Carnival puts cruise fleet under microscope after ship fire

The Carnival Triumph cruise ship is towed towards the port of Mobile, Alabama, February 14, 2013.

Credit: Reuters/ Lyle Ratliff

By Jane Sutton

MIAMI BEACH, Florida | Wed Mar 13, 2013 6:51am EDT

MIAMI BEACH, Florida (Reuters) - Carnival Corp (CCL.N) (CCL.L) has launched a comprehensive review of its entire fleet after a fire crippled one of its ships last month, and will share its findings across the industry, Carnival Cruise Lines' chief executive told a conference on Tuesday.

The engine-room fire disabled the Bahamian-flagged Carnival Triumph in the Gulf of Mexico, leaving it adrift with more than 4,000 passengers and crew aboard. The accident made headlines around the world and comedians had a field day with the ensuing plumbing problems.

"We've started a comprehensive review of our entire fleet," Carnival Cruise Lines President and Chief Executive Gerry Cahill told the annual Cruise Shipping Miami conference.

"It will take us a little bit of time to complete it but you can rest assured that it is our highest priority in the entire organization, it is the thing we are most focused on and we will come up with some solutions that we can implement across our fleet," he said.

The company has assembled teams of fire safety experts, naval architects, electrical and mechanical engineers and engine manufacturers to conduct its own investigation, Cahill added.

The Triumph was on its way back to Galveston, Texas, when a leak in a fuel return line caused a fire in the aft engine room. The ship has two independent engine rooms but the fire damage knocked out both, Cahill said.

A diesel generator kicked in to run emergency services, but could not run what Cahill described as "hotel services", most notably the plumbing in the cabins.

Cahill said the company investigation would focus on fire prevention and suppression, engine-room backup systems, and on figuring out what hotel service facilities could be run with emergency generators.

Carnival is cooperating with ongoing investigations by the U.S. Coast Guard and National Transportation Safety Board and the Bahamian government, as well as a review by the Cruise Line International Association CLIA.L, he added.

Carnival Corp is the world's largest cruise line, with 100 ships under brands that include Carnival, Cunard, Holland America, Princess, Seabourn and Costa.

RIPPLE EFFECT

Cruise executives frequently say the attention lavished on their competitors' new ships creates a rising tide of demand that benefits them all. Accidents cause similar ripples throughout the industry.

"The recent Triumph incident affects all of us," said Christine Duffy, president and chief executive of CLIA, which represents 58 cruise lines worldwide. "Even though such incidents are rare, we don't underestimate their impact."

Nonetheless, industry projections are chronically rosy. Cruising is a $36 billion industry worldwide, part of a $9.9 trillion global travel industry that represents 9 percent of global GDP, according to the World Travel and Tourism Council.

Some 20 million people took cruises last year and CLIA projects this year's total will rise 3.3 percent to hit 20.9 million.

"We have been the fastest-growing segment inside the travel industry," Duffy said.

Despite tough economic times, passenger numbers have risen every year over the last decade, she said. North America is still far and away the biggest source of cruise passengers, though the percentage from outside North America rose to 31 percent last year, from 9 percent in 2000.

Industry officials expect strong growth in China and other parts of Asia, where tens of millions, if not hundreds of millions, of people are moving into the middle classes and eager to see the world.

"They may not be comfortable going on their own but are comfortable going on one of our ships," Duffy said.

The industry has added 168 new ships since 2000. Twenty-five more oceangoing and river-cruising ships will come on line in the next two years, but the pace is slowing, ending a glut of berths that had led to discounting.

Kevin Sheehan, chief executive of Norwegian Cruise Line (NCLH.O), which recently went public, predicted the industry would soon "move pricing to more respectable levels".

If the economy holds steady or improves slightly "then this industry will outperform", Sheehan said.

The cruise line chiefs say their industry is resilient, in part because it has good overall safety.

Sheehan called it "the safest, safest, safest vacation experience that anybody could ever have".

Pierfrancesco Vago, chief executive of MSC Cruises, a privately owned European line, suggested vacationers have short memories. Last year's Costa Concordia accident caused bookings in Italy to plummet, especially scaring away first-time cruisers, he said.

Bookings are still erratic, but are growing again, in part because cruising is perceived as good value, he said.

