| Carnival |
NUMBER ONE
Carnival Cruise Lines has grown
from a company with one
second-hand ship into the most
popular and most profitable cruise
line in the world.
BY RICHARD H. WAGNER
(Originally published by the Navy League of
the United States, New York Council in The
Log, Fall 2007).
Carnival Cruise Lines has grown
from a company with one
second-hand ship into the most
popular and most profitable cruise
line in the world.
BY RICHARD H. WAGNER
(Originally published by the Navy League of
the United States, New York Council in The
Log, Fall 2007).
When most Americans think about cruise vacations, they think about Carnival Cruise Lines. Carnival will carry some
3.7 million passengers in 2007 - - more than any other cruise line including its sister companies Cunard Line, Princess
Cruises and Holland America Line. What makes this fact particularly impressive is that 35 years ago, there was no
Carnival Cruise Line.
While the company still focuses heavily on its original market --Caribbean cruising - - in recent years "Fun Ships"
have been deployed to a number of American cities and to ports in Europe. In 2007, two Carnival ships sailed on a
regular basis from New York. The Log went aboard these ships to find out what Carnival is all about.
The Legend Begins
The early days of Carnival are inextricably linked to the legend of Ted Arison, a former colonel in the Israeli Army,
who, as the story opens, had had a somewhat unsuccessful business career in the air cargo industry. One day in 1966,
Arison was visiting the office of some friends in the shipping business whose interests included leasing two car ferries for
use as cruise ships in Miami when they received a message from the person who was chartering the ferries. The
message advised them that the cruise business was not doing well and sought to re-negotiate a lower charter fee for the
ferries. Arison told the ship owners that they should reject the cruise operator's demand. He knew the business and
would be willing to go to Miami and operate the ships for them. Delighted at this fortuitous coincidence, the ship owners
agreed and Arison was off to Miami.
In fact, Arison had no experience in the cruise business. Moreover, he found that the ferries were more utilitarian
than luxurious with many of the passenger cabins not even having a porthole. Nonetheless, the Arison Shipping
Company soon achieved a modest success running the ferries from Miami to the Bahamas, carrying a mixture of cruise
passengers and cars.
The road to success, however, then took a turn. Because of reverses in some of their other ventures, the ship
owners went bankrupt. The primary holder of the mortgage on the two car ferries was the Israeli government and it
decided that the ferries might be useful for military purposes in the event of war. Accordingly, they directed that the
ferries be returned to Israeli waters. As a result, Arison's cruise ship business no longer had any ships.
Looking through a trade publication, Arison ran across an article about a newly built combination passenger ship
and car ferry. Norwegian businessman Kurt Kloster had built the SUNWARD in order to take cars and holiday-
makers from England to Gibraltar. However, political problems in Gibraltar had squelched the scheme. Arison
immediately called Kloster and told him that SUNWARD sounded similar to the ships that he had been operating
successfully in Miami and that the two should join forces.
Kloster was intrigued by the idea but asked to see documentation of the advanced bookings that Arison had
mentioned. There had indeed been a demand for future cruises but Arison had no documentation. Nonetheless, he
agreed and reportedly set his people to work making some documentation. Kloster also demanded a guarantee that he
would make $500,000 a year in profit. Arison agreed even though he did not have the money. As a result, a
partnership was formed between Arison Shipping and Kloster's company that would do business under the name
"Norwegian Caribbean Lines" or "NCL."
When SUNWARD arrived in Miami, Arison found that it was a significant improvement over his earlier ships with
a sleek design that looked more like a modern cruise ship than the retired ocean liners that most of his competitors were
using to do cruises out of Miami. Besides having a catchy appearance, SUNWARD was fully air-conditioned and her
passenger cabins were located on the outside of the hull so that passengers could have portholes. She was put to work
doing three and four-night cruises from Miami to Nassau. The operation proved successful and two more new ships
were added to the fleet.
