The Foundation of Carnival

fred henderson
1st October 2005, 13:33
I feel that the history of the foundation of the Carnival Empire is one of the most remarkable business stories in the maritime world.
Theodore (Ted) Arison was a veteran of the Israeli War of Independence who moved to the USA in 1954 when he was 28 years old. His family was involved with a leading Israeli shipping agency, M Dizengoff & Co Ltd, founded in 1928 and which later became part of Zim Line. Ted Arison entered the air cargo business however, and was the US agent for El Al for a number of years.
In 1966, the 40 year old Ted sold his aviation business and decided to take early retirement in Miami. On his arrival in his new home, Zim asked Arison to be their agent for a small passenger ship they had chartered for two years to Peninsular & Occidental Steamship Company. To undertake this work Ted formed Arison Shipping Company.
Ted soon realised that the US cruise companies were in terminal decline. Smothered by the protectionism of the Jones Act, hit by the closure of trade to Cuba they were unable to upgrade their fleets of elderly ships to comply with tough new regulations introduced as a result of their appalling safety record. In view of the growing number of vacationers to Florida, Ted felt that the collective death wish of the US fleet presented him with an excellent opportunity.
Israel Car Ferries Ltd, part of the Somerfin Group had placed their new ferry “Nili” on charter to Pan American Cruise Line and she had just arrived in Miami, when Pan American cancelled their agreement, without notice. Ted immediately took over the charter and placed the ship in service as “Jamaica Queen” on 4 and 5 day cruises to Jamaica and the Bahamas. The ship had been delivered earlier that year by Fairfield’s and was 7,851 tons with accommodation for 550 passengers and 120 cars. She had smart modern decor but was somewhat unusual in that none of her cabins had either a window or porthole.
The first voyage on 19 September 1966 went very well and Ted began negotiations to charter a second ship from Somerfin. In November 1966 however, the Israeli Government seized all of the assets of Somerfin because of a substantial default in another part of their business. Arison had forward passenger bookings, but no ship.
At exactly this time Arison read in Travel Weekly that Kloster Rederi had been forced to withdraw their new ferry “Sunward” from a 7 day cruise/ferry service from Southampton to Portugal, Gibraltar and Morocco, because of two major problems. Firstly the Spanish Government had once again closed the border with Gibraltar, but more seriously the service was hit by the after effects of the disastrous seamen’s strike, which had crippled the British foreign trade for six weeks. One of the emergency measures enacted by the British Government was a foreign exchange limitation of only £50 per person. As a result Kloster had a brand new ship, but no passengers.
Arison contacted Knut Kloster, who responded “Give me a guaranteed income of half a million dollars in the next year and you can have the agency for Sunward.” Arison agreed, even though he did not have the funds to back the guarantee.
Within two weeks Kloster formed a new company, Norwegian Caribbean Line, to own and operate “Sunward” and entered into a contract whereby Arison Shipping Company provided marketing, sales and passenger service in exchange for 22% of the sales revenue. “Sunward” had been delivered in July 1966, was 8,666 tons and had accommodation for 558 passengers. She was well fitted-out, modern and stylish. She was an instant success and Arison had no problems meeting his sales undertakings. In fact he was turning passengers away.
Kloster decided to order additional tonnage for the partnership. “Starward” was delivered by Weser, Bremerhaven, in November 1968. She was 12,949 tons and carried 736 passengers and 150 cars. Her sister “Skyward” was delivered in December 1969, without a car deck, resulting in a measurement of 16,254 tons and space for 930 passengers.
Two more ships were ordered from Riva Trigoso, Italy. “Southward” was delivered in December 1971. She was 16,607 tons with 918 passengers. The yard lost so much money on the construction of the ship they asked to renegotiate the price of the second ship. In a typically impulsive reaction, Kloster cancelled the contract.
Towards the end of 1971, with all four ships sailing with very high load factors, Kloster cancelled his contract with Arison, offered employment to all of Arison’s lower level staff and demanded that Arison hand over passenger records and all forward bookings and deposits. Kloster felt he could run the entire business himself. Arison refused to co-operate or hand over the cash and a lengthy legal battle began.
Ted Arison was determined to continue in the cruise business. Once again he needed a ship. He approached a wealthy old school friend, Meshulam Riklis, who agreed to finance him. In January 1972, Arison took a small team to England with the intention of buying “Saxonia” and “Ivernia” laid-up by Cunard. They found, however that the ships were in a very bad condition and would take many months to restore to operational service. They also inspected “Empress of Canada”, which was also in bad shape, but was at least operational. The decision was taken to proceed.
