嘉年華遊輪 (CCL) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the first-quarter earnings call.

During the presentation, all participants will be in a listen-only mode.

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

(Operator Instructions).

As a reminder, this conference is being recorded Tuesday, March 24, 2009.

I would now like to turn the conference over to Howard Frank, Vice Chairman, Chief Operating Officer.

Please go ahead, sir.

Good morning, everyone.

This is Howard Frank.

I am here this morning in Miami with Micky Arison, our Chairman and Chief Executive Officer; David Bernstein, our Chief Financial Officer; and Beth Roberts, our Vice President of Investor Relations.

I will have some general comments to make, but first, I'm going to turn it over to David to provide some of the color on our first quarter of 2009.

David?

Thank you, Howard.

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

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 first quarter 2009, our earnings per share were $0.33 versus 2008 where it was $0.30 per share.

Achieving higher quarterly earnings in an economic climate like this is a testimony to the fact that we have the best and most experienced brand management teams in the industry.

The first quarter came in above the midpoint of our December guidance by $0.12 per share.

This was driven by a few things.

Our revenue yields came in toward the better part of the range, declining 5.2% in constant dollars versus our December guidance of down 5% to 7%, which was worth $0.02 per share.

A variety of cost-saving measures and timing of certain expenses benefited us to the tune of $0.06 per share as our employee ownership culture, which tends to lead to incredibly tight cost controls, continues to pay dividends.

Lower fuel prices in the first quarter were worth $0.02 a share and various other items were also worth about $0.02 per share.

Looking at our first-quarter operating results versus the prior year, our capacity increased 2.3% for the first quarter, with the majority of the increase going to our European brands.

The European brands grew 6.2% while our North American brands grew 1.9%.

As I previously mentioned, overall net revenue yields in local currency declined 5.2% in the first quarter versus the prior year.

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

For net ticket yields, we saw a yield decline of 5% in local currency.

Our North American brands were down 3.9%, driven primarily by declines in other exotic itineraries.

Yields in the Caribbean held up reasonably well for the first quarter compared to the prior year.

Our European brands experienced a 7.8% lower local currency ticket yields on higher capacity, driven by declines in all itineraries.

For net onboard and other yields, we reported a yield decline of 5.8% in local currency.

We saw declines in all our major brands around the world, a trend which we had anticipated in our previous guidance.

Net onboard yields for spa and bar were actually up in the first quarter versus the prior year, while casino, shore excursions, shops and photo were down.

On the cost side, our cruise cost per available berth day, excluding fuel and in local currency, were up 1.4%, driven by a $26 million increase in dry dock expense this year versus the prior year.

However, the best measure of cruise costs are on an annualized basis, which I will touch on in a moment.

Fuel prices this quarter were down 45%, and this saved us $167 million, or $0.21 per share.

Our fuel consumption per ALBD this quarter declined 6.4%, saving us $14 million or $0.02 per share.

As a result of numerous conservation measures, we've been seeing 2% to 3% fuel efficiencies per year for a number of years now.

The stepped-up focus in this area that resulted from the 2008 higher fuel prices has paid some dividends in the first quarter, with the larger decline.

And despite the decline in fuel prices off their peak from last July, we have maintained our stepped-up focus.

Before I turn to the outlook, let me say a few words about liquidity.

At the end of the first quarter we had $3.7 billion of liquidity.

This included $1.4 billion on our revolvers and $356 million of cash, excluding cash on hand, as well as $1.9 billion of export credits, two for 2009 and one per year for 2010, 2011 and 2012.

Since the December conference call, we completed three financings.

A $200 million three-year bank term loan, which we drew in February, and the 2011 and 2012 German export credits for our AIDA ships.

All three of these were included in the liquidity numbers I just gave.

In addition, we are currently working on two new Italian export credits for 2009 worth over $500 million, one for the Costa Pacifica and one for the Seabourn Odyssey.

The banks have signed these agreements and they are fully committed.

However, [we are awaiting] issuance of the Italian export credit agency's insurance policy, which we expect to occur shortly.

These two new Italian export credits will be included in our liquidity figures after the issuance of the insurance policies.

Turning to our 2009 outlook, I will skip the net revenue yield outlook, as Howard will discuss that in a few moments.

For cruise costs per available lower berth day, for the full year, excluding fuel and in local currency, are projected to be in line with the prior year, up approximately 0.5%.

During the December conference call, I provided guidance above 2%.

However, I indicated that while this guidance for controllable expenses was within our long-term target of between flat to 1/2 of the rate of inflation, we continue to look for opportunities to reduce this increase.

Our brand management teams are all working very hard to find ways to reduce costs in this very difficult economic environment, and while I'm happy to say that we expect another year of essentially flat costs, we will not rest there.

We will continue to look for more opportunities.

Based on the current spot price for fuel, fuel prices are projected to be $279 per metric ton for 2009 versus $558 per metric ton in 2008, saving us a total of $902 million.

In addition, the FX rates have moved from an average in 2008 of EUR149 and GBP190 to our guidance in 2009 of EUR135 and GBP145, and so the stronger dollar will reduce our costs.

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

So in current dollars and excluding fuel, our costs are expected to be down 15% to 17%.

While the FX rate movement reduces our costs, it also reduces our revenues.

And given the FX rates on a year-over-year basis, our profit hit from currency is expected to be about $223 million or $0.28 per share.

