Mardi Gras delays not surprising but still costly for Carnival

A rendering of the Mardi Gras' top deck.
Carnivals Mardi Gras

When Carnival Corp. announced that it was delaying this year’s delivery of the Carnival Mardi Gras, it had a familiar ring.

The Mardi Gras, the first Carnival Cruise Line ship to be powered by liquefied natural gas (LNG), joins ships from two other Carnival Corp. brands that also feature LNG propulsion and weren’t delivered on time.

The shipyards involved have blamed the delays on design complexity, troubles with coordinating subcontractors and the size of the ships, which are each intended to carry more than 5,200 passengers.

In each case, the ships are the first in a new class of vessel for their respective lines. All are built on a common platform introduced by Carnival in 2015 and referred to as the Excellence class.

The platform was adapted for the individual needs of Carnival as well as for Carnival Corp.’s two European brands, Costa Cruises and Aida Cruises.

For North Americans, the Mardi Gras will be the first ship to feature the LNG engines, a big technological leap that promises environmental gains and cheaper operating costs, especially with new restrictions on heavy sulfur fuels that start this year.

But going first has never been a formula for smooth sailing in the cruise industry. New technologies frequently have unforeseen problems that need to be ironed out as they move from the drawing board to actual use.

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World’s First Purpose-Built LNG Bunkering Vessel

Carnival Corp. CEO Arnold Donald alluded to that legacy when asked about the delay in a conference call in December.

“The situation is that historically we’ve had occasional delays with prototypes,” Donald said. “But we’re working with the yard and are in the process of negotiating what we need to do to ensure that future delivery is on time.”

That’s not much consolation for passengers on eight Mardi Gras sailings that were cancelled because of the delay.

Those sailings included a debut cruise in Europe, a transatlantic crossing, a New York preview cruise and the first four sailings from the Mardi Gras’ year-round homeport, Port Canaveral in Florida.

More than 40,000 guests have been notified that their plans have been changed. They will get a full refund and a 25% future cruise credit for their troubles as well as assistance with nonrefundable airline and hotel reservations already booked.

Travel agents who sold the cruises will still receive the commissions they earned, Carnival said.

The first sailing, which had been set for Aug. 31, has now been rescheduled for Nov. 14.

Ben Clement, Carnival’s senior vice president of newbuilds, said that despite working closely with shipyard executives to keep the giant ship on schedule, prudence dictated that it be delayed to get it right.

“While we deeply regret disappointing our guests, this change in the delivery date is required to make sure all of the ship’s systems, features and technology will be fully operational so that we can give our guests the vacation they expect,” Clement said.

Carnival will get some compensation from the shipyard, Donald said, but it will be reflected in the ship’s value on the balance sheet, not on the profit and loss statement, so the loss of the eight cruises in 2020 will likely impact earnings.

Clement didn’t go into detail about what issues are making the ship late. But in the previous cases involving Aida and Costa, the shipyards issued statements.

In October 2018, the Meyer Werft shipyard in Papenburg, Germany said that it would push back delivery of the AidaNova from Nov. 15 to Dec. 2. It was eventually delivered to Aida on Dec. 19.

AidaNova was the first cruise ship to be powered by LNG, and Meyer Werft said it “required more time for commissioning and testing of this prototype.”

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Costa Smeralda

Another LNG ship built to the Excellence platform is the Costa Smeralda, which was launched Dec. 20 after being delayed twice. The the shipyard, a Meyer Werft-owned facility in Turku, Finland, cited “the high complexity and the sheer size of the ship project” and noted that it was the the first ship in the class to be built at the Turku yard.

The Carnival Mardi Gras is also being built in Turku.

Using LNG for power instead of diesel requires special pressurized steel tanks to keep the gas in its liquid state. For safety reasons, the tanks must be surrounded by void space, requiring about twice as much room inside the ship as tanks for diesel fuel.

The Mardi Gras is being fitted with three steel LNG tanks and four Caterpillar engines. Carnival officials have said that integrating the tanks, piping and bunkering is the biggest challenge in designing LNG ships.

One reason Carnival and other lines are switching to LNG, despite its complexities, is that natural gas is cheaper than oil. Perhaps more importantly, burning it produces little or no sulfur dioxide and nitrous oxide, two health-damaging gases in petroleum exhaust.

By some estimates, natural gas also generates about 15% less carbon dioxide, the chief greenhouse gas implicated in climate change.

