嘉年華遊輪 (CCL) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Carnival Corp.

fourth-quarter earnings conference call.

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

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

(Operator Instructions)

As a reminder this conference is being recorded Friday, December 18, 2009.

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

Please go ahead, sir.

Good morning, everyone.

We are calling all from not-so-sunny Miami this morning.

With me is David Bernstein; Beth Roberts; Micky Arison, our Chairman and Chief Executive Officer; and myself.

To start the call off I'm going to turn it over to David and he'll take you through some of the color from the fourth-quarter results.

David?

Thank you, Howard.

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

During this conference call, we will make certain forward-looking statements.

Such forward-looking statements involve known and unknown risks, uncertainties, and assumptions which may cause the actual results, performances, or achievements of Carnival to be materially different from any future results, performances, or achievements expressed or implied by such forward-looking statements.

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

For the fourth-quarter 2009, our EPS was $0.24 per share versus $0.47 in the prior year.

The fourth quarter came in above the midpoint of our September guidance by $0.06 per share.

This was driven by stronger-than-expected net revenue yields, which benefited us to the tune of $0.04.

Onboard and other revenue contributed $0.03 as we continued to experience sequential improvement in onboard revenue trends.

Ticket prices came in $0.01 better on slightly stronger than anticipated close-in pricing.

Over all, net revenue yields in local currency were down 10%, almost 1.5 points better than the midpoint of our September guidance.

In addition, a variety of cost-saving measures and other factors benefited us to the tune of $0.02.

Looking at our fourth-quarter operating results versus the prior year, our capacity increased 7.6% for the fourth quarter of 2009, with the majority of the increase once again going toward our European brands.

Our European brands grew 9.5% while our North American brands grew 5.7%.

As I previously mentioned, overall net revenue yields in local currency declined 10% in the fourth quarter of 2009 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 12% in local currency.

Our North American brands were down 14%, driven by declines in all itineraries.

Our European brands were down 9% in local currency on higher capacity, also driven by declines in all itineraries.

However, it should be noted that a third of the decline was due to the exceptionally high yields we achieved on the last few voyages in 2008 of the QE2 just prior to her leaving the fleet.

Excluding the impact of the QE2, net ticket yields would have been down 6%, which is in line with our European brands' experience for the first nine months of this year.

For net onboard and other yields, we reported a yield decline of 5.7% in local currency.

We saw declines in the majority of our brands around the world.

Net onboard and other yields in our European brands were down less than in our North American brands, a trend similar to the experience in net ticket revenue yields.

For the first time this year, we saw an increase in two of the onboard revenue categories, shops and photo.

The rest of the major categories were down; but for the most part it was an improving trend from the prior two quarters.

In summary, given the economic environment we were pleased with our yield performance this quarter.

In addition, we were very happy to see sequential improvement in onboard and other revenue yields in the fourth quarter as compared to the second and third quarters.

On the cost side, our cruise costs per available lower berth day, excluding fuel, were down 2% versus the prior year.

Our operating companies once again did an excellent job controlling costs.

Fuel prices this quarter were 15% lower than last year, saving us $66 million or $0.08 per share.

Now let's take a look back at the full-year 2009.

Our EPS was $2.24, which was essentially at the low end of our original guidance that we gave one year ago of $2.25 to $2.75 per share.

The midpoint of that guidance was $2.50, which was based on a fuel assumption of $295 per metric ton.

If you adjusted our actual EPS, which was based on an average fuel price of $363 per metric ton, for the December fuel assumption, our EPS would have been $2.51 per share.

Therefore, excluding fuel, we hit the midpoint of our guidance.

Given the amount of uncertainty in the world last December, I think that was a great accomplishment.

For 2009, the full year, our capacity was up 5.4%.

The net revenue yields for 2009 in local currency were down 10%.

This was at the low end of the range of our guidance that we gave one year ago, which was down 6% to 10%.

During 2009, our revenue yields were impacted by the travel restrictions to Mexico due to the flu virus, and we saw more pressure on onboard revenue yields than we expected a year ago, as a result of the ongoing recession and its impact on our guests.

For the full year, cruise cost per available lower berth day in local currency and excluding fuel were essentially flat.

Costs were $170 million better than our original guidance last December, as our operating companies continued to do a great job this year with their cost-containment programs.

In summary, for the full-year 2009, we posted solid earnings in what Micky accurately describes as the most challenging economic environment in the Company's history.

Our cost-containment initiatives offset the pressure on our revenue yields.

As a side note, I'd like to mention that we were very pleased with the European brands' performance in 2009, who -- despite an 8% capacity increase -- managed to achieve a relatively moderate yield decline in an extremely difficult economic period.

For 2009, our European brands represented only 33% of our capacity, but contributed 49% of our operating income.

My hat goes off to the management of those brands.

