嘉年華遊輪 (CCL) 2008 Q4 法說會逐字稿

(Audio in Progress) -- participants will be in a listen-only mode.

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

(Operator Instructions) (technical difficulty) December 18, 2008.

I would now like to turn the conference over to Howard Frank, Chairman and CEO.

Please go ahead, sir.

Thank you, Alex.

Good morning everyone.

This is Howard Frank and with me this morning is Micky Arison, our Chairman and CEO of Carnival along with David Bernstein, who is our Chief Financial Officer and Senior VP of Finance, and Beth Roberts, who is our VP of Investor Relations.

I will turn the call over to David who will take you through some of the color for the 2008 year and the fourth quarter and then David will turn it back to me and I will give you some views on our current outlook for the business going into 2009.

David?

Thank you, Howard.

I will begin the conference call by reading the forward-looking statements.

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 fourth quarter, our earnings per share was $0.47, which came in above the midpoint of our September guidance by $0.10 per share.

This was driven by lower fuel prices worth $0.06, stronger-than-expected revenue yields on closed-end bookings worth $0.02, and various other items worth $0.02.

The gain on the sale of the QE2 was in our previous guidance; however, the stronger dollar versus the sterling increased the gain.

Looking at our fourth-quarter operating results versus the prior year, our capacity increased 8.1% for the fourth quarter with the majority of the increase going to our European brands.

Our European brands grew over 16% while our North American brands grew 4.6%.

Overall net revenue yields in local currency increased 2% in the fourth quarter versus the prior year.

Now let's look at the two components of net revenue yields.

For net cruise ticket yields, we saw an increase of 3.2% in local currency.

Our North American brands were up 4.4% driven by the Caribbean, Mexico and other exotic itineraries.

Our European brands experienced 1.3% lower local currency ticket yields.

Given the 21% capacity increase for our European brands this year and the increasing competition from other companies in the European market place, we were expecting to see overall flattish yields, which is exactly where we wound up excluding Ibero.

As to Ibero, they did experience soft pricing in the fourth quarter as they did in the third quarter which resulted from the difficult economic environment in Spain.

P&O Cruises Australia with its reconfigured fleet adding Pacific Dawn in November of 2007 and delivering the Pacific Star to Pullmantur in March of '08 achieved a healthy yield increase for the fourth quarter versus the prior year which supports our decision to grow the brand by redeploying the Ocean Village ships over the next two years.

For net onboard and other yields, we reported a yield decline of 1.8% in local currency.

However, mix accounts of 0.8% of the decline as our European brands which have always had lower onboard spending are growing faster than our North American brands.

We saw yield declines in about half of our brands around the world, a trend which we anticipated in our previous guidance.

On the cost side, our cruise costs per available berth day for the fourth quarter in local currency were essentially flat.

Fuel prices this quarter were higher by 24% costing us an additional $84 million or $0.10 per share.

Our continued focus on managing controllable costs allowed us to offset the $84 million of higher fuel costs which is a tribute to the strength and talent of our brand management teams.

Excluding fuel and the gain on the sale of the QE2 which was included in other ship operating expenses, cruise cost per available lower berth day were down 1.2%.

However, the best measure of cruise cost changes are on an annual basis and I'll touch on that in a moment.

Looking back at the full year 2008, our EPS was $2.90, which I recognize was not in the range of the original guidance that we gave one year ago of $3.10 to $3.30 per share.

The midpoint of that range which was $3.20 per share was based on $486 per metric ton of fuel.

If you adjust for the actual price of fuel, the midpoint would be $2.92.

Therefore, we missed our guidance by a mere $0.02 per share.

For 2008, our currency -- I'm sorry -- our capacity increased 8.9%.

Net revenue yields in constant dollars was up 2.4%.

This was slightly below the range of our guidance a year ago.

During 2008, we saw pressure on an onboard revenue yield as a result of the ongoing recession and its impact on our guests.

As I indicated before, the best measure of cruise cost changes are on an annual basis.

For the full year, our cruise cost per available lower berth day in constant dollars was up 7.5%.

However, excluding fuel, the gain on the sale of the QE2 in the fourth quarter and the gain in the third quarter from the final insurance settlement related to the damage done to our port facility in Cozumel, cruise cost per available lower berth day were essentially flat.

So our controllable expenses excluding fuel and currency were essentially flat despite inflationary pressures.

This is a great accomplishment.

We were able to offset inflation during the year through economies of scale and increase efficiencies.

However, as I've indicated on previous calls, our long-term track record of flat cruise cost per available berth day dating back to 1990 is getting harder to maintain in the face of moderate capacity growth.

As a result, our goal for future cruise cost per available lower berth day is in the range of flat to one half the rate of inflation.

In summary for 2008, we posted solid earnings in an extremely difficult year.

The 55% increase in fuel prices was largely offset by a combination of our capacity growth, our yield improvement and our excellent cost controls.

Turning to our 2009 outlook.

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

For cruise cost per available lower berth day for the full year, excluding fuel and in local currency, our costs are projected to be up 2%.

However, half a percentage point is due to the gain recognized in the prior year on the sale of the QE2 which reduced prior year costs.

In addition, another half a percentage point is due to the gain from the final insurance settlement related to the damage done to our port facility in Cozumel which also reduced prior year cruise costs.

So without these two one-time items, the real underlying increase in cruise cost would be approximately 1%.

While this guidance for controllable expense unit cost excluding fuel and currency is within our long-term target of the unit cost growth between flat to one-half the rate of inflation, we continue to look for opportunities to reduce this increase.

I've had numerous discussions with our brand management teams.

We are all working for her to find ways to improve upon the guidance in this very difficult economic environment.

I'm hopeful that we will have another year of flat costs.