Success, however, did not promote harmony between the partners. Conflicts arose between Arison's Americans
who were doing the sales, marketing and the other shoreside business aspects of the partnership and Kloster's
Norwegians who were sailing the ships. By 1971, Kloster announced that he was severing the partnership and taking
the three ships with him. Arison responded by seizing the deposits passengers had paid for future cruises. Years of
litigation followed that eventually ended with an out-of-court settlement.
The end of the partnership once again left Arison with a cruise ship company that had no ships. Arison first sought
to purchase two old Cunard ships, the CARMANIA and the FRANCONIA, that had been retired from service. (See
The Log, Summer 2007, at p. 22). However, a deal could not be worked out. Next, Arison set his sights on another
laid-up vessel, the Canadian Pacific liner EMPRESS OF CANADA. But, again he found that he did not have the
capital to buy her.
Arison then turned to his friend Meshulam Riklis, whose holdings included a travel business, American International
Travel Service ("AITS"), which operated tours and suggested that he set up a subsidiary of AITS that would provide
cruises out of Miami. Arison would contribute the $1 million that he had seized from NCL and together they would buy
the EMPRESS OF CANADA. Riklis agreed and since AITS had called its various tours "Rio Carnival", "Hawaiian
Carnival" etc., the new cruise line would be called Carnival Cruise Lines.
The EMPRESS OF CANADA had been built in 1961 for the run between Britain and Canada. Although she
had been used for cruising in the winter months, she was configured as a two-class liner and substantial renovation work
would have to be done before she was ready for the Caribbean. (In fact, the ship sailed with a cadre of workmen for
two years into her Carnival career). She was renamed MARDI GRAS to be consistent with the festive, carnival-like
spirit her new owners were trying to engender.
Captain Claudio Cupisti, now master of CARNIVAL MIRACLE, started with the company aboard MARDI
GRAS. “The MARDI GRAS was the first love of this company because it was a ship with a lot of character. Lots of
wood, lots of brass, lots of what you think of as an old ship that you see in a movie. Small portholes, small lounges,
more geared to crossing oceans than doing cruises. It is like the old lady that you have seen around working but with
lots of class.”
On 7 March 1972, MARDI GRAS set sail from Miami on the maiden voyage of the new Carnival Cruise Lines.
She immediately ran aground. For a full day, the ship sat at the tip of Miami Beach in plain sight of thousands of tourists
and close enough to land for the newspapers and wire services to get plenty of pictures. On board, however, the
passengers continued to party.
Once off the sandbar, MARDI GRAS continued on with the maiden cruise. In San Juan, the fuel suppliers had no
past history with this fledgling operation and demanded cash to refuel the ship so that it could return to Miami. Arison
wined and dined them in the hopes of obtaining credit. Still, they demanded cash. Consequently, he had the Carnival
office in Miami wire him the deposits that had been paid on future cruises and then went around the ship emptying the
cash registers in the bars to obtain the needed funds.
MARDI GRAS struggled back to Miami and for some two years Carnival Cruise Lines continued to struggle.
Part of the problem was that AITS was doing the sales for the line. Inasmuch as it was a travel business, it preferred to
deal directly with the public rather than through independent travel agents who were (and still are) responsible for selling
a high proportion of cruises. As the losses mounted, AITS became increasingly concerned about its investment. In
addition, one of AITS other holdings was a Las Vegas casino and the Nevada Gaming Commission was becoming
concerned about ATIS' money-losing cruise line investment. Accordingly, in 1974, for the sum of one dollar, AITS sold
Carnival Cruise Lines, complete with its assets (primarily the MARDI GRAS) and its liabilities ($5 million in debt), to
Arison and two other investors.
Arison brought in a new marketing team and, as will be discussed later, implemented a new marketing
philosophy. He also made amends with the travel agents. Soon, Carnival was making money, which he invested in
expanding the Carnival fleet. In 1976, he purchased another Canadian Pacific liner, EMPRESS OF BRITAIN and
converted her into the CARNIVALE. In 1978, the Union Castle Line's TRANSVAAL CASTLE became the
FESTIVALE.
