嘉年華遊輪 (CCL) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Carnival third-quarter earnings conference call.

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, September 22, 2009.

I would now like to turn the conference over to Mr.

Howard Frank, Vice Chairman and Chief Operating Officer.

Please go ahead, sir.

Good morning, everyone.

This is Howard Frank speaking.

In Miami with me is David Bernstein, our Senior VP of Finance and the Chief Financial Officer of Carnival Corporation, and Beth Roberts, our Vice President of Investor Relations.

Micky Arison has called in.

Micky is in Italy, fresh from the delivery of the new Carnival Dream, which will spend the next several weeks in Europe, sailing in Europe, and then returns to New York in November for a couple of days, and then will come back down to Port Canaveral for its port sailings.

I will comment later on the booking picture and how are things look bookings-wise, and I'm going to turn it over to David right now to give you the color on the third quarter.

David?

Thank you, Howard.

I will begin the 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 and assumptions which may cause the actual results, performance 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 third quarter, our earnings-per-share was $1.33 versus $1.65 in the prior year.

During the third quarter, our earnings came in above the midpoint of our June guidance by $0.16.

This was driven by better than expected net revenue yields, which benefited us to the tune of $0.12.

Better pricing on close-in bookings worldwide during the seasonally stronger summer period was worth $0.10, while onboard and other revenue contributed $0.02.

Overall yields were only down 12.3%, almost 3 points better than the midpoint of our June guidance.

In addition, a variety of cost-saving measures benefited us to the tune of $0.03 and resulted in net cruise costs, excluding fuel, being 1.6 points better than guidance.

Looking at our third-quarter operating results versus the prior year, our capacity increased 5.5% for the third quarter of 2009, with the majority of the increase once again going to our European brands.

Our European brands grew 7.5%, while our North American brands grew 3.6%.

Also during the third quarter, Costa Asia more than doubled in size, as Costa Classica joined Costa Allegra in Asia.

As I previously mentioned, overall net revenue yields in local currency declined 12% in the third quarter versus the prior year.

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

For net ticket revenue, we saw a yield decline of 14% in local currency.

Our North American brands were down 20%, driven by declines in all itineraries.

Our European brands held up very well, as they experienced only 6% lower local currency ticket yields on higher capacity.

For net onboard and other yields, we reported a yield decline of 6.5% in local currency.

We saw declines in most of our brands around the world, a trend which we anticipated.

Net onboard 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 onboard yields for all of the major categories were once again down in the third quarter versus the prior year, but they were down less than they were in the second quarter.

In summary, given the economic environment and the impact of the flu virus, which was worth about 1.4 points on third-quarter yields, we were very pleased with our yield performance this quarter.

On the cost side, our cruise cost per available lower berth day, excluding fuel and in local currency, was down 0.7%.

However, it should be noted that during the third quarter last year, we received a $26 million insurance settlement.

Excluding the settlement, net cruise costs were actually down 2.4%.

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

Fuel prices this quarter were 39% lower, saving us $211 million, or $0.26 per share.

While currency movements reduced our costs to the third quarter, overall currency was a negative drag on earnings of approximately $80 million, or $0.10 per share, as the dollar strengthened versus the euro and the Sterling.

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

At the end of the third quarter, our liquidity was $6.2 billion.

This includes $2.6 billion available on our revolvers, almost $700 million of cash, excluding cash on hand, and $3 billion of committed financings.

Since the June conference call, we've completed three financings worth approximately $800 million.

Back in March, we laid out a financing plan for the remainder of 2009 and fiscal 2010, which I indicated would take us six months to complete.

I am happy to report that we fully executed our plan and we are well-positioned through the end of 2010.

However, we may still opportunistically increase our liquidity over the next year.

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

Cruise cost per available lower berth day for the full year, excluding fuel and in local currency, are projected to be flat with the prior year.

Our operating companies continue to do an excellent job managing their costs.

Year to date since the December guidance, our cost savings now total $160 million.

Based on the current spots price for fuel, fuel prices for the full year are projected to be $365 per metric ton for 2009 versus $558 per metric ton in 2008, saving us $616 million.

In addition, we are projecting a $90 million savings in 2009 from reduced fuel consumption.

Fuel consumption per ALBD is expected to decline almost 5% this year.

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

The stepped-up focus in this area has benefited us this year and -- with larger declines in fuel consumption.

Furthermore, the dollar has strengthened versus the euro and the Sterling.

So in the end, fuel and currency are driving our costs down, and therefore, in current dollars, including fuel, our costs are expected to be down 12%.

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

Thank you, David.

Now, for -- I will give you an update on the bookings picture.

Throughout the summer, booking volumes have continued to be quite strong, which has enabled us to achieve higher last-minute prices on close-in sailings throughout the fleet.

And we actually saw the impact of that in the third quarter, as well, as yields came in better than we anticipated, as David indicated.

As we indicated in the press release, during the last 12 weeks, bookings for the next three quarters have been running 19% ahead year-on-year.

More importantly, as a result of the strong volumes and adjusting for increased capacity, we are now only moderately behind last year's booking levels for the next three quarters.

So the gap in occupancies has significantly closed, and the booking curve continues to lengthen.

Currently on an overall basis, pricing continues to be stable, and for a limited number of itineraries, where the booking window has pushed further out, we have been able to move prices up.