Based on the spot price of fuel using Monday's closing price, fuel prices for the full year are projected to be $2.95 per metric ton for 2009 versus $558 per metric ton in 2008, saving us $861 million.

In addition, FX rates have moved from an average in 2008 of a EUR of 149 to a GBP of 190 to our 2009 guidance of euro 138 and sterling 158.

So in the end, fuel and currency are driving down our costs.

So in current dollars and including fuel, our costs are actually expected to be down 13% to 15%.

While these movements reduce our costs given the diversity of our worldwide revenues, 50% of which come from the passengers sourced outside the United States, these movements are expected to negatively impact our bottom line.

So given these FX rates, our year-over-year profit hit from currency is expected to be $195 million or $0.24 per share.

As fuel and currency are big factors affecting our 2009 results, I wanted to share with you some current rules of thumb about the impact that these exchange rates and fuel prices have on our 2009 results.

To start with a 10% change in the price of fuel represents a $97 million or $0.12 per share impact on our P&L.

A 10% change in fuel has obviously come down along with the price of fuel, while a 10% change in all currencies relative to the US dollar would impact our P&L by about $140 million or $.17 per share.

Fortunately for us, these items have moved in opposite directions acting somewhat as natural hedges of each other.

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

Thank you, David.

Since -- let me make some comments on the outlook for 2009.

Since we reported to you some six weeks ago, the slowdown in the cruise booking has continued.

While bookings for close-in business has been satisfactory, bookings for late spring and summer continue at a slow pace.

We have taken pricing lower and while that has helped to fill the ships on close-in business, it is yet to have much of an impact on late spring and summer booking patterns.

In this weakened North American economy, bookings for our shorter value-oriented Caribbean cruises have been stronger than our longer and more expensive European, Alaska and long and exotic cruises.

The good news is that consumers are still taking their vacations but the vacation decisions for next month rather than next year.

Looking at our booking patterns, it is also clear that consumers are looking for more value for their vacation dollar.

And our shorter less expensive Caribbean cruise products are performing much better than our premium and luxury longer cruise products.

So we are seeing a consumer trade down to value which plays nicely into our Carnival Cruise Lines brand and that should help us to perform reasonably well during this economic downturn.

While we are hopeful that consumer psychology will change when the new president and his administration take office in January and his new fiscal stimulus plan is implemented, there is no real way of knowing if and when that will kick in.

There is however another silver lining in the booking picture and that is our European brand bookings are holding up considerably better than our US brands.

This will be a positive factor in 2009's performance since much of our brand's new capacity additions in 2009 will be for our European cruise companies.

While many Western European markets are also experiencing a recessionary economy, we believe the European consumer has net savers and with considerably lower credit card and other personal debt are better able to cope with the weakening economies in their countries.

Also as you know, Europeans have far more vacation time and the European cruise market is far less penetrated than in the US.

So our strategy of investing in our European cruise brands should be a positive factor in our overall financial performance for the upcoming year.

Our European brand capacity in 2009 will increase by 8% as compared to North American brand capacity which will increase by 4%.

As we indicated in the press release, we have reduced local currency net yield guidance range for 2009 from the guidance we provided last -- in late October to a range of negative 6% to negative 10%.

3 points of this reduction is due to the elimination of the fuel supplement revenue for 2009 which we announced earlier this month.

And we also took our ticket pricing and onboard revenues lower for the year in view of the further deterioration in the economic environment.

However, given the closer in booking patterns, revenue yield guidance is more of a challenge for 2009.

And consequently, we are using a broader range of guidance than in past years.

Fuel prices have come down further but not enough to offset the revenue lost from eliminating the fuel supplement and the other revenue reductions.

And as David indicated, we are still estimating an approximate 2% increase in cost for the year excluding fuel.

Taking all of these factors into consideration, we have lowered 2009 earnings guidance to a range of $2.25 to $2.75 per share.

Turning to our specific ship deliveries in 2009, this spring we take delivery of three ships for our European brands, the AIDAluna for our AUDA brand in Germany, the Costa Luminosa and Costa Pacifica for our Costa brand, the largest cruise company in Europe.

And in June, the Seabourn Odyssey, a spectacular new class of ship for Seabourn and the first ship to join the Seabourn fleet in over 15 years is being delivered.

In September the Carnival Dream, a new class of ship for Carnival Cruise Lines will be delivered.

On a fleet-wide basis, this capacity increase will be about 5.5% for the full year.

Given the continuing challenges to raising debt in the capital markets, I think it's appropriate to make some comments on the Company's balance sheet and its liquidity going forward into 2009.

In late October as a result of the extraordinary high cost of raising new debt, the Company suspended its dividend which on an annualized basis will save us approximately $1.3 billion.

With this in mind, let me provide you with a brief overview of our cash flows for 2009.

Using operating cash flow at the midpoint of our earnings range for 2009, now that is the $2.50 a share, we are currently estimating 2009 cash flow of approximately $3.3 billion.

In addition, we have committed financing for ship deliveries today of approximately $800 million for a total of $4.1 billion of incoming funds flow.

Against that, we have approximately $3.4 billion of CapEx spending which covers the five ships I just talked about plus estimated maintenance CapEx for the year and we have maturing debt of approximately $700 million.

So essentially our cash inflows for the year will be sufficient to fund cash outflow requirements without having to raise any capital in the debt markets.

The debt markets continue to be very difficult even for solid investment grade credits like Carnival with credit spreads still at historical highs.

However, in order to further strengthen our balance sheet, we have recently closed on additional lower cost bank financing and are working on several new financings also at lower costs.

In addition as a further liquidity cushion, we have approximately $1.3 billion of cash and availability under our revolving credit facilities going into calendar 2009.