With the three converted liners making money, in 1981, Carnival began to build its own cruise ships with the
TROPICALE (35,190 g.r.t.). This was a major turning point because it allowed Carnival to design its ships to meet its
ideas about cruising rather than adapt its ideas to the limitations of existing designs. Since then Carnival has built 23
more ships for its fleet and will add another, the 113,000 ton CARNIVAL SPLENDOR, in 2008. By 1987, Carnival
had passed all the other cruise lines in the number of passengers carried.
An indication of the complete turnaround of Carnival's fortunes occurred in 1988, when Finland's Wartsila
shipyard went bankrupt. The yard was in the process of building a ship for Carnival. To be sure that work on the ship
was not delayed, Carnival stepped in and helped finance a reorganization of the yard. The ship was finished on schedule
and the yard (now Kvaerner-Masa) remains today as one of the major builders of cruise ships in the world, although
Carnival no longer has an interest. Carnival had come a long way from having to shake the cash registers to pay for fuel.
Prior to the stock market crash of 1987, Arison took Carnival public, which gave the money-generating line $400
million more in capital to fuel expansion. The publicly traded company, Carnival Corporation, would act as a holding
company for Carnival Cruise Lines and for any company it might acquire.
Three years later, Ted Arison retired and his son, Micky Arison took over as chief executive officer of Carnival
Corporation. Micky Arison continued the acquisition program begun during his father's tenure when Carnival acquired
Holland America Line and Windstar Cruises in 1989. Subsequently, Carnival Corporation has acquired Cunard Line,
Princess Cruises, Seabourn Cruise Line, Costa Cruises, P&O Cruises, P&O Cruises Australia and Swan Hellenic. It
also owns Ocean Village Cruises and Aida. In all, 82 ships now sail under the various Carnival brands.
Micky Arison's philosophy has been to allow these acquired lines to operate with their own identities rather than make
them clones of Carnival Cruise Lines. (See The Log, Winter 2006 at p. 30). Thus, they are intended to appeal to
different market segments. By no means, however, is management attempting to abandon its original success formula.
Carnival Cruise Lines is the most popular and profitable cruise line in the world. It operates 22 ships sailing to
destinations in the Caribbean, Canada, the Bahamas, Mexico, New England, and now Europe.
3.7 million passengers in 2007 - - more than any other cruise line including its sister companies Cunard Line, Princess
Cruises and Holland America Line. What makes this fact particularly impressive is that 35 years ago, there was no
Carnival Cruise Line.
While the company still focuses heavily on its original market --Caribbean cruising - - in recent years "Fun Ships"
have been deployed to a number of American cities and to ports in Europe. In 2007, two Carnival ships sailed on a
regular basis from New York. The Log went aboard these ships to find out what Carnival is all about.
The Legend Begins
The early days of Carnival are inextricably linked to the legend of Ted Arison, a former colonel in the Israeli Army,
who, as the story opens, had had a somewhat unsuccessful business career in the air cargo industry. One day in 1966,
Arison was visiting the office of some friends in the shipping business whose interests included leasing two car ferries for
use as cruise ships in Miami when they received a message from the person who was chartering the ferries. The
message advised them that the cruise business was not doing well and sought to re-negotiate a lower charter fee for the
ferries. Arison told the ship owners that they should reject the cruise operator's demand. He knew the business and
would be willing to go to Miami and operate the ships for them. Delighted at this fortuitous coincidence, the ship owners
agreed and Arison was off to Miami.
In fact, Arison had no experience in the cruise business. Moreover, he found that the ferries were more utilitarian
than luxurious with many of the passenger cabins not even having a porthole. Nonetheless, the Arison Shipping
Company soon achieved a modest success running the ferries from Miami to the Bahamas, carrying a mixture of cruise
passengers and cars.
