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CEO Gaffe of the Week: Carnival

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Last year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!

This week, I'll once again be putting Carnival (NYSE: CCL  ) CEO Micky Arison in the hot seat.

The dunce cap
One accident is a tragedy and two raises an eyebrow; three in a row is a trend -- and one that Carnival certainly shouldn't be proud of!

Around this time last year, Arison was admonished by the media and me for his hands-off approach to managing the tragic crash of the Costa Concordia, which killed 32 people, followed just weeks later by a fire in the generator room of the Costa Allegra, which left the ship crippled and adrift at sea for days before it was finally towed in to dock. Based on reports from The Wall Street Journal, it took Arison about a week just to visit the accident site of the Concordia. Furthermore, the company's compensation package offered to those on Concordia calculated out to be less than the actual loss of earnings from the tragic incident, leading me and others to believe that the company was "trying to get off cheap." 

Roughly one year later and here we are yet again! On Sunday, an engine room fire left the Carnival Triumph adrift in the Gulf of Mexico and running on only backup generator power. Conditions aboard the ship, while still sketchy at the time of this writing, have been described by passengers on board via texts to friends and family as horrible. There have been reports that the toilets haven't worked in three-and-a-half days, that sewage was spilling into the hallways, and that passengers were at one time waiting in line for hours for food and/or fighting for food remnants.

You might be wondering what the company's response to this latest ship incident was. How about an offer by Carnival Cruise Lines' CEO, Gerry Cahill, for $500 in compensation, a voucher for a free cruise, reimbursed transportation expenses, and a full refund for the current cruise! Sound fair to you? Some passengers' families have vocally expressed their frustrations over the limited information Carnival has divvied out, in addition to their contempt for what appears, in my opinion as well as the opinion of certain interviewed family members, to be a lowball offer.  

To the corner, Mr. Arison and Mr. Cahill
Now for the $64,000 question: Where's Micky Arison throughout all of this commotion? Would you really be shocked if I said almost completely out of sight once again? According to a Reuters report, between the time of the incident and as of this writing, Arison's only known public appearance was courtside at a Miami Heat basketball game on Tuesday (Arison owns the NBA's Miami Heat). In an interview with CNBC's Darren Rovell last summer regarding his ownership of the Heat, Arison was quoted as saying, "This is a hobby of passion, it's not a business." Perhaps Mr. Arison should spend less time on his hobbies and more time worrying about his business and the well-being of its passengers and his shareholders?!

What's more, this incident is likely to spark another wall of worry in the cruise line sector. Disney (NYSE: DIS  ) , which operates a line of cruise ships, escaped largely unscathed during 2012's Concordia incidents because it had much of the year already pre-booked. Possessing a premier name in the entertainment industry, Disney's brand does most of the talking without the need for much advertising.

The same may not be said for Royal Caribbean (NYSE: RCL  ) or the recently public NCL Corp. (NASDAQ: NCLH  ) , better known as Norwegian Cruise Lines. Royal Caribbean saw an immediate drop-off in bookings following the Costa Concordia incident and it could likely see negative repercussions from the Triumph incident -- at least in the interim. NCL actually posted solid full-year results on Monday, but could find the seas turbulent given that the midpoint of its 2013 guidance ($1.30) places it at a lofty 23 times earnings. It's very difficult to ascertain how much Carnival's woes could affect NCL's bottom line, and, as we know well, the market hates uncertainty.

Thankfully for families and friends as well as those aboard, the Triumph docked in Mobile, Ala., late last night. As new details emerge of the conditions aboard the ship and management's response, I may be forced to eat some of my words. However, given Arison's dubious track record from prior incidents, I have a suspicion his CEO tenure is the next thing to be cast a life preserver if this keeps up.

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