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

To start with, a 10% change in the price of fuel represents approximately a $90 million or $0.11 per share impact on our P&L.

The impact of 10% has obviously come down along with the price of fuel.

While a 10% change in all other currencies relative to the US dollar would impact our P&L by approximately $120 million or $0.15 a share.

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

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

Thank you, David.

Let me first provide you with some general comments on the outlook.

Given the significant slowdown in the global economy, I think it is fair to say that this has been one of the most challenging booking environments we have ever experienced.

Despite the slowing economy, as we indicated in the press release, cruise bookings since the start of the year are almost 10% higher year-over-year for both North American and European cruise businesses.

And our Asia and Australia bookings have also been strong.

So the good news is that by using discounted pricing as a stimulant, we are able to create booking demand.

But in order to achieve this strong booking momentum, we have had to take pricing down to levels not seen in recent years.

For our North American brands, Caribbean itinerary ticket pricing during late season is running 10% to 15% lower than last year.

And for Alaska and Europe, ticket pricing is 30% to 40% lower than 2008.

For our European brands, the pricing picture is somewhat better.

With a substantial part of the European wave season bookings for Mediterranean and northern Europe cruises, European brand pricing during wave season is approximately 10% lower than in 2008.

We are pleased to see that, as in past years, by stimulating the market with lower ticket pricing we can produce a strong booking response.

It is for this reason that our business model enables us to continue to fill our ships and produce good levels of profitability and cash flow even in the most challenging global economic slowdown we have experienced in our lifetimes.

It is during periods like this that the value proposition of our cruises becomes even more compelling to the consumer, who is looking to buy quality vacations at the lowest possible prices.

As a result of selling at these lower ticket prices, for the full year 2009, we have taken our local currency net revenue yield guidance down by approximately 3% to a range now of 10% to 12%.

And that is from our previous guidance.

This includes reduced expectations for onboard revenues for the remaining three quarters as a result of the slowdown in consumer spending habits.

The closer-in booking pattern and the resulting reduced visibility of our bookings make it more difficult to forecast revenue yields.

However, at this juncture, we are approximately two-thirds booked for the remainder of 2009, even with the reduced visibility.

And based on this, we think our current net revenue yield guidance of down 10% to 12% for the year is reasonable.

We also continue to work on bringing our costs down and have reduced our cost outlook, which excludes fuel costs, to approximately flat from up 2% in previous guidance.

And our EPS guidance for the full year is now in the range of $2.10 a share to $2.30 a share, or a midpoint of $2.20 per share, which represents a $0.30 decrease from our previous midpoint guidance of $2.50 per share.

The main driver to the lower per-share earnings guidance is of course the lowering of our revenue outlook, which amounts to $0.49 a share.

The lower revenue yield outlook is offset by a lower cost outlook of $0.24 per share, $0.06 of which is reduced fuel costs and $0.18 a reduction for all other costs.

There is also a negative impact of $0.05 per share due to currency movement.

Now let me turn to some color on each of the next three quarters in 2009.

For the second quarter, fleet-wide capacity is up 5.6% year-over-year, 4.3% of that in North America and 7% in Europe.

At this juncture, there is not much inventory left to sell, although given the close-in booking pattern, somewhat more than a year ago.

For North American brands in the second quarter, 54% of the capacity is in the Caribbean, somewhat higher than the 51% a year ago; 20% capacity is in long and exotic cruises, which is about the same as a year ago; 10% of the capacity is in the Mexican Riviera, down from 13% a year ago; and the balance is in various other itineraries.

Caribbean and Mexican Riviera pricing is lower than a year ago.

Pricing for long and exotic cruises, as well as pricing for shoulder season European and Panama Canal cruises, are substantially lower.

This is in line with what we have been indicating, that shorter and less expensive Caribbean and Mexican Riviera cruises with lower price points have been relatively stronger than the more expensive, longer and exotic cruise programs for the North American brands.

For the second quarter, European brands are 60% in European itineraries versus 59% a year ago; 30% in long and exotic cruises, up 5% from a year ago; and 10% in the Caribbean, down from 16% a year ago.

Occupancy for European brands is running slightly lower than a year ago.

Pricing is modestly lower for European brand itineraries, but although pricing is lower, it is substantially better than US brand pricing.

From an overall standpoint, by the time the second quarter closes, we expect local currency net revenue yields to be lower in the 8% to 10% range on a year-over-year basis.

North American yields substantially lower than yields for our European (inaudible).

Operating costs, X fuel, are expected to be a 4% on a year-over-year basis, and including the lower fuel costs this year, down 7% to 9% on a year-over-year basis.

Taking these factors together, we are forecasting earnings per share for the second quarter to be in the range of $0.30 to $0.32 a share, down from $0.49 a share in the second quarter of 2008.

Turning now to the third quarter, on a fleet-wide basis, third-quarter capacity is up 5.6%, 3.8% in North America and 7.4% in Europe.

For North American brands, third-quarter capacity breaks down as follows.

The Caribbean is 36%, about the same as last year.

Alaska is 28% versus 29% a year ago.

Europe is 19% versus 22% a year ago, with the balance in various other itineraries.

At this point, even with the strong wave season bookings, occupancies are running significantly behind last year.

Caribbean occupancies are lower in the double-digit range, with lower pricing in single digits on a year-over-year basis.

