When the Costa Concordia ran aground and tipped over a few weeks ago most people were completely stunned. How could a modern day cruise ship have a "Titanic Like" accident. At the time I wrote an article stating that I thought Carnival (NYSE:CCL) the parent company of the Costa Concordia would survive. And nothing has happened to change my opinion about that. However there are a lot of things that will determine if they will ever thrive again. The first thing is to convince potential customers and that Carnival can be trusted with their safety and the safety of the environment. Now according to new reports the unthinkable is happening, oil is beginning to leak from the ship. They must get the 2300 tons of fuel out of that ship before it "spews into Europe's biggest marine park":
The ship is lying on its side off Giglio, an island of 1,500 inhabitants in winter who survive on fishing and tourism, located about 14 miles from the Tuscan coast. Giglio lies within the "Santuario dei Cetacei," an area of roughly 87,500 square kilometers that in 1999 was declared by the governments of France, Italy and Monaco a sanctuary for marine mammals such as dolphins and whales.
To put this in perspective 2300 tons is over 4.6 million pounds or 500,000 gallons of fuel. That would be enough fuel to fill up the gas tanks of 35,000 cars. This accident has caused many influential Italians to consider a ban on cruise ships coming near their coasts in the future. This alone will negatively impact the cruise industry since they will be restricted from cruising near some of the beautiful coastal views. Other countries including the United States may consider similar regulations, especially in wilderness areas such as Alaska.
Carnival knows what the cost of an oil spill would be. It is not just the potential damage to nature and tourism, but also the damage done to other cruise lines. As a matter of fact last year Carnival filed suit against BP and others after the oil spill in the Gulf of Mexico. At the time they claimed they had over $10 million in damages:
The suit, filed last Wednesday, names BP PLC, Transocean Ltd., Halliburton Co., Cameron International Corp., Anadarko Petroleum Corp., Weatherford International Ltd. and other entities associated with the Deepwater Horizon. Carnival claims the historic oil spill caused it to "incur increased fuel costs and additional vessel cleaning costs," plus caused the loss of revenue and passenger bookings on cruises at ports it serves in Florida, Alabama, Texas and Louisiana.
Right now everyone is going to remember the pictures of the Costa Concordia keeled over on its side in crystal clear water. But if that oil spills out into the sea the images are going to be even more memorable. Every day the news will have pictures of dead birds, seals, whales and dolphins covered in black. And Carnival could become one of the most hated corporations in the world.
As far as people trusting the company, this will take a lot time and work. Costa completely mishandled this situation. Not just the fact that the captain and crew made a lot of extremely bad decisions in the navigation and evacuation of the ship, but also in regard to what happened when the passengers came on shore. There is obviously no training for that. Hopefully in the future this type of thing will be addressed. From what some of the victims said they were on their own when they got to shore. Passengers complained that Costa was stingy and would not help them.
Blake Miller, who was on the ship to celebrate his partner's 50th birthday, said Costa representatives rebuffed his efforts to get reimbursement so he could buy a change of clothing.
"The Costa representative at our hotel told me, 'You might want to get a lawyer when you get back to the States,'" Miller told The Associated Press from his hotel in Rome, where he was staying at his own expense.
Keep in mind most people left all of their belongings on board. They did not have their clothes, phones, cash, credit cards, passports or anything else with them. They were soaking wet and cold. Yet they were left to fend for themselves. Alone in a country where they probably did not speak the language and had to rely on the first person offering to take them in or use their phone. It is no wonder that one of the missing people turned up in Germany five days later.
According to an excellent article by Deborah L. Jacobs from Forbes you lose all of your rights when you sign the Carnival contract before boarding one of their ships. They have the right to abandon you once you are on dry land:
They can leave you in the lurch (as long as it's on dry land).... Carnival's (contract), for instance, provides that if your voyage "is hindered or prevented" for various reasons which the contract lists, or for "any other cause whatsoever," you and your baggage "may be landed at the port of embarkation or at any port or place at which the Vessel may call, at which time the responsibility of Carnival shall cease and this contract shall be deemed to have been fully performed."
If you are planning to take a cruise anytime soon you might want to look at that contract a little closer. And as Jacobs points out other cruise lines use similar language in their contracts. If you are hurt they are not liable or responsible. I have been on numerous cruises with Carnival and other lines and I did know the contract did not cover anything so I always got travel insurance. I also knew that they would not let me go on the ship if I did not sign it. There was no choice. I knew they could leave you in a foreign country, I just didn't think that they really would.
And I did not think something this horrific would happen. All of the outer cabins on the starboard side of the Concordia were pitched into the ocean and any passengers in them were hurled into the freezing cold sea. The fourth floor (the level that the lifeboats were on) is currently 60 feet under water on that side of the ship. From the pictures it is hard to tell that. Actually it is unbelievable that any passengers on that fourth floor or below were able to get out. Some of them swam to shore, while others on the port side formed a type of human chain to lower themselves down four floors to waiting boats in the water. Then once onshore they were greeted with "You are on your own now".
In all fairness to Carnival, they will make amends. According to one report, the passengers that somehow were able to get home on their own found phone recordings that the company will give them credit on another cruise in the future. Then five days after the accident Carnival announced:
"I give my personal assurance that we will take care of each and every one of our guests, crew and their families affected by this tragic event," Carnival Chief Executive Micky Arison said in a statement late on Wednesday - five days after the incident that left 11 people dead and 22 missing.
Costa Cruise Lines, a unit of Carnival and operator of the ship, has been arranging lodging and transportation for passengers and crew members to return home, and has offered assistance and counseling as needed. It has also begun refunding passengers their cruise fares and all costs incurred while on board.
Obviously that is not Carnival's standard procedure or the announcement would have been made Friday night, and passengers would have been taken care of. To make this announcement five days later is inexcusable. It certainly didn't help the people walking around in wet clothes who couldn't get new dry outfits unless they had travel insurance.
I have a feeling that Carnival will be forced to give these people a whole lot more than this now. Because it is not what a contract says but what a judge decides. And there may be some judges that don't think this type of treatment is acceptable. I know a lot of future passengers will think twice before they even go on a cruise.
And any investor that believes this will not impact the cruise line industry is kidding themselves. There are still so many changes that need to be made for the public to calm down. For one thing, Micky Arison needs to assure people that this type of treatment will never happen again. They need to put it in writing in a new contract which shows that if something like this were to happen again Carnival will take care of their passengers. This is not something that people will forget. They will think of it every time they consider going on a cruise. Because now they are changed. Now they know it really can happen.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.