Given these uncertain times, we believe our strategy of maintaining a strong balance sheet has positioned us well and we will continue with this strategy going forward.

Now let me give you some color on each of the first three quarters of 2009, a little bit more color on the booking patterns.

Looking at the first quarter of 2009, fleet wide first-quarter capacity is up 2.6% on an overall basis, 1.9% in North America, 7% in Europe.

On a fleet wide basis right now as we look at the booking picture, first-quarter occupancies and pricing are running behind last year.

For North American brands in the first quarter, 62% of capacity is in the Caribbean.

That's slightly up from 61% a year ago; 12% is in our Mexican Riviera programs, down from 15% last year.

And the balance are in various other itineraries including long and exotic cruises.

At this juncture with a small amount of inventory left to sell, Q1 occupancies and pricing are running behind year-over-year.

Caribbean and Mexican Riviera pricing is slightly ahead with occupancies slightly behind.

Not unexpectedly, pricing and occupancies for longer and exotic cruises at higher price points are running behind.

This is consistent with what we have been saying that shorter and less expensive Caribbean cruise products are holding up reasonably well as consumers search for good value in their vacation choices.

Turning to our European brands, their ships are 32% in the Caribbean versus 37% from last year.

24% are in Europe, up a couple points from 22% last year, 12% in the Orient Pacific area versus 10% the prior year, 12% in world cruises which is about the same as last year.

And 11% in South America, up slightly from 10% last year.

At this point, Europe brands with a 7% increase in first-quarter capacity are running slightly behind in occupancy and pricing; however, Costa brand pricing in Q1 is running at higher year-over-year which is a positive sign as Costa will be taking on significant capacity this year.

Costa appears to be performing relatively well despite the softening of the economies in Continental Europe which is its primary market.

By the time the first quarter closes, we expect pricing to be lower for North America and Europe brands and as we indicated in the press release, we are estimating that local currency ticket yields for the first quarter will be 5% to 7% lower than last year's first quarter.

Approximately 40% of the lower yields in the first quarter reflects the elimination of the fuel supplement.

Fuel costs in the first quarter using today's pricing of $2.95 a share -- or $2.95 a ton will result in fuel being lower by $159 million versus last year.

However, operating costs are expected to be higher in the first quarter but we think there is some opportunity to bring these costs lower as the slowing global economy should help to reduce the cost for certain commodity-based products.

Taking all of these factors into consideration, we are currently forecasting earnings per share to be in the range of $0.20 to $0.22 for the first quarter versus $0.30 in the first quarter of 2008.

Turning now to the second quarter of 2009, on a fleet-wide basis second-quarter capacity is up 6.1%; 4.4% of that is in North America and 8.3% is in Europe.

On an overall basis, second-quarter ticket pricing occupancies are running behind year-over-year as a result of the slowdown in the booking pattern.

For North American brands, second-quarter capacity breaks down as follows -- Caribbean is 54%, 54% versus 51% from last year; Mexican Riviera is 10% versus 13% a year ago; with all other itineraries including the Alaska and Europe shoulder seasons, Panama Canal, long and exotics each under 10%.

Caribbean and Mexican Riviera occupancies end pricing are lower year-over-year; occupancy and prices for shoulder Alaska and Europe and long cruises are even more significantly lower.

It is clear that North American consumers are holding off making any decisions on cruise vacations until we get into 2009.

However, we believe these booking gaps will start to close in the second quarter as we begin the new year.

Europe brands in the second quarter are 59% in Europe trades approximately the same as last year; 11% in the Caribbean, down from 16% a year ago; 11% in Transatlantics, about the same as last year; the balance in all other itineraries are all under 10%.

On an overall basis, Europe brand occupancies are lower than last year although better than the North American brands.

Overall Europe brand local currency pricing is slightly higher than last year.

Europe itinerary pricing -- this is for ships that are in Europe for our European brands -- is running at about the same levels as last year with lower occupancies at this point.

Caribbean pricing is running behind last year with approximately flat occupancy.

Pricing for the various other itineraries are running slightly better than last year at lower occupancies.

So as you can see from this even with the 8% increase in capacity, our European cruise companies seem to be performing better than their North American counterparts.

Now turning to the third quarter where our fleet-wide capacity is up 5.6%, 3.8% of the capacity is up in the Europe, up in North America and 7.4% is increased in Europe.

Booking information for the third quarter is still in the early stages of development so I caution not to read too much into the information I am about to talk about.

On an overall basis, third-quarter occupancy and ticket pricing have fallen significantly behind last year.

Although we continue to have positive bookings week after week for the third quarter, the booking levels are lower than last year's levels, further evidence that the North American consumer is deferring their vacation decisions.

North American brand capacity breaks down as follows.

Caribbean is 36%, approximately the same as last year.

Alaska was 28%, slightly lower than last year.

And Europe is at 19%, down from 22% the prior year with the balance of North American brand itineraries in the rest of the world.

Caribbean itinerary occupancies are down year-over-year with pricing at approximately the same levels.

Alaska and Europe occupancies and pricing are significantly lower year-over-year.

Turning to Europe, our Europe brands are 96% in Europe itineraries and at this point in time, Europe brand pricing in the third quarter is running ahead year-over-year with the occupancies significantly behind.

From an overall standpoint, the third quarter is shaping up to be quite challenging at this time.

However, given the closer-in booking pattern, we expect the picture to improve as we get close to the cruise dates and consumers begin to make their vacation decisions.

Just anecdotally, let me make a comment about Australia and Asia since for the first time in our history we will have four ships in Asia and Australia in the third quarter with two ships operating for the P&O Australia brand and two ships for Costa Asia.

Third-quarter occupancies on these ships are nicely ahead year-over-year on somewhat lower pricing so we are starting to see some progress in these developing markets.