Trying to crystal ball yields for 2010 with any degree of precision is quite difficult at this time, as there are many factors at play, including the degree we are able to raise prices more broadly as the booking curve extends.

It was mid-September last year that began the melt down in the financial markets, and at the same time caused our cruise bookings to come to a virtual standstill.

So booking volume comparisons will become even more easier in this quarter.

And if the current booking trends continue, we should be able to quickly close remaining the occupancy gap and pricing comparisons should also become easier.

Because a large part of our first-quarter 2010 business has already been sold at lower prices, at this point, it will be difficult to gain enough pricing momentum to catch up with the first-quarter yields we experienced in 2009.

As a consequence, we expect local currency revenue yields for the first quarter of 2010 to be lower than 2009.

Having said that, based on current currency exchange rates, we do expect current dollar revenue yields to be neutral to slightly higher in the first quarter.

As the remainder of the year 2010 plays out, and if the strong bookings volumes continue at this pace, we should start to see a positive local currency yield impact and a gradual year-over-year revenue yield improvement.

Now turning to new ship deliveries in 2010.

We are currently projecting a 7.7% fleetwide increase, 3.6% in North America and 12% in Europe.

We have a record six ships scheduled for delivery in 2010.

The Costa Deliciosa will be delivered in late January, the AIDA Blue in early February, the P&O Azura in late March, the Seabourn Sojourn in late May, Holland America's New Amsterdam in late June and Cunard's Queen Elizabeth, the replacement ship for the QE2, in late September.

So of the six new ships, four ships are for our European brands, which is a continuation of our strategy to expand our business in the less-penetrated European market.

As part of this strategy, we are also moving out older ships from the European fleet.

The Costa Europa has been chartered out to a European tour operator and will leave the fleet in April of 2010.

And just recently, P&O's Artemis has been sold to another European tour operator for delivery in spring of 2011.

Now a little bit of color by quarter, and I will start with the current quarter we are in, the fourth quarter of 2009.

Capacity increase for the fourth quarter will be 7.7%, 5.7% in North America, 9.6% in Europe.

Overall at this point in time, occupancies in North America and Europe brands are approximately at the same levels as in the Q4 of last year, so we have caught up considerably.

And pricing is lower.

But given the strength of late bookings, we do not expect further price deterioration for the quarter.

There is very little inventory left to be sold.

In North America, for North American brands, they will have 45% of their capacity in the Caribbean, up from 42% last year.

10% of their capacity is in Europe, just slightly down from 11% last year.

And 10% of their capacity will be in the Mexican Riviera cruises out of Southern California, and the balance in Alaska and Long and exotic cruises, all of which are individually under 10%.

Pricing for North American brands in the fourth quarter is lower in all itineraries, with moderately lower pricing in Caribbean and Europe and more significantly lower pricing for Alaska, Mexican Riviera and Long and exotic cruises.

This follows a similar pattern we have had throughout the year, with higher-priced cruise products suffering more significant declines in yields versus our lower-priced products.

Mexican Riviera pricing has also been a challenge because of the significant economic slowdown in Southern California, the largest market for these cruises.

We expect North American brand pricing to be down in the mid-teens range for the fourth quarter, which is a slight improvement from third-quarter yield deterioration.

Let me comment about the situation in Alaska.

While the cruise industry has held off filing suit to allow the Governor of Alaska a chance to reconsider the [imposition] of the Alaska head tax, the industry has now filed -- actually filed the suit.

It appears that the proponents of the head tax, the original proponents of the head tax, have been able to convince the political leaders in Alaska that the global economic crisis is the reason for declining passenger numbers in 2009.

This is obviously an incorrect conclusion.

Despite the global economic crisis, virtually all cruising areas, the Caribbean, Europe, Asia, Australia and South America, will see increases in volumes -- passenger volumes in 2010.

The reason for the rapidly declining numbers in Alaska is the cost of operating cruise ships in Alaska, which have been -- dramatically risen, together with the higher price our customers pay from the imposition of the head tax resulting from the original initiative.

When we compare Alaska to other premium cruise markets during the peak summer months, it is now far less profitable than it has been in the past.

Despite significant decreases in Alaska capacity in 2010, early booking trends are still not positive, and our brands are now starting further decreases beyond 2010.

This downward spiral is likely to continue until these cost issues are addressed.

Now let me return to Europe in the fourth quarter of 2009.

Europe brands have 78% of their capacity in Europe in the fourth quarter, about the same as last year.

The balance of their capacity is in various other itineraries, including transatlantics and the Caribbean.

Pricing for Europe brand itineraries is moderately lower across most itineraries, and we expect a modest decline in local currency pricing for Europe brands in the fourth quarter.

As we indicated in the press release, we expect overall fourth-quarter local currency yields to be lower in the 11% to 13% range year-over-year, and earnings to come in at 16 -- in a range of $0.16 to $0.20, which is slightly lower than the implied fourth-quarter earnings guidance we gave at the last call, which is a result simply of just forecasting higher fuel costs for the quarter net of the currency benefit.

Now looking to 2010, first a little bit of color on the first quarter.

Fleetwide capacity for our business is expected to be higher by 9.9%; 5.3% of that will be for North American brands and 15% for our European brands.

Occupancies on an overall basis at this time are moderately lower year-over-year for both North America and European brands.

However, the stronger booking patterns over the last several months have significantly closed the first-quarter occupancy gap.

