嘉年華遊輪 (CCL) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by and welcome to the Carnival Corporation's second-quarter earnings conference call.

During this presentation all participants are in a listen-only mode.

Afterwards we will conduct a question-and-answer session.

(OPERATOR INSTRUCTIONS).

Today's conference is recorded on Thursday, June 19, 2008.

And it's my pleasure to turn the conference over to Mr.

Howard Frank, Vice Chairman and COO at Carnival Corporation.

Please go ahead, sir.

Good morning, everyone.

This is Howard Frank and with me here in Miami is David Bernstein, our Senior VP and CFO, and Beth Roberts, our Vice President of Investor Relations.

Micky Arison is also on the call but is not in Miami right now, he is traveling but he will be available as well on the call; he's listening in right now.

Apologies for a slight delay in start; there were a lot of calls coming in and response -- the service just couldn't get the calls answered quickly to get the people online quickly enough, so I apologize for that.

Let me quickly turn it over to David Bernstein, he'll take you through some of the color in the second-quarter financial results.

David?

Thank you, Howard.

I will begin the conference call by reading the forward-looking statements as I'd done in previous calls.

During this conference call we will make certain forward-looking statements, such forward-looking statements involve known and unknown risks, uncertainties or other factors which may cause the actual results, performances or achievements of Carnival to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements.

For further information, please see Carnival's earnings press release and its filings with the Securities and Exchange Commission.

For the second quarter our earnings per share was $0.49 versus $0.48 for the prior year.

Our EPS in the second quarter came in above the midpoint of our March guidance by $0.06 per share.

This was driven by essentially three things -- first, higher than expected cruise ticket revenues for our North American brands which resulted from stronger last-minute bookings, but that was partially offset by lower than expected onboard spending at our contemporary brands and some of our premium brands worth about $0.02 per share.

Secondly, lower-than-expected SG&A worth $0.025 per share as our brands buckle down and reevaluate spending given the difficult economic environment.

And lastly, lower than expected fuel consumption worth about $0.01 per share.

Looking more closely at our second-quarter operating results; our capacity increased 8.3% for the second quarter of 2008 with the vast majority of the increase going to our European brands.

Our European brands grew 23% while our North American brands grew 2.7%.

Overall net revenue yields in current dollars increased 7.3% in the second quarter versus the prior year.

Now let's take a look at the two components of net revenue yield -- gross passenger ticket yields and onboard and other yields.

The net cruise passenger ticket yield we saw a yield improvement of 9.3% in current dollars and 5.5% in local currency.

Our North American brands were up a strong 7.6% driven by the Caribbean, Europe and other exotic itineraries.

Our European brands, excluding the Iberocruceros joint venture which we began consolidating in the fourth quarter of last year and Swan Hellenic which ceased operations during the second quarter of last year, achieved a 0.6% increase in local currency passenger ticket yields.

Given the very large increase in capacity for our European brands this year, and the increasing competition from other companies in the European marketplace, we were not expecting to see yield increases this year and were very pleased with the results.

P&O Cruises Australia with its reconfigured fleet, adding Pacific Dawn in November 2007 and delivering Pacific Star to Pullman Tours in March 2008 achieved a healthy yield increase for the second quarter versus the prior year.

I'm also glad to continue to report that Costa's yields in China improved significantly in the second quarter, as they had done in the last three quarters, driven by both price and occupancy which resulted primarily from our decision to shift our sourcing strategy from Costa Asia.

In onboard and other yields we saw a reported yield improvement of 1% in current dollars, but a yield decline of 1.8% in local currency.

However, mix accounts for 1% of the decline as our European brands, which have always had a lower onboard spending pattern, are growing faster than our North American brands.

0.6% of the decline results from inconsistent brands -- Iberocruceros, Windstar and Swan Hellenic.

Therefore the real decline in yields year-over-year is only 0.2% in local currency with declines in our contemporary brands and one of our premium brands being partially offset by increases in other brands.

On the cost side, cruise costs per available lower berth day for the second quarter were up 10.8% while in local currency they were up 7.2% and that was driven solely by fuel prices.

Fuel prices this year for the second quarter were 59% higher costing as an additional $158 million or $0.19 per share.

Excluding fuel and in local currency cruise costs per available berth day were actually down 1.1%.

Turning to the 2008 outlook.

I will skip over net revenue yields as Howard will discuss that in a few moments.

Cruise cost per available lower berth day for the full year in current dollars is expected to be up 11% to 12% driven by fuel prices and currency impacts.

However, if you exclude these two items, we expect to be down slightly.

Based on current spot prices for fuel, fuel prices for the full year are projected to be $594 per metric ton for 2008 versus $361 per metric ton in 2007, costing us an additional $752 million or $0.92 per share.

You may have noticed that I indicated that our fuel price is based on current spot price rather than the forward curve.

Given the extreme volatility in the price of fuel we feel that the forward curve is not any better or worse predictor of future fuel prices than spot, while using spot simplifies our current calculations and it's easy to monitor changes for those of you who are tracking them.

Therefore we have decided to use the current spot price to develop our guidance.

I did want to point out that had we used the forward curve for the remainder of 2008 our estimate for the EPS would have only been approximately $0.01 per share lower.

Overall for 2008 we are forecasting controllable expenses to be slightly down, exceeding our long-term target of unit growth between flat to one-half the rate of inflation, which is a credit to our brands given the significant inflationary pressures in food, wages, crew travel, freight and other areas.

At this point I will turn the conference call over to Howard.

Thank you, David.

Before I move into the outlook and discuss smart booking patterns I wanted to congratulate our operating company executives who did a great job of managing our business through the second quarter in what I would consider to be a very, very difficult economic environment on both sides of the Atlantic.

