嘉年華遊輪 (CCL) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by, and welcome to the Carnival Corporation's second quarter earnings conference call. During this presentation all participants are in a listen-only mode. (Operator Instructions) As a reminder, today's conference is being recorded on Thursday, June 18, 2009. It's now my pleasure to turn the conference over to Mr. Howard Frank, Vice Chairman, Chief Operating Officer, at Carnival Corporation. Please go ahead, sir.

Good morning, everyone. This is Howard Frank speaking, and I, together with Micky Arison, are here in Genoa, Italy, having just taken delivery of the new Seabourn Odyssey a few hours ago. We're at Costa Cruise Line's offices, and Pier Luigi Foschi Chairman and CEO of Costa, our Continental European Cruise Company is here on the call with us. In Miami, David Bernstein, our CFO is there together with Beth Roberts, our VP of Investor Relations. I will turn the call over to David to give you the color on the second quarter financial results, and then David will toss it back to me, and I'll give you some comments on what the outlook looks like. 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 statement. For further information, please see Carnival's earnings press release and its filings with the Securities and Exchange Commission.

For the second quarter, our earnings per share were $0.33 versus $0.49 for the prior year. The second quarter came in above the midpoint of our March guidance by $0.02 a share. This was driven by a variety of cost savings measures, timing of certain SG&A expenses, and reduced fuel consumption, which benefited us to the tune of $0.05 as a result of tight cost controls and cost saving initiatives, while better than expected pricing on close-in bookings benefited us to the tune of $0.03. All of this was partially offset by higher fuel prices costing $0.02. The impact from disruption of our Mexican cruises in response to the CDC's recommendation against nonessential travel to Mexico due to the flu, which cost us $0.03, and a shortfall from expectations in net on-board and other revenue yields that cost us about $0.01. Overall for the second quarter our total revenue yields came in toward the lower end of the range, down 9.8% in constant dollars versus March guidance of down 8 to 10%, driven primarily by the impact of the flu. Given the uncertain times and the flu disruption, I think our operating companies did an excellent job beating our guidance.

Looking at our second quarter operating results versus the prior year, our capacity increased 5.9% for the second quarter of 2009 with a majority of the increase once again going to our European brands. Our European brands grew 8% while our North American brands grew 4.2%. Also during the second quarter, Costa Asia over doubled in size as Costa Classica joined Costa Allegra in China. As I previously mentioned, overall net revenue yields in local currency declined 9.8% in the second quarter versus the prior year. Now let's look at the two components of net revenue yields.

For net ticket yields, we saw a yield decline of 10% in local currency. Our North American brands were down 14% driven primarily by declines in Alaska, Europe, and not surprisingly, Mexico, due in large part to the CDC travel restrictions relating to the flu. However, yields in the Caribbean and other exotic itineraries held up somewhat better in the second quarter compared to the prior year. Our European brands experienced 6% lower local currency ticket yields on higher capacity driven by declines in all itineraries. For net on-board and other yields, we reported a yield decline of 9.4% in local currency. We saw declines in most of our brands around the world, a trend which we had anticipated. Net on-board and other yields in our European brands were down less than our North American brands, similar to our experience in net ticket revenue yields. Net on board yields in all major categories, bar, casino, shorex, shops, photo, and spa were down in the second quarter versus the prior year.

In summary, you should note that while the second quarter net revenue yields were down almost 10%, they still benefited from some strong pricing on bookings taken prior to the start of the financial crisis last fall. As we look forward to the back half of 2009, all of which was essentially booked after the start of the financial crisis, you can expect to see slightly larger yield declines as the back half of the year feels the full brunt of the recession and is impacted by the seasonal deployments in Alaska and Europe. On the cost side our cruise cost per available lower berth day excluding fuel and local currency for the second quarter were up 1% driven by the $24 million increase in dry dock expense this year versus the prior year which was due to more vessels being in dry dock. However, the best measure of cruise costs are on an annual basis, and I will touch upon that in a moment.

Fuel prices this quarter were 43% lower, saving us $180 million or $0.22 per share. Our fuel consumption per available lower berth day this quarter declined 6%, saving us $27 million or $0.03 per share. As a result of numerous conservation measures we've been seeing 2 to 3% fuel efficiency per year for a number of years now. The stepped up focus in this area has benefited us through the whole first half of 2009 with an even larger decline in fuel consumption. While currency movements have reduced our costs for the second quarter, overall currency was a negative drag on our earnings of approximately $55 million, or $0.07 per share as the dollar strengthened versus the euro and the sterling.

Before I turn to the outlook, I would like to say a few words about liquidity. At the end of the second quarter, pro forma for the recent loan signing, we had $4.8 billion of liquidity. This included $1.7 billion available on our revolver, $232 million of cash excluding cash on hand, $200 million of committed bank term loans, EUR550 million of commitments from the European investment bank, and $1.9 billion of export credits. Two export credits remaining for 2009, and one per year for '10, '11, and '12. Since the March conference call, we've completed six financings worth $1.7 billion. Two Italian export credits for 2009 worth $570 million, one for Costa Pacifica, and one for the Seabourn Odyssey, which we drew this morning upon delivery. We also had the European investment bank loan which was mentioned in the press release for EUR550 million and we did three bank facilities worth $350 million.

As I mentioned on our last conference call, the Italian export credits for Costa Pacifica and Seabourn Odyssey completed our financing needs for 2009, and we are now on target to complete the rest of our financing needs by the end of September for 2010. I will skip the net revenue outlook as Howard will discuss in that a few moments. I just wanted to touch on our cruise cost outlook.

Cruise cost per available lower berth day for the fuel year excluding fuel and in local currency are projected to be in line with the prior year, up just about 0.3%. During the March conference call, I said that while we were happy that we were expecting to have another year of essentially flat costs, we would not rest there, and we didn't. Our operating companies managed to find additional opportunities worth $33 million in lower costs, excluding fuel price and currency, bringing the total savings since the December guidance to $150 million. Based on the current spot price for fuel, fuel prices for the full year are projected to be $353 per metric ton for 2009 versus $558 per metric ton in 2008, saving us $660 million. In addition, FX rates have moved from a 2008 average of EUR1.49 and GBP1.90 to 2009 guidance of EUR1.37 to GBP1.54.