Looking now at North American brands in the first quarter, North American brands are 62% in the Caribbean, which is about the same as it was last year; 11% in Mexican Riviera cruises, which is down from 13% last year; and the balance in various other itineraries, including long and exotic cruises, which we do quite a bit of in the winter -- in the late fall and winter months.

Currently, pricing for Caribbean cruises is moderately lower than last year, with pricing for Mexican Riviera cruises down more significantly.

Pricing for long and more exotic cruises are also lower.

As booking volumes continue to strengthen, we have been able to increase pricing for certain itineraries in the first quarter.

Although current pricing is lower versus pricing at the same time last year, pricing is still higher than where 2009 first-quarter pricing ended.

However, as mentioned above -- as I mentioned before, with such a large part of the inventory already sold for the first quarter, we expect North American brand yields to be moderately lower than last year, although the yield deterioration will be significantly less than in the fourth quarter of 2009.

Now turning to Europe in the first quarter of 2010, Europe brands are 29% in the Caribbean, down from 32% last year; 27% in Europe, up from 25% last year; 11% in South America, which is about the same year-on-year; and 11% in Asia versus 12% the prior year; with the balance in various other itineraries.

Pricing for European itineraries at the present time is holding up well versus 2009, with pricing in most other itineraries moderately down versus last year.

However, yields are more significantly lower in South America because of the challenging economic environment in Brazil and the significant increase in Brazilian cruise capacity this winter.

While overall European brand pricing at the present time is modestly lower, as in North America, pricing is still ahead of where Europe pricing closed in the first quarter of last year.

But by the time the first quarter closes, we expect that European first-quarter local currency pricing will be down slightly compared to last year, and the yield deterioration significantly less than in the fourth quarter of 2009, which is the same pattern as in North America.

Now from an overall stand -- fleetwide standpoint for the first quarter, we expect local currency yields to be moderately lower than a year ago, and based on the latest currency exchange rates, current dollar yields are expected to be neutral to slightly higher.

This is our best estimate to first-quarter yield direction at the present time.

However, given the very different booking pattern we are experiencing this year versus last, we caution that this is just an estimate on yields, and it could change on the next update, which we will give you in mid-December.

Turning to the second quarter of 2010, where we have much less information, booking information available, capacity for the second quarter is expected to increase by 9%; 4% of that will be for our North American brands and 15.2% for our European brands.

Second-quarter data is still in its early stages, so I caution not to read too much into this information.

We've said that overall occupancies are moderately down year-over-year in North America and Europe.

In terms of the North American brand capacity, it's 57% in the Caribbean in the second quarter versus 52% last year; 10% in the Mexican Riviera, down from 11% last year; with the balance in various other itineraries, including Alaska, Europe shoulder seasons, Asia and the Panama Canal.

Pricing at the current time for North American brands is lower than this time last year, but slightly better than the pricing comparisons in Q1.

However, current second-quarter pricing is well ahead of where the second quarter closed last year.

Given the strength of current bookings, we expect the current pricing gap to significantly close as last year's second-quarter yields dramatically declined beginning with the September meltdown in the financial markets.

Now turning to Europe, Europe brands in the second quarter are 57% in Europe, which is about the same as last year; 10% on transatlantics are also about the same; with the balance in various other itineraries, all under 10%.

At the present time, European local currency pricing is lower versus last year, but the pricing is still significantly higher than where the second quarter closed last year.

Also because of the strength of the European booking volumes, we expect the current pricing gap in Europe to close in a similar pattern to our North American brands.

So that is the early picture for 2010 second quarter.

We will be able to provide you with more color on the first and second quarter 2010 revenue picture on our next call in December.

So with that, operator, I will turn it back to you so we can open up the lines for questions.

(Operator Instructions) Felicia Hendrix, Barclays Capital.

Good morning, guys.

So Howard, you gave actually, as usual, a very good overview and actually an encouraging outlook.

And so it seems, based on what you said, the data is definitely getting incrementally more positive.

And I am just looking back to the data in the last downturn, where it took about three years to get back to prior peak.

And I know this is clearly hypothetical and you don't have a whole lot of visibility, but just based on what you know and based on your experience, I'm wondering if you think that the recovery is going to be steeper -- at a steeper slope or a similar slope to what you've seen before.

I mean, clearly, the downturn is more significant, but the supply situation is better.

So just wanted to hear your view on that.

Well, you know, this is my personal view, and that -- I think the experience we are having here in North America right now is very different than the experiences we've had in past years in terms of the economy.

And we haven't experienced a downturn as dramatically as this in our yields.

I would say that, given the economic data that I read and the fact that we are -- unemployment is closing in on 10% and probably will go over 10%, that I would view the recovery as being slower.

I think it is clear that we've kind of stabilized here, and that we have been able to tweak pricing up at a price point that people find very attractive, we've been able to create tremendous volumes and tremendous demand for our various products.

But I do think it is not going to be -- we are not going to see dramatic increases.

But I think it will be a slow, emerging yield environment for us, and it will take several years, I think, in my mind to recover.

Now, I could be wrong if sometime mid-2010 all of a sudden the world changes, and the 2011 picture will look much better.

But right now, the 2010 picture, I would say, is stable and should get better as the year unfolds.

But there are just so many factors out there in the economy.

There's still a housing issue.

There's unemployment.

I just think it is going to be a fairly stable environment, maybe slightly improving, but nothing more than that.

