For Arnold Donald, it's been all about the people

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Arnold Donald will transition to vice chairman Aug. 1
Winding down his last weeks as president and CEO of Carnival Corp. & plc, Arnold Donald is capping nine eventful years that began July 3, 2013.

'It was a great run,' Steven Wieczynski, managing director of Stifel Financial Corp. told him during Friday's earnings call, Donald's last before moving to vice chairman Aug. 1.

For his part, on the call Donald said it was disappointing CCL's share price reflects the current market conditions, but expressed pride in 'all that the team has accomplished over the last nine years,' especially 'how well we have collectively overcome what seemed like insurmountable obstacles at times these last few years.'

With cash from operations turning positive, Donald said Carnival had 'reached an inflection point' and is headed on a positive trajectory. He expressed confidence in the company's future, his belief in the team and reported a 'smooth transition,' adding that his No. 1 responsibility as vice chairman will be to support his successor, Josh Weinstein.

Why bow out now?

In an expansive interview, Donald told Seatrade Cruise News he's turning 68 in December and 'It's time for a generational change. Better to do it smoothly than suddenly and with time, so people are still around who know the history and continuity, and the people taking over are well into their roles.'

He'd like to wait for the business to be 'all the way back,' but 'We can see our way through ... The future for the cruise industry and our company is bright over time. There's never a perfect time [to step away] but this feels like the right time.'

Proudest of the people

Open and approachable, with a sunny disposition, Donald is clearly a people person who likes to engage as he leads. He's enjoyed helming a business that gives millions 'joyful vacations' and creates jobs and opportunities for many tens of thousands.

So it's no surprise he's proudest of 'the people. I took the job because I love the spirit of the people. When people cruise, what they most remember is the people, the crew, the other guests, the experiences they [shared].

'We are in the human spirit business. That's what attracted me in the first place. It's a great platform for diversity and inclusion, an opportunity to make the world a better place ... We bring people together.'

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With Gus Antorcha and Jan Swartz at the resumption of Alaska cruises from Seattle

Donald also extolled the 'commitment and dedication to problem-solving that our people have,' adding that what they've done collectively over the pandemic is 'remarkable.' First they got 260,000 passengers home from ships all over the world and then repatriated 90,000 crew at a time when planes couldn't fly and borders were closed.

They kept the company afloat despite a $600m monthly cash burn rate with no revenue and raised more than $29bn in new capital and refinanced more than $9bn in debt, mostly with everyone working remotely. Amid constantly changing COVID-19 protocols, they fielded hundreds of thousands of calls with phones buzzing in reaction to every headline.

It been an 'unbelievable task' to survive a total shutdown and build back.

Diversity and the 'three Cs'

'That's where the diversity, the communication, the collaboration, the cooperation and all the things we did to make a better company came in,' Donald said.

Diversity and the 'three Cs' have been central to his leadership, along with making Carnival's top priority compliance, environmental protection and the health, safety and well-being of guests, the people in communities visited and employees shipboard and shoreside.

It's a mantra he constantly recites.

'We want to do things that are going to honor that priority, that our visits are helping to make the places we touch even better,' Donald said.

The starting line

He had a dozen years' association with Carnival as a director before coming out of semi-retirement to take over from CEO Micky Arison as his hand-picked successor. It was a sea change as Arison gave up a role he'd held for 34 years.

Donald was a seasoned business leader who brought global operations, financial and regulatory experience — and a fresh perspective.

Carnival was headed for a third straight year of lower profits, hurt by ship calamities and the weak global economy. Wells Fargo Securities described return on invested capital as ‘sub-par.' Carnival Triumph's fire and Costa Concordia’s deadly wreck still dogged Carnival and the industry, drawing scrutiny from lawmakers.

Plus, Princess Cruises in 2013 was under investigation for discharging oily bilge water and covering it up. The company accepted responsibility and in 2017 paid a record record $40m US criminal pollution fine. Then all Carnival Corp. ships operating in North America underwent a five-year probation, which just ended in April.

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'It was a tough time,' Donald said.

In a 2013 Seatrade Cruise Review cover story, he listed the challenges as ‘undue media attention’ scaring off people who hadn’t cruised, compliance with new emissions standards and the global economic situation.

