Carnival, P&O Look at Cost Savings

Merger could mean changes in Alaska land operations, other economy of scale savings

By: Anne Kalosh

Carnival Corp. and P&O Princess Cruises have started to identify cost-saving areas, as the two companies march toward their merger.

A likely place for money-saving is Alaska, where both companies have extensive land operations.

The deal is expected to close on April 17. P&O Princess shareholders will vote on the deal April 14 in London, and Carnival shareholders vote April 16 in New York.

“The tougher the times, the more this deal makes sense,” said Carnival Corp. Chairman and CEO Micky Arison.

By combining, the two cruise giants expect to achieve cost savings through economies of scale and by eliminating redundancies. They also hope to share each other’s best practices.

Alaska tour operations, procurement and technology are areas ripe for savings under combined operations, Carnival Corp. Vice Chairman Howard Frank told analysts during the company’s first-quarter earnings call on March 21.

Frank said that synergy teams are working in 10 to 12 areas and have identified opportunities for cost savings in 60 to 70 areas.

“We estimated $100 million in synergies and we are getting a greater and greater degree of confidence that we’ll be able to achieve that,” he added.

While Frank did not spell out details, it’s clear that there is plenty of overlap in Alaska, between Holland America Tours and Princess Tours. Both companies operate an extensive network of rail cars, motorcoaches and lodges in the 49th state.

Procurement the purchase of food, beverages, supplies, engine parts and other items will be a major target for cost savings, Frank said, adding that “we have already been talking with suppliers and we have agreements in place.”

The two companies are also looking at best practices among the various brands, with working groups studying areas like shipboard spas, art auctions and shore excursions.

“Technology represents a major opportunity,” Frank said. Work was tabled on a global reservations system, for the Carnival family of brands, during the merger process; now executives are thinking of adopting the P&O Princess system, which Frank described as “excellent ... Our people like it. It’s going to save us a lot of money.”

Other areas, where the two companies might combine operations to save cash could include insurance, credit card fees and marketing costs, Frank said.

As the cruise industry copes with war, a sluggish economy, weak demand and heavy discounting, Arison said that planning for the merger “has allowed us to focus on a positive issue.”

He called the chemistry between the Carnival and P&O working groups “fantastic ... We’re really going to work well together.”