In addition, Felicia, just so you understand, in the last recovery, it took us two years to recover what we lost during the downturn.

Okay.

I cut you off by a year there.

Sorry.

And just, David, now that WTI is above that -- it has been above that magical $70 mark, I am wondering if there is any updated thoughts on fuel supplements.

We continue to look at it, but at this point in time, we have indicated that -- it is just something we continue to look at and an option we have.

But we haven't implemented anything to date.

Felicia, we've put out a public statement on our position on that, and we haven't changed that position.

Okay, all right.

Thanks a lot, guys.

Rick Lyall, John W.

Bristol.

Hi, guys.

You made comments in the release about the extension of the booking window.

I wonder if you can quantify that at all.

Well, the booking window is for nine different brands, and it will vary by brand.

Some brands have really pushed it out further than other brands.

But I think overall, (inaudible) 30 days in that range -- 15 to 30 day range, something like that, Rick.

I mean, I think it will vary.

And we don't do a combined overall forecast -- or we don't look at it from an overall -- see, we look at it brand by brand.

And each brand seems to have been able to extend out their window in varying degrees.

But somewhere in the range of 15 to 30 days.

But it is just -- you are really now just starting to see it happen.

(Multiple speakers) Okay, and have you seen an underlying improvement in group booking trends yet?

Rick, it is a mixed picture and I don't think we can see a clear trend.

It really is very brand dependent and some up, some not.

So it is a mixed bag at this point.

Okay.

Thanks very much.

Steve Kent, Goldman Sachs.

Could you just talk a little bit about your focus on -- or desire to build new ships, given commodities, FX, shipyards maybe adding some discounts, and just your appetite for maybe putting in some orders in the next couple of months for the out years?

I think I said on the last call that pricing in euros have come back down to reality, and are pretty much in that '03, '04 level, where we did order before.

Unfortunately, in the last 30, 60 days, the dollar has weakened dramatically, which has again made it tougher for the US brands.

And I did publicly say we would like to build for Princess.

With the situation right now, I would venture to say it is unlikely that a contract could be signed before the end of the year, which would make deliveries by '12 less likely, which will leave us with pretty significant free cash flow for '12.

We do intend over time to continue to grow our brands, but with what has happened over the last 12 months, clearly we are being cautious.

And Micky, which brands then would you -- if not the US brands, I'm assuming then it is the European brands that you would be the most focused on.

Or are there --?

As I said three months ago, we clearly would like to build for Princess.

We have a lot already in the pipeline for our European brands, so we have no urgency to do anything for the European brands right now.

We can wait a couple of years for the European brands.

They have a lot in the pipeline.

Princess, I think, would be our first priority.

But again, with the weaker dollar, we are going to proceed cautiously.

Okay.

Thank you.

Tim Conder, Wells Fargo.

Thank you.

Maybe a different way to ask two of the prior questions.

How would you compare what you are seeing right now of a retrade-up effect from the lower value brands and people returning to trading up the ladder within your brand pyramid?

And I guess maybe another way to look at that is also are you seeing the higher-end brands, their booking window extending faster than they are at the lower -- at the more entry-level brands?

I think we are, Tim, seeing more volume --

They contracted more, and they are expanding more.

So yes, anecdotally, what you just described, Tim, is correct.

Is that (multiple speakers)?

The higher-end brands are extending the window out.

I'm not sure more or less, but they are performing better right now -- from a volume and booking standpoint, yes.

Starting to see that come back.

Okay.

Gentlemen, is that recovery -- is the trade-up recovery, would you term it a similar pace to what we saw in the last downturn or coming out of the last downturn, or slower?

Everybody is trying to focus on the last downturn.

You know, we were two brands in the last downturn, and a very different company, and -- we weren't global.

We weren't getting business from everywhere in the world.

So it is very hard to compare to the last downturn.

I mean, we are encouraged with what we are seeing.

We've now reported two quarters of very, very strong booking volumes.

We are now reporting for the first time the booking curve is extending.

But to continue to compare it to the last downturn, when the industry is quite different, far more global and our brand portfolio is so different, with very different booking curves, it is very hard for us to do.

Okay.

And then Micky, you had said when the Board very astutely suspended the dividend that that would be reassessed basically coming up here towards the year-end or early in the calendar 2010.

What is your thinking at this point?

Again, your comment looking out even into '12 that you should generate substantial free cash flow by then, but obviously '10 is not '12.

Right.

You know, there is a number of issues that the Board -- I don't want to preempt the Board, but there is a number of issues.

One is our liquidity situation.

As David reported, it is extremely good, which was not the case 12 months ago.

Second is that the overall business tone is improving, and that obviously is the case.

And the third is that we wanted to protect our rating, which we notched down in one agency during this period.

So we'd like to get that rating to A-.

So based on those three things, principally those three things, we will make recommendations to the Board and the Board will make a decision.

But clearly we are heading in the right direction.

Okay, great.

Thank you, gentlemen.

Steve Wieczynski, Stifel Nicolaus.

Good morning, guys.

I guess when you look at the cost structure, I mean, you guys have done a great job in terms of removing costs.

And I don't know, Howard, if you could use a baseball analogy in terms of what inning you think you guys are or how much more there is to be removed at this point, and which areas do you think there are more chances to remove cost at this point.

What inning would that be?

I don't -- you know, it is hard to say.

You know, we've been very successful in getting our operating guys to focus on their costs.