Alaska occupancies and pricing are substantially lower in the double-digit range.

European itineraries are running behind in the single-digit level, but with pricing also substantially lower.

So it is clear that the third quarter is shaping up to be an extremely challenging one for our North American brands, with ticket revenues expected to be in the range of 15% to 20% lower on a year-over-year basis.

European brand itineraries in the summer quarter are substantially in the Mediterranean and northern Europe itineraries.

At this juncture, Europe brand occupancies are lower year-over-year, but performing better than occupancy levels in North America.

Pricing for Europe brands are lower year-over-year, but also performing considerably better than our north US brands.

By the time the third quarter closes, we expect European brand local currency yields to be lower, in the 6% to 10% range on a year-over-year basis.

On an overall standpoint, taking US and European brands together, by the time the third quarter closes, we are estimating that local currency revenue yields will be lower in the mid-teens range on a year-over-year basis.

Now turning to the fourth quarter, fourth-quarter fleet-wide capacity is up 7.6%,;5.7% of that is in North America and 9.5% is in Europe.

Booking information for the fourth quarter is still in its early stages of development, so I caution not to read too much into the information.

For North American brands, capacity breaks down as follows.

Caribbean is 45%, up slightly from 42% a year ago.

Alaska and Europe is 17% versus 20% a year ago.

Long and exotic cruises, 23% versus 21% a year ago.

While occupancies for North American brands are running behind last year on a relative basis to the third quarter, fourth-quarter occupancies are better on a year-over-year basis, with the pricing picture similar to the third quarter.

For European brands, 78% are in European itineraries and 17% are in long and exotic cruises, also about the same as last year.

Europe brand occupancies are running lower than a year ago, with pricing also lower at this juncture, but better than for the North American brand, which is similar to the third quarter.

Of course it is still early in the booking pattern for the fourth quarter.

We will provide you with an update on the fourth quarter at our next conference call in June.

And with that --

Howard, before we get to questions, I just wanted to make a point about the situation in Alaska.

It should now be very evident to everyone that the initiative that passed a couple of years ago is having a very significant impact on tourism to Alaska.

The growth stopped immediately after the initiative passed, and today, the $50 tax is a significant price to pay for -- in a situation of a very sensitive consumer environment.

Recently, one of our competitors announced a reduction in capacity for 2010.

I want to make it clear that we intend to do the same thing in 2010.

I would venture to guess that the economic losses, including job losses, in Alaska will be greater than the revenue generated from the taxes imposed.

The saddest thing is that we've been unable to find anybody willing to deal with the unintended consequences of this ill-conceived initiative and its impact on the Alaskan economy.

The other unintended consequence is the economic impact in Western Canada, where Vancouver will be feeling a significant economic impact as well, based on the ill-conceived initiative in Alaska.

Just wanted to get that in before we get into questions.

Thank you.

Okay.

We are going to turn it over to you for questions.

(Operator Instructions) Steve Kent, Goldman Sachs.

I just have a couple.

The first is just what percentage of Q1 cruises are being booked within the quarter?

And in line with that, what are you seeing as you come in for the last-minute pricing?

I know you've been aggressive on that in order to fill the ships.

Is it worse or better as you get closer to departure points?

And have any of the brands made changes in how they are paying travel agents, either reducing rebates or any of those other techniques that have been used in the past?

Steve, let me -- on the first part of your question, the percent of bookings in the first quarter, I am not quite sure what you are asking.

What percentage were done within the quarter for the quarter?

Oh, I see.

Probably around -- give or take -- around 10% for the quarter within the quarter.

It's hard to say, because you have a churning effect of cancellations and bookings.

So while the net effect may be 10%, it could be greater than that actually.

As far as travel agents' compensation, I'm not aware of any significant changes during the quarter.

But to go to the second part of your first question on the last-minute pricing, I don't know even exactly how the pricing works.

Because you know, it goes across 10 different brands.

But I don't think for the last 10% on a year-over-year basis we've seen a material movement in pricing based on the late bookings.

And it actually was better than we had anticipated three months ago.

Right.

Okay.

Thanks.

Tim Conder, Wells Fargo.

Thank you.

Gentlemen, could you comment a little bit -- it sounds like again you've got -- you've taken pricing -- a hard pricing cut.

And Howard, based on your comments that you do not anticipate any material additional yield erosion given your new guidance for the year, is it fair to say that you're starting to see some stabilization in that 60 day plus pricing?

I don't know that I actually said that I didn't anticipate seeing any further yield erosion.

What I said is we think our yield outlook now is reasonable.

But I'd tell you -- I will tell you that because of the close-in booking pattern and the need to stimulate the business by using pricing, it is very difficult to challenge -- even being two-thirds booked for the remainder of the year -- to read let's say the second half of the third quarter and the fourth quarter.

So -- but it is -- I think our yield outlook is quite reasonable.

I think we have actually even attempted to lean towards a more conservative side.

But in this environment, it is very difficult to know.

It really is a challenge.

We get the question about stabilization a lot, and I'm not sure what that means.

What we do know is the pricing that we put in the marketplace improved our booking volumes 10% year-over-year, and that is a positive.

But I'm not sure what that means -- what stabilization really means.

I guess maybe another way to ask it, Micky, would be do you see the booking curve -- I mean, I know it varies widely by brand -- but do you see that booking curve or the window starting to stabilize, or do you feel that it could shrink a little bit more than where it currently is?