Turning to 2010 outlook, I'll skip the net revenue yields, as Howard will discuss that in a few moments.

Cruise costs per available lower berth day for the full year -- again, excluding fuel and in local currency -- are projected to be down 1% to 2%.

The decline is driven by tight cost controls and lower drydock costs.

While I'm happy to say that we expect lower unit costs, we will not rest there.

As always we will continue to look for more opportunities to improve.

Based on the current spot price for fuel using Tuesday's closing price, fuel prices for the full year are projected to be $472 per metric ton for 2010 versus $363 per metric ton in 2009, costing us an additional $368 million or $0.46 per share.

Furthermore, the dollar has weakened versus the euro and sterling; so in the end fuel and currency are driving up our costs.

And therefore in current dollars and including fuel, our costs are expected to be up 4% to 6%.

While the FX rate movement increases our costs, it also increases our revenue.

So given these rates the year-over-year profit improvement from currency is expected to be an increase of $60 million or $0.08 per share.

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

Thank you, David.

Let me take you through some color and some more details on the 2010 outlook.

With six ships being delivered to our fleet this year, our cruise capacity will increase by approximately 7.7%.

Holland America's New Amsterdam and Seabourn's Sojourn will add 3.6% capacity to our North American brands.

And Costa's Deliciosa, AIDA's Blue, P&O's Azura, and Cunard's Queen Elizabeth, which will be delivered later in the year, will add 11.9% to our European brand capacity in 2010.

So 2010 promises to be a very busy year for all of our cruise companies.

With continued strength of booking patterns during the last 13 weeks, occupancies on a capacity-adjusted basis for the first nine months of 2010 are now at approximately the same levels as last year.

Booking volumes during this past quarter for North American and European brands, covering the first three quarters of 2010, are each up over 40% versus the easier comparisons to last year.

But these bookings are also strong on an absolute basis.

Actually, on an absolute basis these are the strongest bookings we have seen in our history.

Having said that, pricing for cruises still have not recovered as much as we would like, and perhaps that's a reflection of the currently uncertain economic picture for 2010.

Still, in selective areas of our business we have seen more demand and have been able to move pricing higher in certain trades.

Our US premium brands are showing increasing pricing strength, which is a significant reversal from 2009.

This also suggest that with the strengthening of the US economy and the rise in the equity markets, that the higher-end customer is feeling better about taking their vacations; and the superior value of cruise vacations is driving a lot of business our way.

Breaking the recent 13-week booking pattern down by markets for North American brands, other than for Mexican Riviera cruises, pricing for all other itineraries are up year-over-year, with particular strength in Europe cruises for spring and summer of 2010.

Also long and exotic cruise pricing is nicely up year-over-year, a nice reversal from last year.

For Mexican Riviera cruises, booking volumes are higher year-over-year.

But as a result of the soft Southern California economy, combined with negative perceptions for Mexican tourism, these itineraries have been challenged.

We don't believe Mexican Riviera pricing will worsen from here, as booking volumes have been strong.

Capacity allocated to Mexican Riviera itineraries is under 10% of North American brand capacity in 2010, and we expect further capacity reductions in this trade in the future.

Given the continuing strength in bookings which has resulted in occupancies catching up with last year, we are now expecting North American brand revenue yields will be higher by 2% to 3% for the entire year 2010.

For our Europe brands, which are absorbing a 12.2% capacity increase for the first nine months of 2010, pricing on recent bookings across all European brands is moderately lower than a year ago.

In some measure the lower pricing is part of a yield management strategy to drive (technical difficulty) volumes and extend out the booking curve, especially for the Continental European brands which have a 19.4% capacity increase during the first nine months.

European itinerary pricing, which is the majority of the Europe brand capacity, is only slightly lower than a year ago.

European brand pricing towards Brazil programs this winter has been weak as a result of the significant capacity increases in Brazil.

With the recent strength of European brand bookings, we are expecting European yields for all of 2010 to be slightly lower on a local currency basis and higher on a current dollar basis.

We believe this is a very good result given the significant capacity increase that we have had for our European brands in 2010.

Now let me turn to our earnings guidance for 2010.

We expect to drive top-line revenue growth of approximately 10% for 2010, with the 7.7% increase I referred to before in our fleetwide capacity, together with the increase in forecasted current dollar revenue yields of 2% to 3%.

Current dollar cruise costs, excluding fuel, are expected to be flat to up slightly.

The 2010 guidance also assumes a currency rate -- exchange rate for euros at $1.45 and pound sterling at $1.63, and the price for fuel at $472 per metric ton, which is the approximate price we're paying this week.

So while cruise pricing in 2010 is firming and top-line growth will be strong, fuel costs for 2010 at current prices will result in a year-over-year increase in fuel of $368 million or $0.46 a share, which David referred to.

This taken together with the 0.08 benefit from the currency will result in a $0.38 drag on 2010 earnings.