And they have taken out a lot of costs on the shoreside area and have really re-examined processes and the way we function as an organization.

We've consolidated some things.

We've consolidated a large part of our Alaska operation between Princess and Holland America, taken a considerable amount of costs out.

I think that there's a lot of costs that I think we've already taken out, and I would say we are probably -- I still think there's plenty of opportunity.

So if I -- to use the analogy, we are probably in the fifth inning, sixth inning.

I think -- between the fifth inning and the ninth inning, though, I think some of the remaining costs to be taken out could involve some more restructuring of certain aspects of the business, and that is tougher to do.

But I do think there are opportunities there to do it and take some more costs out.

Steve, I think -- the only thing I would like to add to that is that our operating companies are working closer -- more closely together today than they ever have before.

And that in and of itself has created a lot of opportunity for us and will continue to do so as we move forward.

I also think that one of the continuing big opportunities is fuel conservation.

And I think we are only in the middle innings on fuel conservation.

I mean, both between technology and investments that we are ongoing making to reduce consumption and reduce our footprint, we've got a long way to go.

And this year is a good example.

Last year, people were saying, how much more can you do.

And this year, we've done a whole lot more and we will be projecting more next year as well.

So there is still opportunities.

Okay, got you.

Then one more, if I could, real quick.

All the press right now is all over Oasis in terms of how well that is booking.

But when you look at Dream, that is obviously your largest ship at this point.

Maybe give an indication of how bookings look for that so far.

Bookings for Dream are terrific.

It is getting a very significant premium.

I should say the same is true with Seabourn Odyssey.

Bookings are terrific.

And it is getting a very significant yield premium, both are.

And as far as Oasis, the more successful Oasis is, the better it is for us.

The higher prices they can get, the more demand they can get, the better it is for the industry in total.

And the more exposure that they bring to the industry will be positive, as well.

So more power to them.

Okay, great.

Thanks, guys.

Ian Rennardson, Bank of America-Merrill Lynch.

Good afternoon.

In terms of touching on those three things again, you talk about significant CapEx in -- free cash flow in 2012, but you are not paying a dividend yet, and you haven't ordered any ships past 2012.

What are the alternatives for that cash if you don't start building ships?

And then secondly, I think David referred earlier to recovering the pricing in the last downturn over two years.

Now I take the point it is a different industry, a different company.

Do you think a three-year cycle this time could be reasonable to recover the pricing you've lost this year?

Thank you (multiple speakers).

I have no clue to the second part of your question.

Obviously, we are going to try to recuperate as quickly as we can.

That is the job of our marketing and our yield management people, and we would expect them to do their job and recuperate it as quickly as possible.

As far as capital expenditures, as I said, I do expect that eventually we will be building more ships in the future for our various brands, so we do intend to grow them.

And if we have significant cash flow, the alternatives are basically stock buybacks and dividends, and we would like to be in that position again, as we were a few years back.

So we will see.

Okay, thank you.

[Assia Georgieva, Infiniti Research].

Good morning.

This is Assia.

Good job on Q3 in terms of close-in bookings.

And I had a question on Q4 and Q1.

Those are obviously difficult quarters seasonally [due to] the nature of the industry.

And ignoring year-on-year comparisons, because they are so different when we look at year-ago periods, what would be a normal curve from here on out for Q4 and especially Q1?

If we took today's pricing, should we expect it to remain pretty stable for the rest of the booking period, especially for Q1, or is it difficult to call?

I think we are saying that pricing essentially now is stable.

In terms of where the actual yield comes in, it is a little bit harder to predict because you need to know brand by brand and itinerancy by itinerary and cabin by cabin what kind of inventory you are actually selling, because the price will vary based on that.

And we don't have that data.

But I would say from an overall standpoint, pricing is stable.

And as we are able to catch up on occupancies -- because the yield curve is moving further out, we've been able to tweak pricing up on certain itineraries where we've seen this stronger demand.

But I would think it is probably stable to slightly up, and that is how we would characterize both the fourth quarter and the first quarter.

Having said that, that assumes continuation of these very, very strong booking volumes.

You can very clearly see when we chartered out that as we take pricing down, volumes go up, and as we take pricing up, volumes will start to come off a little bit.

So it is a little bit of a balancing game as you go forward in terms of yield managing this.

You also have to remember that we are always talking of comparison versus the prior-year quarter.

And sometimes there are issues in that prior-year quarter that isn't obvious.

I mean, quick question is why aren't we seeing sequential improvement fourth quarter versus third like we are first and second.

And the reason is that last year, we had the ending cruises of the QE2, and believe it or not, that had a very, very significant positive impact on our yields last year that won't be repeated this fall.

So you get these kinds of anomalies when you just look at quarters.

And Micky, I agree.

That is why I was trying to ignore for a moment the year-ago period and just gauge a little bit more what your guidance is expecting to happen from current pricing on.

And I think Howard helped answer that in saying it is basically an expectation of flat to slightly up.

Right.

That's right.

As long as volumes -- as long as volumes are significantly above our capacity increases, then the only variable then becomes yield in pricing increases to bring the volume down.

Because at the end, we can only sail [full].

Right.

Well, thank you so much.

And quick question for David.

There seemed to be about $0.05 tax benefit in the quarter.

Would you be able to be more specific as to what this related to?

Yes, it was two things.