In the end, fuel and currency are driving our costs down. So in current dollars, and including fuel, our costs are expected to be down 12 to 14%. While the FX rate movement reduces our costs, it also reduces our revenue. Given these FX rates, the year-over-year profit impact from currency is expected to be a reduction in the bottom line of $175 million, or $0.22 per share. As fuel and currency are big factors affecting our 2009 results, I wanted to share with you some of the current rules of thumb about the impact of exchange rates and fuel prices on our 2009 results. To start with, a 10% change in price of fuel represents approximately $110 million or $0.14 per share impact for the full year on our P&L. The 10% impact in fuel obviously moves along with the price of fuel. With respect to FX movements, a 10% change in all currencies relative to the US dollar would impact our P&L by approximately $130 million or $0.16 per share. Fortunately for us, FX and fuel items have generally moved in opposite directions, acting to some extent as natural hedges of each other. At this point, I will turn the call back over to Howard.

Thank you, David. To start this morning I would like to mention that given the challenges during 2009, it's been gratifying see the Carnival business model holding up so well during perhaps what is the most significant slow down in the world economy in our lifetimes. The positive take-away for us during this historically significant period is that the strategy of attractively pricing our cruise vacations in order to maintain our high levels of occupancy has continued to enable to us attract new customers and to achieve solid profit margins. Also during 2009 we have taken further steps to reduce operating and shore side costs which David discussed which will continue to benefit us in the future periods. So as we emerge from this global economic slowdown we believe we'll be a far stronger and more profitable business than before.

I'd also like to touch upon our strategy of maintaining a strong balance sheet with high levels of liquidity. This has enabled us to successfully navigate through this difficult economic environment which also included the bank liquidity crisis and the freezing of the credit markets. Our loan leverage ratios and solid investment grade rating provides us with the ability to access credit facilities at costs considerably below our current capital market rates as David talked about the various financings we've accomplished during the last several months. That gives us maximum flexibility also as we emerge from the recession.

Now to the booking environment. Since the beginning of this year, our booking volumes for the back half of the year have been running approximately 16% ahead of 2008 volumes. And as we indicated in our press release since March, the booking volumes are now running 26% ahead of last year. Of course, these bookings had been at lower price points, which I will comment on later. So despite the soft economy, and rising rates of unemployment in North America and Europe, we seem to have found a price point that incentivizes the consumer to book a cruise vacation. With these strong bookings, prices are beginning to show signs of improvement for certain of our itineraries, which is encouraging.

Looking separately at our North American cruise brands, we are seeing a modest improvement in pricing for our premium products. However, pricing for contemporary cruises has suffered because of the flu related travel restrictions to Mexico. In that regard we have restarted our selling to Mexico this month, and except for the initial disruptions, Mexican itinerary booking volumes continue to be strong and we expect that pricing for Mexican cruises will strengthen over time.

As for our European brands, pricing has held steady and there appears to have been very little fall-out from the flu issue in Europe. As we indicated in the press release, the main factors affecting our earnings guidance for the year include fuel, which is now forecasted at $353 per ton, versus $279 a ton in our prior guidance. This higher than previously forecasted fuel cost amounts to $0.29 a share, and the strengthening of the euro and sterling kind of offset that by a favorable $0.06 a share. While the impact of the flu on our Mexican deployments was a negative $0.10 per share on yield it was largely offset by better than expected revenue yields for our other deployments, which was $0.14 a share. And we expect a further $0.04 savings on costs for the year. So the sum of total of these items if you can follow all that, nets out to $0.15 per share, and new guidance range for 2009 of $2.00 to $2.10, which is down from our previous guidance of $2.10 to $2.30.

Now turning to the next three quarters. For our third quarter, our fleetwide capacity is 5.6% higher than a year ago, 3.8% in North America, and 7.4% in Europe. At this time, fleetwide occupancy for the third quarter is running behind a year ago with pricing substantially lower. For our North American brands, third quarter capacity breaks down as follows. Alaska is 28% of our capacity with Europe at 19%. The Caribbean at 36%, and the balance in various other itineraries. Pricing for our North American brands is lower across all itineraries with the steepest decline in our Alaska programs. Mexican Riviera cruise pricing is considerably lower because of the impact of the flu and Mexican itineraries.

European itinerary pricing for North American brands is lower but not as low as originally anticipated as a result of recently stronger booking demand for European cruises. And Caribbean pricing is lower also in part affected by those Caribbean itineraries which call on Mexican ports. Occupancy through our North American brands at this stage are lower year-over-year for our Caribbean, Mexican, Riviera and Alaska itineraries, and slightly higher at this point for our European itineraries. We expect that North American brand revenue yield will be lower in the double digit range by the time the third quarter closes. For our European brands in the third quarter pricing is lower year-over-year but our European brands have not suffered the steep pricing declines as experienced in North America. Our Continental European brands, Costa and AIDA, have lower pricing with yields expected to be down in the single-digit range by the time the quarter closes. Our UK brand yields are expected to be only slightly lower by the quarter close. Our Spanish brand, Ibero Cruises has suffered the steepest decline in yields because of the very weak Spanish economy. Fortunately this is a very small part of our European brand portfolio. Overall we expect European brand pricing to be lower in the single-digit range by the time the third quarter closes. And as we indicated in the press release, we expect overall revenue yields for the third quarter on a local currency basis to be 14 to 16% lower year-over-year and earnings per share third quarter is expected to be in the $1.15 to $1.19 range.

With respect to the Spanish brand, let me just comment on the Spanish brand, Ibero Cruises. Despite the currently weak Spanish economy we do believe in the long term future of this Spanish brand. In fact, we've entered into an agreement to purchase the remaining 25% minority interest in Ibero for EUR23 million and have made a number of changes in the organization in order to further integrate Ibero into the Costa group in Europe. We have also recently moved a senior Costa executive to Madrid to manage the Company and have run several new executives to Ibero to support these efforts which is already beginning to yield very positive results. So long term, we are going to be in Spain, and we think it's going to be a very good business for us.