‘We know the ships are safe, we provide a great experience and great value. But we still have regulatory challenges and media issues,’ he said then, blaming those on perceptions, not reality.

Carnival was already pouring hundreds of millions of dollars into bolstering safety, and Donald was well-versed in this as a member of the health, environment, safety and security committee. He wanted the confidence many people had in the cruise industry to get through the negative noise, and to bolster travel agent relations.

A listening tour

Donald approached the job by listening — to employees, guests, the travel agency community and other stakeholders.

Addressing financial aspects of the business, he marshaled people around communication, collaboration and cooperation. 'We had nine brands that didn't share information, even itinerary planning,' he said. His strategy was to leverage scale and cut costs where that made sense.

Donald's observed that when businesses want to get more efficient, they centralize, and when they want to innovate, they decentralize, 'like an accordion. I want to avoid that,' he said. Better to collaborate where it makes sense, like a federation.

Among the steps was bringing in Julia Brown as chief procurement officer to facilitate cooperation in purchasing.

At one time Carnival was the world's fifth largest buyer of air travel. Instead of continuing with multiple individual air contracts, the company went to one RFP then left it up to the brands to execute their air programs. There were seven arugula contracts, all with the same provider, all at different prices. And when it came to mattresses, the brand paying the highest price wasn't getting the best quality.

Cumulative savings from a cooperative purchasing strategy totaled $480m over the six-year period from 2014 through 2019.

'That's the benefit of a federation,' Donald said. 'You're stronger being part of something,' and sharing knowledge while leveraging scale. This also enabled extensive mass-market research that no brand on its own could afford. And tapping into best practices and experts across the brands, a company-wide revenue management system was launched.

Compliance

Meanwhile, the court-mandated environmental compliance program related to the Princess case 'accelerated and increased our focus on environmental compliance, a positive approach driven by people like Josh Weinstein, Jan Swartz, Gerry Cahill and Stein Kruse and a host of leaders,' Donald said.

The program 'intensified our focus ...We've embraced ethics and compliance, governance and inspection,' with Carnival further enhancing its internal investigations group to get at the root cause of incidents, and implementing tracking mechanisms to spur continuous improvement for deck and technical crew, both at the company's CSMART Academy in the Netherlands and via online and shipboard training. Fleet environmental officers were layered on to support ships' environmental officers.

While the probation is over, 'Compliance and environmental protection have not ended,' Donald said, adding: 'We're very much committed to sustainable development.'

Reducing carbon emissions

According to him, if the cruise industry didn't exist, it wouldn't make a measurable reduction in greenhouse gas emissions but, cumulatively, everything plays a role and 'We need to do the right thing and show progress.'

Absolute carbon emissions peaked in 2011 despite a 20% capacity increase between then and today.

During 2019, Carnival achieved a 29.1% reduction in CO2e intensity relative to a 2005 baseline, additional progress on top of its original goal of a 25% reduction in carbon intensity by 2017. The company now aims for a 40% reduction in carbon rate per available lower berth day by 2030 relative to a 2008 baseline, and to net carbon neutral operations by 2050 including zero-emission ships.

This is being tackled by a 'plethora' of initiatives, big and small. 

Leader in biodigesters, scrubbers, shore power, LNG

Under Donald, Carnival has led the industry in installing biodigesters (more than 600 across its fleet), scrubbers (more than 80% of its fleet is equipped), shore power capability (more than 45% of its ships) and LNG-powered ships (six in service with five more coming through 2025). The company is actively involved in alternatives such as biofuels, large scale batteries and fuel cells.

When Carnival began building its first LNG ship, the company didn't know how it was going to fuel it.

'It was a risk — a billion-dollar risk,' Donald said. 'But we were committed and we had a degree of confidence from a fuel provider. And we somewhat mitigated the risk because the ships can also burn MGO. But it's a lot of money to spend if you're not going to use the LNG.'

This is similar to how Carnival invested in equipping ships for shore power when very few ports offered it. That's still the case, but things are slowly changing. The investment continues.

'It's a leading-edge thing to do,' Donald said, adding that being on the front edge hopefully creates shareholder value.

He's proud there's been 'great progress' on all ESG goals.