The booking curve has stabilized.

That is clear.

And part of it is the seasonality of when you are going into various seasons.

But it hasn't moved in the past three months.

In fact, it has either stabilized or improved a little bit.

I mean, if you think about 10% increase in bookings during wave season versus a 5% or so increase in capacity, we should be improving the booking curve slightly.

But we had catch-up to do, because we lost a lot of ground in the fourth quarter of 2008.

Okay.

And gentlemen, it sounds like -- and just a clarification here -- regarding your European sourced passengers, it sounds like that demand is holding up better in constant currency than the North American demand.

Is that what I heard in your commentary, Howard?

Yes, that's correct.

Okay.

Thank you, gentlemen.

Robin Farley, UBS.

I've got one sort of housekeeping question and then one question about the guidance.

For the housekeeping question, David, I wonder if you could just give a little color on what the two gains were in the quarter that -- I know -- I saw the detail that was in the footnote -- but just a little color around the lease and the income tax that (inaudible).

And then my question about guidance is I guess it seems as if the guidance you are giving today is based on your having found the price point that kind of stimulates bookings and this more stable outlook -- everyone's favorite word.

I wonder if you could give us any kind of sense of then whether your conviction level about guidance today versus where it was in December and October -- and I think everybody appreciates that you gave guidance in a difficult period in December without having the visibility you would have liked -- but just to get a sense of the kind of higher conviction level that you would have around today's guidance versus that.

Sure.

As far as the two gains are concerned, the increase in the gain in other income and expense, that was related to the unwinding of one of our lease-in/lease-out transactions.

This was a rather complicated deal.

AIG was involved.

AIG put up collateral.

And we were able to get all the parties to agree to take the collateral, unwind the AIG deal -- unwind the deal and take the deferred revenue that we had on the books.

Instead of taking it over the next like seven or eight years, we took it in the quarter when the deal was unwound.

That was worth about $15 million.

The second was in the taxes, we had a couple of audits, both at the federal level and at the state level, which were completed.

So the reserves that we had on the books just happened to be slightly larger than the overall situation.

And we took those reserves into income to adjust them accordingly.

Was the AIG deal -- was that related to a specific asset?

It was just related to the Triumph lease-in/lease-out deal.

We had three of them in total -- Paradise, Triumph and Elation.

And so this was just one where the parties did agree to terminate and unwind the transaction at this time, and it was a mutually agreeable deal between all the parties.

Robin, on the question of the guidance and the conviction we have, clearly, you know, we have more conviction today than we had back in December when we were just starting the year.

And as I mentioned, with two thirds of the inventory sold at this point, we think we are pretty close to getting it right.

We give a range.

We think within that range, we should be just fine.

But you know, in these uncertain times -- certainly the news in the last 10 days has been much more positive, and if that continues, then we will be a lot happier.

If the economies continue to deteriorate in the US and Europe and we struggle more, it could change.

So I think there is a lot that can happen around a volatile economy that could impact it.

But right now, we think it is very reasonable, very realistic and something that we should be able to achieve.

I think you have to remember, though, that we give the initial guidance before any wave visibility, because we do it in December, prior to any wave visibility.

So clearly, having a few months of wave gives us a significantly more visibility than having to make the call before.

And with booking momentum running now, at least since the beginning of the year, 10% ahead year-over-year, we are certainly feeling a whole lot better about the year than we did back in December.

Which is why we narrowed the range from, as Howard mentioned, I think it was $0.50 down to $0.20.

So that was the level of increase in our conviction relating to the guidance.

That's great.

Thank you.

[Assia Georgieva], Infinity Research.

Good morning.

A couple of questions.

First of all, could you discuss liquidity in 2010 and what your expectations are?

I know it is very difficult to have an operating cash flow estimate at this point, but do you believe you will need to access the capital markets?

And then going back to, I guess, Mickey, your comments on Alaska and the stability question, I know you want to avoid that word.

But it seems of the various destinations, pricing in Alaska is a lot more volatile throughout wave season.

Do you expect that to reach a balance soon or is it too early to tell?

Thank you.

As far as the liquidity is concerned, for 2009, we've said a number of times that we don't need to raise any additional debt.

We are expecting to end the year with well over $1 billion of liquidity, and we are in fine shape.

When you look forward to 2010, baked into our current guidance is cash flow from operations of about $2.8 billion.

And our capacity does go up next year.

So if you just take a capacity addition, cash flow from operations might be roughly $3 billion.

We also have one export credit currently on the books that is about $300 million.

So we've got total available funds for next year potentially of $3.3 billion.

Our CapEx for next year should be about the $3.3 billion.

And we do have scheduled debt maturities of about $1.2 billion if you include all the export credits and the scheduled payments under those.

So we do have some financing to do.

We are working on that today, as we speak.

We are not only working on it to cover the scheduled maturities, but any potential opportunities that may come our way over time in the next year or so.

Let me just make a comment.

Given the cost of raising capital in the debt markets today, that will be the last place we will go to get the money.

We have -- we are working on a number of initiatives, David and Josh Weinstein, which we think will be successful -- there is no assurance it will be successful -- which will cost us a whole lot less.

And that is the whole idea, not to raise debt that is expensive, but to raise less expensive debt.