And later in 2009, we will be moving an Ocean Village ship we previously announced this from the UK to P&O Australia and the second Ocean Village ship will be moved to Australia in 2010.

So we are feeling very strongly that the Australia market is a very good market and we will be looking to expand our capacity in that market going forward.

So with those comments from David and myself, I will turn it back to you, Alex, for questions.

And that is it.

(Operator Instructions) Rick Lyle, John W.

Bristol.

A couple of questions.

It is obviously a very tentative environment and the picture is probably changing almost daily.

Can you talk about how you could get more conservative if you needed to in the P&L?

It seems like you have been pretty aggressive in your cost controls and I'm wondering how much further flexibility you have?

The corollary to that is, how could you go or become more aggressive and really take advantage of your better balance sheet, etc., if conditions start to improve?

Let me comment about the cost picture a little bit, Rick.

I'm not sure it's going to answer your question.

But we have been working on a number of opportunities mostly back of the house opportunities in the organization to create more synergies, more shared services in the organization and we have a number of objectives in 2009 to achieve those opportunities.

to achieve those objectives throughout the organization.

And I would say there is a very positive view that we will make some progress in there.

And I think David's comment and my comment about we think there may be some more opportunities on the cost side of the business I think is based on that.

There is a very positive view that we can save some money and we will continue to look for these kinds of opportunities going forward.

So I think the objective of getting back to a zero cost metric on an AOBD basis going into 2009.

I think that is our largest opportunity but you have to remember we've got these two other factors in here, fuel and currency, which also play a role in the business.

And those are things that are very difficult.

Obviously we can't control those.

The volatility of fuel and currency is unbelievable.

If you took this morning's prices versus Monday's prices, we get pretty close to back to the guidance that we had in October.

It is amazing how volatile these markets are.

I guess everybody on the call understands that.

How about going on offense?

What would you like us to do, Rick?

There is a saying, a good defense is your best offense, you know.

Obviously from an antitrust point of view, there is not a whole lot that we can do but like post-September 11 sometimes opportunities avail themselves that you are not expecting and we will be diligent about that as time progresses.

Have you guys ever seen an environment like this?

When I think back to the various wars and 9/11 and this seems to be a very different environment than that.

Have you had any relative experience that you can compare this to and take advantage of?

It's different in that September 11 we saw a very quick bounce back, which although we've seen some improved volume post the election, it has been on deteriorating yields.

I guess we had to some degree a similar situation in build ups to both the Iraq wars where it was -- just seemed like the buildup went on forever and people were put on hold during that buildup.

But this is a pretty unique set of circumstances where people can't get credit and how that affects the consumer, they want to do something but his inability to get credit could affect the decision.

So as time goes on, we will learn more but baked into our numbers is an overriding concern by all our management teams about how many people are going to be taken out of the market because they just can't get credit.

(multiple speakers) Thanks very much and good luck.

Robin Farley, UBS.

A couple of questions.

On is that I just wanted to make sure I heard your comic correctly when you mentioned opportunities like you saw after 9/11.

Does that mean you are looking for acquisitions?

Is that how we should interpret that comment?

No.

What I said was because of antitrust, we can't really do that.

But if things continue to deteriorate and opportunities exist similar to what happened -- I mean if you remember post-9/11, there was a number of failed cruise companies and that created a number of opportunities and some people jumped on them.

If you look, NCL went into Hawaii because American Classic went out of business and the Renaissance Fleet was broken up and sent around the world to various cruise companies including ours and Royal Caribbean and Oceania.

So stuff happens and we just have to be aware that stuff may happen again.

If it is difficult -- if it's a challenge for us to get credit at reasonable prices in the market place, it will be a challenge for companies with a -- a low quality companies in the industry.

So clearly you never know what is going to happen.

Clearly we are in a unique position having really run a conservative balance sheet over these years.

It is not that we are doing anything in an aggressive manner.

All I am saying is that we have to remain diligent to the possible opportunities that might come our way.

Okay.

Great.

And then also your comments about in the release about close-in bookings in Q4 being better than expected.

That must mean some of that was on price not just on volume that (multiple speakers)

I think the way to look at that is when I read it myself it was kind of funny.

That is not to give any indication of strength in bookings in the fourth quarter.

It's an indication of how conservative we were at the time and how weak we thought bookings might be in the fourth quarter and it outperformed our expectations.

But that is not to say -- I don't want you to develop any thought that that means that there was strength.

That is not the case.

I was going to ask if there was a trend there that you were saying into Q1, but it sounds like that is not the case?

Well, what we are seeing is that volumes in Q1 are strong because of the curve has moved in.

So we are seeing very strong volumes in Q1 and very weak volumes in Q2 and Q3 and we would expect that to roll over time.

But the Q4 comment sounded like it was price rather than volume.

That is what it (inaudible) but I understand your clarification.

It's never volume we always --

It's always price.

It is always price.

Yes, that is couple.

Then last thing is -- and I know this is looking out a bit far -- but it was helpful when you walked through your position in 2009 in terms of liquidity, committed financings and CapEx.

Can you walk us through a tentative version of that for 2010?

We really haven't given any guidance for 2010.

I guess the only thing I can add at this point in time is that our maturities for 2010 are $1 billion.

We do currently have one export credit for 2010 which is $350 million, but we don't have any forecast for 2010 or any guidance to work off of.

Our CapEx --

Our CapEx at 10 --

-- 3.5 billion.

About the same.

I think the similar -- the situation will probably look pretty similar by the time we get closer to 2010 that we have in 2009.

And we are continuing by the way to work on a number of export credits.

In fact, we are hoping within the next week or two to close on two German export credits but those are for '11 and '12.

We are also working on some Italian export credits which we should probably have closed in the next 30 to 60 days.

