嘉年華遊輪 (CCL) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the first-quarter Carnival Corporation 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 Tuesday, March 23, 2010.

It is now my pleasure to turn the conference over to Mr.

Howard Frank, Vice Chairman and Chief Operating Officer.

Please go ahead, sir.

Good morning, everyone.

With me this morning in Miami is Beth Roberts, David Bernstein, and Micky Arison, Chairman and CEO of Carnival.

What we will do is as we normally do is I will throw it over to David and he can give you the full color on the first quarter of 2010.

And then it will come back to me and I will start to discuss the outlook situation going forward.

Thank you.

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 first quarter our EPS was $0.22 per share.

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

This was driven by a few things.

First, the $0.05 per share gain during the quarter from the sale of P&O Cruise's Artemis.

Second, revenue yields that came in better than expected declining 2.3% in constant dollars versus our December guidance of down 3% to 4%, which was worth $0.04 per share, which came from higher than expected pricing on last-minute bookings.

Third, a variety of cost-saving measures and timing of certain expenses which benefited us to the tune of $0.05 per share.

All of this was partially offset by higher fuel prices costing $0.02 per share.

In addition, there were other small items going both ways that netted out to zero.

Now let's take a look at our first-quarter operating results versus the prior year.

Our capacity increased 9.6% for the first quarter of 2010 with the majority of the increase going to our European brands.

Our European brands grew 14.5% while our North American brands grew 5%.

As I previously mentioned, overall net revenue yields in local currency declined 2.3% in the first quarter versus the prior year.

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

For net ticket yields we saw a yield decline of 4% in local currency.

Our North American brands were down 2.6% driven by declines in all itineraries.

Our European brands experienced 6% lower local currency ticket yields driven by a challenging winter season in the Brazilian market which had significant increases in capacity this past winter.

If you exclude the sixes ships we had in Brazil, the European brands only saw a yield decline of 1% in local currency on significantly higher capacities for our continental European brands.

For net onboard and other yields we reported a yield increase of 3% in local currency.

The increase was driven by minimum guaranteed payments for calendar year 2009 and a one-time other revenue item related to a litigation settlement.

Without these items the first-quarter onboard and other yields would have been essentially flat.

This is a trend which we anticipated and we are forecasting for the remainder of the year.

In summary, because of our advanced bookings we all know that there is a time lag between the price changes and our reported revenue yields.

So let's keep in mind that as a result of this time lag for the first quarter of last year our net revenue yields in local currency only declined 5.2% as the quarter benefited from bookings that were taken prior to the financial crisis in late 2008.

However in the second, third, and fourth quarters of last year we experienced revenue yields that were down about 10% to 12% thus feeling the full effect of the economic crisis.

Therefore we are very encouraged by the 2.3% decline in the first quarter of this year.

I say this because if you combine this year's decline of 2.3% with the 5.2% decline from last year, the combined decline of 7.5% is less than the 10% to 12% declines in the second, third, and fourth quarters of last year.

We also expect the sequential improvement that we saw in the first quarter will continue throughout the remainder of the year.

On the cost side, in order to get an apples-to-apples comparison you need to exclude the $44 million reduction in other ship operating expenses for the recognition of the gain on the sale of P&O Cruise's Artemis.

When you do that our cruise costs per lower berth day, excluding fuel and in local currency, were down 4.5% versus the prior year.

However, because of the timing of certain expenses the best measure of cruise costs are on an annual basis which I will touch on in a moment.

The strength of our revenue and cost performance in the first quarter 2010 was clearly masked by rising fuel prices.

Fuel prices this quarter were 80% higher than last year and that cost us an additional $176 million or $0.22 per share.

However, as a result of our ongoing efforts to reduce fuel consumption I am happy to report that our fuel consumption per ALBD declined 3.1% in the first quarter continuing our multiple year savings trend.

Turning to our 2010 outlook I will skip the net revenue yields as Howard will discuss that shortly.

On the cost side, net cruise costs per available lower berth day for the full year, again excluding fuel and in local currency, are projected to be down 2% to 3%.

The decline is driven by the gain on the sale of P&O Cruise's Artemis, lower dry dock costs, and tight cost control.

Based on the current spot price for fuel, the fuel price for the full year is projected to be $507 per metric tonne for 2010 versus $363 per metric tonne for 2009, costing an additional $483 million or $0.60 per share.

So in the end fuel is driving our costs up and therefore in current dollars and including fuel our costs are expected to be up 3.5% of 4.5%.

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

Thank you, David.

As we indicated in the press release, as a result of the continuing strength of the booking pattern during wave season we have been able to increase revenue yield guidance on a local currency basis for 2010 to a 2% to 3% range from a flat to 1% increase from our previous guidance.

Current dollar revenue yields are still forecasted to increase in the 2% to 3% range as a result of the weakening and euro currencies.

During the last nine-week period on a fleetwide basis bookings for the next three quarters are up 8% with pricing for these bookings running 17% higher on a year-over-year basis.

Breaking this down by markets, North American brand bookings are higher by 7% with pricing up 26% on these bookings, and European brand bookings are higher by 10% with local currency pricing up by 6%.