We have a number of options and opportunities to do that.

We are working on a number of those alternatives simultaneously.

And we feel pretty confident we are going to get it done, which will break our cost of capital down.

Now having said that, if it all fails, we can go to the capital markets and raise the money.

But that would be the last place we want to go right now.

It could be by the time 2010 runs around, we are in much better shape in the capital markets and cost of capital will come down.

But right now, we are working on the basis that that will not happen, so let's go out and get lower-cost capital right now.

Also during this period -- during this period, where supposedly the bank market was closed, we were able to arrange some bank financing including this quarter.

So we -- the financing markets have not been closed to us at any time during this period; actually, we've been able to continue to raise funds as needed during this entire period because of the strength of our cash flow and our balance sheet.

Would you be able to discuss the alternatives that you are talking about, give a couple of examples?

It includes additional export credits.

It includes bank financings.

It is a variety of -- I'd say we've got a dozen different opportunities that we are looking at and we will take the best opportunities.

Regarding your question on Alaska, I think the way to look at it is our competitors have reduced capacity.

We will very soon announce reduction in our capacity in 2010.

That may or may not stabilize the situation for 2010.

If it does, then hopefully yields will come back in 2010.

If it doesn't, we will have to reduce additional capacity in 2011.

It is a supply and demand situation.

It is a very price sensitive market.

And the variety of costs that the initiative put on makes getting competitive pricing versus other potential vacations and potential cruises other than Alaska just a lot more attractive.

And so capacity will continue to come down until we reach an equilibrium.

Hopefully that will be in 2010.

We'll see.

It does seem that Europe, which also involves the additional cost of airlift and inconvenience of traveling rather than -- flying over there rather than driving, but Alaska doesn't seem to hold quite as much of an appeal, and that is why it seems that European pricing is holding up quite a bit better relative to Alaska.

Well, there is a number of reasons for that.

Part of it is the fact that you have a broader market for the European cruises.

Not only do you have the North American market, but you've got UK, you've got Eastern Europe, you've got Russia, you've got a lot of markets feeding into the European market.

The other part of that is a lot of our Alaska sales really are Discover Alaska programs, programs that take you into the hinterlands of Denali and so on.

And those, when you put all the tour components into the cruise, become more expensive than most European cruises.

And so again, in a very price sensitive environment, that becomes a tougher sale.

Okay.

Thank you very much.

Steve Wieczynski, Stifel Nicolaus.

Two questions.

Just the first one, I'm not sure how much color you can give me, but I guess what are you seeing over the last two weeks in terms of the booking environment?

I know when you put out your press release a couple of weeks ago saying the first week of March you saw the highest bookings in terms of the Carnival brand.

Have you seen a material uptick -- and maybe material is not the right word?

I think in the last couple weeks, I think it has been running ahead of the same levels, more or less; it has just been -- last week was particularly strong.

It has been very strong.

Yes.

It has been very strong.

Okay, great.

And then maybe when you look at the competitive environment, Micky, you talked about (multiple speakers).

Again, I have to repeat -- it was very strong volumes against very lousy rates.

Got you.

And when you look at the competitive environment, have you seen the amount of discounting by some of your competitors start to come back down or is it still running at pretty high levels?

I don't think we've seen a material change.

I think everybody has been very aggressive.

Do you think that will eventually kind of catch up in the industry and eventually hurt the industry?

No, I think eventually the volumes will be big enough that the pricing will start to come back up.

We have historically been through these periods where we've had to take pricing down, perhaps not as dramatically as we've done in 2009.

But once demand starts to pick up, we are able to -- we have -- it is very very (inaudible) to pricing back up again.

So it is a very dynamic pricing model, and if there is plenty of demand, we are able to move the pricing back up.

But again, it is a very price sensitive consumer and every kind of leisure activity today is being discounted heavily.

Okay, great.

Thanks.

Janet Brashear, Sanford Bernstein.

Thank you.

You gave guidance provision on net cruise cost X fuel, which was positive, going to nearly flat from negative 2% prior.

I'm wondering if you could talk a bit more about that.

You had said in your last call you were looking to utilize more shared services.

I'm wondering if that was effective.

And you also said that you were worried about external cost trends increasing.

And I'm wondering if that has mitigated or it is just that you're managing around that with other savings activities.

The shared service concept, I wouldn't exactly call it shared service, but I would call it shared negotiations, standardized service, a number of things that the various operating companies are doing together in order to reduce costs.

For instance, they renegotiated a crew calling card, and that reduced their costs by a couple of million dollars.

They renegotiated to buy butter oil from one vendor and that saved us a considerable amount of money.

We are leveraging the shore excursion contracts across the various operating units.

We are leveraging the cash deliveries to the ships and the prices there.

So we are looking at a lot of different things.

Plus we've been renegotiating prices with our vendors, looking for greater efficiencies in fuel, containment of some nonstrategic projects.

And reduced commodity prices are also helping in a number of instances.

Look, I think it is across the board.

There must be 25 or 30 areas we will be able to get some cost benefits.

A large part of that is through the supply chain working with us to do that.

So we have been very successful in that, and we've done it on a coordinated basis.

So it is fair to say that the group executives working together in there with our procurement -- centralized procurement group, we've been able to achieve quite a bit of savings.

We've also had savings in fuel consumption, as David pointed out in his comments.

And we expect that to continue throughout the year.