And all of these export credits again will have interest rates at probably below 5% overall all in.

I think there's also some misunderstanding of how these export credit works.

Generally speaking, the export credit is an agency of government guaranteeing a percentage of the overall loan.

So that the lending banks have to take into consideration the creditworthiness of the government for one piece of the loan and the creditworthiness of the company for the other piece of the loan.

And that varies by government and by loan.

Great, thank you.

That is one loan, if you understand what I'm saying because there has been some confusion on that issue.

And in some cases there is committed -- the banks have committed to the export credit and as in our case.

In other cases, they don't commit to it until later on give the export credit facilities out there.

They still have to syndicate the loan.

For instance, the one that I just mentioned, we are working on Italian export credits that will close in the next 30 to 60 days.

That is where we have the government commitment but we are looking to get the banks to sign on the dotted line in the next 30 to 60 days.

Right.

And then it is fully committed.

Great, thank you.

Tim Conder, Wachovia.

Thank you.

Along those same lines, David, could you kind of outline for us -- I guess if you look at the ships you have delivery in '09, '10 and you were talking a little bit about '11 and '12.

What, of those, what do you have again just recap for us the bank groups that are lined up and then the government commitments that are lined up.

I mean if you had to look at two columns, what is open and what is confirmed?

So I guess that is one question.

I know that is a broad question.

And the second one, Howard, you talked about the booking strength in Europe on a relative basis.

Could you give us a little more color by country say the Spain, Ireland, UK where there has been a lot of problems versus some of the other areas on the continent?

Why don't you take the first one, David.

As you know, Tim, we have got 17 ships on order.

It is five ships in 2009, six in 2010, four in 2011 and two in 2012.

At the current moment including all of the bank commitments fully signed and done, we have three export credits, two for 2009, one (technical difficulty) 2010.

So that is the group and the export credit collectively done?

Correct.

The banks have signed, the governments have signed.

At this moment, I have government commitment for one more ship in 2009 and I've got an additional ship in 2011 and 2012.

So we have got three additional government commitments, two of the three should be signed within a week, maybe two.

Holidays are always a difficult time to get everybody to sign.

Right.

And then the last one would be signed in the next 30 to 60 days.

So we are talking about three done and three in the hopper and that doesn't mean we will stop there.

That is just what we are working on right now.

Great.

The way we are presently structured remember that five of the ships are being built in Italy for Italian Flag so there is no export involved.

Okay, okay.

That is the way it is presently structured.

Obviously if we wanted to, we could structure it slightly differently but that is the way it is presently structured.

Okay.

Tim, on the relative performance of the European brands by market, I think you almost hit the nail on the head yourself.

I think that if you look at Continental Europe, that seems to be -- let's suppose we are talking here Italy, Germany and France -- that seems to be performing better and Spain is still a challenge, still a problem.

But of course, we only have a few ships in Spain with Ibero and right now two of the ships are in Brazil.

So it's not a problem for this winter.

It does become a challenge come the spring time but it is only two ships.

And if you look at the UK, while the UK is not performing as well as Continental Europe -- and this is all relative, now, they are performing better than the US.

So it is sort of between the US and Europe.

I can't comment about it Ireland.

I don't know that although I'm sure if we get passengers from Ireland I assume it is very similar to the UK.

Okay.

And lastly, Micky, if you could.

It was alluded to earlier in the preamble about how you are going to have more difficulty going forward adhering to your cost control just because there's going to be less capacity growth.

Looking at 2012 and beyond, Micky, and you have talked about this for well over a year almost two years that it is going to slow.

Any general range of percentage capacity growth or any color you can give on that on looking '12 and beyond?

It's difficult to say.

As David said, we have what two ships now for 2012?

Correct.

And at current capacity growth is for 2012 for us is about close to 4% already.

Okay.

It is unlikely that there would be any contracts done unless we believe we can get the kind of returns that we would expect.

And based on the current situation, that is doubtful.

So we will see, we will see.

But right now it is hard to project much higher than what we have got.

Okay, even if returns would be more palatable would you say (multiple speakers)

If we can't work out -- there are clearly brands in our portfolio that could use capacity in 2012.

We have for example, Princess has no ships on order.

Clearly it's a brand that we feel very strongly about and would like to see grow.

But again, we are not going to do it unless the returns are there.

So we have brands that clearly from a strategic and long-term point of view we would like to grow but we are not going to do it unless the environment is such that we can get reasonable returns.

Great.

We also should point out that we still have time to order ships for 2012.

This isn't like something that we have to do tomorrow in order to get the ships in 2012.

Right.

And again, we look at these as 30-year assets.

If we don't get them in '12 and we get them in '13 or we get them in '14, that is fine.

We look at these as very long-term investments.

Okay, great.

Thank you, gentlemen.

Steve Kent, Goldman Sachs.

Good morning.

Just on the current stuff, can you just talk about trends and cancellations, any price adjustments on already booked cruises?

So just to give us a sense on that.

And then, Howard, just on this expense structure you alluded to that you have a program in place to reduce expenses.

And I can't help but notice that every hotel, every gaming company has made massive cutbacks in overhead and in CapEx.

I just wanted to hear if you could give us a dollar amount as to what your expenses are?

Would that include agent -- travel agent commission cuts and would it include consolidation of your multiple headquarters?

First of all, let me answer the last one first.

The reality is that we have been a very cost-efficient high-margin business from day one.

We are working diligently to maintain that culture in the company but we have done it without massive or drastic cuts that negatively impact the business for the long term.

A hotel can close a wing and lay off hundreds of workers.

We can't close a deck of a ship.

And the economic environment doesn't allow you to do that anyway.