Turning to the fourth quarter, fourth quarter fleetwide capacity is up 7.6%, 5.7% in North America, and 9.4% for our European brands. Fleetwide occupancies are running behind year ago numbers and year-over-year pricing is lower but on a relative basis, better than third quarter pricing. For North American brands capacity breaks down as follows. 45% is in the Caribbean, as for the Caribbean, Alaska, and Europe combined is 17%, and long and exotic cruises are 12% with the balance in various other itineraries.

For North American brands Caribbean pricing is lower but fourth quarter booking momentum for 2008 period has been strong, similar to third quarter pricing for Alaska cruises during the shoulder period are considerably lower but Europe itinerary pricing although lower is holding up better than Alaska. Long and exotic cruises with the higher price points are also considerably lower than a year ago. While occupancy for North American brands fourth quarter are still lower as a result of the strong booking volumes, during the last several months we have caught up considerably and are now only modestly behind in occupancies. European brand itineraries are 78% in Europe and 11% in long and exotic cruises in the fourth quarter. European brands pricing during the fourth quarter continues to be better than our US brands although pricing for European and long and exotic cruises are lower year-over-year, the declines are not as steep as with the US brands.

Similar to the North American booking pattern, fourth quarter bookings in Europe continue to be strong and occupancy levels although lower than a year ago, have caught up considerably as a result of the recently strong booking volumes. Overall by the time the quarter closes, we expect fourth quarter pricing to be lower year-over-year but improving on the third quarter expected price declines.

Now turning to the first quarter of 2010, this will will be the first time we comment on the booking trends in the first quarter of 2010. Fleetwide capacity in the first quarter is expected to be higher by approximately 9.2%, 5.2% of that is for North American brands, and 13.3% is for European brands. Booking information for the first quarter of 2010 is still in its early stages of development, so I caution not to read too much into this information. Having said that at this time, we do expect to have yield declines in the first quarter of 2010. This results from year-over-year comparison being very difficult since a good percentage of 2009 first quarter business was booked before the economy began entering into the steep recession in the third and fourth quarters of last year.

From a fleetwide standpoint, while bookings at this time are below last year's levels, as a result of the strong booking volumes in recent weeks we are currently tracking last year's booking levels even with the 9.2% increase in capacity in the first quarter. North American capacity for the first quarter of 2010 breaks down as follows. Caribbean is 62%, Mexican Riviera 11%, long and exotics, approximately 16%, and all of those are approximately the same percentages as we had in last year's first quarter. North American brand occupancy and pricing across all itineraries are lower than last year. However, current pricing on booked visits is still ahead of the pricing we finished with for the first quarter 2009. So if a strong booking momentum continues it's possible we could see a narrowing of the current year-over-year pricing declines.

European brand pricing has at least at this point held up quite well and is running at approximately the same levels as last year. Although occupancies are lower than a year, a booking momentum has been strong, which is quite encouraging. But as I said early, it's still early in the backing window for the first quarter 2010.

So that is the outlook for the first quarter 2010. We'll be able to provide with you more color on the first quarter revenue picture in our next call this September. And with that, operator, I will turn it back to you for questions from our callers. Thank you.

Absolutely, sir. (Operator Instructions) And gentlemen, our first question comes from the line of Felicia Hendrix of Barclays Capital.

Good afternoon, guys. David, I have a question for you on the EIB loan. I was wondering if you could walk us through the structure of that, the rate, guarantees, and I'm just wondering, is there any significance to starting to be able to borrow from the EIB? Will we see that again in the future?

The EIB loan is actually a loan that will be taken out by Costa Crociere. It actually finances a couple of their ships. The loan is EUR550 million, EUR200 million will be drawn this year. EUR200 million in 2010 for Costa's next ship, and then EUR150 million in 2011. The loans are guaranteed, of course, by the parent companies, both Carnival Corp and Carnival PLC, and it's a 15-year structure. The rate is very favorable, as we've been achieving on all of our loans. Very competitive and very favorable compared to the type of financing we would get in the capital markets today. This was a great opportunity.

Actually this opportunity was something that came up as a result of Pier Foschi, who is there in Genoa with Micky and Howard. As a result of the credit crisis last year we all started thinking and scratching our heads about what to do as the credit markets became more difficult, Pier came up with the idea of approaching the EIB. We've been working on this since last September. It's a very unique opportunity, because remember the EIB is looking for projects to stimulate growth in the European economy and these ships are going to be sailing in the Med as part of the European economy. So we've been working with them since last September, and we were able to finalize the loan earlier this month. Whether there are more opportunities in the future is something that we will always continue to look at as the rates are very favorable.

What allowed us to do this is the fact that the Company is Italian owned, Italian based, Italian flagged, operating in the Mediterranean so obviously the economic benefits all flowed to Italy and the Mediterranean area. So it was a unique set of circumstances that may or may not be able to be repeated in the future, we don't know. But again, it was very creatively put together, and with the help of Costa and Fincatieri, and EIB we were able to get it done, and the Italian representative to EIB played a very important role.

My second and final question, Micky, on capacity, now we're half-way through '09, and we haven't seen any orders really in the industry for obvious reasons. Definitely bodes well for 2012. I'm wondering, as you think about your strategy over the next few years, I'm wondering if you envision continued growth of your fleet, or if you think we'll see a lull in new ship orders over the next year or so?

I do think we have been saying that we expect capacity growth beyond what's known now to slow down, but I don't expect it to stop. Clearly we have brands that have needs, and in recent year or two, we've had issues both with the dollar and with commodity prices, meaning new building prices skyrocketed and while some of our competitors ordered under those circumstances, we held back, and we haven't ordered in quite some time. A lot of the commodity prices and other prices have come down significantly, and pricing is starting to resemble pricing that he we had when we did order. So we continue to talk to yards, we continue to look at opportunities, and if we have the right opportunity for the right brand, it meets the capacity and the pricing is right, we'll definitely consider it, but I do expect that capacity growth will slow, but it won't stop.

Okay, thank you very much.

Thank you for having taken the question, and our next question comes from the line of Steve Kent from Goldman Sachs.

