From its Miami, USA headquarters the giant Carnival Corporation is being forced to contemplate its own mortality.
In cruise industry terms the collapse of Carnival would be the equivalent of the demise of the all-powerful Lehman Brothers during the global financial crisis of 2008.
Carnival controls over 50% of the world’s cruise market and has steadily acquired a string of famous cruising brands, including P&O Australia and the Princess Line, owner of the Ruby Princess.
Since the beginning of April the company’s filings to the US Securities and Exchange Commission (SEC) depict an ever-worsening position — increasingly urgent distress calls as in the form of stock market updates as Carnival and the rest of the industry try to stay afloat.
Here is what they’ve been saying:
- “We have never previously experienced a complete cessation of our cruising operations”
- “Our ability to be predictive regarding the impact of such a cessation on our brands and future prospects is uncertain”
- “The magnitude, duration and speed of the global pandemic is uncertain.”
- “We now expect a net loss for the fiscal year ending November 30, 2020.”
It’s an extraordinary state of affairs for a company which only four months ago declared a global profit of over $3 billion on a record turnover over $21 billion for 2019.
By mid-March this year the company had already drawn down on a $3 billion facility. By the end of the month Moody’s and S&P Global had downgraded Carnival’s debt ratings.
A further downgrade, the company warned, would jeopardise its ability to raise further debt. And then what?
In SEC filings this week the company detailed the primary threats it faced.
These were “incidents concerning our ships, guests or the cruise vacation industry” which “may lead to reputational damage”, as well as “changes in and non-compliance with laws and regulations under which we operate, such as those relating to health” which “may lead to litigation, enforcement actions, fines, penalties, and reputational damage”.
Carnival has once before seen off an existential threat to its business. That was back in 2012 when its ship the Costa Concordia slammed into rocks and partially capsized off the Italian island of Giglio. The captain fled the ship as passengers went racing for the lifeboats. Thirty-two of the ship’s 4,000 passengers and crew died.
In response, the company hired one of corporate America’s sharpest PR and communications operatives — industry veteran Roger Frizzell. It also brought on a new cleanskin CEO, Arnold Donald, a fresh face who led an aggressive marketing campaign highlighting cruising as fun and affordable. Together Frizzell and Donald rehabilitated the company’s image.
It has since built a wide fan-base of cruise devotees — the “cruiselings” who, alarmingly, even now question via social media when the next cruise can get underway. As a mark of his success, last year Donald was rewarded just over US$11 million in salary and stock options. Frizzell remains part of Carnival’s executive team too.
Yet the drama which played out seven years ago is nothing compared to the series of crises which have banked up against Carnival around the world since an outbreak of COVID-19 on board the Diamond Princess, which was stranded in quarantine off the coast of Japan in early February — the first known case of the virus on a stricken cruise ship.
Several times its ships have been refused entry to ports because of the presence of COVID-19. Despite this, as recently as March 24, five days after the Ruby Princess (a “sibling” to the Diamond Princess) docked in Sydney, Donald continued to maintain that Carnival’s ships weren’t to blame.
“Cruise ships are not a source for coronavirus,” Donald told business and politics program Axios on HBO.
“We have hundreds of cruise ships out there. Very few had cases on them. The one that had the most cases was very early on, when no one understood hardly anything,” said Donald, in response to criticism from US health experts that Carnival had been slow to address infections on board the Diamond Princess and slow to halt its operations in the midst of the pandemic.
Donald also denied that shared swimming pools, compact spaces and shared meals in large dining rooms made a cruise ship a riskier environment for infection — contradicting a point made by a US Centre for Disease Control warning issued March 8 (the day the Ruby Princess departed Australia, to return on March 19).
Now the lawsuits have begun and Donald and Carnival’s arguments are set to be put to the test.
This week a Miami lawyer filed a class action suit against Costa Cruises, a Carnival-owned cruise line, alleging the operator was negligent for allowing the Costa Luminosa to sail after a passenger on a previous trip tested positive for coronavirus — and for continuing on its next voyage after more passengers showed symptoms.
The Costa Luminosa set sail from Fort Lauderdale on March 5, three days before the Ruby Princess departed Australia for New Zealand. On the face of it the circumstances of the ships’ outbreaks are similar: passengers from a previous Ruby Princess trip also tested positive to COVID-19.