Of the first four LNG-powered ships ordered by Carnival, only the P&O Cruises ship Iona, due in May 2020, has not suffered a delivery delay.

In addition to its novel powertrain, the Mardi Gras has several other features not attempted before on Carnival ships.

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P&O Iona

The most prominent is an electric roller coaster that loops around the funnel and most of the upper deck of the ship. Called the Bolt, it is being built by Munich-based Maurer Rides and will require extensive testing for issues of vibration, noise and safety, Carnival has said.

The Mardi Gras is also pioneering an atrium that looks out to see from the side of the ship through a glass wall that spans three stories; a report in the Wall Street Journal noted novel structural problems for supporting that area, which would typically be framed in steel.

Carnival Corp. 2020 Outlook

Carnival Corporation provided adjusted earnings guidance for 2020 on today’s Q4 and year-end earnings call from $4.30 to $4.60 per share, compared to 2019 adjusted earnings of $4.40 per share.

Carnival President and CEO Arnold Donald said that he expects cruise revenues to be up approximately 5 per cent on capacity growth year-over-year of 6.6 per cent.

At this point, he said, the company is entering 2020 with a record booked occupancy position but at slightly lower prices.

Donald noted the headwinds Carnival has faced this year, some of which will continue into 2020, including the impact of Cuba being off-limits to cruise calls, events in the Arabian Gulf, Hurricane Dorian, unscheduled drydocks and ship delays, compounded by a decline in market demand in Continental Europe, particularly Germany, while Southern Europe is also challenging.

Noting these as “unusual events,” Donald said they had had a $0.23 negative impact on 2019 earnings.

In order to improve the market situation and accelerate demand growth in Southern Europe, Donald said that two older ships are being removed from the Costa fleet in 2020, following the recent introduction of the new Costa Smeralda. He said the new ship is much more efficient than the ships being removed.

In the UK, Carnival has been able to grow revenue yield despite Brexit, and Donald noted that P&O Cruises’ New Iona is looking at a significant premium over other ships on comparable itineraries.

In North America, the Caribbean is strong and so is Alaska. However, Alaska is seeing what he called an over-concentration of capacity and will need to absorb another industrywide capacity increase of 10 per cent in 2020, on top of a 15 per cent capacity increase in 2019.

As for China, Donald said Carnival will focus on its new joint venture cruise line. Meanwhile, he said, Costa had a good year in China in 2019 and looks forward to another good year in 2020, with more direct business, but is also happy with its charter model.

Carnival will essentially have six new ships in six different markets for the full year in 2020, starting with the Carnival Panorama, which just entered service on the West Coast, the Costa Smeralda in Southern Europe; P&O’s Iona in the UK; the Enchanted Princess in Europe and North America; the Mardi Gras in Florida; and the Costa Firenze in China.

According to Donald, Carnival is also accelerating marketing and media spend in all of its key markets to drive demand in 2020.

P&O Celebrates Newbuild Milestone for New Iona

Iona Keel

A key stage in the construction of the P&O Iona has been marked at Meyer Werft as the P&O newbuild and yard team celebrated the milestone with the traditional coin-laying ceremony for the 180,000-ton LNG-fueled vessel.

A bronze coin from the historic Iona Abbey and a slice of precious green Iona marble from the island were placed under the block housing the bow thrusters before the block was then lowered onto these items.

P&O Cruises president Paul Ludlow said: “This was an auspicious occasion in Iona’s build. The coin-laying is a long-held ship-building tradition which is to bring good luck to the ship and its crew through from construction to the future at sea.

“It is very special to think that a small part of the island of Iona will live within our own Iona. We hope that the qualities of beauty, heritage, pride, camaraderie, mutual support and loyalty from the island which attracted us to the name will be inherent in our ship, its crew and guests.

“The build of any ship is an incredible achievement but to see one of this size and scope is an extraordinary feat of skilled design and engineering. To view Iona’s SkyDome take shape was literally breath-taking – no other ship in the world has a glass dome of this quality of construction and scale. The extent of the space on Iona has allowed us to create not only spectacular spaces for shows, entertainment, dining and wellness but also many more intimate spaces for tranquillity and relaxation as well as exclusive performances. Iona will be game-changer for holidays.”

As part of the ceremony the ship’s central steel block, the mega block, which has already been constructed was floated out on to the water, according to a press release.

The 21.5-metre long block weighs 461 tons, is 19.4 metres wide and 9.8 metres high and had to be lifted by a 600-ton crane.