Thank you.

[Bart Ware.]

Thanks.

Micky, I just had a question -- in your discussions with the Board, what do you guys think the appropriate return on invested capital is?

Because obviously, you guys have a brought in a lot of ships and even excluding fuel, your returns have come down, and you're also talking about a higher cost of capital.

I would contend that over the last couple years, given the value you've provided vis-a-vis land-based vacations, you haven't gotten the net yields you should have got, and obviously we are seeing the price sensitivity today on the downside.

So what are those discussions focused on, and what do you think is an appropriate return on capital?

First of all, I'm not sure I agree with the tone or the conclusion of your question.

The reality is I don't know of a leisure company that will perform as well as we will perform this year or have the returns that we will perform.

In fact, most of them won't have any returns at all this year.

So, we've always said that we will outperform leisure in a difficult environment.

I think we've proven than time and again, and I think we are going to prove it again this time.

There is no question that returns are under pressure.

I think they are for every company in leisure and many companies in other businesses, as well.

It is clearly something that we discuss on the Board.

And it's an issue when you commit additional capital to the business and whether you commit additional capital in the business.

We will look over the long term for our traditional returns, and will make those capital decisions based on, over the long term, believing that we can get our traditional returns.

But we also understand that this is a business that has ups and downs and we are in a down cycle now, and we would hope at some point, whether it is a year or two or five down the road, that we can get back to more traditional returns.

When you say traditional returns, is that low teens?

I mean, obviously, you can't go back to the -- given what the incremental cost of ship builds, it seems that the mid-teens you were at in the old days are not really achievable.

I just want to --.

I don't know that they are achievable now, but there is no question that cost of new builds will be coming down, just like everything else.

I think that's right.

I think two things.

I think cost of new builds will stabilize or come down.

And I also think it is -- our thinking is that as we move beyond the current ship order, that while we will not stop ordering ships, the ships that we will -- we will order less ships, based on the individual performance of these brands in their markets.

And I think it will be -- so we will narrow the focus on ship orders and order ships in those markets in which we are getting good returns and we think that ordering a ship will give us an incremental return.

And just to comment about the return on invested capital, we do spend an awful lot of time on that.

But on the other hand, you can't simply look at next year when you are making these decisions, because these are long-term assets.

But we think the model works, and although we are going through a little bit of pain right now, even with that, we are still way outperforming the rest of the leisure business -- leisure sector right now.

So we feel pretty good about ourselves.

On the other hand, we would love to get higher yields and higher returns on our investments.

I guess my final question, do you think you guys have gotten your fair share of net yield during the upmarket, let's say from post-9/11 through '07, relative to land-based pricing, given the value you've provided the customer?

I don't think we ever think we get enough.

So we are always challenged to do that.

But when you are taking in -- you are also building the business, so if you just look at year by year, it is not a strategic look at the long-term benefits of ordering new ships and building your business and building share, capacity share in each of the markets that we have targeted.

So I think it is a combination of short-term objectives of trying to maintain your returns and long-term objectives of building your market share.

Do you think that, given what the cash flows are for your peers, who obviously have a higher weighted average cost of capital and much lower return on invested capital, Micky, do you think we are going to see some capacity withdrawals from the marketplace at an accelerated rate?

I don't know -- that's a question for our competitors.

I don't know the answer to that.

I do think that clearly some of our competitors are under significant stress and will have to make some tough decisions.

But I can't answer that question.

Okay, thank you.

Simon Mezzanotte, Société Générale.

Good morning.

Two questions for me, please.

The first one is what is your thinking in terms of occupancy levels, and whether you think the current-year guidance would allow you to finish on par with last year?

And secondly, if you can perhaps put the current booking curve in the context of previous down cycles.

We would anticipate occupancies remaining basically stable year over year.

They are always a basis point or two difference year to year, depending on how much third and fourth you carry in a given year and mix factors.

But basically, I would say that we would anticipate them being flat year-over-year.

Howard -- second?

The current booking curve in the down cycle (technical difficulty) previous down cycle.

But is that it, Simon?

Yes, yes.

Clearly, this has been a much more complicated and difficult situation than September 11, for example, where we got a very, very quick bounce back.

Obviously, the combination of a global recession, rising unemployment, the credit crunch, the fear factor from the market gyrations, all these things have had significant impact on the consumer, I would say as significant or more significant than we've seen in the past.

We did look at the overall status of our bookings compared to prior years.

In 2009, where we stand today for the balance of the year, is very similar to where we were at in 2004 and 2005.

It is hard when we go back prior to that, because prior to the combination, we were a very different company, and didn't have all the same brands.

Prior to the merger.

Prior to the merger in '03.

I see.

So are you saying that the number of days that people are currently booking in advance of their holidays is basically in line with 2004, 2005 levels?

Yes, we are about as those similar levels, exactly.

Thank you very much.

[David Leibowitz], Horizon.

Thank you.

First off, Howard and Micky, you are very -- you're giving us worst-case scenario -- or let's hope it's worst-case scenario.

Beyond the dollar weakening again and oil staying low, what else could happen that would give you better results than the range we are now looking at?

Clearly, a better return of demand.

If demand -- in these cycles, where we -- it is very difficult to go back and look at other cycles.