Now let me talk about booking patterns and pricing in each of our major markets.

In North America bookings, although somewhat slower than the strong levels we experienced a year ago, have held up reasonably well in the soft economy.

The bookings have been made at higher price points, so to some agree the slowing versus a year ago may also be somewhat attributable to the results of selling at these higher price levels.

And pricing for late bookings has also held up quite well.

But generally speaking, despite the slower pattern of bookings versus the strong pattern a year ago, the absolute volume of bookings is sufficient to maintain our higher prices.

So we've not changed our yield guidance for our North American brands for the second half of the year from our guidance that we gave last quarter.

In fact, we expect these prices to be slightly higher than last quarter's guidance partially offset by forecasted lower onboards.

The North American booking pattern does suggest that customers are looking for less expensive vacations and at good values, and the cruise product is perfectly positioned for the value conscious consumer.

Within our own brands generally speaking we are seeing continued strength in our shorter cruises and a slightly slower booking pattern for our longer voyages.

Looking at specific traits for our North American brands in the third and fourth quarters, Caribbean pricing continues to be strong and we expect second half Caribbean yields to be well ahead on a year-on-year basis by the time these quarters close down.

Pricing for North American brand, [our Europe] and Alaska itineraries in the second half of the year is expected to be somewhat lower year-over-year.

Lower Alaska pricing may partially be the result of the $50 head tax in Alaska, but it's really difficult to know precisely.

European itinerary pricing for North American brands, albeit somewhat slightly -- somewhat lower than a year ago, has held up reasonably well, especially considering the significant increase in Europe capacity, not just for our own brands but for competitor brands as well.

Turning to our European brands where capacity is up 21% in the second half of the year, we have had to modestly reduce forecasted revenue yields for ticket and onboard revenues.

In some measure this may reflect a significant capacity increase in Europe including that of our competitor, and also a slowdown in certain of Europe's economies, particularly in southern Europe.

Despite this our European businesses are performing extremely well and we continue to be encouraged with their ability to expand their markets and maintain relatively high price points for their cruise products.

Taking North America and Europe together, we now estimate that full-year revenue yields for 2008 will still be up in the 2% to 3% range, but at a slightly lower level within that range.

Turning to fuel -- as David indicated for the full year 2008 based on the latest spot price for fuel our fuel cost is expected to increase by $752 million or $0.92 per share over 2007.

Because of these higher fuel costs in North America we recently increased our fuel supplement charge to $9 per day for the first and second passenger in the cabin and $4 per day for the third and fourth passenger, cruise voyages of up to 14 days.

The new supplement applies to future bookings made after June 12th; they will be only a slight benefit to the increased supplement in the third quarter, a greater benefit in the fourth quarter and, of course, an increasing benefit as we get into the 2009 year.

We are looking at every possible opportunity to reduce our fuel consumption from an itinerary planning standpoint to conserving energy usage on the ships.

And in fact, we have had some good reductions in fuel consumption as a result of these initiatives.

Although fuel costs have continued to rise, we will be able to partly mitigate the effects of the increase with the fuel supplements, although there will be a lag, as I indicated before, until the full benefits of the supplements are realized.

For the second half of the year fuel costs are forecasted to be $438 million or $0.54 per share higher than in the second half of 2007.

And since our previous guidance last March our fuel cost forecast for the second half of the year has increased by $224 million or $0.27 per share.

Taking a slightly lower -- revenue forecast together with a slightly higher -- with the higher fuel forecast in the second half of the year and a small inflationary increase in operating costs we are now guiding 2008 earnings per share in the range of $2.70 to $2.80.

The midpoint of our March guidance was $3.10 per share, so we have lowered guidance by $0.35.

Of this amount $0.27 relates to fuel, about $0.04 relates to changes in onboard revenue yields, and $0.04 is the forecasted increase in our operating cost.

Turning to the individual quarters and looking now just at the third quarter where our capacity has increased 8.8%, 2% of that capacity increase comes from North America and 24% of our capacity comes from our European brands.

On a fleet wide basis for the third quarter the occupancies are running slightly behind year-over-year with pricing running nicely higher on both a current dollar and local currency basis at this point in time.

Breaking that down by our two markets -- two major markets, North American brands and the Caribbean represent 34% of our third-quarter capacity versus 40% a year ago; Alaska 29%, which is about the same as a year ago; Europe is 22%, which is a 4% increase from the 18% a year ago with the remaining capacity in various other itineraries.

At this time our North American brands are running nicely ahead in pricing and slightly behind in occupancy with very little left to sell.

The Caribbean pricing is well ahead of last year with lower occupancies; however, pricing for late business has been strong and we expect to close out the quarter with solid yield improvements in the Caribbean summer season.

As I previously mentioned, Alaska pricing is slightly lower year-over-year with occupancies at about the same year-over-year level.

For Europe itineraries, occupancy and pricing are slightly behind last year with a more than 20% increase in North American brand Europe itinerary capacity in the third quarter.

Overall for the North American fleet, this is now for the third quarter; we expect revenue yields to be up nicely from a year ago.

Now turning to our European brands.

Our European brand fleet itineraries are virtually all in Europe for the summer quarter.

At this time Europe brand pricing on a current dollar basis is higher year-over-year and on a local currency basis is slightly lower.

Europe brand occupancies are also slightly lower.

By the time the third quarter closes out we expect European revenue yields on a current dollar basis to be higher and on a local currency basis to be slightly lower.

We think this is an excellent result given the 24% increase in our third-quarter European capacity.

As I commented before, European brand overall performance at the operating line has been very strong.