As we indicated during the last quarter call, our cumulative level of bookings had essentially caught up with historical booking levels and during the late fall we started to selectively raise pricing.

During the wave season we have been able to more broadly increase pricing and still achieve booking volumes consistent with our capacity increase for the remainder of 2010.

North American brands, which have a 3% increase in capacity, over the next nine months pricing on bookings for this last nine-week period has been higher for all itineraries with particular pricing strength in Europe and long and exotic cruises.

As a result of the reduced capacity in the Alaska market, Alaska pricing is showing some improvement but it's still well behind pricing we achieved in prior years.

The current strength in the booking pattern for all itineraries is a very positive development for our seasonally strong third quarter.

All North American brands with the exception of Seabourn are forecasting increased yields for the year with more significant yield increases forecasted for our premium brands.

However, I should remind you that the premium brands took the biggest pricing hits last year so it's not surprising to see the stronger comeback.

Seabourn, our six-star luxury brand which has a 57% increase in capacity, is forecasting lower yields for the year.

So given the attractiveness of Seabourn's pricing in the market it's a good time for all of you out there who are listening to book a luxury Seabourn cruise.

For our European brands our capacity is up 11% over the remaining three quarters.

Pricing for bookings during the last nine-week period is higher for virtually all itineraries with pricing for European cruises, which makes up the majority of the European brand itineraries, running nicely higher year-over-year.

With the exception of cost to Costa NIE which have a significant capacity increases, the remaining European brands are forecasting flat pricing in 2010.

Pricing for Costa NIE is expected to be slightly lower for the year but given the continuing softness in European economies this is not a surprising result.

Indeed most of the pricing erosion for the continental European brand will be in the first half of the year with Costa and Ibero being particularly impacted by a challenging winter season in the Brazil which is what David pointed out, which had a significant increases in capacity in the first quarter.

Despite the continuing softness in Spain's economy our Spanish cruise company, Ibero Cruises, has begun to show improvement with stable revenue yields forecasted for the remainder of the year.

And that is with a 31% increase in capacity.

Although the Spanish market continues to be a challenge, we believe this market has great potential and once the economy recovers Ibero will be a very profitable business for us.

To provide some perspective on our European business it is important to remember that the decline in European revenue yields in the 2009 year was far less than what we experienced for our North American brands.

Something in the neighborhood of down 6% for Europe versus down 13% in North America.

So looking at our yield performance over the two-year period our European brand revenue yields have held up far better than the North American brands and the European brands have added more capacity, far more capacity during this period.

On a fleetwide basis since our previous guidance last December we have raised constant dollar revenue forecast by approximately $170 million for 2010.

We are also forecasting that costs and expenses, including interest and other items, will be lower by approximately $112 million.

Offsetting these positive areas is from our December guidance is the increased forecasted costs for fuel for the year of $117 million and the negative impact of the strengthening US dollar, which amounts to about $85 million.

The [net result of all] of these changes from our previous December guidance is a positive swing of $80 million so we are increasing our December guidance by $0.10 a share to $2.25 to $2.35 for the year or a midpoint of $2.30.

Now let me give you some color on each of the quarters for the remainder of 2010.

For the second quarter on an overall basis our fleetwide capacity is up 8.3%, 4% for our North American brands, and 13% for our European brands.

At this juncture fleetwide occupancies are about level with the last year; slightly higher in North America to slightly lower in Europe which, given the 13% capacity increase in European brands, is well within our expectations.

We have experienced continued pricing strength in the second-quarter bookings during the last nine weeks and as a result we are now forecasting local currency yield increases in the range of 1% to 2%.

With respect to our North American brands for the second quarter, Caribbean itineraries represent 57% of capacity and long and exotic cruises 26% with the balance in various other itineraries.

Pricing for North American brands is slightly higher than a year ago and continues to improve, but of course there is very little inventory left to sell.

We expect second-quarter North American revenue yields to be higher by approximately 2%.

European brands capacity is 57% in Europe and 35% in long and exotic cruises with the balance in other itineraries.

At the present time local currency pricing for European brands is slightly lower than last year's levels, similar to North American brands there is very little inventory left to sell.

European itinerary pricing and occupancies are slightly lower than last year and we are forecasting local currency European yields also to be slightly lower for the second quarter.

As I previously mentioned, for the second quarter fleetwide currency -- local currency revenue yields are forecasted to be up 1% to 2% and on a current dollar basis 2.5% to 3.5% versus last year.

However, fuel costs are expected to be higher by $176 million versus last year or approximately $0.22 a share.

Based on these factors we are guiding to a $0.26 to $0.30 earnings per share range for the second quarter versus $0.33 a year-ago second quarter.

Now turning to the very important, seasonally important, third quarter.

On a fleetwide basis capacity for the third quarter is up 6.2%; 3.7% of that is for our North American companies and 8% for our European companies.

Fleetwide occupancies in the third quarter are nicely higher, more significantly higher for North American brands but also higher for our European brands despite the 8% capacity increase.