Riklis owned American International Travel Services (AITS) of Boston, which owned a former small Zim liner “Theodor Hertzel”, now renamed “Carnivale”. It was decided that AITS would form a new subsidiary, Carnival Cruise Lines, with a capital of $6.5 million. It would be managed by Ted Arison. The new company bought “Empress of Canada” from Canadian Pacific for $6.5 million, but a large part of the purchase was financed by bank loans, leaving a margin for working capital. The ship was renamed “Mardi Gras” and after carrying out basic maintenance work, she sailed from Tilbury for Miami on 25 February 1972.
The first cruise was planned for 4 March, but formalities took longer than Arison wanted and “Mardi Gras” sailed from Miami on 11 March 1972 with 530 passengers on board, including many travel agents. As she was passing through a bend at the entrance to the port, a gust of wind panicked the pilot, he over corrected and her stern swung onto a sandbank, she pivoted and went firmly aground. She was finally released the next day and was able to continue the cruise.
Apart from this excitement, the travel agents were distinctly unimpressed. The CP two class layout, the large number of cabins that were without private facilities and the poor general standard of outfit, all compared very unfavourably with Kloster’s smaller modern ships. Arison vowed to change all of these faults, but he could not afford to take the ship out of service for a major refit. A team of workers lived on board and began a rolling programme of modernisation. This activity did not help passenger bookings however and the load factor was only about 60%. At this load level losses began to mount and the company faced severe cash flow difficulties.
Early in 1973, AITS bought the Riviera resort hotel in Las Vegas and the Nevada Gaming Commission asked AITS to dispose of its interests in Carnival. After searching the market it was apparent that Ted Arison was the only possible buyer for the near bankrupt cruise operator. In 1974, Arison agreed to buy Carnival Cruise Lines for $1 and to take over responsibility for $5 million debts. In November 1974 a Panama holding company, Carnival Corporation, was formed to handle the investment.
Ted Arison approached several cruise operators to form partnerships, but without success. He and his management team redoubled their efforts to rescue the business. The rebuilding of “Mardi Gras” with acceptable accommodation was almost complete and most importantly for the American market, a casino had been added. The marketing and sales team, headed by Bob Dickinson (Now the President of Carnival Cruise Lines) launched an aggressively advertised campaign to attract a younger clientele (25-40 year olds) to their “Fun Ship”. Most importantly, Ted’s young, college drop out son Micky Arison (Now Chairman and CEO of Carnival Corporation) took to the road and visited dozens of important travel agents to convince them that the ship was greatly improved and to persuade them to offer Carnival’s product to their clients.
Their combined efforts were successful and the load factor began to soar so that by the end of 1975, “Mardi Gras” was operating at 100% capacity. The legal dispute with Kloster was settled. Carnival was saved from bankruptcy, the next step was to turn the company into a money making proposition. The Arison’s determined struggle was in time spectacularly rewarded with the family now multi-billionaires. Kloster lost all his cruise businesses.
I attach photographs of Ted Arison (In 1986 with the sponsor of “Jubilee”); Micky Arison and his wife Lynn in 1982; Micky and Lynn in 2002 at the keel laying of Queen Mary 2.

Fred

Doug Rogers
1st October 2005, 22:16
Thanks for that post Fred, puts it all wonderfully in perspective.

marlinspike
1st October 2005, 22:41
Excellent history and article full of interest. Have you heard that Carnival have leased 3 of their liners to the US Government and have berthed them in New Orleans to provide accommadation for the homeless at $1870 a week per person - much higher than cruise rates!! Today it is reported they are only half full and berths taken up mainly by rescue workers. Peter

fred henderson
1st October 2005, 22:54
A thought for us all Marlinspike, is that the cruise companies are concerned that if you book ahead and take advantage of all the discounts, it is cheaper to live full time on a cruise ship than to pay old folks care home fees. It is just another indicator of the value for money that cruises provide.

Fred

Doug Rogers
2nd October 2005, 00:32
A perverse one perhaps but unfortunately no doubt very true...

R58484956
3rd October 2005, 13:53
A new 3006 passenger ship 112000tons being built at Fincantiera will enter service in spring 2008 and will sail with Carnival Cruise lines, as yet she is still unnamed, part order oF 5 ships.