Overall, as indicated in the press release, we expect that revenue yields for the third quarter will increase by 4%, 1% on a local currency basis.

However, given what is now a $241 million or $0.30 per share increase in fuel costs for the third quarter, we are now forecasting third-quarter earnings per share will be in the range of $1.56 to $1.58 versus the $1.67 of a year ago.

Now I'm turning to the fourth quarter where our fleetwide capacity is up by 8.8%, 5% for our North American brands and 18% for our European brands.

On an overall fleet wide basis occupancies are approximately even year-over-year with pricing on a current dollar and local currency basis running nicely higher.

Now just looking at our North American brands, at this time the Caribbean represents 42% of North American's fourth-quarter capacity versus 46% a year ago; the Mexican Riviera is 12% of our capacity in the fourth quarter which is about the same as last year; Europe is 12%, up from 10% -- European itineraries are 12% versus 10% from last year; and all other itineraries are each under 10%.

North American brand pricing is well ahead of last year with occupancies slightly behind.

Similar to the third quarter, Caribbean pricing is nicely higher year-over-year with occupancies somewhat lower and Mexican Riviera pricing is higher also with lower occupancies.

Pricing for Europe itinerary cruises are lower than last year with occupancies running higher on a year-over-year basis.

Generally speaking all other itineraries are performing reasonably well at this time and, based on current booking patterns, we expect fourth-quarter yields for our North American brands to be nicely up year-over-year.

Now turning to our European brands -- in the fourth quarter 77% of the European brand capacity is in European itineraries which is down slightly from 81% a year ago, with the balance and various other itineraries.

European brand pricing on a current dollar basis is running well ahead of last year and on a local currency basis it's running slightly ahead.

Occupancies are also running slightly ahead.

We are forecasting by the end of the fourth -- by the time the fourth quarter closes out revenue yields in Europe will come in higher on a current dollar basis and flattish on a local currency basis.

Again an excellent forecast result given the 18% capacity increase in our fourth quarter in Europe.

We have commented in the past that given our significant capacity increases in our European businesses we would be very pleased if our European brands were able to maintain their revenue yields at the same year-over-year levels, so we are quite pleased with our European brands performance in 2008.

Now looking at the first quarter of 2009.

Our capacity actually in the first quarter, our fleetwide capacity which is still being -- still doing a little bit of work on that, but we think overall it's up about 2%, 1% for our North American brands and 8% for our European brands, and that excludes Ibero, we don't have Iberocruceros in those numbers just yet because we don't have certain information from them.

I caution that booking data for first quarter of 2009 is still in its early stages and I wouldn't read too much into the information at this point.

For the first quarter of 2009 overall fleet wide occupancies are running ahead year-over-year with pricing slightly higher on a current dollar basis and flat on a local currency basis.

And I should add anecdotally and still of course even earlier in the stages, the 2009 second quarter has a generally overall similar pattern to the first quarter 2009.

In the first quarter 2009 for our North American brands capacity is 61% in the Caribbean which is about the same as 2008, Mexican Riviera is 12% which is down from the 15% last year, and the balance is in various other itineraries including long and exotic cruises in Canada and New England, all individually less than 10%.

At the present time North American brand occupancies are presently running ahead year-over-year with pricing nicely higher.

Caribbean itinerary occupancy and pricing are running nicely ahead; Mexican Riviera pricing is higher on lower occupancies and, broadly speaking, pricing on most other itineraries is higher year-over-year with occupancies lower.

Looking at our European brand itineraries which break down as follows -- the Caribbean represents 32% of their business in Q1 of 2009 versus 37% a year ago or in 2008; Europe is 24% which is about the same as last year; the Orient Pacific is 12% versus 8% a year ago; South America 11% which is about the same; and world cruises 12% which is also about the same as last year.

At this time Europe brand occupancies are running nicely ahead year-over-year with pricing on a local currency basis lower for most brands.

Certain of the European brands, however, with significant capacity increases, the lower pricing is part of the yield management strategy to get ahead of the booking curve in order to avoid discounts on the late sale of cabins.

And again, I remind you it's still early in the booking patterns for the Q1 2009 [core].

Although we are only halfway through the year, let me put some perspective on the 2008 year, at least as we see it so far.

When we provided earnings guidance for 2008 last December it was the range of $3.10 to $3.30 or a midpoint of $3.20 per share.

Our latest guidance is now a $2.75 [percent] midpoint or a 45% -- a $0.45 reduction.

Of this amount $0.43 is being caused by increases in fuel prices since the beginning of the year with the balance of $0.02 relating to a variety of all other revenue and cost issues.

Apart from fuel, given all the other challenges we've had to do with, including the softening global economy and inflationary pressures on cost, we're very pleased with the operating performance of our business.

And if not for the dramatic increases in fuel prices, 2008 would have been a year of solid earnings growth.

Our fuel costs have risen by $752 million, that's $0.92 per share over 2007, which is a 65% increase.

And yet our earnings are forecasted to be lower by $0.20 a share or 7% over 2007.

We think that's a pretty good result.

We also don't believe that fuel prices will continue to rise at these levels in the future, it's simply not sustainable.

And with those comments I will -- operator, I will turn it back to you and to our audience for questions.

Thank you.

(OPERATOR INSTRUCTIONS).

Felicia Hendrix, Lehman Brothers.

Good morning, guys.

Just two questions.

First your outlook actually is more optimistic than what we're hearing from the field, which is a good thing.

Just wondering, first of all, what has changed the most since you gave us at your last update?

I'm really trying to reconcile some of your comments which actually seem pretty optimistic with your outlook for the low end of your prior yields guidance.

You're saying what's changed -- you're talking about simply now from a yield standpoint?