North American brand capacity in the third quarter is 40% Caribbean, 25% in Alaska, which was down from last year, and 16% in Europe, which is also down from last year.

Currently pricing and occupancy are higher for virtually all itineraries with solid pricing improvements in Europe -- for North American brand European programs and more modest pricing improvement for the Alaska programs.

While we are seeing pricing improvement in Alaska because of the reduced capacity, Alaska cruise tour business is down again from last year and continues to be a challenge for us.

Pricing for Caribbean and all other programs is higher and booking momentum over the last nine weeks has been strong.

Because of the strong booking environment and currently higher year-over-year occupancies we have been able to raise ticket pricing and are now forecasting significant increases in North American brand yields in the third quarter.

As you know, our forecasted yield guidance includes both ticket prices and onboard and other revenues.

But because of the wide dispersion of forecasted pricing in the two revenue streams for our North American brands in the third quarter I will provide guidance estimates for each revenue stream.

Our forecasted ticket revenue yield for the North American brands is now expected to increase in the low double-digit level in the third quarter reflecting the stronger than expected comeback from last year's deeply discounted prices.

Our onboard and other pricing is currently forecasted at flat on a year-over-year basis.

Combining the two revenue streams we are forecasting revenue yield improvement in the high single-digit levels for the third quarter.

This is for North America that I am talking about.

European brands, which are substantially in European itineraries in the third quarter; currently on a combined basis European brand pricing is slightly lower than a year ago but the pricing gap continues to close as booking demand remains strong.

Based on the current booking pattern we are forecasting flattish to perhaps slightly lower local currency revenue yields for our European brands for the third quarter.

As previously said this is an entirely satisfactory result given the capacity increase in our European brands combined with the sluggish European economies.

On a fleetwide basis for the third quarter, combining North America, Europe, and our Asia Pacific brands we are now forecasting a local currency revenue yield increase in the mid single-digit levels for the third quarter.

Turning now to the fourth quarter, on a fleetwide basis capacity for the fourth quarter is up 6% -- 6.1%; 1.7% of that is for North American brands and 10.6% for European brands.

The fourth quarter booking picture is encouraging but it's still early in the booking cycle so I caution not to read too much into the early picture that I will provide you.

For North American brands we are 50% in Caribbean itineraries, 28% in long and exotic cruises with the balance in various other itineraries.

Pricing is higher in virtually all fourth-quarter itineraries but with currently lower occupancies.

However, fourth-quarter booking demand is strengthening at significantly higher pricing and the occupancy gap has closed over the last nine weeks.

For European brands they are 73% in Europe, the balance and various other itineraries.

European itinerary occupancies and local currency pricing are higher year-over-year and booking demand for European brands is holding steady at pricing well above last year.

While it's still early to have a more precise picture for fleetwide fourth-quarter pricing, we are forecasting that local currency revenue yield will be not nicely higher in the fourth quarter.

With that summary of the outlook I will turn it back to the operator for questions from everyone.

Thank you.

(Operator Instructions) Felicia Hendrix, Barclays Capital.

Good morning.

David, just a quick housekeeping, when you had talked about the $19 million settlement and the impact it had on your onboard yields, can you just combine that and just let us know what impact it was on your overall yields?

Just if you combined ticket and onboard.

Yes, for the first quarter it was probably 0.75%.

So we would have -- instead of being 2.3% it would have been 3%.

Okay.

And then, David, you talked about cost and the benefit that you got in the quarter, some of it had to do with timing.

I was just wondering if you could walk us through in more detail what exactly that meant.

And then I am just wondering with costs what you didn't know when you gave the guidance in December versus what you ended up knowing today or as you reported the quarter?

Sure.

I think more broadly in December we talked about costs being down 1% to 2%.

Now the cost guidance is down 2% to 3% so we have increased the reduction by a full percentage point.

About half of that has to do with the gain on the sale of the P&O Artemis.

Really the other half has a lot to do with the fact that we perhaps underestimated the [favorable impact] of all the actions that we had taken to reduce costs.

When you go through and you try to plan out some of the fuel consumption savings or what we have done with the port negotiations or the impact of e-ticket documents and a whole bunch of other things, I think when you get into the detail you find that some of our operating companies just simply underestimated the favorable impact.

We are now actually starting to see that flow through.

So we were able to increase the cost guidance reduction by an additional 0.5% over and above the gain on the sale of the ship.

Felicia, I think -- this is Howard.

I think broadly speaking our operating executives will tend to hold back on reducing costs in their forecasted budgets until they actually achieve them because they don't want to come back to us with a negative surprise, especially in the cost area.

So there tends to be on balance a tendency to perhaps overestimate costs.

Not by a whole lot but by some amount.

But it all adds up if you added up all the companies because they would rather be safe than sorry at the end of the day.

So there is that tendency and I think this is the track record we have had for a few years now with these guys.

And it's just okay, we are okay with that.

It is okay, thank you.

I just wanted to understand that.

And then just finally, Micky, in Alaska there has been some press, the governor seems to be getting more positive in terms of helping rectify the situation there with the head tax.

