Cruising at a crossroads

The cruise industry finds itself at the nexus of challenge, change and opportunity as never before.

On one hand, it’s in the midst of a growth spurt, launching ships with impressive and game-changing innovations. Collectively, the industry has 20 ocean-going ships on order, representing an additional 62,267 berths.

It has been exploiting its ability to move its physical assets quickly to take advantage of unprecedented expansion opportunities. With an eye on the billion people in China who will rise to the middle class in the next 15 years as well as to the hundreds of millions of upwardly mobile consumers in India, Russia and Brazil, major cruise lines have swiftly begun homeport operations in regions they previously viewed only as ports of call. The universe of potential cruisers is quickly expanding to several times its current size, some of that expansion taking place in source markets that weren’t even on the radar a decade ago.

But the industry is also on the defensive as never before. Congress, interest groups and some quarters of the public question its record and practices on safety, the environment, crime prevention and taxation, and there is pending legislation and federal regulation that could affect all of these areas.

At the same time, following a series of highly publicized mishaps, a Harris poll this year revealed cruise line brand erosion across the board, with positive brand perception plummeting double digits in some cases.

Additionally, the relationship between travel agents, traditionally the most stalwart defenders of cruising and most reliable selling channel, and Carnival Cruise Lines, the flagship brand of the largest cruise company, deteriorated significantly over the past five years, and the brand has launched a high-profile effort to win back agents’ trust.

In the midst of these disruptions, Micky Arison, whose family founded and has guided Carnival Corp. for more than 40 years, resigned his position as CEO in June, though he remains chairman. He was replaced by board member Arnold Donald, and there are rumors that the transitions within the ranks of leadership, which have also included the recent appointment of new marketing and communications executives, are not yet complete.

In the midst of this maelstrom of change and challenge stands Christine Duffy, CEO of CLIA. The organization used to be described as the cruise industry’s U.S. marketing arm, but since she was appointed a little more than two-and-a-half years ago, it has become a global organization with an expanded brief, including strong public affairs activism.

CLIA also has a greater number of travel agent members, 16,000, than any industry organization. But recently, some of them have begun to question the organization’s commitment to agent training, seen as a crucial benefit by many.

Duffy, who previously was CEO of the meetings/events/incentive house Maritz in St. Louis, is in turns no-nonsense and charming, diplomatic and direct. Her ability to remain calm under fire was tested last year when Sen. Jay Rockefeller (D-W.Va.) went off script during a Senate hearing on cruise safety and began attacking member companies’ tax strategies. She maintained her poise and responded to his aggressive questioning with considerable aplomb.

One suspects her diplomatic skills are tested on a regular basis managing the internal politics of CLIA. The organization has 26 member lines, but two of them account for more than 70% of the global market. The leaders of Carnival Corp. (48.4% market share) and Royal Caribbean Cruises Ltd. (23.3% share) are highly competitive, strong-willed and outspoken, and they seldom come at an issue from the same point of view.

Still, the quantity and critical nature of converging crises have brought the industry together in some respects, and in short order, Duffy has announced a series of standards and policies, regarding safety, passenger rights and the reporting of onboard crimes.

In the midst of these sweeping changes and mounting challenges and opportunities, Duffy agreed to sit down with Travel Weekly Editor in Chief Arnie Weissmann for two interviews during the months of July and August to address the issues. Excerpts from the combined two interviews are below. The original transcript has been edited for length, and the chronology has been altered to keep dialogue about specific topics together, although the topic might have recurred in intervals during the course of the conversation.

TW: Let’s start with the two proposed changes to federal codes that set the rules for how cruise lines are taxed. One of the bills currently under consideration by the Senate would remove the exemption from U.S. corporate income tax; the other would impose a 5% excise tax on revenue generated by U.S. cruises. Based on last year’s financial results, if passed in their present form, these changes to the tax code would cost the industry close to $1 billion annually. CLIA responded that the proposed measures would make the U.S. “a very unfavorable jurisdiction for cruise lines to operate, relative to neighboring countries.” Are you suggesting that if the proposed legislation passed, CLIA ships would stop operating in U.S. ports, or significantly reduce the number of sailings?