Yes.

From a yield standpoint I think we've had in North America, and I've got David and Beth here, we've increased -- actually we've increased ticket prices, not by a huge amount, but by some in terms of the forecast for the rest of the year.

We've taken down on-board revenues.

And in Europe we've taken down ticket prices which more or less often each other between North American ticket prices -- may be a minor difference.

We've also taken down on-board revenue.

So the principal difference has been a reduction in onboard revenues, I'd say.

Okay, because then there was --

That's more of a forecast than it is actual, we don't know -- there's a little bit of estimation going on here in on-board revenues, but that's what it is.

That's what our operating guys give us and that's what we go with.

And are you trying to do anything to stimulate higher on-board revenues in this tough environment?

Oh yes, yes.

We're doing all kinds of things onboard the ships; all of our brands are working on this.

And to some degree I think they may have mitigated some of it, but I think it's an ongoing process, yes.

And is the weakness still mainly coming from art auctions or is it bleeding into other areas?

There is weakness in art auctions, that's probably the biggest drop of all.

But there is weakness in other areas.

We are seeing it, as we said last quarter, in bar, casino and other areas as well.

Okay.

And then just --

I think it's clear that our guests to some degree are tightening their belt and so our people are forecasting that.

But fortunately they continue to cruise and they continue to book at very acceptable levels.

Okay.

And then, Micky, about two quarters ago you were able to give us some good metrics to think about how the fuel supplements might benefit your yields.

And given that you've been increasing them, I was wondering if you could refresh us with that?

David can give you what would happen if we got every penny of it.

But as you see, the yields basically are under a little bit of pressure, but that's from onboard and obviously the surcharges and the ticket revenue.

David?

Yes, we had originally indicated that if we collected every dollar of the fuel supplement it would improve our yields for 2008 by about 1.5%, and that number really hasn't changed.

And the number would be just slightly higher for 2009 looking forward.

Okay, but still under 2%?

Yes, still under 2% year-over-year.

Okay, okay.

Thanks, guys.

Robin Farley, UBS.

Great, thank you.

I wanted to just clarify one thing in the release and I have a question.

But in the release when you talk about for 12-month pricing on the books being ahead year-over-year, is that in aggregate true in constant currency as well as current dollars?

The comment was made in current -- in constant dollars.

It is constant currency.

Yes.

Okay, that's great.

And then I wonder if you can talk about -- you've made some itinerary changes recently, I guess the Carnival Freedom being brought back to the Caribbean instead of Europe in '09 and I think a Costa ship also that had been in the Mediterranean coming to the Caribbean next year.

And I'm wondering if you can talk a little bit about -- obviously it sounds like the Caribbean pricing is doing better maybe than European pricing.

Is it an airlift issue?

Is it that airline costs Europe are getting so much higher?

So I guess it's sort of a two-part question, what's driving those itinerary changes?

And then also, how much is airlift an issue for you as the airlines cut back capacity and it drives prices higher?

I think you have to be a little bit careful about overstating the Carnival move.

Understand that they went from basically 1.5 ships because Splendor begins service in the middle of July to one next year.

I don't know what -- Beth, do you know what the actual reduction in capacity is for Carnival Cruise Line in the Med?

It's down about 20%, but it's a very small number, a very small base.

Right, right.

Yes, it's 20% on a small base; it's not 50% two ships to one.

Okay.

That's point one.

Costa historically has always had two ships in South Florida and that has been their normal pattern.

This year actually was an anomaly.

So I wouldn't read much too much into those two announcements.

Other than that there's no question that what's happening to the airline industry because of these high fuel prices is a concern for everybody in leisure.

Fortunately we do have the ability to move.

Fortunately we do have a number of ships that do operate from close to home cruising, whether it's close to home in Baltimore for a Carnival ship or close to home to Southampton for a P&O ship or close to home to Palermo for people in Sicily.

So that mitigates a little bit what other people will have to go through with this issue.

But it is a problematic issue and it's something that we'll have to work our way through with the airlines as time goes on.

Okay, great.

Obviously overall these yields are certainly better than what the market was anticipating.

So, great, thank you.

Tim Conder, Wachovia.

Thank you.

Just a couple here.

First of all, maybe a little housekeeping item.

What's your updated guidance given that you did a little bit better in the second quarter?

Your updated guidance for annual fuel usage here in 2008?

For the full year we're looking for [3,000,000,240] metric tons --

Did you hear that, Tim?

If you could repeat that, I apologize.

3.240 billion metric tons.

240 -- 3.240 billion?

Correct.

Great, okay.

And then, again, it sounds like the fuel surcharges so far are sticking.

Are you seeing any evidence, any pushback or tipping point so to speak that they're not and you're getting any type of pricing demand destruction anywhere?

We can only anecdotally -- we haven't gotten a lot of issue on it.

We have today such a great variety of getting customer feedback, especially with websites and blogs and all sorts of stuff.

It barely comes up.

I think there is just a level of understanding, because it's on the news every day, that we have an issue and that we have to pass it on.

And I think the level of acceptance has been quite high.

Okay.

And then two other quick ones, if I may.

Number one, could you elaborate a little bit more; you said that you're seeing a little weakness in Southern Europe.

Can you elaborate on that a little bit more?

Are we talking Spain or what areas?

And then the second question is regarding I guess your sourcing, if you may speak it -- your direct business, call center and online bookings.

What's that now trending for this year as a percent of your bookings versus through the traditional travel agent channel?

Let me --

Go ahead, Micky.

I was going to say, Iberocruceros to some degree is underperforming our expectation.

And I would say that of the European economies Spain seems to have been the one most impacted by the housing issue and the economic situation.

