Carnival Cruise Lines CEO Arnold Donald.
Courtesy of Carnival Cruise linesArnold Donald, the CEO of Carnival Cruise Lines since 2013, has had a lifetime of managerial tests packed into the past two years as he steered the company through the pandemic. The Miami-based company, which is the largest cruise operator in the world, has eight of its nine brands back in operation following the pandemic-induced shutdown in March of 2020. But things aren’t back to normal yet, and the Omicron variant is the latest wild card. As of Sept. 30, the company was burning about $500 million of cash a month, contributing to multi billions of dollars in losses and forcing Carnival to raise some $27 billion of new capital since the Covid outbreak started in March 2020.
Donald, 67 years old, is one of a handful of African-American CEOs of large U.S. companies. He is a strong believer in improving diversity and inclusion across American companies. Barron’s spoke to him this week about that subject and many others. This an edited version of that conversation.
How is the Omicron variant of Covid 19 impacting Carnival’s business?
I can talk about variants in general. As we said in our last business update in September, we did not see any evidence that the variants would take us away from our plans to return our fleet to full service in the summer of 2022. We don’t see anything from the variants—and the reactions to them—that would suggest that would be impossible.
How are bookings looking heading into 2022?
What we’ve said all along is that we plan to have the full fleet sailing by next summer. At that point in time, it puts us in a better position for a return to normal operations. We see the potential to generate higher EBITDA [earnings before interest, taxes, depreciation, and amortization] in 2023 than we did in 2019, given our additional capacity and our improved cost structure, despite our modest growth rate.
Carnival’s stock is down about 25% over the past three months, and the other cruise stocks have come under pressure is well. A concern is that due to all of the debt you’ve had to raise to stay afloat, it will be hard to return any free cash flow to shareholders via dividends and to buy back stock for a long time.
What we’ve said all along is that, obviously, we had to have liquidity to see us through this crisis, and we have sufficient liquidity to do that. But we’ve raised almost $27 billion. There were 17, 18, 19 different transactions, all of them done virtually with nobody in an office—not us, not the lawyers, not the bankers, not the investors. Pretty amazing really. So we have strong liquidity and that allows us to get the fleet up and running, which is going to provide the cash. As the fleet is operating, we will see robust demand. And as the fleet operates and generates the cash that it is capable of doing, we will use that to obviously pay down the debt and return to a good investment-grade credit level where we were before and which gave us the capacity to withstand this whole thing and create shareholder value. So, yes, absolutely we will be paying debt down along the way, and we need to do that before we can start paying dividends again. But that’s going to happen in due time. And so the longer-term view for the longer-term investors is that we will work hard to ensure that we are a great investment.
Are most of your guests voluntarily showing proof that they’ve had a Covid vaccination?
Keep in mind that we are global, so we have ships all over the world. They are sailing under all kinds of different protocols, even in the U.S. Florida is different from Texas. Texas is different from California. We have ships sailing out of Baltimore, for example, and we have ships sailing out of New Orleans. There are lot of differences. Having said that, what we have found is that, first of all, we encourage everyone to be vaccinated. That’s the best way to protect yourself and those you love—and for all of us to get through this and be able to live with whatever the ongoing circumstance is going to be around Covid.
Also, in a number of places we are sailing under the vaccinated guidelines as specified by the [Centers for Disease Control and Prevention], which means a minimum of 95% of the guests are vaccinated. So people do have to show proof of vaccine in those cases. And at this point and time in the U.S., in most cases you also have to provide a valid test in addition to showing that you are fully vaccinated.
It sounds like most of your customers and all of your crews are vaccinated for Covid, but what’s your stance on boosters?
We encourage everyone to get a booster who is qualified to get one. Earlier in the pandemic, we put together a global team of scientists and medical experts. From day one, we’ve been informed by their sharing of science and data.
There was a tragic event in August when a woman who had been a passenger on the Carnival Vista that sailed out of Galveston later died of Covid. Besides the tragedy of this situation, does it illustrate the challenges Covid poses to cruise operators and their protocols?
First of all, it was a loss of life. We expressed our condolences at the time—and we’ll always express our sincerest condolences to the family. As for the challenges Covid poses to the protocols, in early August, based on the evolving health situation, Carnival Cruise Line and other brands we operate announced that, in addition to meeting standards for a vaccinated cruise as defined by the CDC, they had implemented additional measures. They required vaccinated guests to present both proof of vaccination and a negative Covid test at check-in, along with enhanced masking protocols on board.
In terms of making diversity and inclusion work well in a company, what’s most important to you?
First, the foundation. Businesses thrive over time through innovation. Innovation is by definition thinking outside the box. Diversity and inclusion are a business imperative. If you really understand that and believe that, then you take it on like you take on any other business imperative. Another key to it working is that it has to be throughout the organization. You can’t start at the bottom and think that over time you are going to get there. You have to start at the top, in the middle and at the bottom. You have to engineer diversity and inclusion at all levels and all areas in your enterprise—those are key principles.
