Richard Fain: Biggest is best


These are the questions you like to be asked. “Have you cruised?” enquires Richard Fain, a burly American who seems to chew each word gruffly as he speaks. Never. “That’s a terrible thing,” he continues with a sly grin. “But you know, it’s also a great opportunity. If you had done it, you wouldn’t have so much to look forward to.”

Fain, veteran boss of Royal Caribbean Cruises, the world No2 cruise operator, has a dry sense of humour to match his square-jawed physique. His industry has been knocked sideways by recession and swine flu, and he has just reported two consecutive quarters of losses at his £4 billion turnover group, but he’s still selling.

And he needs to. This year he is unveiling Royal Caribbean’s most spectacular ship, Oasis of the Seas, the world’s largest cruise liner ever. It is now sailing into one of the worst leisure downturns on record.

Abandon ship? Not a bit of it, says Boston-born Fain. New is good, and big is better. “I fought that for many years, and I’d frequently say we don’t build the biggest, we build the best, but a normal size hull couldn’t accommodate all the ideas my people have.”

So Oasis of the Seas, which cost £900m to build and is undergoing sea trials, has everything imaginable beyond the usual clubs, pubs and sports facilities packed on board. There’s an open air central park, aqua-theatre, a Coney Island-style boardwalk, two climbing walls, an ice rink, a bar that floats between decks, loft apartment suites with showers for two . . .

“I see you’ve been reading our brochure,” chuckles Fain. “The suites are breathtaking.”

He insists this ship is a game-changer — a product that will revolutionise the experience of cruising and pull passengers away from Royal Caribbean’s deadly rival, Carnival. But will Oasis of the Seas, which looks precipitously tall and contains 40% more public space than any cruise liner yet built, even fit into conventional harbours?

“Oh yeah,” says Fain. “The constraint in most harbours is length — this is not much longer than existing ships, just wider and taller.” Some oil tankers are bigger still.

Fain, 61, sitting in a London hotel suite en route to Oasis of the Seas’ Finnish dockyard, is unfazed by any scepticism I can throw at him. Courteous and determined, the great-grandson of Ukrainian immigrants, he has headed Royal Caribbean since 1988, and is the driver behind its rapid expansion, from 4 to 38 ships, and its determination to build the biggest boats afloat.

“Ships,” he corrects me. “We never call them boats. Ships.” Then he laughs.

Behind the humour, there is a needle match stoking his ambition. Royal Caribbean and Carnival have mopped up rivals and now operate a cluster of brands from Miami bases. Both are headed by long-standing bosses and have pushed cruising toward a younger, more active consumer. There the similarities stop. Micky Arison, the flamboyant Israeli-American billionaire who part-owns Carnival, has built his business to twice the size, and is a natural headline maker. Fain prefers to let his ships do the talking.

And there has been little love lost since Arison torpedoed Fain’s attempt to merge Royal Caribbean with P&O Princess Cruises eight years ago. Carnival ended up buying the British company outright for £3.3 billion in 2003. That left scars.

“It was unfortunate for both of us,” sums up Fain curtly. Because? He shrugs. “We didn’t get what we wanted and Carnival ended up paying too much.”

Anyway, he believes Oasis of the Seas, which takes 5,600 passengers, will give his business the ascendancy again. The Royal Caribbean International brand, aimed at families, will be bigger than anything Carnival can compete with.

Then there’s the rest of the Royal Caribbean group: Celebrity Cruises, aimed at couples; Azamara, for more discerning travellers; Pullmantur and CDF Croisières de France, for the Spanish and French markets respectively; and a new joint venture with Tui, the German travel giant. The group also has a further six ships under construction.

Those orders worry some, who think Royal Caribbean should be mothballing, not commissioning. The company, which is incorporated in Liberia and listed in New York and Oslo, carries debts as big as its revenues, and its orders for ships top $6 billion (£3.7 billion).

When Royal Caribbean’s shares sank from $54 five years ago to below $6 this February, many wondered if the business might capsize completely. The share price is now closer to $20, but Fain admits he was rattled.

“It was a horrific period,” he says. “I just don’t think people gave credibility to the fact that we had financing commitments.”

These included commitments underwritten by the governments of Finland and Germany to help finance new ships. Such commitments are commonplace, as shipyards often stump up part of the cost of new ships, then are repaid over a period of years after launch. And, Fain argues, while his industry is more sensitive to downturns than other sectors, it also recovers faster when things are getting better.

So how does it look now? “We take 75,000 calls a day from people interested in booking a cruise, so we have our finger on the pulse. The market isn’t getting worse, but it isn’t getting better either. However, stopping getting worse is the first step to getting better.”

The upbeat and the coldly rational are never far apart in Fain’s patter. Born the youngest son of an East Coast retail entrepreneur, he attended California’s Berkeley University in its radical heyday, yet later took an MBA in finance at Wharton.

“I grew up knowing you worked for what you got,” says Fain.

A first job at the IU International conglomerate eventually pitched him into its ailing shipping arm, Gotaas-Larsen, based in London. He helped turn it round, spending a decade in Britain during the 1980s. Then he focused on its investment in a cruise venture, Royal Caribbean.

After making suggestions for how the business could be improved, he was invited to take the top slot. “It was a case of put up or shut up,” he says bluntly.

Back in 1988, it looked a brave move. Cargo line Gotaas-Larsen was one of the biggest shipowners in the world. Royal Caribbean was tiny. “Yeah, people thought I was mad to join,” says Fain, “but I just thought cruising was about to take off.”

He swiftly started commissioning bigger ships, adding more amenities and luxury. “There used to be a tradition that smaller boats were more luxurious, because they had worse economies of scale and hence needed higher revenues. We turned that round.”

The company was listed in 1993 and has grown steadily ever since. Fain’s success, say others, lies in controlling costs while championing new ideas. “And he runs a very good team,” says Martin Watson, his long-term legal adviser.

Fain believes there is still considerable untapped demand. Hence Royal Caribbean’s expansion into Latin America and Asia, where it is seeing rapid growth. “It’s no longer an American product, it’s international. In Asia, nobody has cruised.”

And once more people try it, he insists, they become converts to the cause, persuading others. Then a snowball effect takes over.

“About 94% of people who take cruise vacations say it is as good as or better than a land-based vacation. And I promise you, you do not get 94% satisfaction for your column, nobody gets that, not even chocolate manufacturers.”

The problem, he continues, is the misconceptions that many people still hold: that cruising is for the old, the rich, and the sedentary. “How can it be sedentary when the options include ice skating, rock climbing and surfing? The average age of our passengers is 44. I don’t call that old, do you?”

Next, he promises greener ships, with the technology to recycle waste water, and generate much of their own electricity from photovoltaic cells. The Oasis of the Seas even has a Teflon-coated hull to allow it to slip through the waves smoothly.

And the good point for consumers, he says, is that there are now real bargains to be had. He has, after all, got a very big ship to fill for its maiden trip in three months from now.

Before then, Royal Caribbean will be back in profit, he guarantees. And Oasis of the Seas will be sailed slowly down the coast of Africa — giving its crew and entertainment staff a chance to practice their acts — then across the Atlantic to dock in Fort Lauderdale, ready for its unveiling.

“First sailing, December 5, spaces still available.” Prices for a nine-night fly-cruise around the Caribbean start at £1,885 for an inside cabin, meals included.

“We just wish we weren’t offering such great value for money,” says Fain, shaking his head. Is he hamming it up? Possibly not. Form an orderly queue, please.