It was a typical Spring Miami day when on April 17th, 2016 I boarded the 704-passenger vessel, MV Adonia, for a lunch gathering with a select group of people responsible for the creation of the Fathom brand and the re-purposing of a small ship with a big concept, to yoke industry behemoth, Carnival Corporation, into uncharted waters: smallness.
The lunch was scheduled to end strictly at 3pm as the Adonia was to sail on her maiden voyage under the Fathom brand, on this day to the Dominican Republic, followed by another maiden voyage to Cuba from Miami the following week, when it would become the first cruise ship to sail to Cuba from the U.S in more than 50 years.
The Concept Behind Fathom
In some confined executive meeting room just below my lunch gathering on the promenade deck of the Adonia, I imagined a junior marketing manager hurriedly gathering up piles of documents that together made up the foundational assumptions and aspirations of Carnival’s foray into smallness with the launch of the Fathom brand. The documents, prepared for a final executive meeting, no longer applied to a concept that was leaving the dock that afternoon.
Deep inside these professionally-prepared brand briefs, detailed audience personas and excel spreadsheets was an idea for Carnival to risk an alternative, experiential/immersive concept of cruise travel against a sea of sameness that the cruise industry itself is responsible for spreading across the various island nations of the Caribbean.
The cruise industry quenches its thirst for profitability by attacking the cost side of the business. More people on a ship makes unit economics (per person costs) more favorable for the operator by working alongside the powerful tide of “economies of scale.” This has led to a mammoth inflation of ship sizes, the ports that accommodate them, and corporate balance sheets. With an entire industry pursuing similar strategies, consumers become sensitive only to price and, ultimately, margins can suffer when differentiation blurs.
It’s only natural for a company careening into perfect competition to react by experimenting with a contrary tide. Higher margin, smaller scale concepts hold the promise of accessing ever-greater niches of people who are responsive to more narrowly defined interest verticals and to ever finer threads of belief that can be targeted by tailored marketing campaigns. Hotel economics are similarly locked in a situation approaching perfect competition – hence the emergence of boutique hotels created by the giant hotel companies.
In the case of Carnival, a company with 12,000 employees, 12 million annual customers and $16 billion of debt, you can be sure that an army of analysts and a matrixed layer of management had meticulously reviewed the assumptions and projections for a new project like Fathom.
On the surface, combining small ship cruising with the recent trend in affluent travelers’ desire for “experiential travel” should have resulted in a great business for Carnival’s Fathom brand.
What’s more, adding Cuba to the equation should have made the business astounding if you consider Carnival’s first mover advantage combined with the forces moving affluent travelers towards Cuba in search of an inner journey – a deeper connection to nature and culture that is sorely lacking in other parts of the Caribbean – and the wallets to afford the extra expense of curated travel that promises transformation, the industry buzzword synonymous with profits and strong brand identification.
Social impact was the flavor of experiential travel designed for Fathom’s passengers in those now discarded planning documents. The Adonia’s seven-day itinerary alternated weekly between Cuba and the Dominican Republic with each destination offering slightly different experiences created, in words with a pear-shaped, ecumenical tone, “to meet the real hunger in the world for purpose,” according to Carnival.
Prices for the seven-day trips to the Dominican Republic started at $974 per person, excluding taxes, fees and port expenses and including all meals on the ship, onboard social impact immersion experiences, three onshore social impact activities and related supplies.
Prices for seven-day itineraries to Cuba started at $1,800 per person, excluding Cuban visas, taxes, fees and port expenses and including all meals on the ship, onboard social impact immersion experiences and on-the-ground cultural immersion activities.
In 2015, when Carnival initially announced the launch of its Fathom brand, JetBlue had announced additional direct charter service from New York to Havana, and Airbnb was just getting started in Cuba with a few thousand hosts.
According to a company press release, “Fathom will serve the sizable and growing market of potential social impact travel consumers – approximately one million North Americans – in addition to global travelers already pursuing service-oriented travel experiences worldwide.”
In May 2016, after the Adonia’s first maiden voyages, the company announced a partnership with Ashoka, the largest network of social entrepreneurs worldwide, to develop onboard programming. The idea was to develop a replicable travel experience for travelers to practice “changemaking,” the newest word in a long succession of descriptors, “and discover their own potential to create positive change in their communities,” according to a company press release.
Within months of launch, prices for Adonia’s sailings to the Dominican Republic were lowered dramatically and a tie-up with Airbnb offered cruise discounts for new Airbnb hosts in the U.S. The $250 discount applied to one of two seven-day Fathom cruise options: the Dominican Republic, at the time priced at $499, or Cuba, at the time priced at $1,899. The hope was that some of the authenticity afforded Airbnb’s users would rub off on Fathom.
Several months later, prices for the Dominican Republic itineraries dropped to $250 and the company ultimately shifted more sailings to Cuba. That’s about $35 per day aboard a well-appointed small cruise ship with meals included. For the people in Fathom’s target demographic, the cost of the the seven-day cruise was cheaper than staying at home.
Late last year, amid a flood of announcements of new launches of service to Cuba from a number of U.S.-based cruise lines, Carnival decided to scuttle the Fathom brand as a stand-alone cruise concept and return the Adonia to her native waters, rejoining the fleet of Carnival’s P&O Cruises on the other side of the Atlantic.
In place of Adonia and the Fathom brand, Carnival has received approval from the Cuban government to sail to Havana on select Carnival Paradise voyages from Tampa beginning in June 2017.
Despite the best effort of a massive cruise industry titan, Fathom’s future was decided after only six months of life in the wild – and what was likely a dozen or so entries in a spreadsheet.