Taking all of these factors into consideration, we have set full-year guidance at $2.10 a share to $2.30 a share with the midpoint of $2.20.

Now turning to first-quarter guidance, which is $0.08 to $0.12 per share, which is down from $0.33 a share from 2009 first quarter.

Top-line revenue growth for the first quarter is also expected to increase by approximately 10%.

Driving this is a 9.9% increase in capacity days together with current dollar revenue yields, which are expected to increase slightly in the flat to up 1% range.

Current dollar cruise costs, excluding fuel, are expected to be up 1% to 2%.

Fuel cost based on $474 per metric ton price for the first quarter will result in higher year-over-year fuel cost in the quarter of $160 million or approximately $0.20 a share.

The balance of the difference in earnings from the 2009 first quarter results from the 2009 first quarter having about $0.04 a share in below-the-line nonrecurring gains.

Beyond the first quarter of 2010, assuming fuel prices hold at the forecasted levels, quarterly comparisons will get easier.

You will recall that fuel prices began to rise in the second half of 2009, so year-over-year earnings comparisons should become easier as the second half of the year unfolds.

Also because we book our cruises so far in advance, the benefit of the more recently higher ticket prices will have a greater impact in the second half of 2010.

That, combined with the easier comparison for fuel prices should begin to result in year-over-year earnings improvements beginning in the second half of the 2010 year.

Now let me turn -- give you some color on booking patterns in each of the next three quarters and some data points.

Fleet.

This now is looking at the first quarter where fleetwide capacity is forecasted to be higher by 9.9% as I indicated before.

Of that, 5.3% is in North America and 14.9% is in Europe for our European brands.

On a fleetwide basis for the first quarter, occupancies are at the same levels as last year, slightly higher for North American brands and slightly lower for Europe brands.

However, the slightly lower occupancy for Europe is not surprising, given the 15% capacity expansion for the European brands in the quarter.

At this point we have very little inventory left to sell in North America and in Europe.

Looking at just North American brands by themselves, they're 62% in the Caribbean in the first quarter, about the same as last year; 11% in Mexican Riviera cruises, which is down slightly from 12% last year; and the balance of their itineraries are in various other trades including long and exotic cruises.

Currently, pricing for North American brand Caribbean cruises is moderately lower than last year, with pricing for Mexican cruises down more significantly than the prior year.

Pricing for long and exotic cruises has strengthened during the last quarter and is now only slightly lower than year-ago pricing.

For Europe, brands there are 27% in the Caribbean versus 32% last year; 27% in Europe versus 24% last year; 17% in South America versus 11% last year; 11% in Asia versus 12% last year; with the balance in various other itineraries.

Europe brand pricing for Europe cruises is down slightly from a year ago, and Caribbean cruises are moderately down from a year ago.

Europe brand world cruise pricing is nicely up from a year ago.

In South America there has been a significant increase in cruise capacity in Brazil from our Costa and Ibero cruise brands as well as competitor capacity, and prices are down significantly from a year ago.

By the time the first quarter closes we expect European brand local currency fleetwide pricing to be 3% to 4% lower than a year ago, but slightly higher on a current dollar basis.

Now turning to the second-quarter color.

Fleetwide capacity in the second quarter is expected to increase 8.8%, 4% in North America and 14.5% in Europe.

As a result of the significant booking volumes during the current quarter, fleetwide occupancies for the second quarter are about at the same levels as last year and similar to the first quarter, slightly ahead of North America and slightly behind in Europe.

North American brand capacity in the second quarter is 56% in the Caribbean, up from 54% last year; 10% in Mexican Riviera cruises, which is about the same as last year; and the balance in various other itineraries including Alaska and European shoulders, long and exotics, and Panama Canal cruises.

Caribbean pricing for the second quarter for North American brands is slightly lower than a year ago; and Mexican Riviera pricing is slightly lower.

Pricing for Alaska and Europe shoulders are at approximately the same levels as last year with occupancies well ahead.

Combined pricing for North America brands at the current time is running slightly behind a year ago levels, but significantly higher than where the second quarter closed last year.

The pricing gap has closed significantly as a result of the strong booking volumes in the last 13 weeks.

And given the continuing strength of bookings we are forecasting that North American brand revenue yield will be higher in the second quarter from year-ago levels.

Europe brands in the second quarter are 57% in Europe versus 59% a year ago; 11% in transatlantics, which is about the same as last year; with the balance of the capacity in various other itineraries including Caribbean, Orient Pacific, world cruises, etc.

Pricing for Europe itinerary cruises is modestly behind a year ago, with pricing on most of the cruises moderately behind year-ago levels.

With the 14% capacity increase in the second quarter, the lower pricing was not unexpected.

UK brands including P&O and Cunard are showing pricing ahead year-over-year, which is a very positive sign.