Christine Duffy: The cruise industry, like the rest of shipping, is mobile, and these bills would create an incentive to relocate those jobs and the economic activities that U.S. ports and communities get today. There may be places where those opportunities may be more favorable. So, yes, it would place jobs and economic benefits for the United States at risk.

Currently, the U.S. tax law is pretty much in line with other countries. In shipping, there are specific tax laws and treaties and agreements between countries. These bills would move the U.S. away from some of the international norms for the taxation of transportation income.

TW: Do you worry that passage of these bills in the U.S. might inspire other countries to change their laws in a similar fashion?

Duffy: Actually, we think perhaps the opposite would happen. It could be seen as an opportunity to become more competitive, and [more favorable tax treatment of cruise lines could] be an incentive for the industry to look at countries that would welcome the opportunity to get the jobs and the economic benefits that the cruise industry would no longer be able to bring to the U.S.

TW: Sen. Rockefeller, who proposed the legislation, is saying that this is about fairness.

Duffy: There are a number of false assumptions out there. There’s the assumption that the industry does not pay for use of the ports. As you know, our ships spend very little time in port, but the fact is that the industry pays port taxes and port fees. It pays for various services that are provided by the Coast Guard. We pay for the handling of passenger security, similar to the way the airlines fund security at the airports. There’s a vessel sanitation program that’s administered with the Centers for Disease Control that the industry funds. So the industry is paying a significant amount of taxes and fees, and not just for the services that we use in the U.S.

To imply that the cruise industry isn’t contributing to the U.S. economy is not factual, and our newest economic impact study shows that [the cruise industry creates] over $42 billion of economic impact in the U.S. It’s up 4.6% from 2011, and in addition to that, the cruise industry has generated over 355,000 jobs …

TW: American jobs?

Duffy: American jobs, and pays out $17.4 billion to workers in America, who of course are paying taxes. So the industry is a contributor. A significant contributor. And it’s not just where our headquarters may be or the port communities where we have ships embarking. In almost all 50 states, the cruise industry is buying goods and services. We’ve got travel agents in every state in the country who are selling cruises. I think that part of the conversation often gets missed.

A cruise is, for the most part, a vacation outside of the U.S. Although passengers may get on a cruise in a U.S. port, they’re basically boarding transport and leaving and spend very little time in the U.S. If I get on a ship and take the transatlantic crossing and go to Southampton and then spend a week in London, isn’t that similar to if I were to go to London for a week by air? Nobody’s expecting the U.K. hotels to pay taxes to the U.S. for the revenues that Americans are spending on their vacation abroad. Our ships are taking people all over the world.

TW: But I think the bills’ sponsor would respond that cruise companies are headquartered in America and providing vacations to Americans.

Duffy: Well, I think lots of other companies are also headquartered in the U.S. who are doing business all over the world. And some happen to be in the travel space, like hotel companies that are based in the U.S. but which obviously are global, and have properties all over the world. And they, like the cruise industry, are paying all the taxes and fees that they’re required to pay under the law.

TW: Do you imagine these bills, if made into law, could push cruise companies to relocate their headquarters outside the U.S.?

Duffy: No, because I think what’s proposed is that there would be a 5% excise tax on all gross income from cruises where passengers either embark or disembark in a U.S. port. And my understanding of the [change in] the income tax code would also be irrespective of where the company may be headquartered.

TW: So the biggest impact would be that the number of sailings departing from U.S. ports would be reduced?

Duffy: At this point, I don’t want to speculate on what individual lines may decide to do or not do. And I think that, as with most legislation at this stage, there may yet be a lot to come in terms of how this will evolve. I think it would be premature on my part to speculate on what an end result would look like.

TW: Let’s talk for a moment about the Cruise Passenger Protection Act, which presupposes there is a worrisome enough level of crime aboard cruise ships to require federal action and that the cruise industry has not responded adequately or appropriately to this presumed level of crime. In the past, you have characterized this to me as a false or nonissue.

Duffy: We certainly take crime and the safety of passengers very seriously, but we’re also actively addressing a number of assertions that were made that are not accurate. There’s an overall theme that unfortunately has come out from the media since the hearing that the industry is underreporting or not helping consumers evaluate this issue.