In the case of the Costa Luminosa hundreds of passengers eventually disembarked in France, where, authorities said, 36 people tested positive and 75 either showed symptoms or came into contact with those who were infected, according to Reuters.
In Australia Carnival HQ embarked on a communications strategy which shifts all blame onto government agencies, primarily NSW Health and the Australian Border Force, while maintaining it has followed the rules at every turn.
The cruise industry — and travel and tourism in general — has deep financial ties to Australia’s commercial media. In the first three months of last year the collective advertising spend was around $130 million, primarily on television, newspapers and digital sites. If there was a strategy afoot to rely on old media friendships then it worked.
Initially government agencies — and not Carnival — were at the centre of the story.
Leaked emails painting Carnival as the honest brokers, and even victims of government bungling, appeared in Nine and News Corp media. The emails purported to show that the ship had put through detailed health information on more than 100 passengers who were ill on board the ship.
The strategy upped the stakes on the government. Within 24 hours counter leaks appeared, most devastatingly in The Daily Telegraph, which reported on midnight phone calls from Carnival which apparently sought to downplay the possible presence of COVID-19 on board Ruby Princess in order to gain permission to dock in Sydney.
The trail of destruction in the wake of the Ruby Princess is so severe that NSW Health stopped publicly linking new fatalities to COVID-19 infection aboard the ship. The move will at least temporarily stem the daily dose of bad news for the government and Carnival, as questionable a tactic that may be.
But there is now a well-publicised NSW police inquiry into the whole affair. Police raided the Ruby Princess, now anchored at Port Kembla, south of Sydney, to seize evidence and question crew members.
The last official count put the Ruby Princess tally at 14 deaths (about a quarter of the national toll), nearly all of them people in their 70s and 80s.
Steven Whybrow, a senior barrister who represented victims in the Dreamworld tragedy, told Inq that manslaughter charges were possible if investigators uncovered evidence that someone on board the ship misled authorities about how many suspected cases of COVID-19 there were on board.
“It seems totally beyond comprehension that somebody, at some stage, has not made a false assumption about the OK-ness of this ship to dock,” he said.
Whoever is technically or legally responsible for the deaths, the fallout will no doubt include “reputational damage” to Carnival, to cite its SEC filings.
Inq can also reveal new developments in the Ruby Princess scandal that cast further doubt on Carnival’s bona fides and raise further questions on how thoroughly regulators did their jobs.
It appears that the official pre-arrival health report signed by the captain of the Ruby Princess omitted declaring that there was any “persistent coughing” on board the ship.
According to the federal Department of Health, the question relating to coughing is one of two specific questions aimed at gaining a picture COVID-19’s presence on a ship. (The other question relates to fever, a category which the ship’s captain addressed.)
Passengers contacted by Inq — and who asked for their names to be withheld — tell a different story. One told Inq there was “a tonne of coughing on board”.
“But I’ve been on several cruises and there always is,” she added. “Especially as the average age of the passengers is often over 60.”
Another recalled that there was coughing, which was “not too bad”, “except for one woman on a bus who did not sound well at all, but we were a long way from her”.
The bus trip, the passenger remembered, was in either Wellington or Napier, New Zealand. New Zealand health authorities now say that in a cluster of 16 Ruby Princess cases one is a man from Napier who drove a busload of Ruby Princess passengers.
The driver also made private visits to a relative in an aged care facility before he tested positive.
This week, New Zealand Prime Minister Jacinda Ardern added to the pressure on Carnival, asking for preliminary advice from New Zealand’s crown law office on whether or not the Ruby Princess had fulfilled its legal obligations before getting the go-ahead to disembark passengers while docked at New Zealand ports.
Ardern said the ship’s obligations included making sure that people who were unwell did not disembark.
“And we now have COVID-19 transmission that directly links back to that ship — not from passengers but from people who had contact with passengers — that raises significant questions,” she said.
Of the cluster of 16 people infected, six had been passengers on the ship who returned from Sydney. The remaining 10 included tour guides, an interpreter and the bus driver.
Meanwhile the revelations in Australia keep on coming. There are fresh claims of Australian Border Force intervening to order the docking of the ship on March 18. NSW police have now raided the Ruby Princess looking for documents.
The question is: will Carnival, with its political connections and key role in a multibillion dollar industry, prove too big to sink?
Additional reporting by Georgia Wilkins.