Continental Europe brand pricing, with its 23% increase in capacity during the second quarter, is running behind last year.

However, given the strength of European booking volumes, we expect the pricing gaps to narrow; and by the time the second quarter closes we expect Europe brand pricing on a local currency basis to be at approximately the same levels as last year, and on a current dollar basis up significantly from last year.

On a fleetwide basis, we are forecasting yields in the second quarter to be slightly higher on a local currency basis and more significantly higher on a current dollar basis.

Now turning to some color on the third quarter.

Capacity for the third quarter is expected to increase by 6.1% in total.

3.7% of that is in North America and 8% will be the capacity increase for our European brands.

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

Having said that, early indications for third-quarter booking trends are encouraging.

Overall occupancies in the third quarter are running slightly ahead of last year, with North American slightly stronger than Europe.

North American brand capacity in the third quarter is 43% in the Caribbean versus 36% a year ago; 25% in Alaska, down from 28% a year ago; 17% in Europe versus 19% a year ago; with the balance in various other itineraries including Mexican Riviera and long and exotic cruises.

Prices for Caribbean cruises in the third quarter is lower than a year ago but still nicely ahead of where the third quarter closed last year.

And more importantly, occupancies are stronger -- Caribbean occupancies are stronger than a year ago numbers.

Alaska pricing is lower than a year ago.

But with the reduced capacity in Alaska, pricing appears to be firming.

Pricing for Europe cruises is slightly down from a year ago, with occupancies well ahead of latest year.

At this point, pricing for North American brands on an overall basis is at about the same levels as a year ago and well ahead of where the third quarter closed last year.

Speaking of Alaska we previously indicated that further reductions in Alaska deployments were being considered by our operating companies.

The recent announcements by Holland America and Princess to withdraw the Royal Princess and the Ryndam, Holland America's Ryndam from Alaska capacity in 2011 is consistent with these previous statements.

We are hopeful that we can work with the governor of Alaska and the legislature in Alaska to address the problems with the head tax and the other higher costs resulting from the Alaska initiative.

We do regret the negative impact these withdrawals will have on our business partners in Alaska and the many communities in the state that depend on the economic benefits our cruise passengers bring to these communities.

Turning to European brands in the third quarter, Europe brands are 97% in Europe itineraries, which is about just slightly up from last year, similar to the second-quarter.

Pricing for Europe itineraries is running behind last year but continues to show some firmness.

Unlike previous quarters with only an 8% increase in European brand capacity in the third quarter, occupancy levels are running even with last year, which is also a positive sign.

And that's on a capacity-adjusted basis.

Much of the third-quarter revenue picture will depend on the strength of the 2010 wave season, although as I indicated, early signs from third-quarter bookings have been encouraging so far.

And with that said, Myra, I'm going to turn it over to you and we will take some questions.

(Operator Instructions) Felicia Hendrix, Barclays Capital.

Hi, good morning, guys.

Howard, just continuing from your commentary here, I just wanted to understand a few things regarding your outlook, your yield outlook for the full year.

Because your outlook is basically in constant dollar basis, net yields are going to be flat to slightly up, correct, for 2010?

Yes.

Okay, so did I hear you say that for the full year North American revenue yields would be up 2% to 3%?

Yes.

Okay.

And then you also said that starting in the second quarter, fleetwide your pricing was going to be up.

So I'm just trying to understand why the guidance seems to be so conservative based on the color, the more detailed color that you just gave.

To a large measure, I think if you look at our firs- quarter guidance, where we're down in the 3% to 4% range, I think the catch-up -- by the time we catch up with all that in the second -- we will gradually improve yields year-over-year.

Second quarter will be better obviously than the first quarter, and the third quarter will be better than the second quarter.

I think as those -- when you add it all up, there's nothing that we filtered into that to change anything.

That is basically the way the numbers actually do work.

So yes, we'll have nice pricing improvement the way we're forecasting it right now.

And a good pricing improvement for North American brands, flattish to slightly up for European brands; but when you take it all together, that's what it comes out to be.

Okay.

Then just moving on, the travel agents that we talk to are telling us that basically since its launch the Oasis is overshadowing everything else.

I was just wondering how that's affected your pricing outlook for 2010, or if it's affected it at all.

Then also what are your thoughts?

What do you think happens when Norwegian launches the Epic this summer?

We're seeing the impact -- if there's an impact on Oasis on us, we probably have been feeling it for the last six to nine months because -- but we don't -- it's hard to see how it's impacted us.

If they are selling at these higher price points, we think it has a whole lot less impact on our contemporary brand.

If they are selling at more premium price points, our premium businesses are doing quite well right now with a nice recovery from last year.

So it's really hard to know with respect to the Oasis whether it's really affecting us or not.

And the same would be true for the Epic.

Although it's going to be delivered later; it's a much later delivery.

