Carnival Messes Up, Again

It's been feast or famine for Carnival (NYSE: CCL  ) CEO Micky Arison these days.

Last night, he was celebrating another victory by his defending NBA champion Miami Heat. That's 20 wins in a row, for those far removed from hoops news. Feast!

This morning, he's waking up to another Carnival calamity. Famine!

A technical issue with the Carnival Dream's backup emergency diesel generator finds the ship docked at its port in St. Maarten on the final leg of a week-long cruise. There were periodic interruptions to elevators and restrooms -- creating another wave of passenger reports of overflowing toilet sewage on a Carnival ship -- but the cruise line claims that those outages have been restored.

The story doesn't end here, unfortunately.

Carnival isn't going to chance another floating disaster. It is flying all guests home from St. Maarten. They will receive a pro-rated refund, and a 50% discount off a future cruise. Incoming passengers hoping to embark on the Dream's next cruise on Saturday are out of luck. Carnival is cancelling the trek, and only giving them a full refund and a 25% discount on a future seven-day sailing. It will also reimburse those nixed passengers for any non-refundable travel expenses that they have incurred.

Forget about working the cruel math on what this will mean for Carnival's current quarter. The real problem now is that Carnival has a credibility problem.

Under normal circumstances this would present the mother of all opportunities for rival Royal Caribbean and the recently public Norwegian Cruise Lines. This week's Dream mishap follows last month's embarrassing engine fire that stalled the Carnival Triumph. Carnival's Costa cruise line suffered the tragic grounding of Concordia last year off the Tuscan coast of Italy.

Carnival somehow seems to be at the root of any cruising horror story these days. However, travelers aren't taking the time to discriminate between cruise lines. Bookings fell for all cruise lines after the fatal Concordia disaster. If ships are getting grounded, or rendered powerless at sea, potential passengers will swear off cruises altogether.

Carnival has a public relations nightmare to tackle, but Royal Caribbean and NCL will also have to resort to more aggressive promotions to fill their berths. What's bad for Carnival here is bad for the industry.

Steiner Leisure (NASDAQ: STNR  ) may also take a hit. The operator of the floating spas on 156 ships -- including Carnival's maligned vessels -- relies on pampering passengers. Fewer occupied cabins or berths filled with deal-seeking customers that won't splurge on spa treatments won't help business.

Carnival's image will be rightfully skewered after these mishaps, but the financial implications will be even deeper. 

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