But we have been through periods where there is sort of -- if the economy -- if people have more confidence, if unemployment becomes less of an issue in the minds of people in terms of their jobs, if demand comes back, we will be able -- and if we keep this pace up of 10%, 12%, whatever it is, of a stronger bookings year over year, we will be able to move pricing.

But we haven't been able to do that yet.

We are still behind in each of the next three quarters in terms of occupancies versus a year ago.

So it is when that flips, then we have some -- the dynamics of that is you can then start to tweak pricing up, and that gives us the best operating leverage, to be honest with you.

That is really where the opportunity is.

The second, talking back to Alaska, and you have two brands, Holland America and Princess, which have a lot of land-based fixed assets in Alaska.

If you are cutting back on capacity, are we to take that to mean that their land-based activities will also suffer as a consequence?

Yes, and that is in our guidance.

That is what I was talking about when I was talking about the economic impact.

Obviously, we have a lot of significant infrastructure and we have significant amount of employment in Alaska.

And those will suffer.

And no question about it.

We will try to mitigate that in every way we can, and we've talked to our management about operating itineraries that will mitigate it as much as possible.

But no question that the downstream impact will be felt.

And with the new-build program, clearly you don't have any new builds at all on board for Princess.

Holland America has I think one more ship coming.

Are these the types of brands that you said are unlikely to get new capacity, and is Alaska part of that reason?

No, we've not said that at all.

We think Princess as a brand is extremely powerful and has opportunity to grow.

And if we could get the right new building deal and if we can get the right returns, we clearly would love to grow Princess further.

So no, we've never said that, and clearly, Princess is a brand that works globally.

They have a very successful operation in Australia.

They have a very successful operation in the UK.

It is a very, very powerful global brand.

And no, we would love to be able to grow it.

It is just that when Princess's ships got delivered, it was really the peak of new-building prices, and we just tried to stay disciplined and wait.

And as those prices come down, clearly we would love an opportunity to be able to continue to grow Princess.

Thank you very much.

Jamie Rollo, Morgan Stanley.

Thank you.

Back in the fourth quarter and now in Q1, you've reported stronger-than-expected close-in demand and generally better than expected yields, but you've still gone on to reduce your yield guidance for the outer quarters.

I'm just wondering whether that is just natural conservatism, whether it is the mix impact as the summer months more skew to the weaker Alaska and European business, or if it is something else.

I think when we talk about stronger than expected close-in demand, it is stronger than we expected.

It's not necessarily strong.

So it is relative terms.

Because we forecast what the close-in business and yields are going to be like, and they're actually coming in better than the way we had forecasted it to be.

By the way, it was within our guidance range.

I mean, for instance, for the fourth quarter in December -- I'm sorry, for the first quarter in December, we said 5% to 7%.

It turned out to be down 5.2%.

So it was within the range.

We are only talking about 0.8% here, so it is a very small movement, relatively speaking.

I think everything you said is part of it, but I think the biggest part of it is we have more visibility.

We have about two-thirds of the business on the books, and we have more that -- we've been through a significant part of wave and we have more visibility.

And so with the caveat of everything you said in your question, we've come to this conclusion.

Okay.

And then on Europe, I think you said that prices are holding up better than for most of the US market.

Could you perhaps touch a little bit on some of the European markets please, and why yields seem better when there is much higher capacity growth?

I would say, market by market, we seem to be holding up quite well in the UK, for example.

And I think our brands are very well-positioned, the P&O and Cunard brands for the UK market, even in a challenging economy.

Because a large part of the consumer there that goes on these brands is a more well-heeled consumer; many are retirees and so on, and less affected by concerns about unemployment or a difficult economy.

And I think that is pretty much true in continental Europe.

I think Costa is performing well.

AIDA performing quite well.

Spain continues to be a challenge for us.

Albeit we only have three ships dedicated to the Spanish market this year, Spain itself seems to be suffering more than any of the other countries in Western Europe from an economic standpoint, and that continues to be a challenge.

But fortunately for us, we have very little of our business committed to the Spanish market right now.

While it is true that our capacity growth rates in Europe are higher, the penetration level continues to be extremely low in Europe.

We are growing very, very powerful brands with the exception of Spain, as Howard said.

We really are seeing this across all of Europe and the UK.

And there is lots of reasons.

Part of it, I think, is that cruises generally in Europe are not purchased with credit, and so the impact is less.

Vacation times is greater.

Penetration is lower.

It is all those factors, I think, that is mitigating the impact of the weak economy in Europe.

And then just finally, I'm wondering whether for the group that the mix of repeats versus new cruises actually changed in the last few months.

Have you seen an acceleration in cruise adoption by more value-conscious consumers?

We looked at the data for the last three months.

We have not really seen a material change in the level of first-timers.

But I guess a lot of that will depend on how deep we go in pricing on a go-forward basis, as the demographic information we have is really only two -- it looks at it in arrears.

Right.

We get this data post-departure, so we don't have the data for people booked during this wave period.

I can tell you that anecdotally in talking to some of the brands, we are getting a lot of first-timers to the brands.

And we won't know whether those are first-timers period or basically brand switchers until we get the data after they sail.

But we are getting a significant amount of first-timers to the brand, and I think that is based on the pricing that is in the marketplace.

Thank you very much.

[Nick Thomas, RBS.]

Hello there.

A couple of quick questions from me.

First of all, the full-year guidance, obviously slightly weaker than it was three months ago, although first quarter with a better end.