We haven't -- it's got to all be in the current bookings that we're seeing, because they are booking the Epic right now for the summer; and our bookings for the summer are holding up quite nicely.

So I'm sure there is always an impact of some sort, but it's hard to actually try to quantify it in a sense, to make any sense out of it.

Great, and I know I'm limited to two.

I just have a quick housekeeping.

Just on costs, David, the 2010 cost outlook, can you just tell us what that would be before the easy comp, the drydocking easy comp?

It would be relatively flat excluding the drydock, the reduction in drydocking.

Okay, so your cost outlook is mainly a result of the drydocking effect.

The decrease is, yes.

It's driven by the drydocking.

And the tight cost controls allowed us to keep it flat for the year.

Right.

Which is impressive in this environment.

So, okay, thanks a lot.

Robin Farley, UBS.

Thanks.

I had two questions.

One is, you've talked about the potential to order a ship for the Princess brand maybe by the end of the year or at least early 2010.

Would you expect to see a sort of similar thing, where the yard takes the currency risk, similar to your Carnival -- with the Carnival Dream order?

A question there, and then I've got another one as well.

Obviously we haven't completed negotiations or we would have made an announcement; and that really isn't on the table in these negotiations.

We are prepared to take a certain level of euro exposure based on our euro Company balance sheets, and we manage that exposure.

So we have none for '13 and '14.

So if we put a Princess contract for '13 and '14 in euros on the books, it would be a very manageable euro risk compared to our euro balance sheet.

David, do you (multiple speakers)?

Yes, we can always hedge the contract at any point we feel it's appropriate and eliminate that risk, which is something that we do over time.

But historically since the Princess deal, since the merger, we have taken certain levels of risk because we have in effect a hedge through the balance sheets, that we operate in different currencies.

Okay, great.

Thanks.

Then my second question is asking about the Oasis a little bit as well.

Just -- there'd been a lot of talk that occupancies for the Oasis were below 100% for the first few weeks of sailing; and that Royal was holding price and sacrificing occupancy initially; but obviously that's not a long-term strategy.

So I'm wondering if you're seeing any impact in Q1 from -- if Oasis is shifting from holding that higher price, which maybe was kind of a nice umbrella in terms of price in the Caribbean.

If you are seeing that change in Q1 or any impact there.

We're not seeing any impact from Oasis.

Howard answered that in a longer answer than I'm giving you, but we haven't seen any impact.

If there is an impact and clearly we haven't seen any, it is the additional exposure that something like Oasis gets that brings more attention to the cruise industry.

And the reality is we've got great mass-market brands at much more affordable prices; and so the net effect, if anything, would be a positive.

So beyond that we really haven't seen any impact at all.

And the reality is if there is any impact on our business, it's going to be Carnival Dream impacting the Carnival fleet in a similar way that Oasis might impact the Royal Caribbean fleet.

Okay, great.

Thank you.

Tim Conder, Wells Fargo.

Thank you.

The first question is somewhat a two-piece related.

You mention that in some of your more premium brands you're starting to see the trade back up effect occur.

Is that -- if you look back to a prior conference call or so, you stated that you thought for the North American brands that may be a little more elongated.

Is that occurring a little bit faster than you thought?

And then in relation to that also the onboard spending, the sequential improvement in the fourth quarter; that is kind of more of a leading indicator.

So that is kind of question number one.

And then number two, the booking curve.

Howard, you mentioned kind of a strategy of what you are doing with the Continental Europeans.

At the Dream analyst meeting in New York you showed a slide that for the Company as a whole the booking curve approximated maybe 4.5 months.

Can you update us on where that curve is for the Company as a whole?

Let me -- with respect, Tim, to the premium brand comeback, I think I indicated on the last call that we started to see evidence of the premium brands being booked stronger and the ability to raise pricing on premium brand bookings.

And that continued through the fourth quarter.

I think in my comments I said that I think in large measure that is a result of settling of the economy, if you will.

While there is still this 10% unemployment issue that we have, I think in large measure those premium brands market to a different demographic that is either retirees or wealthier people who are not affected by the unemployment -- or the economy, frankly.

So I think -- but I do think as equity markets continue to strengthen over the course of 2009 that people started to feel a little bit more comfortable and started to get more confident in booking their cruise vacations.

In broad terms, that's what we attribute it to, nothing more than that.

I think in terms of the booking curve that you referred to, Beth is busy going through the -- do you recall whether we've gotten a little bit better?

Well, you know, a couple of comments on the overall booking curve.

To start with, I want to point out that where we are in terms of bookings for 2010, in terms of the percent of the cabins that are currently filled, is very consistent with our historical figures from '06 and '07.

Yes, they may be below the historically strong numbers of '08, but they really are now back to the '05, '06, or '07 levels.

So we are in good shape.

