climbed even higher in 2005, reaching $8.7 billion and $1.78 billion, respectively. The company claimed that with 123,000 berths and almost 55,000 crewmembers, there were roughly 175,000 people at sea with Carnival at any given time. Indeed, travel enthusiasts would no doubt be sailing with Carnival, the world's largest cruise operator, for years to come.
Costa Crociere, S.p.A. (Italy); HAL Antillen N.V. (Netherlands Antilles); Holland America Line N.V. (Netherlands Antilles); Princess Bermuda Holdings Ltd.; Princess Cruise Lines Ltd. (Bermuda); Sitmar International S.R.L. (Panama); Sunshine Shipping Corporation (Bermuda).
Royal Caribbean Cruises Ltd.; Star Cruises Ltd.; TUI AG.
- Key Dates
- 1972 Ted Arison and Meshulam Riklis establish Carnival as a subsidiary of American International Travel Service (AITS).
- 1974 Arison buys Riklis's stake in Carnival.
- 1984 Carnival initiates its "Fun Ship" advertising campaign, which features talk show host Kathie Lee Gifford.
- 1987 Carnival goes public.
- 1988 The company purchases the Holland America Line for $625 million.
- 1992 Carnival agrees to acquire a percentage of Seabourn Cruise Lines.
- 1997 The company buys a 50 percent interest in Costa Cruise Lines.
- 1998 Carnival gains a controlling interest in the Cunard White Star Line.
- 2003 P&O Princess Cruises plc is acquired; its name is changed to Carnival plc.
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