It's probably a long road politically.

I was wondering if you could make some comments, but more specifically if something were to happen this year say and with the capacity that you have there, is there anyway that we should think about the potential cost savings that you could get from the ships that are already there if there were some kind of legislation change?

Well, first of all, we were clearly encouraged by the fact that the governor devoted time to come down here and learn a little bit about the industry.

I think it's the first time I have ever met a governor from Alaska so we viewed that as clearly very positive.

The meetings went very well.

I think we came away learning some political realities in Alaska and I think he came away with a better understanding of our industry, so I think all of that is positive.

If what he is proposing passes the session, it's going to be too late for this summer to affect pricing.

My guess is, although we haven't really discussed it, is we would get the money back to the passengers through onboard credits which hopefully would have some minor impact on our onboard revenue for the Alaska season.

But then of course it will affect pricing for 2011.

So if his proposal passes, it's a great first step in turning the situation around in Alaska and very encouraging.

Great.

Thanks.

Janet Brashear, Sanford Bernstein.

Thank you.

As I understand it you are saying that there is net revenue yield pressure on your European results for very good reasons with capacity growth through Q2 and Q3, and then you are going positive perhaps in Q4.

Is that correct?

And if so, do you see that positive trend continuing (inaudible)?

I think, Janet, I think broadly speaking we are saying it's flattish to slightly down in each of the quarters.

Fourth quarter is still early to tell but it probably will be in the same range.

Similar to what we had in the first quarter ex Brazil.

We had down one ex Brazil and we only have Brazil in the first quarter.

There is no Brazil in the following quarter.

So it's pretty consistent with what we saw in the first quarter.

Are you seeing any signs of a turnaround in Spain?

And given the strength we are seeing in the UK on the hotel side are you seeing that same strength in the UK on the cruise side?

We have added capacity -- we have added another ship into the Spanish market beginning this spring.

We are pleased that everything seems to be booking okay and that we are hopeful we will have flattish yields for the remainder of the year, including a 31% capacity increase from this additional ship in the mix for Spain.

I don't think we are seeing a turnaround in Spain.

I think the reason why Spain is stabilized is you have to remember that we only took full control of the operation a year ago, last March, which was clearly too late to affect last year.

Up until that time the operation was totally in control of Orizonia in Spain.

We believe that the team we put together in Spain now are doing a much better job and have stabilized the situation.

We also believe that once the economy turns in Spain that new management team is going to be able to take advantage of it and we are going to do very well.

In the UK market I think we have been very pleased with P&O and Cunard's performance despite a very weak economy in the UK.

I think a large measure -- a lot of that business comes from a demographic that is not as much affected by the economic cycles and unemployment issues and so forth.

Even in the UK unemployment is not at the same levels as they are in the US; they are somewhere in the mid-7% I think.

So basically business is holding up quite nicely in the UK.

We are adding the P&O Azura, which arrives in April, starts to sail in April and then at the [end of the year] I think in sometime in September we have the Queen Elizabeth that is added to the Cunard fleet.

So we have got a lot of new capacity coming in but overall I think we are quite pleased with what we are seeing in the UK.

If I could ask just one more quick clarifying question, you said that your higher-priced brands were having a stronger comeback as might be expected and only Seabourn was forecasting lower yields.

Could you explain a little bit why Seabourn isn't following that pattern?

I think you have to understand that Seabourn, first of all, is our highest-priced product.

And second of all, for two decades Seabourn capacity was only 600 beds.

By this summer the capacity will go from 600 beds to 1,500 beds.

And for a brand that has been that small for that long it's going to take some time for them to absorb that capacity, unlike our premium brands that have very little capacity that they have taken on this year.

Thank you.

Assia Georgieva, Infinity Research.

Good morning.

I had a couple of questions; one is a follow-up to Felicia's question the Alaska head tax.

Given that Princess, Holland America, the Carnival Spirit, Royal Caribbean, Celebrity, everyone has suspended 2011 itineraries, would you expect some sort of action by the legislature in Alaska over the near term and making sure you may have an answer to this?

The question is would I expect some action?

Very quick action.

Well, the session I believe has only four or five weeks more to run so if there isn't action in the next four or five weeks there won't be action this year.

Okay.

All I can say is that the governor has made a proposal and whether that passes or not I have no idea.

I would think based on what has happened, the understanding that the governor now has on the way the industry operates and the impact, the huge impact, the negative impact it has had on Alaska that I think a likelihood -- and this is a guess on my part -- that it will pass.

But I don't know.

I obviously don't know the sentiment of the legislature.

I do know that the governor is fully supportive of the bill he has introduced.

Well, but I think the gesture by all the major cruise [parents] to public companies is significant enough to help push the legislature along.

I am not sure what you are referring to.

The only thing that we have agreed to do is to drop our lawsuit in exchange for this legislation.

But there is also no pricing available for 2011 Alaska cruises.

The itinerary may be subject to modification and the number of ships that might operate there, correct?

No.

I can't speak for all our competitors but our itineraries are in place for 2011.