The road to success, however, then took a turn. Because of reverses in some of their other ventures, the ship
owners went bankrupt. The primary holder of the mortgage on the two car ferries was the Israeli government and it
decided that the ferries might be useful for military purposes in the event of war. Accordingly, they directed that the
ferries be returned to Israeli waters. As a result, Arison's cruise ship business no longer had any ships.
Looking through a trade publication, Arison ran across an article about a newly built combination passenger ship
and car ferry. Norwegian businessman Kurt Kloster had built the SUNWARD in order to take cars and holiday-
makers from England to Gibraltar. However, political problems in Gibraltar had squelched the scheme. Arison
immediately called Kloster and told him that SUNWARD sounded similar to the ships that he had been operating
successfully in Miami and that the two should join forces.
Kloster was intrigued by the idea but asked to see documentation of the advanced bookings that Arison had
mentioned. There had indeed been a demand for future cruises but Arison had no documentation. Nonetheless, he
agreed and reportedly set his people to work making some documentation. Kloster also demanded a guarantee that he
would make $500,000 a year in profit. Arison agreed even though he did not have the money. As a result, a
partnership was formed between Arison Shipping and Kloster's company that would do business under the name
"Norwegian Caribbean Lines" or "NCL."
When SUNWARD arrived in Miami, Arison found that it was a significant improvement over his earlier ships with
a sleek design that looked more like a modern cruise ship than the retired ocean liners that most of his competitors were
using to do cruises out of Miami. Besides having a catchy appearance, SUNWARD was fully air-conditioned and her
passenger cabins were located on the outside of the hull so that passengers could have portholes. She was put to work
doing three and four-night cruises from Miami to Nassau. The operation proved successful and two more new ships
were added to the fleet.
Success, however, did not promote harmony between the partners. Conflicts arose between Arison's Americans
who were doing the sales, marketing and the other shoreside business aspects of the partnership and Kloster's
Norwegians who were sailing the ships. By 1971, Kloster announced that he was severing the partnership and taking
the three ships with him. Arison responded by seizing the deposits passengers had paid for future cruises. Years of
litigation followed that eventually ended with an out-of-court settlement.
The end of the partnership once again left Arison with a cruise ship company that had no ships. Arison first sought
to purchase two old Cunard ships, the CARMANIA and the FRANCONIA, that had been retired from service. (See
The Log, Summer 2007, at p. 22). However, a deal could not be worked out. Next, Arison set his sights on another
laid-up vessel, the Canadian Pacific liner EMPRESS OF CANADA. But, again he found that he did not have the
capital to buy her.
Arison then turned to his friend Meshulam Riklis, whose holdings included a travel business, American International
Travel Service ("AITS"), which operated tours and suggested that he set up a subsidiary of AITS that would provide
cruises out of Miami. Arison would contribute the $1 million that he had seized from NCL and together they would buy
the EMPRESS OF CANADA. Riklis agreed and since AITS had called its various tours "Rio Carnival", "Hawaiian
Carnival" etc., the new cruise line would be called Carnival Cruise Lines.
The EMPRESS OF CANADA had been built in 1961 for the run between Britain and Canada. Although she
had been used for cruising in the winter months, she was configured as a two-class liner and substantial renovation work
would have to be done before she was ready for the Caribbean. (In fact, the ship sailed with a cadre of workmen for
two years into her Carnival career). She was renamed MARDI GRAS to be consistent with the festive, carnival-like
spirit her new owners were trying to engender.
Captain Claudio Cupisti, now master of CARNIVAL MIRACLE, started with the company aboard MARDI
GRAS. “The MARDI GRAS was the first love of this company because it was a ship with a lot of character. Lots of
wood, lots of brass, lots of what you think of as an old ship that you see in a movie. Small portholes, small lounges,
more geared to crossing oceans than doing cruises. It is like the old lady that you have seen around working but with
lots of class.”
On 7 March 1972, MARDI GRAS set sail from Miami on the maiden voyage of the new Carnival Cruise Lines.
She immediately ran aground. For a full day, the ship sat at the tip of Miami Beach in plain sight of thousands of tourists
and close enough to land for the newspapers and wire services to get plenty of pictures. On board, however, the
passengers continued to party.