Historically in the fourth quarter we do see a reduction in the overall booking curve.

But this quarter we didn't see as big of a reduction as we normally, so you can say we saw a little bit of an improvement in the booking curve as well.

So we feel very good about that.

And you mention the onboards.

We did see a sequential improvement from the second quarter; and our projections for next year include relatively flat onboards for 2010, holding at these levels in the third and fourth quarters.

So that's the way we put together our forecast, because we don't have that much visibility into the onboards.

Okay.

And David, just to clarify, you're saying that your current percent of your capacity booked is comparable to the '05, '06, '07 levels, but flat to slightly below where it was in '08?

It's very interesting.

If you did -- we did this, this week.

If you do a chart of each quarter of where it was over the last five years, I think every year is within 1 basis point of where we are now for '10; with the exception of '08, which was much higher.

And that's where we saw '08, and '09 dropped from '08.

But if you take '08 out of the picture it is virtually identical for all the other four -- four of the five years.

Yes, there is 1 percentage point difference.

Yes, it's amazing.

It's the most we see.

So it looks like it's back to at least historical patterns.

And then '08 may be the outlier here because it was so strong in '08.

But we're back to historical patterns.

And as I indicated for the year and as David mentioned, we are booked on a capacity-adjusted basis, we are booked at the same levels as we were last year.

So it's starting to shape up pretty well right now.

Okay.

Then, Howard, just again to clarify my first question on the -- or Micky or whoever wants to answer this.

Your expectations for the North America sort of trade-back-up cycle, do you think that -- your best guess at this point.

Should it be similar, a little slower or to the past cycle that we've seen as the recovery emerges here?

I think it's actually going to be -- remember we took a bigger hit last year, so the recovery is stronger.

In North America versus Europe.

Yes.

And for these premium brand longer cruises.

So there was a bigger -- we took a hit last year so we signed this -- so there was more of an opportunity to bring that back and that's what's happening.

I think we took less of a hit in some other trades so that won't -- you don't have as much to come back.

So that's kind of the way.

You have to look at each of them on an absolute basis, and that's what's happening.

That's a positive sign.

It's a very positive sign because so much of our capacity is dedicated to these higher-end markets.

Okay.

Thank you, gentlemen.

Steve Kent, Goldman Sachs.

Hi.

I just want to warn you that we're having a blackout here.

Hopefully we don't get disconnected on the phone call.

We have very bad storms here in Miami right now.

And we just blacked out in the building, so we're sitting here in the dark, so -- oh, it just came back on.

Okay.

Emergency generator just kicked in.

Okay.

Go ahead, Steve.

Sorry.

All right.

First off, maybe you could discuss -- given the fact that you hit the midpoint of 2009, you would have hit the midpoint of 2009 if you excluded fuel, have you given some reconsideration to hedging out the fuel?

Given how dramatic it was last year or could have been dramatic last year, and as you look out.

Then the other thing -- and I actually just don't know the answer to this question -- is mix change due to Alaska being phased out.

That historically has been a higher priced market, a premium priced market.

As you move those ships into other regions is it your expectation that the ships will hold that pricing or will it in fact depress the blended pricing as you move it into maybe the Caribbean or some of the other markets?

Let me take on the hedge question, Steve.

I think our feelings about fuel right now, and it's consistent with past years, is that while we could get some hedge benefit -- we could look to do some hedging, it's a short term fix for us.

It's not a long-term fix if fuel prices go up.

And we just -- we've given our wide margins and our comfort with being able to absorb fuel price increases, if they get dramatically higher, if they shoot up or skyrocket, we always have the option of going to a fuel supplement charge.

So we really don't see the necessity of starting a hedging program for us.

On the issue of the mix change in Alaska, I think the two ships that come out, clearly the reason that they -- the strategy of taking them out is because we can -- the belief is by those companies that they can put them into more profitable trade.

Actually one ship gets transferred to another brand.

The Princess ship is going -- the Royal Princess goes into the P&O brand.

And where the view is -- and essentially the replacement for the Artemis, which we will have sold in 2011.

That's a smaller ship, as was the Artemis; and they were looking to get -- and it does longer cruises, and the Artemis did very well.

So this is to replace the Artemis.

In that trade that ship is expected to do better in the P&O trade.

And the same thing would be true for the Ryndam which will go -- which will essentially be additional capacity in Europe, which has better pricing and profitability right now than Alaska does.

Yes, the fundamental problem is Alaska -- because of a variety of issues including the initiative, the cost of operation is very high.

July/August there is just a lot of alternatives to operate in areas with similar yields but the higher profitability because of lower operating costs.

Alaska today is now the highest cost operation we have anywhere, and it was driven primarily by the initiative.

It was -- Alaska prior to the initiative was basically competitive with other destinations in the summertime and became completely uncompetitive.

And that's what's driving these itinerary changes.