We explained to the governor that it would be impossible for us to make any changes at this time and he understood that.

When this initiative passed the backers of the initiative, one, have no skin in the game and, two, have little understanding of our industry.

And so after one year when nothing happened they claimed victory.

The reality is that for something to happen it takes time, it takes lead time.

Now they are feeling -- years later they are now feeling the full impact of the initiative.

It will take a similar, if not longer, amount of time to recover and there are a number of ways to recover.

It's not just additional capacity but also, as Howard pointed out, our cruise tour business which is what from an economic point of view is the best business for Alaska because it's into the interior, it's on the motor coaches, it's on the rail cars, it's into the hotels in Alaska.

That business has been really very, very highly impacted.

And to get those jobs back and to get that economic engine going again it's not just beds but it's cruise tours that have to be sold and marketed.

We need to work together with [Alaska to do that.] I think as I said this is a good first step to head in that direction.

And it seems that even with the 33% reduction that is being proposed at this point and given that Alaska is about 20% of your capacity in Q3, that just purely doing the math would help you by about 2% in yield in Q3 and probably help EPS by about $0.10 a year in 2011.

Is that roughly --?

To be honest with you we are having a hard enough time trying to forecast 2010, much less 2011.

So if we could move on from this.

And just to correct --

Okay.

Could I ask a question on the --

You didn't hear, Beth corrected you by saying it was -- sorry, Beth.

15% of capacity in the third quarter.

15% of overall capacity.

15%, okay.

I thought it was 19% but thank you, Beth.

I appreciate that.

And could I ask one question on one-time items?

The [Costa Euro] for charters with [Thomson] and the cancellation of two voyages, also Star Princess impact following the Chile earthquake, and if you can quantify in Q1 the minimum guarantees and the tax benefit which I imagine is either a [sink and carry] or some cost to related items?

If you look at the bottom of the P&L, we have footnotes that basically quantify the minimum guarantees, the litigation settlement, the tax benefit, and all of the other positive one-time items.

There were also some ship incidences, as you mentioned, in the first quarter which was probably in the range of $0.03 to $0.04 a share.

It's all in our numbers and it's in our forecast as well.

I would point out that the guarantee items are not necessarily one-time items.

This is a reconciliation that goes on every year.

The reason why it falls into our first quarter because it really relates to the prior year is because all of our agreements are calendared, which means the reconciliations are done in January.

Normally, in a normal year or a good year the number is too small to even footnote but because we had down onboard revenues the number grew much higher and that therefore had to be footnoted.

But it is a reconciliation every year.

By the way, could I ask that as we go forward on this that in the interest of everybody having questions that we limit it to only two questions per person.

Thank you.

I was trying to make them into two but with several footnotes.

Okay, I appreciate that and I will bother Beth later.

Thank you so much.

Rick Lyall, John W.

Bristol.

Hi, guys.

Nice numbers.

Can you talk about the behavior of the two premium brands?

Since they serve different demographics is Princess behaving differently than Holland in North America?

Not really, Rick.

They both have made a very strong comeback.

You are right that they do have a slightly different demographic but both brands seem to have made very strong comebacks.

The comeback numbers are very close to each other actually.

Okay.

Well, that is good news.

And then can you comment on fuel efficiency assumptions for the full year?

3.1% savings in the first quarter but you have got initiatives that I imagine are rolling out as you dry dock ships, etc.

So what is -- is there a progression to that number?

When we did our original December guidance we had talked about 1.5% for the year and so we had indicated at that time that that was a conservative number.

We really still probably have a conservative number within the balance of the year at this point.

We are still working with the operating companies to try to take every dollar out of their fuel consumption, but we could see a little bit more than we are currently forecasting.

Since we have started the really heavy effort to reduce consumption and our carbon footprint, every quarter we have beaten our internal estimates of what we can save.

So hopefully that will continue.

Okay.

Thanks very much, guys.

Steve Kent, Goldman Sachs.

Two questions.

One, can you just talk about selling and building more ships?

What are you seeing on the asset sale front?

Is there more to look forward to and how do you view that?

And then on the building side, it sounds like the shipyards are clamoring for more business and what are you seeing on the pricing side of that?

And then just -- Howard, on second, third, and fourth quarter what percentage of volume is booked right now or some measure of that, if you could give us that?

Okay.

I will let Micky go -- I will let Micky talk about the ship situation.

Obviously, as you know, we have been talking about this Princess deal for a very long time.

Actually we have been working on it for almost two years because of the financial crisis, because of the huge fluctuations in seal and component parts, as well as dealing in a prototype and negotiating based on getting the kinds of returns we require in a very tough yield environment, it has taken two years to do this deal, and it is not done yet.

We are very hopeful that the final contracts will be signed by April, but we are still working on it.

Because of that and because we don't have another deal right behind it or we've put all of our focus on finalizing this Princess deal, it is going to take a while before you see anything else.

I wouldn't be surprised if we don't do another deal this year, although it is possible, particularly for a sister, but for a prototype it is going to take the kind of time that it took to do this Princess deal.