Our three largest members [Carnival Corp., Royal Caribbean Cruises Ltd. and Norwegian Cruise Line] made the announcement during the hearings that they had already decided to post data [about] all alleged crimes as they report them to the FBI under the Cruise Vessel Safety and Security Act, which was enacted back in 2010. There have been ongoing questions from some of our critics that the industry wasn’t being transparent because the Coast Guard and the FBI are only reporting the closed cases.

To put this in perspective: No other industry that we are aware of, and certainly none within the hospitality or travel industry, is required to report at an individual company level all alleged crimes that might be reported to law enforcement. However, given the ongoing questions from critics, the industry decided that it would be best to just post that information and make it available on their websites.

CLIA then took all of that data and worked with a renowned criminologist, Dr. James Fox, who looked at the data that we had aggregated from the three largest members and compared it to land-based statistics of crimes committed, based on size of cities or towns across the U.S. It shows that crime on cruise ships is very low.

Although media coverage had been focused on [the presumption of crime being an issue], I think recently we’ve seen some stories from some of the financial reporters who have looked at the data and done the analysis and come to the conclusion that [transparency and the posting of statistics and analysis] is a good story for the cruise industry, because any way you look at it, crime is very low compared to any land-based experience. So we were happy to see that some of these financial analysts actually went through, looked at the data and, based on looking at the facts, agree that this is a nonissue.

TW: Do you think posting crime stats and providing the analysis will sway your critics?

Duffy: Well, I don’t know that [the issue] will ever fade away, but I think the point is that the industry is being transparent. And we don’t believe that the postings are really very helpful to consumers without the analysis, nor that by having members post the statistics that it’s going to enable consumers to effectively decide which cruise line is safer than another. Crime is not really an issue that consumers or vacationers should be concerned about when they take their cruise vacation. Still, I do think the industry’s been very clear that even one allegation or crime is one too many, and there is ongoing work and training and concern over any crime onboard a ship.

TW: In your estimation, what is the likelihood that any of these bills — the Cruise Passenger Protection Act or the tax bills — will become law?

Duffy: At this point, it’s unknown. We certainly take anything like this very seriously. We know that tax reform is a big issue in general, in Washington and for the country, so it’s something that we’re going to be monitoring and looking at very closely.

TW: How do you plan to counter these proposals? Are you looking to modify language in the bills, or are you going to work to just have them outright defeated? What is your game plan?

Duffy: Right now we are reviewing. It is early stage. We’re reviewing with tax experts and our members to better understand the implications. And we need to make sure that we educate members of Congress about the industry’s perspective on what bills like this would mean economically, particularly for those members of Congress who are in states that benefit from the cruise industry.

TW: What impact might all of this have on travel agents?

Duffy: Depending on how this evolves and if these changes were to be enacted, clearly it would put the industry at risk in the U.S. Over the last five years or so, there has been a significant interest in cruising from outside the U.S. So, in markets that are emerging — like Asia, where we’re already seeing some ships home-ported and where the percentage of sourcing specifically non-U.S. passengers is growing — that could grow more rapidly. And that certainly would have implications for travel agents and other stakeholders that benefit from the cruise industry in the U.S.

Today, hotels in destinations where our ships embark and disembark passengers receive a lot of business. Small businesses — restaurants, for instance — in those same communities get all that pre- and post-cruise business. That’s what we mean when we look at the potential loss of jobs and economic impact.

TW: What about the impact on consumers in the U.S.?

Duffy: Consumers who benefit from a vacation that is a very good value may not be able to otherwise take a vacation that would come close to the level of what’s provided by a cruise. I think it’s important for your readers and for consumers to understand that that gets put at risk, as well.

TW: Apart from the legislation, are you working to shore up support from consumers toward cruising in general? A Harris poll was released in the spring that showed considerable erosion among cruise brands, with different levels of erosion for different brands, but erosion across the board. To what do you attribute this, and what are you doing to reverse the trend?

Duffy: We attribute it to a lot of the media attention that the cruise industry has gotten of late, and I think that clearly consumers, especially people who have never cruised before, may have questions that we’ve not answered completely or in a way that would give them the same level of confidence that they might have had, even if they’d never cruised before. It’s based on perceptions, and perceptions can become reality sometimes, and we’ve got to overcome any perceptions that are not based in fact. We’ve got to do a much better job communicating broadly through the travel agent community because the travel agent is really the front line for us with consumers.