Favorable Industry Trends
Nowhere on earth is there more visibility on growth in travel and tourism like there is in Cuba. The country’s coastline is 40% longer than Florida’s and its natural environment mostly pristine. Cuba’s watery future has a flood of potential.
The Cuban transport ministry confirmed earlier this year that the number of cruise ship visits rose from 24 in 2012 to 139 in 2015. Cruise passengers jumped from 6,770 to 37,519 over the same period. Up to May of 2016, there were 174 port calls and 62,183 passenger visits, according to the ministry. And according to a recent report by the Miami Herald, approvals are in place to take about 172,000 U.S. cruise passengers to Cuba this year.
Cuba’s newness to the American market is emerging against the backdrop of an upswing in regional cruise demand, at least in terms of top line passenger numbers. The Caribbean in particular headlines the cruise industry’s global success. In 2015, it ranked as the dominant cruise destination, accounting for more than 35.5% of the global deployment capacity market share, according to the Florida-Caribbean Cruise Association.
For the islands of the Caribbean, the cruise industry’s impact has been mixed. Competition to develop ports has driven down port passenger fees while an emphasis on contained environments deprives local businesses of passenger expenditures. Something is lost when thousands of people seek an exotic experience at the same time. As the financial summary illustrates (below), onboard revenue is a significant part of the revenue picture and is likely an outsized contributor to margins. In the cruise industry, onboard means not in-country and not local.
According to the Florida Cruise Association, for the past decade, cruise tourists have made up about 40% of all tourists in the Caribbean, yet they have accounted for less than 10% of overall tourist expenditures. Despite efforts to increase port passenger fees, they remain extremely low in the Caribbean. For example, Bermuda charges in the neighborhood of $60 per visitor, far exceeding fees in the region, which often charge less than $10 per visitor.
In 2017, cruise lines offer ports on a total of seven private islands. These islands, together with many piers that are designed like strip malls, divert travelers’ expenditures to locations that are scripted or otherwise under control of the industry.
Despite the challenges for the island nations to translate cruise visits into revenue, consumer demand for cruising is experiencing a major uplift and passengers seem to be happy with the product.
What Went Wrong
“In many ways, we introduced a new category of travel, a new brand, and a new experience to the marketplace that was somewhat foreign,” according to a recent statement by Fathom CEO, Tara Russell.
In Fathom’s waning months of existence, it appears the messaging around the brand was changed again to “participatory travel” rather than “social impact travel” – and the concept was further defined as the, “step beyond immersion.”
Russell’s statement along with other aspects of Fathom’s marketing suggest a misunderstanding of the meaning of a brand. First, a brand is not created upon the wishes of the company itself but rather derives from the emotional reaction among the people who have touched the product. Second, a brand has a financial expression visible only in the rear view mirror, or the higher margins found in historical financial statements, not the future financial projections of the analysts.
Finally, the most striking aspect of Fathom’s failure was in missing the meaning of transformation and a host of other words that supposedly sparkle with extra meaning (and higher margins) in the travel industry. Among the Fathom customers, there apparently was far less interest in the exteriority (superficiality) of a few hours of “social impact” in a foreign country by becoming what amounted to imported day labor. Rather, the real meaning of the words is the deeds and actions behind them and the impact on the people who are paying for that meaning.
Making a connection to an internal, personal place where, for example, people can break a pattern of repetition, cut loose the modern grid of predictability and allow themselves to be challenged intellectually and emotionally may have met a market need. It is no wonder – and a small dose of irony – that the communist Cuban government never warmed up to the concept of Americans planting trees in Cuba or making paper-mâché greeting cards by hand like Fathom travelers’ were up to in the Dominican Republic.
Finding the right mix of learning and engagement activities is an iterative process undertaken over a long period of time by a flexible organization committed to a vision. Instead, it appears Carnival pulled the plug on Fathom within months of the spreadsheet’s indicating that the juice was not worth the squeeze. I suspect the strictures imposed by $16 billion of debt foreclosed any possibility of further risk-taking and instead produced a form of corporate locked-in syndrome.
The term Experience Economy was first described in an article published in 1998 by B. Joseph Pine II and James H. Gilmore, titled “The Experience Economy.”
Pine and Gilmore argue that businesses must orchestrate memorable events for their customers, and that memory itself becomes the product — the “experience.”
Unfortunately for Fathom, changemaking, social impact and “real hunger for purpose,” were supposed to signify a way of cutting deeper but instead were merely slogans on a PowerPoint designed around a story of a hero’s journey, the quintessential experiential traveler aboard Adonia, with new frontiers assigned but regrettably never discovered. There was neither a problem that needed solving nor a desire that needed to be met.
There is no other lens to better see Fathom’s failure than through Airbnb. Its impact in Cuba is indeed transformative and represents what is working today. For Cuba’s economy, Airbnb is alieving very low hotel occupancy vacancy rates and high room rates. And, on a personal level, the company’s product offers travelers an authentic experience through the cultural engagement of staying in someone’s home. For Cubans themselves, running a small business by renting out a room through Airbnb puts them in touch with their own sense of self-sufficiency, perhaps for the first time in generations.
Today Airbnb’s listings have grown to nearly 20,000 and the company has launched a new offering called “Experiences,” an open platform for people to share their authentic experiences and favorite places with travelers, according to the company.
The Cuba Journal recently spoke with Jordi Torres, Airbnb’s Regional Director – LATAM, who said about the Experiences program, “Since we launched, Havana has been the market with the most bookings and demand.”