Hi, good morning. Maybe just a couple questions. When I look at your results, third quarter net yield came in toward the bottom end or was at the worse end of your guidance. Third quarter looks a little bit more difficult. Then in the fourth quarter it looks like you're forecasting a pretty big rebound. I was just trying to figure out why that would happen, given, Howard, all the things that you just mentioned? And then could you also just talk about what you see sort of day to day on the swine flu impact. It seems like it just gets -- goes through lulls of publicity, then gets a flash of publicity. Does that affect your bookings almost day to day when a ship is being quarantined off of Venezuela today and sort of how that impacts things?

First of all, remember that the guidance was given before we had the Mexico travel advisory. So the fact that we're able to be within guidance despite the Mexico travel advisory I think is a pretty good sign that everything else was booking better than we anticipated. That's true for the second and to some degree a little bit of the third quarter.

As far as the impact, it's interesting. During the time of the advisory, clearly it was a huge amount of disruption caused by that CDC advisory, because of the itinerary changes, and people didn't know Carnival Cruise Lines basically changed itineraries through mid-June, and people didn't know what they would do beyond mid-June. Basically for three, four weeks, everything into those vessels stopped. And so now we're digging ourselves out of that hole. There's been little resistance, actually, to going back to Mexico. We didn't see a lot of cancellations during that period. We just saw the uncertainty of the itineraries cause this disruption, and volumes now are very good, much higher than last year, but we're digging ourselves out of a hole and having to do it with lower pricing.

As far as these isolated occurrences, it's tough to explain. We have now been in touch with 23 Caribbean governments. We've gotten confirmation back from 20 of them that they will not behave in the way that they have behaved with Pullman Tours. And I can't explain -- you'd have to ask Pullman Tours what's going on over there. The reality is that when a ship arrives in a port with a few flu cases, confirmed or unconfirmed, those cases have been isolated, and the passengers have been aboard for a number of days, and so symptoms would have come out, and we have isolated the passengers with symptoms. If those passengers that arrive by air after a four or five-hour flight, they would not be symptomatic and would be in the population. So it's clearly much safer as long as you operate under the protocols that we, CDC, with (inaudible) have put together, much safer to accept the ship is even if the has some cases. And by the way we're talking about a flu that is no worse and appears to be symptoms even milder than seasonal flu.

So this overreaction in some locations has been a problem. We had a particular problem in Australia. But we're trying to deal with it port by port, government by government, and I think over time people are understanding that this is not any different than seasonal flu and shouldn't be treated as such. And we also have to remember that W.H.O. from the very beginning, said that there should be no restrictions on travel. And yet some governments, lower level people, have panicked and done some of the things that you just described. So hopefully over time as everybody gets educated, we work hard to educate people, and we work hard with the CDC to educate people this becomes less and less of an issue and will be treated more and more like seasonal flu.

Steve this is Howard. Let me clarify a few things on the yield information. I think it's fair to say that without the impact of the flu in the second quarter, we would have come in at the midpoint of the range, the yield forecast range we had given for the second quarter. So it really was more driven by the flu affect. And while the third quarter will be down, it's clear that some of these -- the seasonal Alaska programs took a big hit in the third quarter, and some other long and exotics took a big hit, so I think we suffered more in the third quarter, and third quarter typically, because it is seasonally our strongest quarter, has the highest price points. So I think we felt more the impact of the yield erosion in the third quarter. And while I think the fourth quarter will be better than -- it will be better than the third quarter, but I don't think it's going to be -- I wouldn't say it's going to be remarkably better, but it's certainly going to be improved from the third quarter. Also, because we're seeing some evidence, and we have been able to pick up some -- we have been able to pick up some additional yield, we're seeing some evidence of hopefully maybe coming out of this situation, or at least stabilizing the situation. But hopefully coming up with some pricing improvement in some itineraries as we go forward. And I think we're starting to see that for the fourth quarter. Third quarter is really basically done, and just not a whole lot left. I don't know if that helps.

Yes, it does, Howard. Then into the first quarter it sounds like things would still be negative. With the amount of supply coming on, does that suggest that the negatives will continue throughout 2010? Given what you're seeing so far, it feels that way. Again with the amount of supply coming coming into 20 10.

I always take a little bit of risk by providing data for the first quarter. We simply don't have any information what the picture is going to look like.

Way too early.

Way too early to know yet. There's so many factors that can play. The one thing we do know is that our occupancies, our our capacity is up over 9% in the first quarter, and at least over the last several weeks we've been starting to track the same type of bookings on a capacity adjusted basis as we did last year. So that's a positive. How long that lasts, whether that's sustainable, what other hits we're going to take in the economy, who knows yet, but we really don't have a good yield forecast, even then I'm never sure how good they are until the end of the year.

Clearly the big issue is not going to be capacity. The big issue is going to be the economy and consumer confidence, what's been happening.

And I'm sorry, then I'll let you go. That 9% you just said, you said that was capacity adjusted or not capacity adjusted?

Capacity adjusted.

What I said, when we're tracking booking volumes this year versus last year, that's on a capacity adjusted basis. So we're including it. It's really a percentage of capacity that we're booking.

Okay, thank you.

It includes the 9.3%, which is positive.

Thank you for taking those questions. Now our next question comes from the line of Robin Farley of UBS.

A couple clarifications I guess. One is just you were talking about the swine flu. A lot of different viewpoints out there about how big of an impact that may have on yields. I think your commentary is a little more up-beat than what some people might have expected. When you look out to Q1 of 2010, at that point are you still seeing the Mexican itinerary bookings behaving a little worse than--?

Let me try this one more time. The only time we saw an impact was during the travel advisory. If you understand the volumes of bookings we're talking about, over a three or four-week period, we basically stopped. Now, what percentage of that was based on the flu and what was based on the fact that the consumer didn't know where we were going to cruise to is very hard to know. But it was very disruptive. As soon as we announced we're going back, volumes not only went back to normal, but exceeded normal. So volumes were fine. However, our yield management people obviously have to react to the hole that was created, and so the pricing was lower. But clearly that price will be moved up as that hole gets filled. But the volumes were there the moment we were able to confirm what the itineraries were.