TW: Has CLIA discussed whether this should be countered as a group, under the CLIA umbrella, or line by line? Or both?

Duffy: I think both. CLIA works very closely with our members on industry issues, and we’ve talked about the need to do more outreach for consumers who have never cruised before, so they can understand the benefits and value of a cruise vacation. We need to show how cruising has changed in the last decade or two decades, especially for the younger generations. So, it’s not just in the context of the issues that have been highly publicized of late but looking at this great opportunity for penetration that we have. There is opportunity for growth still in this market in North America, which is the most mature market, let alone the potential when you start looking at the rest of the world.

TW: Are you working with travel agents, asking them to be ambassadors for the cruise industry? Are you giving them tools to help counter any negative perceptions about cruising that they may hear from clients?

Duffy: We launched a site, Cruise Forward, at the end of January. So, for example, if a client had concerns about the environment, there previously wasn’t enough information aggregated in one place for people to really understand what the industry does to protect and support the environment. Or what the industry is doing in port communities where we have passengers embarking or how we support those communities and make investments in those communities. And just, in general, the economic impact of cruising and our being a good global corporate citizen.

We’re also posting more videos on our YouTube channel, Cruise TV. We’ll be putting up a CEO corner where we’ll have our CEOs talking about various topics. There’s a video there where you can hear the head of environmental initiatives for one of the major brands talking and showing people what’s done onboard the ship in terms of recycling and conservation.

And so I think that’s the place that we want to be able to aggregate all of that information to make it easy for consumers or travel agents or media. And we’re trying to do it in a way that uses all of today’s technologies.

TW: Back to the topic of perception and reality: You allow that some consumer perceptions hurting the cruise industry might be reality-based. What areas do you think need to be addressed in which perception is aligned more closely with reality?

Duffy: Well, there was a lot of media focus on the Triumph [the Carnival ship whose engine fire, and subsequent stranding, received significant media coverage]. Carnival has announced a significant level of investment they’re making across the entire fleet to really look at how do they address, upgrade and put in place redundancies so that something like what happened with Triumph would be very unlikely to happen again.

People probably aren’t aware that we have committees with experts in marine safety and naval architecture and safety and security who look at anything, whether it’s in the cruise industry or broader shipping or maritime industry, and say, “OK, what do we learn from this collectively?” And while we have fierce competitors among our members on the marketing and sales side, when it comes to safety and environmental concerns, they’re not competing; they’re sharing best practices. There’s so much innovation and new technology. Even in a case like the Triumph, all of the CLIA members agreed to do their own risk and preparedness assessments. That’s all about, “How do we improve collectively as an industry?”

TW: On the topic of Carnival, the company recently appointed its first CEO who is not from the founding family. How is that going to change things at Carnival as a corporation? How might the culture change, and how might it impact the cruise industry as a whole when there is such a significant change within its largest member?

Duffy: I don’t know. Arnold Donald served on the Carnival board for more than a decade, so he certainly knows the company and the culture. Obviously, Micky [Arison] has tremendous respect and trust and confidence in him.

I think any time you bring in a new CEO, he is going to look around with fresh eyes and a different perspective and will want to put his own mark on the company. They’ve got very capable CEOs running the brands, and Carnival has brought in some new executives in other areas of late. I think it’s a natural part of corporate evolution, so it’s exciting. Given the size of Carnival Corp., whatever they do certainly has an impact on the entire industry, so we look forward to what comes next.

TW: In making the announcement, Micky Arison said, “The timing is right to align our company with corporate governance best practices.” Carnival has, in some respects, acted more like a holding company than an integrated global corporation. Do you think that will change?

Duffy: I can’t speak specifically to that. Most businesses go through cycles. I think Carnival has operated very much with independent brands, and there’s always that option: Do you operate in a decentralized way? Or do you operate in a way where you have a corporate structure and you’re sharing a lot of services? Or something in between? It’s probably too soon to tell, but based on their size, are there certain synergies or shared services that might make sense?

They recently brought in a new executive, Roger Frizzell, who is going to be leading corporate communications for them, and he’s a very experienced executive, formerly with American Airlines. And that’s a change, and for CLIA, we’re excited about that because it gives us a very senior person with a lot of experience whom we can work with.