In the prior year, we had about $0.01 a share which was related to that insurance settlement that I talked about.

And then the remaining portion really essentially has to do with the accounting in FIN 48 and the prior year.

As we footnote in the press release, in the prior year, we had put up some reserves; then this year we had the reversal of the tax benefit from taking down a couple of reserves.

Remember, these are very small numbers, and because there on both sides is the zero point, it looks like a big swing.

But it was really -- I think it was about a $16 million swing in the reserves overall.

Okay.

And I know on an annual basis it seems like a small number, but when it hits in a specific quarter, it can seem a little bit chunkier.

Thank you very much, gentlemen, for answering all the questions I had.

David Leibowitz, Horizon Asset Management.

Good morning.

Two items.

One, there was very little said about your onboard spend during the call or in the press release.

Can you update us there?

Sure.

I did mention that in the third quarter, we saw a decline in most of the categories.

And I had also indicated that the declines in the third quarter were not as great as the declines in the second quarter.

I think I said it was about a 6.5 percentage point decline in the third quarter.

Yes, 8.25% to 8.64%.

Yes, versus -- it was probably like 9.5% in the second quarter.

So there has been some improvement in that area.

Also, David, staying with the income statement for a moment, your passenger ticket number is down roughly 15.12%.

Your commission and transportation and other expense is down almost 22%.

Where did that huge differential come from?

I will -- we will have to look into that in more detail, David, and get back to you.

Well, (multiple speakers) customer deposits, David, customer deposits, a large part of the decline is pricing related.

And also, depending on what you are doing from -- what are you measuring from?

Which period to which period?

Because it all (multiple speakers) seasonal declines.

Howard, I was using the third-quarter numbers for commissions, transportation and other, which is the first expense item.

Oh, okay.

I'm sorry.

And I compared that, which was a 22% decline, to the passenger ticket line for the same quarter, which showed only a 15.12% decline.

Okay.

We will have to get back to you on that one.

(Multiple speakers) Okay, not a problem.

Lastly, you mentioned you will have two ships out on lease.

How is the accounting treatment for leases done, David?

And does that imply you might have higher earnings for those two vessels because they are out on lease than when you own them?

When you own and operate, excuse me.

One is a lease and one was a purchase.

Yes, but let me just clarify.

The lease, the charter, is a long-term charter.

Essentially should cover the remaining life of that ship, which is the Costa Europa.

The other transaction is an outright sale of the ship that gets delivered actually.

And it is the Artemis, which is in the P&O fleet, which will be -- which will continue in the P&O fleet until it is re-delivered in spring of 2011.

So we sell it, we get the proceeds, and the proceeds will be in the form of cash and seller financing.

But a very, very major piece of it is in cash.

And then we charter it, or charter it back until it is actually re-delivered to the buyer, until spring of '11.

So essentially, it is meant to be -- both transactions -- neither of those transactions result in a loss.

In fact, on the sale of the Artemis, there will be a profit on that ship -- on the sale of that ship.

(multiple speakers)

I think it is fair to say they are both purchases.

The term lease is just the way that the purchase is financed, in effect.

Yes, long-term charter.

So then there will not really be a comparative number there.

What we are looking at is one is going to be straight to the top line versus last year's numbers that had to flow through the entire income statement.

Or going to the pretax line -- excuse me -- versus when you own and operate going to the full income statement?

Once the ships are delivered to the third party, to the third-party tour operators, they will come out of the fleet.

Now, remember that both of those companies, P&O and Costa, still have -- P&O has the Azura coming in this year and Costa has three more ships scheduled for delivery.

So there will be replacement tonnage for these ships.

Oh, I am not concerned about that.

I was just wondering how much of an incremental one-time profit might we see in the respective quarters when the two ships leave the fleets.

These are not terribly material.

Nothing terribly material.

Okay.

Thank you very much.

I'm going to just comment briefly on your question on commissions, transportation and other.

The reduction is coming from a combination of a lower air/sea mix in that there are less passengers that booked air through us in the quarter, in addition to a lower average airfare cost per passenger.

Thank you very much, Beth.

Janet Brashear, Sanford C.

Bernstein.

Thank you.

I wonder if you could comment on pricing relative to Carnival and Seabourn.

Particularly as you add Carnival Dream and Seabourn Odyssey, you are getting significant premiums, as we might expect, from these great new ships.

What is going on with the rest of the Carnival brand and the Seabourn brand and the older ships relative to pricing?

I can -- basically, what I will tell you about Carnival -- and I will tell you about each of them separately because they are very different stories.

But Carnival throughout this period, I think, has probably performed quite well as a brand.

And it does have a more of a mass-market appeal.

Price points are lower.

Ships are closer to the home ports in which people live.

So throughout this period, Carnival has performed quite well as a brand.

I think we've been very pleased with the pricing on the Dream and occupancies obviously are very strong on the Dream.

And because it is positioned in very different markets than the other ships, it shouldn't have much effect on other Carnival ship pricing.

Seabourn, the Seabourn Odyssey has performed extremely well.

There has been tremendous demand for the ship.

The other three ships are much smaller ships, and they've been positioned in more exotic locations.

We have another Seabourn ship, the Sojourn, which gets delivered next May.

And those ships are considerably more -- priced at a much higher price point than the existing three ships.

(Multiple speakers).

So we try to position them differently.

Okay, got it.

If I could ask one more follow-up question.