Okay, that's helpful. And then in terms of Q1 just overall now, Companywide bookings, would you say that even though it's still early, that the level of decline in Q1 is going to be at least better than Q3 declines this year, or is it early enough to at least say that, put a kind of a worst case cap on it, assuming no big changes from what's gone on, say in the travel environment?

To be honest with you, Robin, I don't know the answer to that question. We haven't even tried to formulate what yields are going to look like in the first quarter. Intuitively I think that our sense is that it it won't be as bad, but I really don't have an exact answer for you right now.

What is very encouraging is that since the end of March, receiving trending upward despite the travel advisory. Right through the travel advisory, everything is trending up, both volumes, and yields. So we're encouraged by that. Whether that will be sustainable, time will tell.

We're still running behind in the fourth quarter and the first quarter, in terms of occupancy, and we have been catching up, as I indicated, by a considerable amount, getting the recent surge in booking volumes. When you get to the point where you have caught up, you can start to tweak pricing. In various itineraries where there's more demand. And we're starting to be able to do that selectively. Different brands are doing that for different itineraries, so it's certainly a positive care. But my guess is, comparisons, when we get into 2010, comparisons for the first quarter will be the toughest, for the second quarter not as tough, and for the third quarter we'll probably have already fully cycled this downturn in pricing and start to normalize and look better in the third and fourth quarter.

Okay, great, that's helpful, thanks.

Thank you for that question. Continuing on our next question comes from the line of [Asia Georgeva] from Citadel Research.

A couple of questions. In terms of a way to think of on board spend do you expect n Q3 that the European brands will have a significant mix shift to local sourcing meaning larger percentage European passengers versus a year ago?

Try it again.

We had difficulty hearing you.

Speak up, please.

I'm sorry. Whether this year in Q3 the percentage of European passengers for European brands will be significantly larger than it has been in 2008.

I believe it's about the same.

Mr. Foschi says it's about the same.

Nobody knows it better than Mr. Foschi.

Thank you, Mr. Foschi. My second question, after significant price declines in May, for the (inaudible) including voyages that were supposed to call on Mexico, it seems that there is a pickup in pricing for Q3 since the beginning of June. Can that impact the quarter relative to today's guidance, or is there too little inventory left to really move the needle?

I would have to answer that, that it's in our guidance. Our guidance is based on the bookings we see, and the pricing we're charging and what we believe. So hopefully it's in our guidance. We do our best to obviously do that. There isn't a lot of inventory left. But clearly there's more in Mexico, only because of that hole that I just described, that needs to be dug out of. And yes, because volumes are high they will tweak prices up.

And so you have been seeing that the first couple of weeks of June, it has been sustained consistent and something you can include in your guidance then?

If it's there, we've included in our guidance.

Booking volumes have been holding up, yes.

Thank you very much.

Thank you for having taken that question. Our next question comes from the line of Steve Wieczynski from Stifel Nicolaus.

Good morning. First on the -- fuel question. With fuel now trending close to where you said you could put the fuel supplements back in place, any thoughts in terms of putting those back in? And then any change in terms of hedging strategies?

There's no change in terms of hedging strategies. We did put out a statement on fuel. Beth, do you have that statement?

We've got it here. We had put out a statement that said that at the time we suspended the fuel supplement for our six North American brands, we reserved the right to reinstate them if the price of light sweet crude oil, according to NYMEX, should increase above $70 a barrel. And then we went on to say that while we've now exceeded that threshold in light of the economic crisis and resulting consumer weakness, we presently have no plans to institute a fuel supplement, and that we'll continue to monitor the situation in the markets and review our position as the situation warrants.

And I would prefer to leave it at that statement.

Got you.. Looks like in terms of the on-board yields, they're trending closer to the actual -- almost the ticket yields at this point. Have you seen on-board spending start to -- is that not really stabilized yet? Is that still getting worse?

I think -- this is Dave Bernstein. I think overall the on board spend has overall not been as -- add as the ticket prices. It has bounced around quarter to quarter a little bit, but it has been somewhat stable through most of the months of 2009 to date. So I'm not sure which numbers you're looking at, but it is overall for the year within our guidance and the actuals. We have seen some improvement. Versus--.

Clearly I think on board spending for European brands has held up in local currency basis has held up reasonably well year-over-year. I think that's a positive.

Also remember, in this quarter's numbers there is some disruption for the travel advisory, which would have created some problems with shore excursions to ports that we traditionally go to.

That's helpful.

Do you have any further questions, sir?

No, I'm all set, thank you.

Thank you, sir. And then continuing on, our next question comes from the line of Tim Conder from Wells Fargo.

Just a clarification on the residual effects of the flu. You expected $0.05 the second quarter. You only took $0.03. But in your commentary on the full year EPS, it sounds like you're still expecting that full $0.10 that you outlined in the original press release. Can you kind of reconcile what appears to be the differences?

You may have misunderstood the press release. The press release said that it was $0.05 for the cruises that we changed. They fell primarily in the second, but also in the third quarter. For the $0.05 it fell over two quarters.

Okay. So you're still anticipating in that $0.05 to $0.10 total impact for the year for the whole mess?

Yes, the other piece of it is exactly what I described before, digging ourselves out of the hole that was created by the disruption. David, do you have anything to add to that?

That's exactly it. It was the 0.10 was essentially $0.03 in the second and we're anticipating the other $0.07 to be in the third. Two of the existing cruises and five for the rest of the impact.

Okay. Great. That helps, gentlemen. And then, David, in your opening commentary, you talked about the good history that you have, that the Company has had here on getting ongoing fuel efficiencies. How do you see that playing, as you look into 2010? What type of pace do you think is sustainable from that perspective?

It's very difficult to estimate the exact pace, but what I can say is that we are working on an awful lot of initiatives. The brands have really come together. We've got an internal Internet site where we share ideas, test things, prove things out and implement them, which is really paying -- which is really improving our overall fuel consumption. The other thing that's also key is that 2010, to a great extent is really the first year where the itineraries will have been planned in a high fuel environment. It wasn't that long ago when we planned 2009 itineraries they weren't planned in the high fuel environment that we saw in 2008 because we locked those in, in advance, so we should get some benefit he from those.