So I don't expect anything very quickly after the Princess deal is finalized, hopefully, in April.

As far as the competitive landscape, we understand that there is some movement now, as your prices are more attractive and some of our competitors are looking at potential projects, but like I said, we have nothing -- beyond the Princess deal, we have nothing that is hot right now.

As far as the future quarter bookings are concerned, we don't give out the detailed numbers by quarter, but we have always said that historically at the time of the conference call, typically the next quarter which in this case is second quarter is 85% to 95% booked.

The following quarter for the third quarter would be historically 55% to 75% booked.

And for the fourth quarter, historically 30% to 50% booked.

So that is what we have said historically and this year falls within those ranges.

The other point I would like to make about shipbuilding -- I thought a little bit -- is that yes, prices are down from where they were 18 months ago or two years ago.

But these are obviously very, very big capital expenditures.

They are for long-term assets, and if the price is down 10% or 15% from where they were two years ago, that is not going to entice us to build a ship we wouldn't have otherwise built.

Clearly we would be happier with lower rather than higher, but we are not going to build ships we don't need.

But, Micky, to be clear you still think that you are underpenetrated, especially in a lot of markets, and at some point you do have to add that capacity in order to stimulate that demand.

Yes, and we've said that two or ships going forward beyond 12, 13 is probably a reasonable estimate to model from.

But in some years maybe one ship less and some years maybe one ship more.

But overall, we think two or three over the long term is probably the right number for us.

Okay, thank you.

Tim Conder, Wells Fargo.

Thank you.

David, just a little bit more of a housekeeping item.

Could you elaborate a little bit on the cost that you said were a timing perspective?

And then the litigation and tax gains that you recognized in the first quarter was that baked in to your initial guidance in December?

As far as the litigation was concerned, we knew about that early in December so that was baked in.

But when it comes to the tax gains that was not baked in but remember there were also some ship incidences and other things that we weren't aware of in December.

So some of these other extraneous items netted out as far as the guidance was concerned.

Right.

And it usually does all the time.

I mean, there is usually something every quarter.

Okay.

Yes.

And as far as the cost items, in the first quarter we really -- the timing of some of the expenses is always very difficult by quarter, particularly on the SG&A side.

So we did see some timing and some of our operating companies pushing out some of the things that they had originally forecasted to be spent in the first quarter, which is why we saw a 4.5% reduction in the first quarter versus what I was talking about 2% to 3% for the balance of the year.

The timing of the expenses is very tricky.

You are talking about $6 billion of net cruise costs, trying to project all that in the perfect timing by quarter does get difficult at times.

Okay, very fair, very fair.

Then finally on the EU side, any color that you can give us?

I mean historically the onboard spend in the EU has trailed out of North America but you guys have been working on that for several years and have narrowed that in.

But just any color on how the current state of trends are going on board in the EU versus the US and just I guess the mix of the EU of the ticket versus the onboard.

Our European brands are still currently below our North American brands.

Basically, broadly speaking, the Europeans drink more and gamble less than the North Americans but overall on balance they are spending a bit less onboard.

And that has been pretty consistent the last -- as far back as I can remember and it still remains the same.

Europeans are much more -- they are a much more virtuous population than Americans.

Okay.

Thank you, Howard.

Howard was kidding.

Greg Badishkanian, Citigroup.

This is Jeff [Hans] actually speaking on behalf of Greg.

A question on fuel, I guess with some encouraging signs in the industry and your business and oil prices moving above $80 just want to understand your thinking about potentially reimplementing the surcharge at this point?

We put out a statement a while ago that basically we are standing by.

We reserve the right to reinstate the fuel surcharge but at this point we have no present intention to do that.

We will continue to monitor the situation, review it, but we have no present intention to reinstate it.

Okay.

And then just any update you can give at all on booking windows.

Have you seen that extend further out versus where you were back in December?

No, I think we have said that we are basically at historical levels and, no, that is pretty much still the case.

And we are being very patient in terms of making sure that we yield manage appropriately to get the price.

We could always extend the window but it may not necessarily be the right thing to do.

And so we are being patient and looking for the price increase.

Clearly, when I talked about the fourth quarter where occupancies are down year-over-year that is pretty much on purpose.

I think the feeling is -- in North America -- I think the feeling of our yield managers in North America is that there is enough momentum in the booking pattern right now to close that occupancy gap and to maintain pricing which is what they are focused on doing.

So really there is now -- everybody is focused on pricing as opposed to volumes it's fair to say.

I think just to clarify what I said, I think what we showed a recent presentations is that the curve is similar to what it was four out of the last five years with the exception of 2008, which was the head of the curve.

Great.

Thanks so much.

Jamie Rollo, Morgan Stanley.

Thank you.

Micky, you said before on some of the previous calls that you thought it would take longer in this downturn to get the yield production back.

And based on what you have seen this calendar year would you stick to that or do you think you could recover the yield drop within the normal, historical, two-year timeframe?

Jamie, I just want to correct.

I didn't make that statement.

I confess, Jamie, I made that statement.

This is Howard.