Laying up ships also unless the situation is that you've got two ships in the same itinerary at 50% load factor, which doesn't exist, the economics don't work for laying up a ship.

So we are not in the hotel business, we are in a very, very different environment and a different business.

The second part -- the other part of your question about travel agent commission, the answer is absolutely not.

Times like this more than ever we need a strong distribution system.

And we need folks out there selling the cruise concept, selling our various brands all over the country, hundreds of thousands of them, the more the merrier.

And the reality is that we will support that distribution as long as I am CEO of this company.

What was the first part of the question?

Headquarters, Mickey.

This is Howard.

We have had this discussion before and our view is that when you have unique brands with different cultures and different in many cases different markets, it would be very -- it would be a huge risk to try to go to bring everybody into one place.

And quite honestly, when you look at the risk of doing that versus the potential rewards because we have done it we have run numbers on it, you just can't justify nor do we think it makes --

Or companies that have that model have lower margins.

So really what we have been focusing on is more data centers and consolidation of data centers and looking for more shared services, procurement working together on potential opportunities we have in Alaska.

There is a whole variety of different things we are doing right now and we have current organizations, we have current committees of all the companies working on these things and we made some progress actually in 2008 and then we hope to see a whole lot more progress in 2009.

When you add all of that up, Howard, how much money is it?

Are you keeping track of it for your Board?

Yes, we have internally we have projections and we provide the information to the Board, yes.

We haven't externally published the information but clearly, it is a very nice opportunity.

Some of that is actually baked into the numbers, the cost numbers for 2009, some of it is not.

So I would hate to give out a number but it's a nice number.

But hopefully we get from the 1% to the flat.

That is our charge and what would 1% be?

1% increased cost would average of $65 million.

Without fuel, it would be about $55 million.

Yes, so it is in that range.

Also you mentioned CapEx.

Most of our CapEx of course is fixed relating to the new builds.

But we do have a portion of the CapEx which is maintenance CapEx.

Since the budget has been put together we have gone around to all of the operating companies.

I have asked them to take another look at that CapEx and to reduce it where it was absolutely possible.

We are doing everything we can to reduce costs, reduce CapEx and preserve cash.

But again, we are doing it in a way that it would be unperceivable to a customer or to a travel (inaudible).

On CapEx, have you talked to the shipyards about delaying new deliveries?

It seems like everything is negotiable in this environment.

We have seen things that we would have never seen everything from airlines to hotels.

I don't know why everybody is focused on delaying deliveries.

No, we have not.

The reality is that when we want to mitigate growth in a particular market, if you look at the majority of the new builds in the spring it's AIDA and Costa.

It's all in Europe.

And the reality is there's ways to mitigate capacity increases without delaying new builds.

The reality is that in the European theater, we have significantly mitigated the growth next year.

We sold the QE2.

We delayed to the delivery the Holiday Ibero Cruceros.

We are transferring two of the Ocean Village's ships from the UK market to the Australian market and Costa is moving one ship from Europe to Asia.

So there is ways to mitigate growth in a particular market without delaying (inaudible)

I think if it ever got to that point, you would probably take an older ship out of service rather than delay the new build.

You want the new builds.

I don't know if you were able to answer the -- any cancellations or pricing adjustments on already booked cruises?

Cancellations have increased, yes.

The consumer environment is as everybody knows is difficult.

We have seen more of an increase -- it varies depending on the brand but we have seen some increases in cancellations across all brands.

And clearly, we have taken that into consideration as we put together the guidance that we gave you.

Okay, thank you.

That was more than two questions.

Right, thanks.

Steve Wieczynski, Stifel Nicolaus.

Good morning, guys.

When you look out to what used to be the important wave season coming up, I mean how subdued do you think that period is going to be?

And would you think the bulk of the summer bookings, as the booking window continues to shrink, is that going to move closer to an April to May kind of time period?

Well, I wish we knew.

The reality is that baked into our numbers is a concern about the consumer, obviously, for all of '09.

And I think we view the condition, I think baked into our numbers a deteriorating situation as you go into the year, because obviously the booking pattern for September would have been for second or third quarter.

September to now would have been strong for second and third quarter historically.

We don't know.

We are hopeful there will be a bounce back.

We predicted a bounce back after the election.

We actually did see that.

We did see volumes improve.

Five weeks after the election, the volumes improved year-over-year versus the five weeks prior to the election, but unfortunately with deteriorating yield, and that is why we adjusted the numbers.

We are hopeful that it will be a reasonable wave period, but I must say we are all cautious in our outlook because we all read the same newspapers and see what's going on.

Okay, and then last question in terms of it's been pretty helpful in the past in terms of onboard spending, in terms of what you are seeing, where you are seeing strength and where you are seeing weakness?

Is it just across the board?

Yes, overall it's in the same areas that we had talked about before -- art auctions, bar, casinos, generally speaking.

And as you can imagine, we took our on-boards down in the guidance for 2009, along with the ticket prices which is how we got to the 6% to 10% reduction overall that Howard mentioned.

Okay, great.

Thanks.

John Jares, The Boston Company.

Thanks, good morning.

Howard, I just had a quick question for you.

You indicated you thought the booking gaps would close as time progressed.

I'm curious, is that just a result of the shorter booking window, or are there other factors there that you are counting on?

No, what I am talking about is the shorter booking window.

I think Micky mentioned that if you look at first quarter now, which is substantially done -- I mean, we have got more to book -- but you can see booking volumes now in the first quarter week-over-week -- prior week last year are running ahead.

So what happens is that we are getting the bookings late.

They are coming in closer to the cruise, but what also happens is that you're not able to sustain the pricing.

So we see deterioration in pricing as a result of the closer in booking pattern.

Okay, great.

