You Make the Call

There’s been a lot of ink over the past week about the response Carnival Cruises (the company that owns the giant cruise ship that ran aground off the Tuscan coast) to the accident and the demands from both the passengers and the public that they do something about the situation. The company has apologized for the incident at length; they’re blaming the captain for the whole situation, and offering to refund the cost of the trip and all expenses incurred while on board the ship. Unfortunately, that doesn’t seem to be enough to satisfy some of the passengers, who apparently feel that the company owes them something more than just a refund for endangering their lives. The question of what the company does owe the passengers will be up to the courts to decide, but from a business standpoint the question is what should the company offer the passengers – and can they avoid additional trouble by doing so?

First off, the company can’t really expect that the refunds are going to be enough; their initial offer of 30% off on any future cruise would be asinine if that was really going to be their final position, but I think we are justified in being skeptical about that. The fact that the passengers really were in danger of their lives is hard to deny, given that at least a dozen of them were actually killed in the accident; it’s also hard to deny that the company was to blame for the event, since they hired the captain and gave him command of the ship. I don’t know if Italy has strict liability laws like the ones in the US, but even if they don’t it’s going to be very difficult for the company to claim that they had nothing to do with the wreck. And even if the company could defend all of these actions and walk away scot-free, they shouldn’t – because that effectively sends the message of “screw the customers, we don’t care if a bunch of them die and the rest have to abandon ship, we’re looking out for ourselves!”

I don’t pretend to know a lot about the cruise industry, but the concept of value added applies here just as much as anywhere else, and the number of technological innovations or management breakthroughs available is going to be limited. If you’re going to add value to a ship’s cabin, you might be able to get something out of larger rooms or better furniture, but it’s more likely to come down to how well the cabins are cleaned, how good the food and other services aboard are, and how good the customer service provided is. And none of that is going to matter if potential customers are convinced that the company is going to throw them to the sharks – either figuratively, in the sense of ignoring their claims, or literally, in the sense of letting them sail on ships that could be crashed onto a rocky coast because the person at the wheel is an idiot…

At the same time, the company can’t simply hand each passenger a blank check; they have a responsibility to their stockholders, not to mention their employees and all of the vendors and their people who will be out of a job if the company guts itself. Refunding all of the tickets from one cruise doesn’t sound like much, but with 4,200 people aboard, even a thousand dollars each takes us into multiple millions, and the company still has to worry about repairing the ship, assuming it can be repaired and also assuming that their insurance company doesn’t refuse to pay out on the grounds that the accident was human error, and the company should have known better than to give someone that careless his own ship. Add in the clean-up costs and whatever the Italian government decides to fine them for, and the company may not have the funds available to pay out much. And that doesn’t even consider how much revenue they might lose if people stop booking cruises over this incident…

Somewhere between a basic refund and a settlement package that will bankrupt the company is the optimal choice for Carnival in this situation. If the call was yours to make, how would you balance the needs of the company and your responsibility to your stakeholders with the needs of the customers and the need to maintain public relations and customer relationships? If you were CEO of the cruise line, what would your call be?