Diversity and inclusion

Key company leaders cited in the 2013 Seatrade cover story included Howard Frank, Gerry Cahill, Alan Buckelew and Stein Kruse, with only Kruse remaining, as a senior advisor to the chairman and to the CEO.

Over time, the faces changed as retirements throughout the ranks opened opportunities for more diversity. Donald was cruising's first black CEO and while Carnival had a diverse employee base from around the world when he joined, he wanted to increase 'diversity of thinking, which leads to innovation.

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From left, Stein Kruse, Orlando Ashford, Jonnie Boer, Micky Arison and Arnold Donald

'Our crew are from 145 countries so there's a natural diversity opportunity on our ships. But you have to have it at all levels and ranks and make sure people are included,' he said.

Shoreside, Donald brought in two executives who hadn't run companies before but gave different perspectives: Orlando Ashford, a black executive, and Christine Duffy, a woman, as the respective presidents of Holland America Line and Carnival Cruise Line. There are many other examples across Carnival Corp.

Innovation in technology/guest experience

As part of Donald's 'listening tour' in 2013, he asked who's the greatest innovator in guest experience?

That's how he recruited John Padgett, behind such Walt Disney Co. innovations as MagicBands, who became chief experience and innovation officer in 2014 (and recently added the Princess presidency). Padgett established Carnival Corp.'s Innovation Center.

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The Medallion — designed to make cruising highly customizable and 'frictionless'

The Medallion wearable and its enabling OCEAN experience platform emerged to make cruising highly customizable and 'frictionless,' with the goal of exceeding guest expectations. Donald revealed the initiative at CES 2017, becoming the first cruise executive to keynote what's considered the world's most influential annual tech event.

Adopted wholeheartedly by Princess, MedallionClass cruising was rolling out before the pandemic, and the pause gave a chance to install the extensive sensors, cabling, touch screens and other supporting elements. As with any new tech, it takes a while for people to learn and appreciate all the Medallion's features, Donald said, so time will tell how much of a differentiator it is.

'At minimum, it's good. At best, it could be a breakthrough,' he said.

Cuba

Under Donald, Carnival Corp. made history in May 2016 as the first cruise company in 50 years to sail from the US to Cuba. That was possible, he recounted, because of the innovative Fathom brand, created to do social good while cruising. So when the Obama administration allowed people-to-people travel, the Fathom concept fit right in.

China

Donald also led the effort to form a cruise joint venture in China, CSSC Carnival Cruise Shipping Ltd., and finalized agreements to build two ships there for the Chinese market. Costa already had been operating in China for some time and Princess was established in Asia, but Donald — who'd done work in China in a previous business — knew 'It's difficult to be there long-term because the system is very different. You want to make money while you're at it.'

Luckily, China had a five-year plan to develop cruise tourism and the government decided the joint venture would be the tip of the spear.

The country shut down with the pandemic but when things change, the joint venture will be 'well-positioned to participate in what will eventually become the largest cruise market in the world,' Donald said.

Nine years of accomplishments

Over nine years, he's gotten the nine brands to work together, helped restore confidence in cruising — not just after distant incidents but again now in the pandemic recovery. He's fostered innovation, diversity and inclusion, instilled a compliance and sustainability focus and created additional revenue drivers. 

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Nine years at the helm

Since end 2013 through end 2019, Carnival nearly tripled earnings, and adjusted earnings per share ballooned 183%. Market capitalization went from $27bn to $35bn at the end of 2019, a 30% increase. And return on invested capital doubled over five years, resulting in double-digit ROIC by the end of 2018, reaching a goal Donald set in 2013. 2019 profit was a record $4.40 in adjusted EPS on record revenues of $20.8bn.

Carnival brands carried nearly 13m passengers in 2019, almost half of the global cruise market.

Time for people things

As he moves to his vice chairman role, Donald won't have direct reports but will be available to Josh Weinstein and his team. He continues as a director. 'I'm proud to be associated with these people ... I'm looking forward to supporting Josh in his success and doing whatever the board needs me to do,' he said.

Not being in charge of ongoing operations will give Donald time to serve on boards, and he'll continue chairing the World Travel & Tourism Council for a period. He looks forward to time for personal development and being with family, including his grandchildren, and present for family occasions.

As he's always epitomized, it's all about the people.

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