And then one other question is, back in -- as you mentioned around September 11, there were a fair amount of, I guess I would describe them as weak sisters that went out of business.

How much competition is out there that potentially could suffer, maybe be reduced, maybe be eliminated as a result of a difficult environment we are experiencing now?

Is there much left to go?

I don't think we should comment on that.

That wouldn't be appropriate, John.

Okay, thank you.

[Asi Giorgia], Infinity Research.

Good morning.

Question, Micky, maybe you can help me.

Q4 outperformed your October 31 expectations even though at the time obviously we were pretty much done with Q4.

Is Q1 in 2009 guidance as conservative?

I hope so.

We will let David answer that question.

I think what you have to recognize that the -- of the $0.10 that we beat guidance, $0.06 was purely due to lower few prices.

So a lot of the increase was just as a result of the market and the drop in fuel.

And as Micky talked before, he had said that a couple of pennies was due to higher-than-expected revenue yields and these things are very difficult to project.

I think it is fair to say that I don't -- I think the revenue picture probably won't dramatically change from where we think it is going to be in Q1.

I don't think -- it may be a little bit.

But I think from a cost side, Micky already mentioned that from the time we priced out for purposes of the guidance, we priced out on Mondays fuel prices of --

Monday at close.

Yes.

So that has improved and if it stays at those levels, clearly there is some opportunity in those two areas from a currency standpoint and fuel standpoint to show some improvement in Q1 earnings if they stay at the levels that we have today.

There has been just improvement in the last few days.

But it is a very -- fuel and currency are moving very dramatically and it's hard to know three months out what it's going to look like for the period.

When it comes to the yield, the yield is based on what the yield management people at the brands deliver to their management and they deliver to us.

And obviously they are human beings and they watch CNBC and they are hearing everything else and that conservatism is built into a concern over where the consumer is going to be next year.

And that is built into the number.

And was built into the number in October.

Given that we are still a couple of weeks away from wave season, and I imagine booking volumes at present are probably -- at some of their lowest for the year given that people are focused on the holidays rather than on their vacation plans for 2009.

Do you think there could be upside to expectations for Q2 and Q3?

Clearly Q1 is probably over on the revenue side or pretty much over but how about the more critical Q2 and Q3?

I mentioned that when the president takes office in his new administration, if you assume that they get through a fiscal stimulus plan pretty quickly, which I think they will, I think that could be a very positive factor psychologically I think for consumers and Americans.

And I think that could benefit the wave season.

It is really hard to know right now because you just can't see it in the numbers we are booking right now.

One of the reasons we gave a broader range than normal which was a $0.50 range is because of the uncertainty that Howard just mentioned.

It is always interesting to me, because all during '08, we had a lot of skepticism in the market that we could deliver the revenue in such a weak economic environment.

And of course nobody now is focusing on the 290 we delivered in 2008.

Everybody including yourself is focusing on 2009 and that is logical but the reality is we deliver despite the economy.

And all I can say is that we have outperformed virtually every area of leisure and we believe we will do it in 2009.

Now what does that mean?

It means we will do better than the rest of the industry but how will the rest of the industry do?

And time will only tell.

But sometimes you do have to look back to understand and have the confidence in the future.

When you look back, we have always outperformed in tough economic environments.

Micky, I'm clearly with you on I'm hoping you outperform the number you gave us today.

So I guess we will have to wait until wave season and see how bookings continue for 2009.

Thank you for --

I can assure you that the number we are after is the highest possible number that can be achieved and not whatever we are giving you as guidance.

That is not our goal, that is just our number to give you guidance.

What is it the highest possible number?

Who knows?

Tell me what fuel is going to look like and tell me what currency is going to look like and I will give you a -- (multiple speakers)

Tell me if banks are going to be lending any money in the first quarter and people are going to be able to use their credit cards to buy a car and (multiple speakers) --

Credit free zone.

Is General Motors going to be in business and how many more people will be unemployed and you know -- we run a cruise companies, we are not economists.

Okay, thank you.

David Leibowitz, Horizon.

Good morning.

Briefly, fuel have you contracted fuel out further because of the current low price or are you playing it as close as you normally do?

Right now we are playing it as close as we normally do.

As we said before, we always look at those options and we continue to look at those options.

But as of today, we are taking full advantage of the lower fuel price.

I apologize, Micky, for the add-on here.

Am I to take that to mean if you are taking full advantage where you normally would contract out for three months you might be contracting out for four or five months now?

I mean full advantage in that the declines you see today will be in our price this weekend.

Okay.

Second question, in terms of the potential tonnage that might be coming onto the market as lesser heeled competitors were to go by the wayside, if we leave out your major publicly traded competitor, is there any tonnage out there that you would be willing to buy?

And if so, which fleets would you give it to?

I don't think it would be appropriate to answer that question.

No.

That is inappropriate.

David, I don't think we know the answer to that question.

Well is it inappropriate -- I'm not asking you to identify where the tonnage would come from.

All I am saying is were there to be another Renaissance, were there to be whatever where tonnage was made available that you would be able to purchase, would you in fact -- A, is there any tonnage out there that you would be willing to buy?

And if so, which fleets would it go to?

Is there any tonnage we would be willing to buy?

The answer to that question is yes.

The question of which -- the question of which fleets would it go to would depend solely on the tonnage, which would be inappropriate to respond to.

Okay.

Absent that then, if there was tonnage available, would you start a new brand?

Probably not.

Thank you very much.

I apologize.

I was not trying to put you on the defensive with that question.

It was more (multiple speakers)

I think you were.

I get accused of many things for many reasons.

But when I make a statement that it was done with no malice or forethought, it is meant as such.

I believe you, we know that.

Thank you, David.

[Nick Kayono], [Olson Inco].

I just had a question regarding deposits on the balance sheet.