So it does appear that Spain, Italy somewhat as well, but Spain has been hit the worst thus far by the housing crisis and other things and we have felt it in business in Spain.

Every other -- because the capacity levels are so -- increases have been so high every other country is up significantly in bookings levels.

But as Howard said, they're performing very well, but the yields are not what we had anticipated a quarter ago, but we had never anticipated yield growth when we strategically started growing at these kinds of levels.

I'd just like to add, while we've taken down yields in Europe, it's really by a small amount.

These are not significant swings in yield; it's really on the margin.

We're really getting fined here, because last quarter we estimated 2% to 3%, and this quarter we're estimating 2% to 3%.

So we're really talking rounding errors and overall yield adjustment.

Most of the yield change has been in onboard.

And nothing, gentlemen, is again housing, Ireland and the rest of the UK kind of the issues there also, but you're not seeing anything out of those markets?

I would say that there's a general sense that the European economies are weakening, but we're feeling it more in Spain than anywhere else.

Okay.

As far as direct business, what I can say is that since Bob Dickinson retired two of Carnival's senior sales and marketing executives who were clearly the most aggressive in growing Carnival Cruise Line's PVP and direct business left the Company, as I'm sure you know.

One went to Royal Caribbean and one went to NCL.

Since that time Jerry and his team, [Roben] and [Lynn] have really re-evaluated that program.

And the fact is that they have significantly reduced the business from that program.

The result is and will be, at least for the time being, less direct business.

So far it appears that the result of that change in strategy has improved yields and at the same time reduced G&A cost.

So we're very pleased with that kind of mid-course correction.

I think it's very important to state that the travel agency distribution system has been an effective and efficient distribution system for this company for 35 years and it got us to where we are.

We clearly believe that we need to continue to support them; they have shown this year that they can give us the yield improvements we need to overcome at least partially these higher fuel costs.

So despite the fact that I would expect that we'd have a little bit less direct business next year, particularly at Carnival Cruise Lines, that the effect of that will be higher yield.

Okay, okay.

Any type of percentage shift year-over-year, Micky?

No, we've never given out those percentages.

Okay, okay, thanks.

Steve Kent, Goldman Sachs.

Hi, good morning.

Just a couple things.

Have you changed your marketing programs to target that value orientation or are you turning that up a little bit more and could we see more of that over the next six to 12 months?

And then also any change in cancellation rates?

I know they're remarkably low.

But I was just wondering if you're seeing any pickup given the economic environment?

I think Steve -- good morning, it's Howard.

Each of the brands of course is -- when it comes to the value, they're all out there tactically with their own mailings and so on.

So there is a lot of that going on in the marketplace.

I don't know that it's the whole lot different, but I do think there's been a little bit of step up in some of the marketing to get the value equation out there for the consumer.

And I think it's been successful.

And it varies brand by brand depending on how much demand they're feeling and whether they need to stimulate demand and so on.

Anything else, David?

No.

I was going to say, as far as the cancellation rates are concerned, we have taken a good hard look at that since it's been a question that everybody has been asking.

And they're really just up ever so slightly so there's really no significant change there either.

Okay, thanks.

[Asia Georgieva], Infinity Research.

Good morning, congratulations on excellent ticket yields now for -- since the first half of the year.

And my question goes to your assumptions on onboard spend.

Should we think that for the second half that number could actually come down a little bit?

It seems that coupled with the good ticket yields that would be the only assumption to make at this point?

We did take it down actually in the second half of the year in terms of our forecast.

And of course it varies brand by brand.

When we talk about onboard, some brands seem to be performing okay.

So it's really hard to read from our perspective -- to read the tea leaves.

So in large measure we rely on the operating company executives to give us their best sense of what's going to happen to onboards in the third and fourth quarter.

We believe -- and they did take them down and we believe they're very comfortable with that.

Overall if you looked at our actual results in the first quarter and the first half of the year, our forecast for onboards are down ever so slightly more in the back half than they were actually down in the first half.

So we are trying to take all of the various factors into consideration.

And I think, Howard, you mentioned that one of the premium brands showed a bigger increase in onboard spend.

Could that have been temporary or should we expect that trend to continue?

I don't recall saying that, but I think --

No, I said --

David did.

One of them -- not increase, one of them had a decrease.

And really a lot of that decrease had to do with art auctions.

And one of them is holding up quite well, one had a decrease, yes.

Okay.

And my second question is more on the cost side.

It seems that given current guidance you expect some of the inflationary pressure on -- with the fuel, food and payroll particularly to decrease as we get into the fourth quarter.

What is that expectation based on?

It seems that in Q2 and especially for Q3 we'll continue to see some increases in those areas?

We're not necessarily expecting the inflation to decrease; it's just that our brands have found ways to offset inflationary pressures.

In some cases the subsidy is the mother of invention.

Our brands have looked at the menus, now when one particular brand -- now on lobster night, instead of getting two lobster tails you get one and shrimp.

There are lots of different ways and easy -- and we also have easy comps versus the prior year fourth quarter as well.

A lot of the cost increases are in fact coming from payroll and food and travel, particularly airline travel.

Our people travel, our crews travel.

So that -- that's the major, major piece of it.

Okay, excellent.

Thank you so much.

Steve Wieczynski, Stifel Nicolaus.

Good morning, guys.

Hey Micky, this is a question for you and you started touching on this.

Can you comment on -- your largest competitor basically went through and changed their commission structure, I guess it was about a week ago, a week and a half ago.

It doesn't sound like you will do the same.

So do you think this somewhat presents an opportunity for you guys to take some of their business from certain agents?

No, the problem with the comparison is the way we -- our business model and their business model is just different.