TW: Carnival Cruise Lines launched Carnival Conversations to reset its relationship with travel agents, which had deteriorated over the past five or so years. They have acknowledged missteps and have said, “We are changing.” What was the catalyst for this? What brought this about?

Duffy: They clearly heard from the agent community, and they’re taking action. They’ve acknowledged that there are issues that they need to address. Some of those may be perception vs. reality; some are reality. They’re being very proactive, and I think, like anything else, people want to know that they’re being heard.

I think Carnival [Cruise Lines] and other brands within Carnival [Corp.] do understand and appreciate how important the relationship with the travel agent community is, and if that wasn’t clear or hadn’t been demonstrated through actions in the past, I think clearly there is a significant commitment to do so now. I think you’re already seeing some changes in things that they’ve announced recently, and there will be more to come.

TW: But what changed? I think the messages from travel agents have been consistent over the last couple of years.

Duffy: Well, sometimes when bad things happen, it’s a wake-up call and a realization that we can’t afford to be in a position where there’s a perception that we’re not supportive of the travel agent community. I applaud them for being very transparent. They’re calling it their “listening tour” and doing road shows and getting out there and standing up in front of people and saying, “We’re here. We want to fix this and address this, so what are your concerns?” and “Here’s how we’ll respond to that.” And I think it’s being done in a very authentic way, and I think that’s a good thing.

TW: Carnival has engaged [former Carnival Cruise Lines CEO] Bob Dickinson to return as a consultant on travel agent relations, and he has said in interviews in Travel Weekly that he believes he can do the work and make recommendations that will have positive effects if the line presidents will consider his recommendations. Do you think the culture is such that they’ll be open to someone who, although he was once an executive there, now has consultant status? Why do you think he expressed that?

Duffy: Well, I think he’s making clear what his role is. His role is as a consultant, and I think it’s probably helpful for the brands to run things by somebody who clearly had a very positive relationship with the travel agent community. At the end of the day, he’s not running any of those brands, and the people who are running those brands have the vested responsibility and accountability.

I look at the work that Carnival is doing, and perhaps Lynn [Torrent, Carnival executive vice president of sales] may be bouncing ideas off Bob, saying, “Does this make sense to you?” But she’s got to own it. At the end of the day, consultants come and consultants go, but the people that have to live with the decisions are the people who run the business, and I think that’s really what the comment is about.

TW: A lot of the challenges the industry is facing seem to stem from the Triumph incident. Some time after the negative media coverage of the Triumph, CLIA issued a Cruise Passenger Bill of Rights that outlined guarantees for passengers whose cruise is delayed, interrupted or disrupted. But no sooner was it issued than there was pushback from some lawyers and politicians who said it was a step backward for consumer rights, and that if the Bill of Rights had been in place before the Triumph was disabled, passengers would not have gotten as much in compensation as they did get.

Duffy: Nothing could be further from the truth. The Passenger Bill of Rights really has created a contractual agreement between the passengers and the cruise lines that is formal and that did not exist previously. It is above and beyond [what passengers were guaranteed before]. If in the future, Carnival wanted to do more [than is required by the Bill of Rights] — and they did do more during the Triumph [incident] — that’s still at their option.

What we heard loud and clear [after the Triumph incident] and we believed was a good idea was that people want transparency; people want to know what does happen if something [goes wrong]. So, we felt it was important to have that consistency across the industry, so that people can rely upon something. They know what it is, because it’s made clear up front.

As we’ve said, there may be times where a cruise line will go above and beyond what is required, but the Bill of Rights sets a floor. This says, “At minimum we will meet all of these expectations.”

And we’ve taken it even further. It’s now not only for people who purchase a ticket in North America. We’ve just rolled this out globally, so as the cruise industry continues to grow in other parts of the world, it’s important that everybody has that base level, and understands. It’s about consistency, it’s about accountability and transparency.

TW: In addition to the challenges facing the cruise industry over the past few years, there have been wholesale changes within CLIA itself. You’ve expanded from a North American organization focused primarily on marketing, research and agent training to a global organization deeply involved in public affairs. CLIA still has more travel agent members than any other group, but are you hearing from North American agents who are having a difficult time getting used to the fact that this was once almost exclusively their organization, but now they must share it across a number of different objectives and with members around the world?