"It's amazing how this 2012 has been forgotten. We've seen already the new wave season, 2013, that the first-comers are coming back again," Vago said. "2013 is looking much better, stronger."

(Editing by David Adams and Dale Hudson)

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Prescribing Better Under Bush's Health Plan

Prescribing Better Under Bush's Health PlanC. Eugene Steuerle

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

©2007 C. Eugene Steuerle. Reprinted with permission.

This document is also available in PDF format.

The nation spends more than $250 billion annually on tax incentives for workers to buy health insurance, and the cost is rising fast. Nonetheless, 47 million people lack coverage. By any standard, we aren't getting our money's worth. This article discusses President Bush's proposed health plan, which would give everyone the same income tax deduction as long as they purchased health insurance, and the potential problems with this policy. It suggests that a properly designed voucher is a better vehicle for correcting the existing problems with health insurance.

The nation spends more than $250 billion annually on tax incentives for workers to buy health insurance, and the cost is rising fast. Nonetheless, 47 million people lack coverage. By any standard, we aren't getting our money's worth.

Current tax subsidies favor higher-income over lowerincome employees—and many poor people get no help at all. Those tax breaks also encourage us to buy excessive amounts of health insurance, because the more we spend, the bigger the subsidy. That tends to increase health costs, partly because the oversized health plans include less in the way of cost constraint, and partly because we are simply less cost conscious when someone else is paying part of the bill. The higher costs, in turn, tend to push some employees and smaller employers out of the insurance market altogether. In effect, while a basic amount of subsidy helps people buy insurance, the additional amounts spent each year probably increase—that's right, increase, not decrease—the number of uninsured.

The president proposed to tackle this issue by providing what is closer to an equal subsidy for everyone. Further, there would be no additional subsidy if we bought more expensive health insurance. He does that by suggesting a fairly significant tax break in return for buying a minimal policy. Republicans and Democrats alike should commend that effort to improve both the fairness and the efficiency of the medical marketplace.

Once we agree with the president that we want a more equally distributed subsidy and one more likely to expand insurance coverage, then we need to figure out how to amend his proposal to best achieve those goals. Yes, his proposal would give everyone the same income tax deduction as long as they purchased health insurance—that's fairer than current law. Social Security tax breaks would certainly be more evenly distributed. But because deductions are worth more to taxpayers depending on how high their tax brackets are, higher-income people could still get income and Social Security tax subsidies worth more than $5,000, while many moderate-income workers could at best get about $2,300 in Social Security tax reduction. Some would do even worse. Thus, while the president's proposals would reduce the disparity in tax subsidies between rich and poor, it would not remove them. Why not simply follow the logic of the reform and grant vouchers or tax credits of equal size for every adult and, similarly, for every child?

The efficiency of the subsidy must also be improved. As structured, the proposal would turn existing health subsidies upside down by granting an additional tax benefit only to those people who put money into something called health savings accounts (HSAs). Effectively, taxpayers would be subsidized more if they did not join with others in an insurance pool to cover health costs over and above catastrophic amounts. Thus, a person enrolled in an HMO could get a tax deduction of only $15,000, but one enrolled in an HSA could get $15,000 plus, say, $3,000 put into the account—a double deduction. That would discriminate against some forms of insurance and favor those who could most easily come up with the cash or afford the risk associated with high deductibles.

Much stronger incentives are also needed to deter people from signing up for insurance that is cheaper because it excludes sick people and those with chronic conditions. The administration is willing to provide states some money to deal with those issues, but it wants to redistribute money that is already earmarked for health spending. It is unclear how much protection that a potentially modest pot of money could buy.

A properly designed voucher is a much better vehicle for addressing many of those problems. It can be extended to people who pay little or no tax; it can be integrated with state Medicaid and related children's insurance for the poor; and, if it were worth the same amount per person, it would be much easier to administer by employers and insurance companies alike. The president has properly identified the illness—let's now help him put better ingredients into the prescription for a cure.

Gene Steuerle is a senior fellow at the Urban Institute and an economic consultant to Tax Analysts.

The Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, provides independent, timely, and accessible analysis of current and emerging tax policy issues for the public, journalists, policymakers, and academic researchers. For more tax facts, see http://www.taxpolicycenter.org/taxfacts.

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