Sometimes everybody wants to put them together.

But in reality, what they announced was a commission program that was on the corporate level.

And all our pricing in commission programs are done on the brand level.

And so when you start comparing to some degree you're comparing apples and oranges.

That doesn't mean that our brands won't take a very strong look at what was done and see if there are opportunities or not and what is appropriate for their particular brand.

Our philosophy has been that the needs of each brand is different and you can't do these things from our perspective, on a corporate basis, you've got to do it brand by brand.

And so are there opportunities?

Probably.

Will they differ by brand?

Definitely.

But it's very hard to tell because, again, you're comparing what a brand like Holland America may decide versus Celebrity which is tied in with Azamara and tied in with Royal Caribbean at one package.

So it's apples and oranges.

But it's something our brands are studying and they will over time react to.

Also, our programs have tended to be adjusted year on year.

While it appears, based on the quotes that I saw coming out of there, that they hadn't made any adjustments for many, many years, there was kind of a catch up going on.

Got you.

And then second question, final question, in terms of the overall booking window, have you seen that basically start -- has that started to shrink a little bit or has it kind of held up?

It's hard to say.

It doesn't appear to be because, as Howard said, anecdotally our first- and second-quarter occupancies are ahead year-over-year.

And remember, they're ahead against a very, very strong booking pattern this time last year for the first half of the following year.

So, while we're watching it carefully, and obviously we're all reading the same newspapers and hearing the same things, to some degree it's even surprising to us how well it's held up.

And I think it's people still taking their vacations.

Everybody you talk to, regardless what part of the economy they are at, are still taking their vacations.

And I think you have to remember that a large segment of our consumer, of our guest, are not affected by the changes in the economy.

It comes from the people, the wealthier section of the economy, the retirees or people well set in their positions, their jobs and so on.

So I think that in part is the reasons why I think we are performing as well as we are.

Okay, great.

Thanks, guys.

Nick Thomas of ABN Amro.

Yes, hello there.

I wonder if you can just expand a little bit on one of the comments in the statement.

You talked about how you are finding consumers showing a great degree of price sensitivity.

The statement certainly focused on not being a benefit for the cruise industry.

I wonder in terms of compared to the holiday options, I wonder whether you could just talk a little bit more about how it is altering the mix of demand within your business, in terms of different brands, shorter cruises, longer cruises, different customer times, etc.?

Then secondly on the fuel side of the business, could you just expand a little bit on the magnitude of the efficiency opportunities that you might have in 2009 versus 2008?

And just to confirm, would it be right given this $670 that you are talking about for the third quarter is an effective analysis spot price rather than based on the forward curve, for people that just want to make a basic assumption that that price remains unchanged going forward, should we basically assume 670 for each future quarter, or are there some geographic differences between each quarter to mean that that may be a misleading assumption?

The 670 is a fairly good assumption across all future quarters.

There are minor geographic differences, but they round and get you real close back to 670 as you go forward.

Thank you.

On the issue of the mix of business and the demand in various different cruise products that we have and whether they are short duration or long duration cruises, some of what I am going to say is information you can readily see, but some of it is anecdotal and just in talking to our operating executives in terms of what they're saying about the business.

And most of what I'm referring to is really later on in the late fall, early winter up through the end of winter in terms of what they're seeing in the pattern.

And what I said was that -- and you can just see it in terms of when I talk about pricing.

The pricing for Caribbean overall has been quite good and it looks like it's sustaining itself through the first quarter.

So sure, and that's mostly seven-day and shorter cruises for the Caribbean.

So that's holding up quite well and we think we're going to have a -- assuming nothing changes between now and then it should perform quite well from a yield improvement standpoint.

And if you look at longer voyages, especially world voyages and 50-day voyages and so on, there is a little bit of a challenge there and so that we may have to bring at some point in time in terms of yield managing that business, there may be some more tactical things we're doing.

I did talk about increased mailing, direct-mail business to our existing customer bases for those types of cruises.

It will all get done, but clearly I think people -- it appears that people are maybe foregoing a more expensive vacation and trading down to a less-expensive vacation, nonetheless they're taking their vacations which is good news.

I don't know -- there's just so much in there that I can talk about.

But generally speaking it would all be anecdotal.

But that's generally the trend that we seem to be seeing right now?

Thank you.

On the fuel efficiencies?

Oh, on the fuel --

For 2009 --

For 2008.

What was the question?

The question was the magnitude of the fuel efficiencies for 2009 versus 2008.

You know, to some degree it looks like we've got -- this year we're -- if we can get 1 or 2% fuel efficiency year-over-year in terms of consumption that that's a pretty good result for us.

Because our fuel bill this year has ranged at about $1.9 billion in total, so if we can get somewhere between $20 million and $40 million -- and next year.

If these spot prices are sustained through all of next year the fuel bill will probably go up another $250 million to maybe $21 billion, $22 billion.

So if you talk $20 million, $40 million in fuel efficiency that's a large number for us.

We don't target it, we do it operating company by operating company, but they're all looking at ways to improve their efficiencies whether it's onboard the ships, whether it's their itineraries -- a variety of different of things that they're doing, whether they're repainting the ships with silicon-based paints as they come in to dry dock -- all of those things though seem to be paying off.

But it's always difficult to tell because each year your mix of itineraries is so different.

So you've got to weigh that in terms of the revenue you can get from the itinerary versus your fuel usage.

And sometimes you may not get a fuel benefit but you're getting a revenue benefit, it's a balance between the two.

Exactly.

Sometimes it's very hard to tell because at $80 fuel you may not sail an hour earlier from a port so you could pick up a tour that will give you better revenue than the savings by sailing an hour early.