Once off the sandbar, MARDI GRAS continued on with the maiden cruise. In San Juan, the fuel suppliers had no
past history with this fledgling operation and demanded cash to refuel the ship so that it could return to Miami. Arison
wined and dined them in the hopes of obtaining credit. Still, they demanded cash. Consequently, he had the Carnival
office in Miami wire him the deposits that had been paid on future cruises and then went around the ship emptying the
cash registers in the bars to obtain the needed funds.
MARDI GRAS struggled back to Miami and for some two years Carnival Cruise Lines continued to struggle.
Part of the problem was that AITS was doing the sales for the line. Inasmuch as it was a travel business, it preferred to
deal directly with the public rather than through independent travel agents who were (and still are) responsible for selling
a high proportion of cruises. As the losses mounted, AITS became increasingly concerned about its investment. In
addition, one of AITS other holdings was a Las Vegas casino and the Nevada Gaming Commission was becoming
concerned about ATIS' money-losing cruise line investment. Accordingly, in 1974, for the sum of one dollar, AITS sold
Carnival Cruise Lines, complete with its assets (primarily the MARDI GRAS) and its liabilities ($5 million in debt), to
Arison and two other investors.
Arison brought in a new marketing team and, as will be discussed later, implemented a new marketing
philosophy. He also made amends with the travel agents. Soon, Carnival was making money, which he invested in
expanding the Carnival fleet. In 1976, he purchased another Canadian Pacific liner, EMPRESS OF BRITAIN and
converted her into the CARNIVALE. In 1978, the Union Castle Line's TRANSVAAL CASTLE became the
FESTIVALE.
With the three converted liners making money, in 1981, Carnival began to build its own cruise ships with the
TROPICALE (35,190 g.r.t.). This was a major turning point because it allowed Carnival to design its ships to meet its
ideas about cruising rather than adapt its ideas to the limitations of existing designs. Since then Carnival has built 23
more ships for its fleet and will add another, the 113,000 ton CARNIVAL SPLENDOR, in 2008. By 1987, Carnival
had passed all the other cruise lines in the number of passengers carried.
An indication of the complete turnaround of Carnival's fortunes occurred in 1988, when Finland's Wartsila
shipyard went bankrupt. The yard was in the process of building a ship for Carnival. To be sure that work on the ship
was not delayed, Carnival stepped in and helped finance a reorganization of the yard. The ship was finished on schedule
and the yard (now Kvaerner-Masa) remains today as one of the major builders of cruise ships in the world, although
Carnival no longer has an interest. Carnival had come a long way from having to shake the cash registers to pay for fuel.
Prior to the stock market crash of 1987, Arison took Carnival public, which gave the money-generating line $400
million more in capital to fuel expansion. The publicly traded company, Carnival Corporation, would act as a holding
company for Carnival Cruise Lines and for any company it might acquire.
Three years later, Ted Arison retired and his son, Micky Arison took over as chief executive officer of Carnival
Corporation. Micky Arison continued the acquisition program begun during his father's tenure when Carnival acquired
Holland America Line and Windstar Cruises in 1989. Subsequently, Carnival Corporation has acquired Cunard Line,
Princess Cruises, Seabourn Cruise Line, Costa Cruises, P&O Cruises, P&O Cruises Australia and Swan Hellenic. It
also owns Ocean Village Cruises and Aida. In all, 82 ships now sail under the various Carnival brands.
Micky Arison's philosophy has been to allow these acquired lines to operate with their own identities rather than make
them clones of Carnival Cruise Lines. (See The Log, Winter 2006 at p. 30). Thus, they are intended to appeal to
different market segments. By no means, however, is management attempting to abandon its original success formula.
Carnival Cruise Lines is the most popular and profitable cruise line in the world. It operates 22 ships sailing to
destinations in the Caribbean, Canada, the Bahamas, Mexico, New England, and now Europe.
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