I think the key point, is that when we hit 147 fuel, we took the attitude that we're going do whatever we can to save, obviously. And when fuel went down to 35, we encouraged all our brands to think of fuel as 147 fuel and not to behave like it's 35, and to maintain the momentum that we have gotten on saving fuel, and you can see in the second quarter that they've taken that to heart and continue to work very hard at it.

And the ships have been -- a good bit of work has been done on the ships. New equipment has been installed, new technology, power saving technology, so our ships go through their dry dock periods, this technology, we're doing a lot of retrofitting of new equipment to improve -- reduce the usage of power. The silicon painting of the hulls and so on. Actually, by the fall we'll have a better sense from our operating guys of what they think they can do for next year when we go through the budgeting period, but we're continuing to focus on saving money on fuel.

We're continuing to make the investments necessary to save.

Okay, great, thank you very much, gentlemen.

Thank you for your question, sir. Our next question comes from the line of Janet Brashear of Sanford Bernstein.

You have another Costa ship now in China. Could you give us an early read on the Asian market receptivity to that?

I'm going to give to you Mr. Foschi who is responsible for our Costa-Asian operations. Good question.

We just sent the second ship in Asia April. The ship will operate now short cruises for this market together with the other ship that was there. We see this summer season, although we have more than doubled the capacity, in terms of occupancy, as good as it was last year. So the ship will operate full capacity where they are serving the Chinese market, and is encouraging, very encouraging. Looking ahead, it's very difficult to say, because again, there is a little bit of concern about flu also there, and more importantly, the winter season, the demand for the local market will slow down, and so we have to supply more worldwide customers, mainly from Europe and Australia, to fill up the ships. But so far we are very encouraged by the demand of the second ship.

Could you tell us a little bit about your itineraries for the Chinese ships, where they're going and how long they are on average?

The average is about five days, adding from four to six days. The itineraries, they sail out of Shanghai and Khamjin, Khamjin to serve the Beijing market, and Shanghai also to serve the largest Shanghai area. They typically go to Japan and South Korea. But it's a typically four to six-day cruise out of Shanghai (inaudible) in South Korea and Japan. Japan normally has two ports and one port in South Korea.

Thank you. If I could just ask one more question about Europe, in the hotel industry, the REVPAR declines have been more significant in Europe than the US, and they seem to be lagging behind, meaning they're trending down further and abating slower. If you're not seeing those same trends with your booking patterns in Europe, why do you suppose not?

We believe that -- if you compare the demand of cruises in Europe versus North America, you can see the (inaudible) years ago in North America. So cruising is still at infancy development here in Europe, so very attractive position and is actually, particularly this year, last year although Costa is economic crisis affecting everybody, but cruising is on the front page of every single paper in Europe, as attractive as proposition for holidays. It's never been before. So that is the reason why. It's demanded product within the holiday market, higher than ever been.

Thank you.

Thank you for taking that question. Continuing on, our next question comes from the line of (inaudible) please proceed with your question.

Good morning. You guys are certainly doing a good job in a difficult environment. Congratulations on that. I just wanted to ask, when you eliminated or suspended the dividend earlier, you had mentioned liquidity purely as one of the important factors in that. Sounds as though liquidity is improving substantially. I'm curious on where you are currently on thinking about reinstating the dividend and what other factors may play into that?

Well, I think we said at the time that it's an issue that is a Board issue that we will take up quarterly with our Board, and so I don't want to pre-empt the Board in any way, but I would say that clearly we'd like to see a turn in earnings and cash flow before we would recommend to the Board a change in policy. Again, I don't want to pre-empt the Board. I'd rather leave it to say that the Board will look at it every quarter, and we'll gauge it based on the circumstances at that time.

Clearly, this is -- this is Howard. I also think that the rating agencies' views of the dividend will play a role in doing our analysis, because we like our strong investment grade credit rating and want to maintain it. It's really helped us considerably during this very, very difficult period. So we'll have to work -- we'll have to work with the credit -- the rating agencies as well to make sure that whatever we decide to do, if and when we do reintroduce the dividend, that they are going to be comfortable with it and not take us down. Okay, thank you.

You're welcome.

Thank you for taking that question. Gentlemen, we now have a question from the line of David Leibowitz from Horizon Asset Management. Please proceed with your question.

Good morning.

Hi, David.

First question, are all your ships okay for the next go around? Do you have to invest some money?

No. They're all fine.

Good. Can you update us on your lawsuit about the asset part problems on the Q1-2?

We're in the middle of it. I don't think it's appropriate to comment on it.

We're in the middle of discovery right now so it's not really appropriate to comment.

Okay. The close-down of Ocean Village, that happened to that segment of the market that you were so optimistic about a few years ago? Is this something you are going to service through P&O, or is it just going to go away?

Well, I think to some degree, I wish I had David Dingle here now. To some degree, the larger ships that P&O are bringing in, Ventura and Azura, will service younger clientele, so some of that clientele can be picked up by the larger, more contemporary new P&O ships. The rest will probably go to Thompson, which is operating basically similar itineraries. And other international operators. Clearly while we were able to fill those ships, we weren't able to fill them at reasonable returns, and so we didn't feel we could grow the brand. And if you can't grow the brand, there's no point in just endlessly maintaining it. We felt that Australia was doing extremely well. We had a great, enthusiastic management team in Australia, and we feel like that is an area we can grow and grow more aggressively, and that's why we made the decision.

Also, you mentioned briefly you're in Italy to take possession of the new Odyssey. Can you talk to us about Seabourn? Obviously this is a huge step with two more vessels to follow. Are you going to keep the three that you already have, and what does this spell out for the luxury market as you perceive it?

Well, at the time we signed the contract, the luxury market was booming, as you know. And since September the luxury market isn't quite as strong to say the least. So the timing may not have been the best, but the reality is these assets are 30-year assets, and if you believe long term that the demographics work well for the luxury market down the road, these will be very good investments. The ship is absolutely magnificent, very much fitting within the Seabourn brand and the Seabourn style, and I think she will be very, very well received by the marketplace and do very, very well. Time will tell whether this segment can absorb this and other competitive capacity that's coming in. It may take some time, especially with the present economic situation. But long term we're very, very comfortable. We think these are great ships that will bring us very good returns.

