It is easy watching the vast cruise ships slipping into and out of the berths near Richard Fain’s office in the Port of Miami to understand the public shock at January 13’s Costa Concordia accident. The vessels move so serenely and apparently effortlessly it is impossible to imagine a voyage ending amid the panic and confusion that survivors of January’s tragedy describe.
Since January 13, Mr Fain, chief executive of Royal Caribbean Cruises, has spent much of his time handling the consequences of the public’s sudden recognition of the potential – albeit tiny – for a cruise holiday to end in such a tragedy.
While the Costa Concordia belonged to a subsidiary of Carnival Corporation, Royal Caribbean’s neighbour in Miami, Royal Caribbean also suffered a marked slowdown in bookings in the key “wave” period of January when many annual cruise holidays are booked. It has also had to reassure the public further about the stringent safety measures it takes.
However, speaking to Mr Fain in his fifth-floor office overlooking the water, it is clear that Royal Caribbean was facing up to a whole range of strategic challenges even before the Concordia hit the rocks. The company is slowing down its fleet expansion as it seeks to improve profitability. It is also pushing fast into emerging markets where profits – for the moment – are lower but, Mr Fain calculates, business long-term is likely to be brisk.
Yet sitting on the edge of his deep, plush seat, Mr Fain stresses in the accent of his native Boston his eagerness to tackle safety questions.
“It’s so central to our success as a company and as an industry that it’s a very appropriate topic of conversation,” he says. “I also think that the whole subject is not just a question of numbers and technology and procedures. It’s also a question of culture and consciousness. Safety should be a habit.”
As well as defending the safety of his company’s large ship designs, Mr Fain, 64, says his company always seeks to find out from instances of human error what lessons there are to be learnt. Many observers believe the Costa Concordia incident will turn out to have been predominantly a result of mistakes by the vessel’s captain.
“There are steps we have taken – very powerful steps – to protect our passengers and our crew from human error,” Mr Fain says. “But we can always learn if there are things we can do even better.”
Yet, had it not been for the accident, the most pressing questions around Royal Caribbean would probably have concerned its drive for greater profitability. Net profits for 2011 were $607m, up 18 per cent on the year before, on revenue up 10 per cent to $7.5bn. But Mr Fain acknowledges that, after an investment splurge in recent years, the time has come to improve yields. Like other cruise companies, Royal Caribbean is consequently slowing down new ship orders.
“One of the attractions of cruising is that it’s such good value for money,” Mr Fain says. “I anticipate that will continue – but I would like it to be a little less good value for money.”
A straightforward push for profitability, however, might not immediately fit with Mr Fain’s other strategic priority – to move more of the business that Royal Caribbean’s 40 ships do beyond the company’s traditional markets around the US.
When he joined as chief executive in 1988, Mr Fain says, 90 per cent of the company’s cruises left from within 100 metres of his Miami office. This year, more than 50 per cent of the company’s passengers will come from outside the US. Royal Caribbean has been particularly assiduous in trying to convert the Chinese market to the joys of cruising.
Chinese guests, however, for the moment spend less on board than the American baby boomers who are Royal Caribbean’s core market. There are also costs in setting up the office and sales infrastructure to serve them.
But, however the different world markets develop, Mr Fain suggests, the company will have a range of choices about where best to focus its efforts.
“One of the great benefits of the cruise industry is that our assets are moveable,” Mr Fain says.
The key will be to calculate the best trade-off between the areas offering the highest yields and the cost of doing business in those areas.
“It’s a constant balance of those requirements,” Mr Fain says.
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