In Alaska, you talked a little bit about your frustrations and challenges there.

At the same point, Disney is talking about opening new cruises in that area.

Does the fact that they are going into the market as you have reduced some capacity mean that it will be hard to get any of your slots back?

No, not at all.

Disney has only announced one year, and Disney has historically -- by the way, Crystal has done the same thing -- historically cherry-picked markets.

So they have had the ships -- the two ships in Port Canaveral, and have occasionally moved them, like one to LA ['03] and ['04]; to Europe; now they are going back to Europe.

So they tend to cherry pick their past passenger base.

So they may do this one year and not come back for three, four, five years.

So I mean, the basic Canada business, the Alaska business will be declining.

I mean, you will get this occasional either a Crystal or a Disney or maybe even a Seabourn doing Alaska.

But the overall trend in Alaska will be down.

And as far as I know, Disney has only booked the one year, so they haven't taken any berths beyond the one year.

As has Crystal; they've only booked a year.

As has Crystal.

When you have a large passenger base, when you do a new itinerary, it is relatively easy to sell for a year.

And that is what Crystal is doing; that is what Disney is doing.

Thank you.

(Multiple speakers) been there six years ago, and so as Micky said, they are returning once again.

Yes, Crystal, there's has been a six-year gap between the two times.

I mean, the basic companies that are the backbone of Alaska cruises, Holland America, Princess I and II, and then Royal Caribbean, Celebrity and NCL, all of those companies are reducing capacity.

Robin Farley, UBS.

Thanks.

You covered a lot of the issue already on the issue of sort of new ship orders and your free cash, so just curious to hearing a little bit more.

You mentioned by year-end you don't think it is likely to order a new ship.

And I guess it is surprising that the yards having not had an order in so long wouldn't be more flexible about things and maybe willing to take an order in dollars and have the yard take the currency risk.

And I know it has been a lot of years since they've done something like that, but I wonder if you could talk about why -- I'm assuming that they don't want to do that.

But would they be closing yards down temporarily instead of taking an order?

And if it does change, if the yard -- if you come to some agreement and do order a new whip, I don't think you'd (technical difficulty), but it is fair to assume that you would feel comfortable in terms of your free cash flow that you could still reinstate your dividend at some level and order new ships, that they are is nothing mutually exclusive there, about ordering something for Princess in the next year and still reinstating part of your dividend.

I talked about three things as far as reinstating the dividend.

New ships wasn't one of the three.

The three things was liquidity, a turn in business and maintaining our ratings.

I think we can do those three things with -- and build new ships.

The reality is in the past, yards have done what you described.

Whether they will do that now or not, we will see.

But generally speaking, yards are hard-pressed to build below their cost.

They are not really in a position to do that.

And I think for the most part, as I said, from a euro point of view, they have come down to reasonable prices.

But because of at least the recent weakness in the dollar has just made it tougher.

That's not to say deals won't eventually get done as time moves on.

I was just guessing that the likelihood -- we're in September already, and we are not writing specifications, so the likelihood is that a contract won't get done before the end of the year, which will make it difficult for '12 -- not impossible, but quite difficult.

And we've only got, I believe -- David, correct me if I'm wrong -- two ships for '12.

That's correct.

So regardless of what happens, we are likely to have significant free cash flow in '12 and beyond.

Thanks.

Is that correct?

We have two for 12, right, David?

Yes, correct.

One for Costa and one for AIDA.

Jamie Rollo, Morgan Stanley.

Thanks.

Just a couple of questions on yield, please.

Just on the third-quarter yields, which are down 12.3%, your guidance for Q2 states it was down 14% to down 16%.

And normally at that stage, you sold pretty well most of the quarter you're in, 19% or so.

So mathematically that would imply the prices for the bookings that haven't been sold yet must have been up pretty substantially, 20% or so, if my math is correct.

Were you surprised by that last-minute strength, or were you just conservative in your guidance or is my math wrong?

Your math is not wrong.

It is just that these were -- as we said, the pricing came in better than we had expected during that period of time.

We typically start the quarter, as we've always indicated, with 85% to 95% of the next quarter's bookings on the books.

And the remaining bookings that came in, we had previously [taken] better than we expected as a result of the volumes.

Onboard revenues also came in $0.02 better than we had anticipated, as well.

I think July/August are a pretty unique period in that our brands, we're looking at the booking pattern and anticipating having to discount a certain amount to get it done.

And July/August is a period where people are going to just take their vacations, and demand wound up much stronger than -- and virtually right across the board, all brands, than they had anticipated.

I think it is fair to say that the demand pattern is so different than the last couple of years that these guys weren't able to anticipate the strength of it -- the last-minute strength of it.

And we basically (multiple speakers).

Based on what happened in the prior nine months, they were a little -- to some degree, gun shy, too.

It has been a tough period.

Been a little bit concerned, right.

Okay, thanks.

And just on 2010 yields, just on the guidance there, for Q1, you are saying yields modestly lower, constant FX, which is pretty clear.

Just so I understand correctly, did you say that you expect Q2 to be positive, with momentum building from there?

Is that correct (multiple speakers)?

What I -- go ahead, Micky.

No, you go ahead.

What I think I said was that for the remainder of the year, we expect the yield picture to continue to improve from yield [one].

I didn't give any specific guidance on the second quarter, other than the data points that we had.

And that we expect the situation to sequentially each quarter get better in 2010.