But at $130 fuel you may not pick up enough -- so it becomes a moving target.

And as fuel prices increase our itinerary people have to reevaluate all their itinerary decisions based on the current price.

So the savings theoretically of consumption will become greater as the price becomes higher because the trade-off makes more sense.

Did what I just say make sense?

It does, thank you very much.

It makes sense to us but we hear it all the time.

Tim Ramskill, Dresdner.

Two questions from me.

Firstly, with regards to the fuel surcharge, given we generate a net yield of approximately $180 and a surcharge (inaudible) and is now at 9.

Can you explain to me why it's fairly sort of still 1.5 percentage points yield (inaudible) --

It's incremental, Tim.

It's an incremental change.

So you're thinking of it on a cumulative basis.

So we've picked up half of the fuel supplement in 2008 and the other half we'll pick up in 2009.

So --

Remember, none of it is retroactive so we're getting just small bits of it going forward into this year.

If we implement it today or on June 12th or 10th, whatever the date, we don't really see the full impact of that until really the second half almost of 2009.

I mean, we get some of it, but we've already booked a lot of business through the first quarter of 2009.

If you compared '09 back to '07 where you had no fuel supplement you'd be looking at a total of double the 1.5 or 3% '09 versus '07.

Okay, thanks.

And then the second question from me was just regarding the dividend and how we should think about that going forward.

If you continue paying a $0.40 quarterly dividend then your dividend cover will be out 1.7 times for this year.

Are you comfortable with that and at that level going forwards or should we expect anything to change?

At this point in time the dividend is not an issue for us.

But of course we look at it carefully.

We are -- our A- credit rating is very important to us and so we'll always keep the dividend in mind in context of the credit rating.

But at this point it's not a concern.

Right now we don't see it as a concern in the near future.

Thank you.

Mark Reed, Landsbanki.

Thank you.

Three questions from me, if I may.

Q3 guidance, this is for net yield, constant dollars of plus 1% which compares with the last two quarters of over 3%.

Is that really reflecting the fact that comps get harder from Q3?

And as such should we view at over 1% going forward is a decent indicator for a future run rate?

Second question is on--.

Let me -- let's do one at a time here if we could.

Okay.

Mark, okay, because I think there are a couple of things at work here.

I think the first comment you made that it's tougher comps, I think that's true.

We started to see some good demand beginning in the third quarter of 2007.

So the comps in the third quarter -- and I said this in my previous guidance -- would be tougher for us than they were in the first and second quarter.

The other thing I think that's working here is that price points in the seasonally strong third quarter are much higher.

So it stands to reason that it would be tough -- more and more difficult to get the yield improvement into Q3 than we had in the first and second quarter.

If that's sufficient to explain what's happening.

I don't know and I wouldn't comment -- I mean, I think about yield guidance, but I think it will be higher.

Our thinking right now is it will be higher in Q4.

But I don't know that I would take that beyond Q4 in 2008, that's about all I'm prepared to say right now.

Okay, thank you.

Question two is on -- apologies, but fuel.

We seem to spend our lives as analysts hoping that the recent fuel uptick is a temporary spike and that it's going to reverse.

And it does become a tipping point like there was with surcharges where we actually revisit the idea of hedging to some degree fuel and if so are we there or there about?

We constantly -- we look at the hedging scenario and whether it's a program that we should do.

Essentially we view it as a temporary fix, not a permanent fix for any -- and that whether we should do it or we're not doing it and at these levels it's kind of difficult to justify a hedge because I think with our fingers crossed we're hoping that maybe we've hit the top of it and it won't go a whole lot higher.

However, we've said that before and it has gone higher.

(multiple speakers)

Hedging is just (multiple speakers)

(multiple speakers) -- all I need to say is from a management standpoint we constantly look at it, but we just haven't made a decision to go ahead and hedge.

But if you have a real rolling edging program you're just delaying.

If you have very tight margins like in the airline industry that's one thing.

When you have our kinds of margins if we had hedges in place and we made $0.10 or $0.15 more this year and have to pay the piper in '09, would it really make that much difference and it would have cost us tens of millions of dollars to do it.

You're just postponing it, you're pushing it out a year.

So, yes, maybe we would have made $0.10 or $0.15 or $0.20 more in '08, but we would have paid that in spades in '09 as the rolling hedges went on to higher prices.

So it's just -- obviously we continue to make the discussion not to hedge.

Okay, thank you.

And one final question.

On cruise ship returns, with the fuel price as it stands at the moment, Micky, could you give us a bit of an indication, some of your older ships, does it make them uneconomic in terms of returns at the tail?

And equally, could you give any indication on what the returns are on top of the newer ships at current levels of fuel price?

Actually it's funny, but in many cases the older ships have higher returns because the capital costs are so low.

Right.

So it's a mixed bag.

But there's no question that at today's new building costs and at today's operating and fuel costs returns are tough on new buildings and that's why you haven't heard about a new building deal from us recently and why we continue to talk to yards all the time.

We think that our conservative approach and disciplined approach to new buildings, our disciplined approach to our cost structure and our wide margin and our disciplined approach to our balance sheet really pays dividends in times like this.

And so we will continue to work on that basis.

I will say that I looked at a couple of the ships that we took delivery of this year and their forecast for their first full year, particularly like the Ventura, and we did redid the models and the ships still achieve returns that are above our hurdle rates even at today's fuel prices.

So we're very pleased by that.

Although I will point out the ships were ordered a number of years ago and do benefit from the lower cost per berth.

And two of the ships we take delivery of, the one we just took, Eurodam and Ruby, were dollar contracted ships at very, very, very attractive prices.

Okay.