That change in guidance that we are seeing, is that pretty evenly spread across the remaining three quarters or is it more skewed towards any particular area?

Certainly, from your narrative, the third quarter sounded to be maybe the weakest of the quarters looking ahead.

Just give a little bit of a color on how things have changed over three months on a quarter-by-quarter basis.

And then secondly, looking at fourth-quarter booking volumes and prices at this stage, are you able to sort of compare where we are now for the fourth quarter with where we were sort of three months ago, your last call, to the third quarter as an indication of sort of how much better or worse things are looking for the fourth quarter versus the third quarter?

Sure.

First of all, we didn't give guidance by quarter on the last call.

But I will say that a big part of the reduction in the guidance from December through March was as a result of the pricing in the back half of the year.

We had in December the least amount of visibility for third and fourth quarter.

We took our best estimates at that point in time.

And as Micky and Howard had indicated before, given everything we've seen, we put forward what we believe is reasonable for that period of time, which is mostly -- a big chunk of it is third and fourth quarter.

As far as the bookings for the fourth quarter versus the prior year, where we were versus the prior year in December relatively speaking, we are tracking similarly to the prior year.

For the second quarter, we made up some ground.

In the third quarter, we made up ground.

But the fourth quarter is still about the same behind as it was in the December call.

Which is a function of the curve.

Exactly.

It is interesting.

The fourth quarter relative to the third quarter, they are very different quarters from a price point standpoint, because the third quarter is our strongest -- seasonally strongest quarter.

So we get our highest prices in the third quarter, and pricing comes down typically in the fourth quarter.

So they behave -- their booking patterns for the two quarters behave very differently.

I think it is fair to say, and generally speaking, but6 I wouldn't make any conclusions from this, that the fourth quarter, because of the -- we think because of the lower price points -- is booking somewhat better than third quarter's booking because of the higher price points, relatively speaking.

It is a relative thing.

I don't know if you can glean anything from that at the end of the day, except that that is sort of the phenomena that we see.

It's just a continuing confirmation that despite sensitivity (inaudible).

The third quarter has historically been our highest-priced quarter and the fourth is historically our lowest-priced quarter because of the seasonality of the quarters.

And if you've got a very price sensitive consumer, if they can -- and many people can't who -- because many -- people like teachers and others, they can only get vacation in July and August, can't move.

But people who can move, there is a significant price difference to move.

And because of the price sensitivity, that will happen.

Just as a follow-up, obviously, the yield that you've reported in the first quarter and the guidance you given for the second quarter is clearly better than what is implied for the second half for the reasons you've just outlined.

To some extent, would you put that down to an impact of the benefit that you've perhaps seen from bookings and pricing that you would already have had on hand before the economic environment deteriorated, sort of from autumn time of last year?

Yes, I think there is no question that we had a base of business, particularly in the first, some in the second, prior to that September week where the consumer really got hammered.

And that clearly helped the first half versus the second half.

Thanks very much indeed.

Rick Lyall, John Bristol.

I have two questions.

First has to do with group bookings and whether or not you've seen any stabilization in repricing or rebooking of those.

There has been some stigma about corporate travel and (inaudible) during a period of layoffs.

Have you seen any stabilization in those bookings yet?

Again, stabilization is a word I'm really not enjoying.

Group bookings are down.

In a down pricing environment historically, we've always seen group bookings decline, and it has held up.

As you say, there is also this overriding thing that I think Vegas is feeling more than anybody else, but we are getting some of it, of a desire of corporations not to travel right now.

So the combination of those things clearly have affected.

And our yield management people have had to adjust to that and understand that.

But no, group bookings are down.

Okay.

Alaska is obviously an important market for the industry, and rather than just surrender that market to, I guess, ill-advised tax costs inside the state, what is the industry doing to fight back?

And Part B of the question is if it is impaired to some degree going forward because the state sticks to its head tax policy, what plans are you considering to develop other markets like Latin America or more presence in Asia, where emerging markets have held up relatively better?

Any thoughts along those lines?

I think our strategy has been to try to deal with the issue politically in Alaska first.

It is clear to us, and legal opinions are clear to us, that the initiative and the taxes are unconstitutional; in fact, effectively illegal.

We have tried everything we can to find a political solution.

If we don't in the end find a political solution, I assume we will go ahead and litigate the issue, which is a last resort, but that is what we will do.

Other than that, we will have to continue to reduce capacity until we find an equilibrium.

I am hopeful that the reduction in capacity in 2010 will be sufficient, that we will find an equilibrium in 2010 and start to see some recovery.

South America and Asia?

You know, we are building Asia.

As you know, Costa has put a second ship into Asia.

We are -- there is still plenty of summer deployment.

Deployment in the summer really is not a challenge because there is plenty of demand and plenty of deployment possibilities in the summer.

It is always winter deployment that is the trickiest.

And if all else fails, it is the Caribbean, which there has been a lot of ships coming out of the Caribbean over the last few years, and right now the Caribbean could sure use a little bit of a boost in their economy.

So if all else fails, I think you will see some retrenchment and return of some of the summer deployment to the Caribbean.

Okay.

Good luck in the third quarter.

We have no further questions at this time.

Thank you all for calling in, and if there are follow-on questions and details and so on, Beth Roberts will be available today to take your calls.

Have a good day, everyone.

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

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