Okay.

Thank you.

Janet Brashear, Sanford Bernstein.

Thank you.

I wonder if you could give us just a little more detail on which selective areas you see the demand strongest in this next quarter or so -- by market, by brand, maybe where you are getting some of the price increases.

You know, Janet, we could spend a lot of time on that stuff; and frankly it's hard to get in too much specifics other than the specifics that I gave you directionally in each of the quarters -- by premium products in North America versus contemporary products and the trades that they are trading in.

And the same is for Europe.

I think on a call like this that's about all we can do.

To try to take nine brands and put them all together and give you some sort of a directional presentation is difficult enough.

I want to say generally it everywhere is doing better with two glaring exceptions, the Mexican Riviera and Brazil.

Other than that I think generally Caribbean, Europe, Australia, Asia, they are all doing a little bit better.

Great.

One more question.

As profitability ramps up in this next cycle looking forward, and presumably capacity scales back in the out years, what areas of the business model will you target for investment?

I think we look at each brand individually in their respective markets.

The decision to build capacity in a market is based on their belief and our confirmation of their belief that they can grow their capacity, and grow it and get good returns on the additional investment, and grow profitability in those markets.

Each market I think you have to look at individually.

Yes, I was asking not so much about capacity investments but non-capacity investments.

So assumingly if you're building a little less capacity in some of these out years you have more capital to spend on other things or do other things with.

I'm just thinking of whether it's cost improvements, channel investments, what sorts of areas do you want to spend your CapEx on outside of capacity increases?

The only area that we have been spending is port infrastructure.

We just opened a port in Roatan called Mahogany Bay, which we think will be a huge success for us.

But in the scheme of things they are relatively minor investments, $30 million, $40 million, $50 million compared to CapEx programs that run $2 billion to $3 billion.

But that's really the only area outside of ship newbuild and ship refits that we've been investing.

Thank you.

Greg Badishkanian, Citigroup.

Great.

Thanks.

Just a question.

Two questions actually.

First is you had mentioned that first-quarter net yields on a currency constant basis was down 3% to 4%.

Just wondering; is that the pricing that you've booked so far, or what you expect for the first quarter to end up at?

And if closed-end bookings do a little bit better, is that where you would see the upside to that?

It's our best guesstimate based on what we have on the books.

You have to understand that based on what we have on the books now that's a very significant part of the inventory.

We have very little left to sell.

So we should have pretty good visibility on where we are in the first quarter.

But that is the expectation for the full first quarter.

The 3% to 4% that we're talking.

Okay.

All right.

Good.

That's helpful.

Also in terms of new capacity coming online from your competitors, as you speak to shipyards, as you do your competitive intel, are you hearing of anyone else looking to contract a new ship?

Or are you kind of the only ones that have the capacity to build new ships?

Or are you hearing of potentially others starting new ones?

I wouldn't want to comment on specific names.

We are aware of some discussions beyond us.

Beyond you.

The discussions that you hear, much lower levels obviously than we've seen historically, or kind of similar?

Yes.

Yes?

Okay.

They're significantly lower historically; and the yards are under quite a strain right now because of that.

When you go into '13-'14 I think we will be seeing significantly less capacity increases, both from us and our competitors.

Right.

Great.

Thank you.

David Leibowitz, Horizon.

Getting back to the onboard spend, you indicated onboard spend was up in two categories.

The overall onboard spend as a result of that is up?

Or is the overall onboard spend pretty much flat?

I had said that for the fourth quarter the overall onboard spend was actually down 5.7% in local currency.

Onboard and other yields.

That was better.

And that was better than -- we had shown in the -- let's see.

If we go back to the second quarter it was down around 9%, 10%; and then in the third quarter it was down 6%; and in the fourth quarter it was down 5.7%.

So it was an improving trend overall.

When you got into the details there were some ups and some downs, but it did average 5.7% down.

In your earnings estimate for this year, are you planning to have onboard spend up, down, or sideways vis-a-vis '09?

Yes, it was basically flat, which was what I had just said in answer to one of the other questions.

Or as you would say, sideways.

Yes.

Second question.

The Alaska situation, you have a lot of fixed assets up in Alaska both on Holland America and Princess.

How does that play out in your thinking going forward?

Well, we've tried to maximize the assets by consolidating our two tour companies.

We did that successfully this summer in taking out costs.

Unfortunately that has meant less employment.

And we continue to look at ways to make it as efficient as possible.

We're scheduling the ships in such a way to try to utilize those assets in the best way possible.

But the reality is that less ships will mean less flow-through of passengers through those assets, which means less need for third-party hotel rooms, less need for employment, and so on, which is unfortunate.

And the last question.

Is there any reason to believe that Carnival might be looking to purchase somebody else's fleet?

Not the entire fleet, but portions of different fleets where the ships would make an immediate impact on needs you might have?