Would you go so far as saying you would expect yields to actually turn positive as early as the second quarter, knowing what you know?

I didn't say that.

All I said was that we expected to get sequentially better quarter-over-quarter.

As you rightly pointed out, we didn't do a very good job just in the third quarter, which was right on top of us.

So it is harder to predict now than it has been, so --.

And to be fair, I said that this is such a different demand pattern, that this could change.

When we give the December update, when we have the fourth-quarter earnings call, we will be in a much better position to have a sense of what the yield is going to be for the first half of the year and for the full year.

But it is really very -- and we haven't even started the budget review process yet.

So things -- and things do change as we go through the fall.

So we will be in a much better position.

But clearly, signs are positive, volumes are strong and we've been able to start to tweak pricing up here or there.

So it is a good picture.

Jamie, there is no doubt the comparisons do get easier as the year progresses quarter by quarter, as well.

Thank you.

I think we are clearly sending signals, trying to send signals for people that if they had gotten used to these very low prices, they better book quickly, because with these kinds of volumes, our brands are going to be able to take pricing.

Okay.

That's very clear.

Thanks a lot.

Greg Badishkanian, Citigroup.

Great, thanks.

And just as a follow-up on that question, you had mentioned end pricing versus the current pricing in the second quarter.

Did I hear you right on that one in your prepared statements?

What I said was that pricing -- current pricing where it stands today, both in North America and Europe, are well ahead of where the second quarter closed last year.

And the reason the second quarter closed -- what happened is that the second quarter dramatically -- and pricing dramatically moved down last year when the credit markets froze and when we had the -- beginning in September.

So as bookings just dropped dramatically.

So we are still quite a bit ahead of where the second quarter closed.

All right.

Very helpful.

Thanks.

This gives us the opportunity.

Absolutely.

That is very helpful.

And it just also on onboard spend, saw some improvements there.

How discretionary are you finding that to be versus ticket prices?

And then also, just have you noticed any types of purchases onboard that have changed since maybe before the downturn versus at the downturn and then kind of currently right now?

I think there has been different behaviors in the various categories of onboard revenue.

For instance, on auctions and the casino areas are down more so than many of the other areas.

And so to that extent, you might say that perhaps those were more discretionary than things like shore excursions and bar revenue.

And so we have seen a small change in the overall mix of our total onboard spend at this point in time.

Great.

Thank you very much.

Rosie Edwards, MF Global.

Can you remind us of your guidance on earnings sensitivity to a 1% movement in fuel, currency and net revenue yields, please?

Sure.

1% -- I actually have done the calculations as a 10% change, so let me give you that.

Sorry, I meant 10%.

A 10% change in fuel represents about $116 million, or $0.15 a share.

And of course, keep in mind as fuel changes over -- as the overall price of fuel change, that relationship will change.

And also a 10% movement in the US dollar against all currencies, that is about $140 million, or $0.17 a share.

Okay.

Thank you.

Edward Stanford, Cazenove.

Good morning.

Very quick question.

Micky, you mentioned very clearly the conditions under which the Board might consider resuming the dividend.

I seem to remember that one of the considerations when you suspended it was that you didn't want to borrow money to pay the dividend.

Has that consideration changed?

It hasn't changed only from the context of our credit rating.

We have always said that we strategically believe that the strong A- credit rating was an important part of our business strategy.

And so if you have to borrow money to the point that it affects your credit rating, then it hasn't changed.

But it is only in that context.

It's not the issue of (technical difficulty) money.

It's the issue of borrowing money to the point of affecting -- negatively impacting your credit rating.

Thank you.

We can -- okay, if we can -- can we have just two more questions, please?

We are running out of time.

Rick Lyall, John W.

Bristol.

I suspect you look at returns on a brand basis.

When you look at returns on a geographic basis, how do you think about Alaska on a longer-term basis?

Historically, it has been a premium market, with Holland and Princess primarily exposed there.

Even if you adjust capacity and restructure your costs, can that return to the levels of profitability or returns on capital that it achieved historically?

We don't look at our itineraries based on that.

The way we look at an itinerary is if the ship is in Alaska, how much money is she going to make?

If she is in Europe during that peak summer, how much money is she going to make?

If she's in the Caribbean or if she's in Australia, etc.

And the brand will decide to put the ship on where it is the best return and the most profitable returns.

Now, they have to put it in the context that they already have seven ships in Europe or they already have two ships in Australia, so it's got to be -- they've got to understand those.

But they will model it out.

And if it pays to pull a ship from Alaska and put it in Europe or pull a ship from Alaska and put it in the Far East, they will do that.

And that is exactly what they did in '10.

And we are going through those reviews right now, and it is likely we are going to do more of it in '11.

Because you are talking the peak July and August period, where we can make a lot of money in a lot of different itineraries, and we can't make a lot of money in Alaska because of this initiative.

It is all because of the initiatives, it's the gaming tax, it is environmental, it is the on -- and the Rangers.

I mean, the amount of costs that they've put onto the industry during this short season is astronomical, and it will continue to negatively impact Alaska.

Okay.

Thanks, Micky.

Thank you very much, and there are no further questions on the phone lines.

Okay.

Well, thank you all very much for listening in.

And if you have follow-on questions, Beth is available later on this afternoon.

Thanks so much.

Everybody have a great day.

Thanks, everybody.

Thank you very much.

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

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

Have a good day.