Then you have to make certain you don’t get caught up in checking the box, because, as I said, you are looking for diversity of thinking. So you can’t say, “Well, I need somebody to have this experience and that experience.” Chances are you are not going to find a diverse person like that, because they haven’t had those opportunities yet. So you have to be willing to step outside of the box yourself to give a person an opportunity to deliver. You look for core essential things versus checking a box of experience in this job and that job. You are looking much more at qualities such as capability to lead, capability to adapt, and capability to learn.
There aren’t many African-American CEOs of large U.S. companies. What do you attribute that to?
It has been that way for a very long time. What is holding us back is getting to a critical mass of people who are in position to be able to take those roles. In fact, we never got to that critical mass level of having people in a position that would legitimately be prepared to take those roles. The other thing holding it back is the lack of willingness to step enough outside the box to give the unusual candidate the opportunity.
What else has impacted the situation?
There is another factor that’s much more complicated now—that we’re increasingly a global society. So in U.S.-based companies, for example, there are a lot of non-U.S. people running those companies. So the candidate pool, legitimately and appropriately, has gotten a lot bigger. And that’s been an additional challenge and constraint. But the most important thing is developing people to be successful, and in time I hope we can get to a critical mass where there is a reasonable presence of African-American CEOs in the large corporations out there.
How optimistic are you about this changing?
We are really challenged because of what I said. There is still a hesitancy to put an unusual candidate in. There is not plethora of C Suite African-American candidates, because we haven’t populated the C Suites enough—or one or two levels down from the C Suite. And the competition has broadened as the world becomes more global. Unfortunately, it is not working the other way. It is not like there are lots of opportunities for African-Americans to go and lead companies in Europe, for example. It is a challenging time, but I wouldn’t give up.
Turning to environmental issues, will we see cruise ships fully powered by electricity in our lifetimes?
Technologically, it is very difficult to do. But as opposed to focusing just on electric, if you ask the question, “Do I believe that we will see zero-emission ships in our lifetime,” the answer is yes. The technology does not exist today. But there are multiple ways to potentially get there, and I am more than optimistic that we can achieve that.
Whether it is bio fuels, lithium ion battery technology, fuel cells or a future state of fusion technology, I think somehow through a combination those efforts—or any one of them—there will be a breakthrough and we can get to zero emission, which is really the goal.
You joined Carnival’s board of directors in 2001 and became CEO in 2013. What are some of the biggest changes you’ve seen over that period?
First off, we’ve seen a big increase in the number of people cruising over that period of time, but the industry is still small. Pre-covid, we as an industry had maybe 30 million people a year, while hundreds of millions of people take extended vacations annually. That’s No. 1.
No. 2 we’ve seen tremendous advancement in technology. In fact, Carnival’s carbon emissions peaked in 2011, but our capacity has been increased 25% through 2019. There also have been technology changes in terms of guest experiences and making the travel much more customized for the individual, much more frictionless for individuals. Those are huge changes. Our company was a federation of fiercely independent brands, and now we’re a federation of brands that communicate, collaborate and coordinate together.
One of the trends for cruise operators is to launch bigger ships with more amenities. How do you see that?
One of the changes has been bigger ships and more amenities, as you say, but another change has been small ships with more amenities. We have built ships for more than 6,000 guests, and we are building ships for 260 guests. So it is a portfolio of offerings from ultra-luxury ships that have a very small guest load to much larger ships, like Mardi Gras, which has a roller coaster on top and you carry more than 6,000 guests but still have them feel very comfortable and not confined.
Early in the pandemic last year, one of Carnival’s ships, the Diamond Princess, was quarantined in Japan. If you were teaching a business school class, what lessons would you offer from that experience, and what would you have done differently?
First off, make sure you hire great people. Because we did that, we got through all that stuff. Our people did a fantastic job. So that’s No. 1. I hate rehashing all this all old stuff, but by the time the Diamond Princess became news, it wasn’t a cruise. It was in quarantine, and it was being managed by the Japanese Ministry of Health. It wasn’t being managed by us. At that time, nobody knew anything. People didn’t know what Covid-19 was, what the epidemiology was, and how it was transmitted. Nobody knew anything. So that is was what it was at the time.
We had to deal with lots of fears. We had ships that had nobody with Covid onboard having difficulties getting into ports, and so on and so forth. And they became news stories, and then we had other [ships] that actually did have some Covid cases, but it was after Covid had migrated and gotten into new countries like the United States when nobody knew it was there.
What’s your advice as a CEO for getting through highly challenging situations like that?
The way I get through challenges is pretty simple. First of all, you stay calm. You have a sense of urgency but you have to stay calm, and you then have to make sure you understand what is really going on. You don’t always have perfect information, of course, but you don’t react to every little bit of information until you can triangulate a little bit. So a sense of urgency while staying calm. Listen a lot. Listen carefully to everybody, and then do the things you need to do. The main things, of course, are compliance, environmental protection, and the health, safety and wellbeing of everybody. And make sure we are not doing anything wrong with the environment—that’s where we start and we keep those principles in front of us. And so you do that, and things will work out. Does that mean it is not going to be painful at times or challenging or you won’t be understood and it won’t be what people would call bad press or whatever? But if you stick to those things over time, it will work out.
Thanks, Arnold.
Write to Lawrence C. Strauss at lawrence.strauss@barrons.com
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