Are there any ships in the portfolio at the moment that aren't hitting the return targets which you may look at exiting?

Very often those -- the reason for a particular ship return being low is very often more itinerary driven and so you have to tweak those.

But, no, there's -- right now we have no plans of selling ships.

So when you're developing new markets, you may put a ship in the market that doesn't get the returns you want, but you're developing a new market so you do that.

Yes.

I mean, a perfect example was the two smaller Carnival ships, the Celebration was just transferred to Iberocruceros.

Now unfortunately Spain is having a tough year.

But long-term strategically I think that ship will give us better returns long-term in Spain than they were giving us as the smallest ship in the Carnival Cruise Line fleet.

Thank you very much.

David Leibowitz, Burnham.

Thank you, good morning.

Unrelated, first question, what price should a one-week cruise in the Caribbean be for you folks to be satisfied saying we are earning or the industry -- rather than just limiting it to your brands -- that the industry is now back in control of pricing and we're getting the type of return we're entitled to?

That's a tough question, David.

It's never enough.

Clearly we think we're -- the value equation continues to be very strong here.

We're under selling our products and -- but in a tough economy like this it's a challenge to move pricing up beyond to levels that we think are justified.

But our pricing today is probably no different than our pricing was 10 or 15 years ago for a lot of our Caribbean product, a lot of our Caribbean cruises.

So we think there's a huge opportunity.

We're probably 30%, 40% below land comparable land-based vacations.

So, that's the range from where we are today.

So I think that's where the opportunity lies if that's what you're driving at.

No, actually I'm trying to figure out -- we keep seeing specials, we keep seeing blended rates, whatever.

But if one were to say in this imperfect world of ours what should a one-week Caribbean cruise out of Florida cost?

Should that price be $1500, $1200, blended rate again and industrywide.

It's clearly different by brand.

A Seabourn seven-day cruise in the Caribbean should be four or five times more than a Princess cruise in the Caribbean or a Carnival cruise in the Caribbean.

So, there's no real answer to your question.

But one thing I can assure you is that the promotional fares you often see more often than not are very few number of passengers on the ship.

A very tactical business.

Well, let's hope so.

Okay.

A second question, in terms of the difficulties in filling the ships -- I forget your exact terminology, Howard, are you saying to us then that instead of let's say 105% capacity as you report on your 10-K, it might be 102% capacity?

I don't think I said we're having difficulty filling the ships.

What I -- and if this is what you're referring to, this is what I said, is that occupancies in some markets are running marginally behind occupancies a year ago, but that doesn't mean we won't fill the ships.

What I went on to say is that the demand -- last year we had very strong demand.

This year from a comparable standpoint it's not as strong but the price points are higher because we're trying to achieve higher prices, demand will slow a little bit, but we think we have enough demand to fill up the ships.

But (multiple speakers).

(multiple speakers) the end result will be the same or similar occupancy level when we report.

No, what I had said was 102% down from 105% which would imply (multiple speakers).

No, it might be 104.5% versus 105%, but it's not going to be 102% versus 105%.

I think our occupancies actually in the second quarter were higher than they were a year ago.

So I don't think it's really -- that that number is relevant, really.

Okay.

We operate full, the question is how many third and fourths are on the ships that play that little 1 or 2 points.

But we operate full.

And most of the variation in occupancy results from the mix of different brands as we add more ships to the fleet.

Some ships will sale -- they all sale at close to 100% cabinet occupancy.

Some will sale at 110%, 115%, 120% of total occupancy, others will only sale at 102% depending on the brand.

Okay.

And lastly, from a Carnival perspective, you've made several deals to create or establish joint ventures rather than plowing into a market on your own or what have you.

Is that a trend we should expect to continue or have the current economics changed the virtue of a joint venture versus going it on your own?

In every case we bought out the joint venture partner with the exception of the one we just did with Iberocruceros where we have learned that you need to have a fully controlling interest, we have 75%, to make a joint venture work.

We're not comfortable with 50%/50% joint ventures where that has been a little tenuous.

But the net result was that we've made it work and we bought out the joint venture partners and moved on.

Who knows what will happen in the future, but right now there's no joint ventures or acquisitions in the pipeline.

Each opportunity is unique and the circumstances are unique and that will dictate what structure we have for a transaction.

But having said that, Micky is right, there's nothing being discussed right now.

Thank you very much and thank you for bending the two question rule.

I will ask -- two more people, please, and that will be it.

We'll have to close it off.

[Simon Misoratti], Societe Generale.

Good morning.

Can you give us more detail in terms of how you achieved the savings in SG&A you were talking about and whether we can expect this to be sustainable perhaps into next year so that your cost guidance of half the inflation rate could perhaps be a bit lower next year?

Yes, the achieving comes in the form of cutting back on headcount increases, travel restrictions, special projects and other things.

It does flow through the year and of course it is included in whatever guidance that we gave for the year.

We haven't given guidance or really looked in detail for 2009 yet.

So overall I don't want to make any comments or projections on '09.

But for '09 presumably then your guidance of half the inflation rate still remains?

I said flat to half of the rate of inflation is our target.

Okay, thank you.

That has been a target that we've kind of used for years.

We've fortunately been able to beat that target for many, many years.

But you never know.

Obviously there's more inflation pressure now than there has been in a long time.

Okay, thank you.

Thank you, gentlemen, for taking all those questions.

We'll now turn it back to you to continue or for your concluding remarks.

Okay, thank you, everyone.

The questions were good and we thank you for listening in and we wish everybody a great day.

Thank you.

Bye-bye.

Thank you, sir.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you all for your participation and ask that you please disconnect.

Thank you, once again, and have a great day.