Duffy: That may be the perception among some, but CLIA very much is still a trade association and a travel agent professional association. CLIA training and certification has existed in North America since 1975, and it exists in Australia and New Zealand and has been very successful in the U.K., which is the second-largest market.

But there are many places where the cruise industry operates today where there is no regular training or basis for certification among travel agents. Germany will likely be the second-largest cruise market after North America in the next three to five years, yet there was no CLIA association there and no CLIA agent training, and they’re hungry for that. So part of what we’ve done with the globalization is to say, “Yes, we are one industry, we want to speak with one voice.”

We’re operating globally. More and more passengers are taking cruises and embarking outside North America, and part of the work that we have to do is to engage agents and provide the kind of training and association services that have made the cruise industry very successful in North America. It’s growth, and I think travel agents in general will be stronger as a community when [they are] part of a global community. It elevates travel agents to be part of that. I started my career as a travel agent and am a big proponent of elevating the profession.

But it’s important to remember that things evolve. If we hold on to the way everything was in the past, I believe we’ll die. So what we’re doing at CLIA is evolving, keeping up with what’s happening with the global cruise industry.

TW: Is it your vision that the country organizations will be somewhat compartmentalized, or will you be building very active bridges among travel agents around the globe?

Duffy: We’re building bridges among the CLIA associations around the world, and we’re sharing best practices with those that have been providing travel agent training and certification. I think you’ll see opportunities for us to take some of the successful promotions that we’ve done in North America, like National Cruise Vacation Week, and maybe turn that into a global event, promoting cruising and awareness to consumers and providing great deals for people who book a cruise then. There are lots of ideas and potential that I believe will be very positive for North American agents.

TW: As regards training specifically, you’ve said that going forward, there will be less reliance on in-person training and increased online training. That has upset some agents who really liked the live training.

Duffy: We are looking at a blended approach. I think the whole world has moved to a blended approach. We’re at a period in history where you have different generations, different people who learn differently. Some people want to get training at a conference. There are other people who aren’t going to go to the conference and who are working from their home office, and they want to be able to get training on demand; they don’t want to spend three hours or all day in a training class.

We needed to update all of our courses, and there are new areas that people are interested in. River cruising. We created the specialty cruise collection to educate agents about these niche cruise opportunities. People are much more interested in the group market, special-interest groups, multigenerational family reunions: “How do I sell that? Where do I find those customers?”

Change is always hard. CLIA’s been delivering training in a certain way since 1975, and we’re changing, we’re evolving. I think some may react by asking, “Does this mean CLIA’s not as interested in travel agents or training?”

But we’ve also heard from many agents we’ve surveyed that “it’s about time, CLIA. Online training is the way that we want to learn.”

And we’re still looking at lots of different concepts that we think will be attractive and still provide that in-person training opportunity for those who want it.

TW: You mentioned that currently, North America is the largest market for cruising. It’s also the most mature, and other parts of the world are growing quickly. Does this mean that ultimately the North American travel agent will, in a sense, lose ground and importance, both in CLIA and to the globalized cruise lines?

Duffy: I don’t think so. The North American market, while the most mature, is still very underpenetrated for cruise. There’s a lot more opportunity, and I think when you look at the number of new ships and the innovations that are going into them, even people who have cruised many times before will continue to want to cruise.

So I think our work is, how do we address any of the perception issues that we’ve talked about in a positive way, and how do we help our primary distribution channel, travel agents, find those first-time cruisers and get them on a ship, because we know the return rate of cruisers is very high relative to other vacation experiences. I think clearly the industry sees a lot of potential in emerging markets, especially Asia. The growth in Australia over the last five years has been incredible.

TW: Is there an opportunity for U.S. agents to partake in globalization and sell to passengers in other countries?

Duffy: That’s not an issue CLIA is addressing. But the issue has been raised over and over again, and our members are aware of it.

I think, like everything else, we’ll see how that evolves. The world is getting smaller, the industry is more global. We’ll see where that goes.

Email Arnie Weissmann at aweissmann@travelweekly.com and follow him on Twitter.