I think that at times of financial crisis I was a little bit -- I just think it's going to take a while to get it back but I think we have been surprised to be honest with you.

I don't want to be overly optimistic here, but I think we are surprised at the strength of pricing that has come back this year.

I don't think we -- obviously when we forecasted it we didn't expect this to come back this dramatically.

It has come back.

Whether we can sustain this kind of levels -- as we increase pricing, whether we can sustain the booking volumes is the next question.

I don't think we are going to know that for a while but clearly that is the focus of our revenue managers.

But it does look like it is coming back a lot faster in North America.

Europe never tailed off all that much and it looks to be flat to down slightly this year so we are pleased with what we see in Europe.

And that is with all that additional capacity.

So combining the two, yes, I think it is better than we originally thought.

Jamie, just to re-emphasize, we offer the best vacation value or holiday value in leisure.

And because of that we should have a lot of upside in the yield and hopefully one day we are going to get it, but the reality is the value relationship is strong or stronger than ever.

Therefore the opportunity for higher pricing is there and the opportunity for great vacation values for the consumer is there now.

And they should be taking advantage of it.

Thanks.

Just the other question, the commission and transport costs which were down about 3% despite ticket prices -- revenues, rather -- being up 6%.

That can't all be airfare so what is happening to commission levels?

And is this part of the change that you have made to your search engine policy for example and somehow increasing the direct sales added into the mix?

I will comment on the air/sea mix.

It was down considerably; it was down 25%.

So in the first quarter of last year 16% of people purchased air from us whereas 12% of people purchased air from us in the first quarter of this year and that is a material difference.

So it was primarily that.

I think there is a misunderstanding on this whole search engine thing.

There was nothing in that policy change that would affect direct business.

The reality was the only thing we were trying to accomplish was to stop competition in places like Google for our trademarks.

The reality is all of us were competing with our distribution system for our own trademark and pushing the cost up.

All we wanted was to bring the cost down to buy our trademarks and we succeeded in doing that.

That is all it was about.

It is ridiculous to have to pay a premium to find Carnival or Princess in Google because six or seven other guys want to buy Carnival or Princess in Google.

And so all we did --

We own the name.

We own the name and we don't want to pay a premium and compete with other people to buy our own name.

That was all it was about and I think it was misunderstood by a lot of people.

There was a lot of media follow-up with agents who never bought our name -- only five, six, seven agents have ever bought our name and yet we had agents complaining about it who really didn't understand what we did.

In fact I think that the great majority of agents had no problem with it because they thought it was leveling the playing field which we were trying to do.

Because they couldn't compete with the five or six agents who could afford to buy our name.

So the vast majority of agents found that they were on a level playing field with those five or six agents.

All it did was lower our search costs significantly and we were very pleased with the outcome.

Okay.

Thank you very much.

Robin Farley, UBS.

Most of my questions have been asked.

I just wanted to get some clarification on your onboard revenue guidance, and I understand there were different items in Q1, but your full-year guidance saying that you expect it to remain flat.

It seems like historically as ticket prices have moved up nicely that that higher-paying customer also spends more on board.

I guess I am just wondering if your guidance for flat if you are just being conservative or if it's that there is a greater mix of -- I know you have talked about in the past about the European brands not having as high an onboard spend.

Is it that mix impact that is keeping it flat, offsetting what you would expect to be an increase from higher paying customers?

In part it might be that but I think they are just -- this is the first year or 15 months where we have had flat for a while.

So I think the operating company that forecasts their onboard revenue I think have a tendency not to get overly aggressive in that area because there is one thing -- it's hard to predict.

We have a good ability to predict ticket pricing because we have booking way in advance of recording the revenue, but onboard of course is at the moment and it's hard to know.

In theory what you are saying should be true.

I think once the ticket prices go up you are getting a slightly different customer buying that or they are feeling better about spending money you would expect to see some increase in onboard revenues.

But to be honest with you, we haven't put that into the estimates, into the forecast right now and if it happens all the better.

There is also some changes in the dynamics of onboard revenue.

People are spending money differently.

There is less -- there is no challenge in the casino areas because casinos have become so popular on land and that sort of thing.

We were constantly looking for new ways to increase onboard revenues and we have had some good successes, but where it all comes out at the end of the day we will know.

We will have a better sense of that I think as we get through the year, Robin, in terms of whether onboards are now starting to pick up.

But you are right for the year we have just focused more or less flat.

I mean it's slightly up, slightly down depending on which brand you are talking about.

I do think you make a good point and sometimes it's forgotten that as we grow our European brands faster than our North American brands there is a number of factors, including what you described as the mix factor for onboard.

There is also the seasonality.

The European business has higher seasonality and therefore our earnings will by the nature of that growth be lower in the out quarters and higher in the third quarter.

Okay, great.

Thank you.

Kevin Milota, JPMorgan.

Good morning, everyone.

Was hoping you could give some more color on the close-in pricing picture, where in particular you saw the strength by brand or by region that would be helpful.

Thanks.

When we talk about close-in pricing it's all relative to last year when we were forecasting yield improvement right now.