I was reading in some trade rags that some agents are seeing customers ask for refunds at a much more increased rate than has been historically even in the face of paying penalties and such.

I was wondering what your experience is with refunds of deposits and how you think that may play out in 2009 and if it would be anything meaningful?

Howard had indicated the refund of deposit is just another way of saying a cancellation because when somebody makes a booking, they put money down and if they are canceling, they get their money back.

And Howard has indicated cancellations are up but we have taken that into consideration in our guidance for 2009.

So we understand that trend.

But indeed that is happening, yes.

We see that.

So could that -- I guess when I look at the balance sheet, could that cause a cash flow issue, meaning I'm not suggesting this is what happens.

But if half the people said we want our money.

We would like to cancel.

I think it was $2 billion worth of deposit liabilities on the balance sheet.

Would we in theory then have to give half of that back and then come up with $1 billion of cash?

You're talking --

It's a rolling number.

Yes, it's a rolling number.

Remember most of those people are actually in the next six to eight weeks because --

Okay.

-- they are the fully paid people that make up the majority of that.

But there is -- booking curve moves in, that deposit liability account will decline because you have less people on the books.

It has declined (multiple speakers)

We saw a -- net of the currency movement, we did see a decline of 3% in 2008.

And obviously in taking a look at that and the cash flow projections that Howard gave for 2009 at the midpoint, we took into account the slower booking curve and perhaps also a decrease in customer deposits there.

When Howard went through the liquidity information, clearly that is one key element of the liquidity which we look at very carefully.

Right.

So when forecasting it out, we assume we are going to see more of that, yes, and some lower deposit liability as a result.

Got it.

All right, thank you.

(Operator Instructions) Rick Lyle, John W.

Bristol.

Sorry for the follow up, guys.

But two quick questions.

One on group bookings, have you seen any divergence in behavior of groups versus individuals i.e., are the groups canceling and then re-booking at lower prices?

And the secondary, I wanted to follow up on to note that talked about your P&I recovery -- or there was a call for 2006, 2008.

And I was surprised at that, because usually P&I guys just adjust their rates prospectively.

So what was the nature of that retro call, if you will?

On the P&I, the way our P&I insurance works and this has been this way for as long as I have been in the cruise industry, you pay a certain premium every year and there are what is called supplemental calls that could potentially come after the fact.

Any particular year in P&I stays open for three years before they close the year because there is a long tail of claims.

And so sometimes if the clubs have a very high claim experience or as in what is occurring right now too is low investment income, they could require some additional supplemental calls.

And so these calls related back to 2006 and 2008 and we accrued them in the fourth quarter.

So it's very typical, nothing unusual.

This has been the way (multiple speakers) forever, forever.

Your question about groups is really tough.

It appears that behavior of groups are quite similar to the behavior of the regular FIT bookings.

Maybe slightly less year-over-year decline versus FIT but not significant enough.

If you put it on a graph, the graphs will look pretty similar.

Okay, thank you.

[Dominique Neil], [Canyon Capital].

Good morning.

I wanted to ask you as you look at your product line and potentially acquisitions, what is the product that is most attractive to you in terms of price point?

Is it the low end, mid end luxury line?

We are really not looking at making quite honestly making any acquisitions right now.

No, I recognize this is completely hypothetical.

I think what Micky said was that if ships became available as a result of a competitor having difficulties, we might be interested in acquiring a ship if the price was right depending on whether it worked for one of our existing products and our fleet.

Right.

So putting aside acquisition, what is the best return on investment category at this point given the environment and the fact that consumers pretty much (inaudible) everywhere are suffering but maybe some price point is better than others?

Right now, as Howard said, the contemporary, the lower cost product is the one that is performing the best for obvious reasons.

Right.

But that hopefully is just a temporary phenomenon.

We will see.

But it is very difficult to answer that question.

Clearly if you are looking for margin profitability, McDonald's made more money than a three-star Michelin guide restaurant.

And historically the cruise industry has worked in a similar way.

Okay, thanks.

Sharon Zackfia, William Blair.

Good morning.

This may be a rather naive question.

I am kind of new to this story.

But I am just curious since you are seeing some changes in consumer behavior and you mentioned more of an interest in the shorter itineraries than the value-oriented cruises, is there any opportunity as you look into 2010 to change the length of some cruises or change the itineraries?

And then separately, does the current mindset from the consumer change your marketing message at all?

The marketing message is really brand specific and each brand has very different marketing message and makes tweaks and adjustments.

You will be seeing a new Carnival Cruise Lines campaign break very soon which slightly tweaks the message but it is still very fun focused as Carnival has always been.

Your first question is a very good one, actually.

When you look at, for example, Europe deployment, the premium brand that operate most of their ships in Europe and Alaska in the summertime -- we've gotten a lot of questions about that.

And despite the fact that we see a lot of challenge in those markets for the North American brands, they still are forecasting yields that would be higher even in this difficult environment than moving the ship back to the Caribbean.

Summer Caribbean is a mass-market product and while our mass-market brands do very well there, our mass-market brand does very well there, the reality is that it would take a lot of deterioration in Europe and Alaska to move those ships back to the Caribbean because there is a significant premium that those markets receive.

That premium will be lowered this year than the prior couple of years.

But still not low enough to force movement.

However, our brands look at this ship by ship every year but the effect of that will be felt in 2010, not before.

Okay, thank you.

Time is running late.

If there is one more question, we will take one more question.

Gentlemen, we have no further questions at this time.

Perfect.

Well, thank you very much.

Thanks everybody.

-- everybody.

I want to wish you all a happy holiday season and a happy and healthy new year and hopefully a more prosperous new year.

Everybody should go out and see Spamalot.

Happy holidays to everybody.

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

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