And I should add, David, think that the size of these ships, which are two and a half times the size of the existing ships, give you tremendous cost metrics that we didn't have on the smaller ships that really should enhance the profitability of Seabourn, even during these tough periods. So we're happy that we're doing it, and we'll see how it goes over time. But the ships -- the ship is absolutely stunning, and so we're very excited about it. I think the reaction to our customers, our Seabourn customers, will be very positive, and she is very well booked, despite the slowing economy.

Excellent. And lastly, Ibero, now that you own 100%, can you share with us some of the changes you hope to make there and whether you might be adding capacity, et cetera?

Let me just say this. I just want to correct you. We have an agreement to acquire the other 25%, but we do to have go through Spanish antitrust regulations, which we're doing right now. So we haven't closed on that transaction. I'll let Pier react to what we're doing as far as structural toll change that operation.

So currently we are now presented the antitrust in Spain, we are waiting for the comments and decision. Ibero was part of a development that we had in Spain as a consequence of the Costa position in Spain. Costa position in Spain was and still is regarded as a premium brand with high yield, and we thought that to exploit better the market we would have needed (inaudible) to lower the Costa but we didn't do so or to start a new brand. The opportunity was in the market to acquire an existing two ships company. We injected the ships last year. Unfortunately, Spain is the most (inaudible) country in this economic downturn. There's high unemployment rate in Spain. It went up very quickly, faster than anybody anticipated. So we had now work in different market conditions while building a new company and new brand. Capacity is up this year versus last year because we reintroduced the former Carnival Celebration ship in June last year, but despite that our occupancy rate are the same versus last year.

So in a difficult economic circumstances, the brand is now positioned well in the market. In terms of what we have introduced since last November, we have taken full control, basically, of the Company, managing the different way as opposed what was managed in the past. We send a very senior talented person from Italy to restructure the company, which is now completed. There are a number of cost actions be taken, office of costs and the office of Ibero are physically in the same place. We merged the call center of Ibero and the call center of cost in Barcelona. So that a number of signatures have been already introduced in order to reduce costs and waiting for better opportunities in the marketplace given the economy that we expect to develop again.

As you know, the holiday will be transferred to Ibero, and she will be refitted and put into the fleet at some future date.

Thank you very much.

Thank you for having taken those questions gentlemen. We now have a question from the line of Jamie Rollo from Morgan Stanley. Please proceed with your question.

Thank you very much. How much of the fourth quarter and the first quarter have you sold now?

I don't think we ever provide that information. I know you always ask those kinds of questions, Jamie, but I don't think we actually give the precise numbers. But we're well advanced in the fourth quarter and we've got quite a bit of inventory sold for the first quarter but still considerable amounts to go for the first quarter. That's about all I'm going to say.

It's very early for the first quarter, Jim.

Okay. And just thinking about the strong comps that you mentioned in Q1 next year how much of Q1 '09 was therefore sold before the September economic meltdown you referred to? And how much of that was something you (inaudible) I'm just trying to get a feeling for how much of your bookings were done at that sort of (inaudible) high prices.

Remember, we're dealing with two different booking periods now. The problem was until September we were dealing with a much longer booking curve. So we were pretty well along for the first quarter by September last year. If we are in the same position this year in September, we will be in very good shape. I would not expect that that would be the case, because of the movement of the booking curve. So the reality is that by September last year, we were very well booked for the first quarter.

I think we still have the closed-in booking pattern that although we've been driving a lot of volumes, it has tended to fill in the closer in occupancies. But as we -- if we can get -- kind of get to last year's levels in terms of occupancies versus a year ago, that's when you start to see pricing going up a little bit. We have the ability to move pricing and also the curve will start to move out a little bit.

Based on what Howard said earlier, we're -- we've been booking since March at a rate of around 26% for the rest of the year, and we've been booking at about the same pace capacity adjusted for the first quarter, which is up 9%. So that immediately shows you the booking window that you've got this huge increase booking within the year, and basically, it's encouraging at this point. It is capacity adjusted equal at this point for the first quarter, at 9%.

Just final question, just on that point, you've clearly found a pricing able to stimulate volumes pretty significantly. Would you go so far as to say that you think cruise prices might have bottomed right now?

I think we said earlier on the call we have started tweaking prices on a variety of brands, variety of positions. Pricing is being taken up, yes, and as I also said earlier on the call, since March, end of March, we have seen both volumes increasing and yields starting to turn and start to improve.

Thank you very much.

That's the direct result of tweaking pricing up.

And thank you, Mr. Rollo for your questions. Gentlemen, we do have several other question, may I have your permission to proceed?

Please.

Thank you. Our next question comes from the line of Scott Barry from Credit Suisse. Please proceed with your question.

Very briefly, Howard, maybe you could comment, other than the magnitude of the yield degradation, are your brands, are the revenue management folks at the brand levels seeing any major differences with respect to this cycle versus prior cycles you've experienced?

I think it's fair to say that they've probably never experienced a cycle like this before. We've never experienced the slackening of demand in the marketplace which causes degradation of the yield in our history. To be down 14 -- 12, 14, 16%, we've never had that before. The worst I can recall is in the 3% range, or something like that. I think when that happens, I think that the reaction by the revenue management people is typically to get the business first. Even if they leave something on the table, they want to be able to fill up the ships, that's been the model. And if you leave something on the table you'll get it the following year, but they want to fill up the ships. So I think there's a tendancy to try to play the price as hard as they can until they're comfortable that they can fill the ship up. But once you full cycle this thing, as you get into, let's say, a year from now, I think we should start to come out of it, even if the economy doesn't strengthen a whole lot from where it is, if it's just a stable economy, and we may start to see some growth, and that would be real positive for us. But if it's a stable economy, we he should run full cycle on the pricing, I would hope by the end of the second quarter 2010, the pricing declines. But that's my -- that's my guess right now, but it is really still early to say.

Just following up on that, I know it's maybe a bit hypothetical, but if you assumed the same trajectory of volume growth that you've seen off the March lows, when would you expect a booked load factor would be positive year-over-year for, say, 2010?

It wouldn't take long.