So there is not any particular color we can give you other than that given the demand we have seen during wave season close-in pricing has exceeded our estimates and continues to do so.

So we are pleased with what we see.

David, do you have anything more on that?

No, I think it was --

It's hard to be more specific than that because you are talking about nine, 10 different brands.

Each behavior is slightly different than the other and some brands sell much further in advance than others and so on.

So it's a mix issue here as well.

Okay, thank you.

Ian Rennardson, Bank of America and Merrill Lynch.

Back in December I think you said the increase in fuel costs would cost you about $0.46 but that foreign exchange would be an $0.08 benefit so your net cost of fuel and oil was going to be $0.38.

I calculate now you are looking at the cost being about $0.70, that being $0.60 on the oil and a $0.10 hit on foreign exchange.

Is that correct and therefore you have got a $0.32 swing in your guidance based on the new FX and the new oil assumptions?

Yes, that is --

It's broadly right.

It's broadly correct.

Hang on one second, let me just --

That was right, Ian.

I don't know about the specific --

It's about $0.25 in total.

Okay.

Obviously up through the December quarter we were seeing a counter effect between currency and fuel.

One was offsetting the other in movement and this quarter for the first time we saw them both move against us.

The link between fuel and currency seemed to delink at least for a quarter.

Now the last few days they seem to be linked again and so we will see.

Okay.

And the 10% on oil is still $0.20 on earnings I think or off earnings?

Yes.

Thank you.

Thank you, Ian.

Sharon Zackfia, William Blair.

Good morning.

Most of my questions have been answered but I am curious on the rate at which you have held the costs down and particularly the selling and admin expenses.

I guess I am just curious as we go forward and we are looking at a rebounding environment is there an element of cost to that rebound.

Are we going to see some of these line items grow at a faster pace than an absolute dollar sense going forward or I guess a rate of growth perspective?

It's very hard to tell.

Obviously if you look at the overall advertising environment, in a normal year you may say, well, they spent less on advertising so you know they are mortgaging the future.

But the reality is we are probably getting more for our advertising dollar this first quarter than we have in the past because there is no question that, one, our search costs have come down dramatically based on the discussion we had earlier.

Advertising cost for magazines, as you know the magazine industry is really struggling and so we are buying advertising more efficiently than we have probably ever bought before.

And so the cost can go down and the effectiveness can go up, which is unusual.

How long that will continue to stay you would have to be an analyst or the advertising industry to really predict that, but right now it seems to be the trend that we can buy eyeballs cheaper than we were able to buy them before.

The other thing is and it's hard for us to predict what inflation will be.

At the moment you know the numbers as well as I, there is really no inflation broadly speaking out there today.

But going forward we have been talking for a while about our various operating companies working together and getting tremendous opportunities.

Whether it be things like negotiating port charges collectively or short excursions collectively, there is a lot of things we are working on.

So to the extent that there is inflation we expect to be able to offset some or all of it with these cost opportunities as we continue to attack these projects collectively.

Maybe phrasing it a different way, given what might be a structural shift in the fuel costs over the last five years do you think as the yields rebound and we are looking at something better three years from now is there a structural impediment to getting EBITDA margin north of 30% again?

It will be more of a yield revenue situation than it would be a cost situation.

I think we managed the cost side of it very well.

The revenue part is something that is just hard to know three years down the road, but clearly if our revenues continue to go up you could get back to close to historical levels.

Sure, I don't think there is any reason why not.

Okay, great.

Thanks.

Tim Ramskill, Credit Suisse.

Thank you.

Two quick questions for me.

Firstly, just with regards to what you have experienced in Brazil during the first quarter are you likely to therefore alter your deployment plans for next year on the back of that?

Then the second question is just when you come to look at the performance of your European brands clearly you don't have premium brands in Europe per se in the same way you do in the US.

But within your European brands, whether it's more expensive cabins or itineraries, are you seeing similar consumer behavior in Europe when it comes to recovery in the more higher price segment?

I would rather not disclose what our plans are for Brazil other than to say that we may hedge it with a little bit more capacity for Argentina than we did this year.

But other than that I would rather not say.

Howard?

Yes, I don't know that I have got a good -- the continental European brands tend to focus on a middle to upper middle market, whether it AIDA -- I would call it upper middle market, AIDA and Costa and Ibero.

So I don't -- and while there are high-priced cabins in the categories I really couldn't answer the question how well or how strongly they are selling.

But overall the behavior of those brands tends to mirror more of a contemporary brand than it does a premium brand I would say.

I think it's fair to say since they didn't take a big hit last year they are not experiencing the same level of recovery that we are seeing in the premium product.

Right.

That is a good point.

Great, thanks.

Joe Hovorka, Raymond James.

Thanks, guys.

My questions have been answered.

Thank you.

Speakers, there are no further questions at this time.

I will turn the call back to you.

Please continue with your presentation or closing remarks.

Thank you very much.

If there are any follow-on questions, Beth is available and she enjoys hearing from all of you.

So you all have a great day and hope to see you soon.

Take care.

Bye-bye.

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

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