Senator Rockefeller: Carnival's Response to Congressional Inquiry "Shameful"

Micky Arison - Senator Rockefeller - Cruise Ship TaxesAs I mentioned earlier, Carnival responded to Senator Rockefeller's letter inquiring into the cruise line's avoidance of U.S taxes and its refusal to reimburse federal agencies for services rendered with what I characterized the other day as a "screw you!" letter.

Today news sources are reporting that Senator Rockefeller characterized Carnival's response as "shameful."  

Carnival's letter dodged the central question of exactly what and how much the cruise line pays in taxes.

Senator Rockefeller - Micky Arison Cruise Ship Tax DisputeA recent audit of Carnival's finances on behalf of NBC News revealed that Carnival paid only 0.6% in taxes on the billions and billions of dollars collected from its passengers over the last five years. That's less than 1% in local, state, federal and international taxes. 

One thing is clear to me at this point. Senator Rockefeller is not going to drop the issue after receiving a blow-off letter like this from Carnival's CEO Arison.  

Rockefeller convened a hearing last year after the Costa Concordia disaster and grilled the cruise line's representatives at that meeting about the non-payment of taxes, non-payment for the services of the Coast Guard and other federal agencies, and pollution.

Rockefeller seems likely to schedule another one soon. 

This may be a good time to introduce legislation to create some meaningful oversight of foreign cruise lines given the public's loss of confidence in Carnival following its streak of cruise ship fires and disabled ships.   

 

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Schmedlapp - April 5, 2013 11:00 AM

I'm (mostly) a libertarian, but after the events of the past year, it does seem some regulation of the cruise industry is long overdue. One might hope that the market will ultimately prevail and people will choose not to cruise with Carnival, putting them out of business...but as I'll explain below, that's probably not what's going to happen.

Unfortunately, Arison can send a letter like that because he is a shrewd businessman and can see into the future. He knows that, however perverse it sounds, these incidents may actually end up HELPING his business.

Here's what's likely to happen:

Within a year or so, most folks will have forgotten all about the incidents on Carnival-owned ships. Before that, bookings will indeed decrease for a while. As has been reported on this blog, the cruise lines will respond by lowering fares to near-absurd levels, which of course attracts a lower class of clientele than before. This leads to further instances of violence and sexual assault on ships which the companies attempt to cover up and leave to the already-overworked crew to deal with.

Because of (slightly) decreased profits due to the lower prices--for a while, anyway--cruise lines will announce that they have no choice but to cut costs. Ship staffing levels will be reduced, stretching the workers to their breaking point. The 13-hour days that many crewmembers already put in become 15-to-17-hour days.

Because of the subsequent decline in service levels, guest complaints will increase. Tips--the majority of income for crew such as room stewards and waitstaff--will decline substantially. The standard of entertainment found onboard ships takes a dive. Quality ratings for cruises (the end-of-cruise surveys guests fill out) will be lower, resulting in lowered morale for crews and decreased incentives for good work (such as employee-of-the-month bonuses and crew parties).

Eventually, the new type of clientele the cruise lines have will just get used to these service levels. Those who remember "how it used to be" will die off and/or stop cruising; for every former loyal customer, there are five new cones who are none the wiser and think the worse service standards are just business as usual. Fares slowly creep back up as cruise lines establish a new customer base, and profit levels are back to normal in no time.

The US goverment, meanwhile, will indeed enact some kind of stricter legislation regarding ship safety standards, such as regular inspections of ships' engines. In response the companies must spend more money to comply with these laws, worsening the effects on the crew described above. The crew will also see an increase in drills and safety exercises, adding to the already onerous working hours. Many cruise lines currently implement a system of "in-port manning," in which a specified rotation of crewmembers are denied shore leave in each port (ostensibly for safety reasons, although lowered insurance rates are the more likely goal). The percentage of crew who must stay onboard will likely increase, resulting in far fewer opportunities for crew to get ashore to make phone calls, send money home, and let off steam.

So in conclusion: a race to the bottom for passengers, a massive screwjob for the crews, and Arison and the others at the top of the pyramid continue to laugh all the way to the bank.

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