It wouldn't take long, but remember, a lot of the volume we're seeing is close-in volume. We're basically pacing -- we're behind in the first quarter of 2010, just to be clear. We're behind, and in the last three or four weeks, we've been able to sustain booking volumes for the first quarter that are pacing now a year ago levels in the first quarter. We're not gaining on it. We're still behind. We're not gaining on it. And this is with the 9% plus capacity increase, so it's a positive. What we're seeing is a positive trend but it's still not enough to get us to the same levels of occupancy. We'll have to further increase. As we get out of the third quarter, towards the fourth quarter we'll start to see it happen. We'll start to pick up the volumes again for the first quarter.

Understand that 26% is not sustainable because at some point you run out of space. The net result is we sail full. So at the point that they are comfortable that they're filling the ship, they start tweaking prices up, which is what we're doing.

And the volumes will come down.

But that is already in what we've basically forecasted.

Great, thanks.

Thank you, Mr. Berry for your question. We now have a question from the line of [Rosie Edwards] from MF Global. Please proceed with your question.

Hi there, two questions on pricing again. Can you give us an idea of the different prices being achieved in your European and North American brands? I know at Q1 the range was down 10 to 40%. Also, if you are starting to be able to push the prices up I was just wondering why this has not led to an improvement in your guidance for the full year for your net revenue yield?

Actually, to answer the second part of your question, Rosie, I think we have increased guidance on yields for the second half of the year. We have two factors that played into it. One is we took a hit on the swine flu, which amounted to some $0.10 a share, or $80 million. On the other side, we've been able to recapture that, when I said we will be up $0.14 as a result of increases in yields from our previous guidance, and that's something like, I don't know, $110 million. So we actually have tweaked up pricing.

But it's still within the range.

But the numbers we're talking about, it's hard to move the percentages. Micky says, still within the range. So we have seen some of that. I'm not quite sure I understood the first part of your question.

Well, in Q1, for example, your North American brands, the itineraries to Alaska and Europe were down 30 to 40%, Caribbean trips were down at 10%, Europe prices were down like 10%.

Anecdotally, Europe bounced back pretty good, and Alaska did not. We talked on the last call that there's no question that the referendum had a significant impact on what's going on in Alaska, although the referendum supporters say it hasn't, but the reality is now every brand, both ours and our competitors, are withdrawing capacity for 2010. The capacity will be down significantly in Alaska in 2010, while capacity in the Caribbean and Europe will be up in 2010 across the board. The only explanation to me is the referendum. And while we've tried everything we can to get leadership in Alaska to address the issue in the best interest of our industry and tourism in general to Alaska, we've been unsuccessful, and in the end we may have to litigate. We believe the referendum would be legal, and we -- there was a recent Exxon case that kind of reinforced that, that it was illegal. So Supreme Court found in favor of Exxon on a similar situation.

So we didn't want to litigate. We wanted to hopefully find some leadership that would agree with us and do what's in the best interest of the industry and tourism to Alaska and employment to Alaska but we've not been successful in doing that yet. But Europe, Europe bounced back pretty well, and the North American -- I would say, though, that the North American brands are carrying more non-North American in Europe than before, and one of our competitors I think ultimately said that 75% of their capacity in their North American brand was non-Americans. So that is the case. While there hasn't been a change in nationality for our European brands, there has been some for our North American brands.

Okay, thank you.

And thank you, we now have a follow-up from Robin Farley from UBS.

I just wanted to clarify, you had made comments earlier about commodity prices regarding new ship orders, prices are getting down to where they were when you last ordered ships. Over the last couple of years, or going back a couple years, your new ship orders were primarily for European brands, so currency wasn't as much a factor. Are your comments maybe sort of warming up to the idea of new ship orders? Would that apply to North American brands as well?

I should have been more specific, because when I made that comment I should have said that it was on a euro to euro basis, pricing similar to when we ordered. Not necessarily dollar to dollar basis. Obviously the yards called on euros, and when I look at new building praises we look in euros. And pricing right now at the yards are quoting quite similar to the euro pricing that we ordered for both European and North American brands. Whether we would or would not would depend on returns and whether we could reach agreement with yards at dollar prices that make sense for the US brands or UK brands or European brands. So I wouldn't take anything off the table at this stage. We continue to talk. But as I said, I think capacity growth will be slower in the 12, 13, 14 area, but it won't be 0.

Okay, great, thank you.

And it won't be zero for the North American brands.

It will not be zero for North American?

No.

And Ms. Farley, thank you for your question. Gentlemen, our final question is a follow-up from Tim Conder from Wells Fargo. Please proceed with your question.

To look at the booking curve, I guess, when you went into Europe, you said that the Europeans generally have booked in much closer than the North Americans, and your goal was to push that out. You were having some success in doing that. But since last September, can you kind of compare and contrast the shrinkage in the booking window for EU passengers versus North American passengers?

Generally speaking, our European occupancies run a little bit -- slightly stronger than our US occupancies.

It's very brand-specific. So for example, our UK brands tend to book longer out than our Italian brands or -- the German brand tends to book a little further out than the Italian brand. It's very very brand specific. But overall when you look at it, I'll tell you, if you took the UK out, it's quite similar to North America. The UK kind of moves to a little bit further out.

There's not a significant difference between both--.

Once we got into similar kinds of yield management, similar kinds of mentality about filling ships for all these brands, the booking curves started to be very, very similar.

Okay. So would you say that, again, post September here, that you've seen -- based on the occupancies and the pricing commentary it's fair to assume that that booking curve is not condensed as much on your European source passengers versus the North Americans?

Maybe not as much, but it has condensed, so that the difference is still not significant.

Okay.

Operator, if you have any more questions, we'll make it the last one.

Actually, gentlemen, Mr. Conder was our last question, and I'd like to thank gentlemen for having taken all those questions. We'll turn it back to the main moderator, Mr. Frank, for your concluding words.

Thank you, operator, and thank you everyone for some very good questions this morning, and we look forward to seeing you at various events in the future and follow-up questions, Beth is available in Miami to talk with you if you have any specific details you need. Have a good day, everyone.

Thank you, Mr. Frank. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect. Thank you once again. Have a wonderful day.