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Carnival Cruise Lines: What they should have done

At first glance, it appears that Carnival Cruise lines was well prepared when one of their ships, the Triumph, had an engine fire and subsequently lost power last week.

Credit: AdWeek via CNN

The list of actions Carnival took in response is long and robust, indicating that the cruise line had planned for handling disabled ships in advance and was prepared to take action. The fire in the engine room was quickly extinguished by the ship’s fire suppression system. When power was subsequently lost, crews were able to shift auxiliary power to the most critical systems.

Carnival contacted the Coast Guard, who quickly arrived on scene to organize shipments of supplies. Upon notification, the leadership team and Carnival Care team immediately mobilized. The CEO offered a public apology and promised refunds, $500 cash, free flights home and credits for future cruises. After determining Mobile, Alabama, was the best port to tow the beleaguered ship, Carnival booked more than 1,500 hotel rooms, 20 chartered flights and 100 motor coaches to house passengers and get them home.

The cruise was ruined, but passengers were safe and the ship was stable.

The media, however, tells a different story. Virtually every mainstream media outlet in the U.S. has continuously reported on the story. Though they generally noted the positive steps taken by the cruise ship, they overwhelmingly focused on the negative. Headlines described the ship as “befouled,” a “nightmare,” “horrible,” and even “hellish.”

Rather than highlight the steps Carnival took to mitigate the disaster, the media focused on the difficulties the passengers faced, including raw sewage in hallways and walls, muggy conditions, lack of ventilation to clear out the smells and inadequate food supplies.

As the crisis wore on, stories emerged detailing the cruise line’s history of incidents, fostering the perception of Carnival ships being unsafe. Doctors got on the air to talk about the extended health risks associated with exposure to sewage and lack of proper ventilation. This led to coverage about the general unsanitary nature of all cruise ships. Within a few days, Carnival’s sound response to the incident was overshadowed by negativity. This will likely harm Carnival’s reputation and sales.

So, what went wrong ? There are three points that we can learn about Carnival’s crisis response.

1. Carnival may not have adequately understood their risk environment.
A key component to business resiliency is understanding operational risks to the business. You can’t implement resiliency strategies or prepare plans if you do not know what you are protecting yourself against. Carnival had a good sense of the safety risk to passengers and their ships, as well as a clear understanding of how incidents could impact reputation and revenue. This was made clear by the installation of a fire suppression system and clear plans identifying the most critical systems in the event of a power failure. To mitigate reputation and revenue risk, they were prepared to offer refunds, credits and cash to their customers.

However, they did not consider the impact and risk that the media could have on their reputation, and did not develop a plan to mitigate it. This is particularly surprising because they point to marketing as the core strategy behind their massive growth over the past two decades (revenues have risen from $600 million in 1988 to approximately $16 billion in 2011). That being the case, Carnival should have understood the risk to revenue posed by media and developed robust resiliency plans to counter it.

Risk assessments are a core strategy for determining risk to operations, however, they are not perfect. Risk assessments can often produce misleading results because the core tool for performing a risk assessment, the risk matrix, is a subjective, qualitative exercise subject to personal interpretation and anecdotal evidence. It is subject to individuals’ unique perceptions of risk, which are highly influenced by certain “dread factors,” as described in Amanda Ripley’s The Unthinkable. Research shows these dread factors can drastically alter one’s perception of risk.

One dread factor is media exposure.

This means that many organizations, including Carnival, may not have a realistic view of the risks they face. Given this, one way to ensure that an organization understands their true risk environment is to introduce risk managers to this concept. Understanding the pitfalls of risk determination, before conducting a risk assessment, can inform those responsible for determining and managing operational risk.

Read the rest of the article here.