If something interesting became available, we would of course look at it.

But there is nothing that's going on right now.

Okay.

Thank you very much.

Kevin Milota, JPMorgan.

Good morning, everyone.

I just had a quick question for you.

Given where guidance is shaking out for '10 and where you see free cash flow moving in '11 and beyond, how much closer are you guys to reinstating the dividend, and when could we expect to hear something from the Board on that matter?

I think the dividend issue will -- we have -- our Board meeting is in January, mid-January, and I think the dividend issue will be taken up by the Board at that particular point in time.

We have been doing some work on the dividend issue for them.

They've asked for a lot of different scenarios and we're doing a lot -- quite a bit of analysis on it right now.

We expect that we will make an announcement on the dividend issue right after the January Board meeting.

Okay.

Thanks a lot.

Appreciate it.

Rick Lyall, John W.

Bristol.

Hi, guys.

I have two questions.

I think you said that you were adopting a slightly different yield management strategy in Europe this year relative to last year.

Is that simply capacity driven?

Or what if the change going on there?

No, I mean I think there was anticipation given the soft economies in Europe that they would try to drive more volumes earlier in the booking process, particularly in Continental European brands.

Try to get as much business on their books.

So they priced -- their strategy going in this year and has been for a while to price lower and try to get ahead of the booking curve, which I think they have been successful in doing.

So it's essentially that; it's nothing more than that.

(multiple speakers) harder comparisons because they didn't have the significant drop-off the North American brands had.

Okay.

Thanks.

Second question is, at the Dream analyst meeting you talked about returning or getting back to returns on capital that were like historic double-digit levels.

My estimate would be that the US was the biggest problem and that Europe had held up pretty well.

Do you get back by returning the US business to double-digit levels?

Is there likely to be some erosion in the Europe returns?

It looks like North America is going to do better than Europe this year.

And then how do the two converge to get back to double digits?

I think, Rick, what we had shown in the analyst meeting on the Dream was that I guess ROI -- I mean, the biggest factor is yield.

And if I remember correctly, it was that 10% yield decline for 2009, was what took us down below the double digits.

If we got back that full 10% we would be back in the double digits.

And that's just overall yield regardless of where it comes from, North America, Europe, for the Company in total.

I think it's fair to say, Rick, that returns are better right now in our European cruise business than they are in the US cruise business.

That's been the reason we've been steering more of our capital investment into Europe, which has been a very successful strategy for us.

We are fortunate to be in the situation we are in today.

Four of the six ships this year are going to Europe.

I did mention that our European brands in my notes represented 49% of our operating income although they were only 33% of the capacity, which as you would imagine results in a higher ROI.

But your ROI in Europe was --

One of the unfortunate things here is everybody is looking at this as, oh my goodness, we're projecting a flat year.

But if we had tanked like everybody else in leisure last year, we'd be looking at fantastic earnings growth this year.

Okay.

Thanks very much, guys.

Everything is relative.

And because we had the performance we had in such a difficult year, it's making the comparisons suffer.

Particularly in the first quarter where we did very well last year; we were only down 5% in overall yield.

[Assia Georgieva], Infiniti Research.

Good morning, guys.

One question.

Have you looked, analyzed holiday voyages and whether they have been a leading indicator as to wave season performance in the past?

No, I don't think they have; and they are doing fine this year.

But I don't think they've been a leading indicator to wave.

I think if there's been any leading indicator to wave it's been how fourth-quarter bookings have then; and they've been very encouraging.

So we're pretty optimistic about wave.

Okay.

Thanks, Micky.

And a second question, is it possible, given the pricing and booking numbers you are looking at, at this point -- and I know it's early for the third quarter -- but is it possible that you might see high single-digit yields, percentage yield increases in local currency?

I think it's too early to talk about -- I did say we'll see sequential yield improvement in the third quarter from the second quarter; but I think it's too early for us to start to give guidance on third-quarter yields right now.

There is still so much left to book.

But it is encouraging and where it actually ends up, we will see.

But our overall 2010 guidance, while we have a number for third quarter, and I think if you do some extrapolation you can quickly figure out where it would be.

Given --

Would the range include a number at the high end of -- maybe up 8% or 9%?

No.

Remember third quarter is very high skewed to our European brands.

That is when they make all their money.

And they have the toughest comparisons.

Okay.

That's fair.

That's fair.

Thank you so much.

Thank you.

I'm showing no further questions at this time.

I will now turn the conference back to you.

Okay.

Thank you, everyone, for listening into the call.

Let me take this opportunity to wish everybody a happy holiday season, a prosperous and healthy new year.

And Beth, wait by the phone, I guess, for some of you.

So have a great weekend and all the best to everybody.

Happy holidays, everybody.

Thank you.

Ladies and gentlemen, that concludes our conference call for today.

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

Have a good day.