嘉年華遊輪 (CCL) 2010 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Carnival Corporation's second-quarter earnings call.

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

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

(Operator Instructions).

As a reminder, this conference is being recorded Tuesday, June 22, 2010.

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

Please go ahead, sir.

Thank you, Sarah.

Good morning, everyone.

With me here in Miami is David Bernstein, our Chief Financial Officer and Senior VP of Finance; Beth Roberts, our Vice President of Investor Relations; Micky Arison, our Chairman and CEO.

I am going to turn the first part of this call over to David and he will take you through the color during the second quarter and talk about costs going forward.

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 second quarter, our earnings per share was $0.32.

The second quarter came in above the midpoint of our March guidance by $0.04 per share despite a $0.02 impact from the volcanic ash and the Chilean earthquake disruption.

Net revenue yields in local currency came in up 2% at the higher end of our March guidance, which was worth $0.02 per share, even with these disruptions, which impacted yields by a half a point.

In addition, our ongoing cost reductions were better than forecasted and were also worth $0.02 per share.

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

Our capacity increased 8% for the second quarter of 2010 with the majority of the increase going to our European brand.

Our European brands grew 13% while our North American brands grew 4%.

As I previously mentioned, overall net revenue yields in local currency increased 2% in the second quarter of 2010 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 increase of 1.6% in local currency.

Our North America brands were up 3.8% driven by increases in Europe, Alaska and other exotic itineraries.

Our European brands experienced 1.2% lower local currency ticket yields, which were in line with our expectations.

Similar to the first quarter, the declines were driven by a challenging winter season in the Brazilian market with significant capacity increases this past winter.

If you exclude the five ships that Costa and Ibero had in Brazil in the month of March, the European brands' net ticket revenue yields in local currency was flat.

We were pleased with this performance given the economic uncertainty and the significantly higher capacity for our continental European brands.

For net onboard and other revenue yields, we reported a yield increase of 3.1% in local currency.

The increase occurred on both sides of the Atlantic.

Our North American brands were up 4.6% and our European brands were up 3.2% in local currency.

This was clearly better than we had expected in our March guidance.

Keep in mind that the second-quarter actual is against easy comps as the second quarter last year was at the low point for onboard and other revenue yields.

As a result of our second-quarter performance, the operating companies have raised their forecast for onboard and other revenue yields slightly for the back half of the year.

On the March call, I indicated that, excluding a couple of one-time first-quarter items, our expectations for the full year was flat given that the first quarter was flat.

However, given the increase in the second quarter, our June guidance for the full year, also excluding the same one-time items in the first quarter, is an increase of approximately 1%.

In summary, we were very encouraged by the 2% increase in net revenue yields in the second quarter, which was the first time we saw positive revenue yields since late 2008.

As Howard will discuss later, we expect greater improvements in yield for the remainder of the year.

On the cost side, cruise costs per available lower berth date, excluding fuel and in local currency, were down 4.9% versus the prior year.

The decline was driven by fewer drydocks, economies of scale relating to double-digit growth at certain of our brands, benefits from cost reduction programs, a low inflationary environment and the timing of certain SG&A expenses.

However, the strength of our revenue and cost performance in the second quarter of 2010 were once again masked by rising fuel prices.

Fuel prices this quarter were 64% higher than last year, costing us $162 million, or $0.20 per share.

One final note on costs.

As a result of our ongoing efforts to reduce fuel consumption, our fuel consumption per ALBD declined 3.3% in the second quarter continuing our multiple year savings trend.

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

On the cost side, net cruise cost per available lower berth date for the third quarter, excluding fuel and in local currency, are projected to be up 1% to 2%.

This was driven by a $39 million charge relating to a closed multi-employer pension plan for certain British officers.

The multi-employer pension plan accounting rules require us to expense required participant contribution to fund plan deficits when the invoices are received.

Excluding this charge, net cruise cost per available lower berth day, excluding fuel for the third quarter, would have been projected to be flat to down 1%.

For the full year, net cruise cost per available lower berth day, excluding fuel and in local currency, are projected to be down 2.5% to 3.5%.

The decline is driven by our ongoing cost reductions, the first-quarter gain on the sale of the P&O Cruises Artemis and lower drydock costs.

Since we first gave guidance for 2010 six months ago, we have taken a full percentage point off our cost guidance.

Our ongoing cost reduction programs are yielding more savings than we anticipated in a variety of areas such as insurance, ports and crew travel, just to name a few.

Based on the current spot price for fuel, fuel prices for the full year are projected to be $495 per metric ton for 2010 versus $363 per metric ton for 2009, costing an additional $440 million, or $0.55 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 1% to 2%.

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

Thank you.

Thank you, David.

Okay.

Let me go over the tone of business with you.

On a fleetwide basis, booking volumes and pricing since our last earnings call, that is for the last 13 weeks or so, covering the next three quarters, have held up quite well.

Even booking volumes for the last six weeks during the significant downturn in global equity markets have held up well.

Although we have seen reduced booking volumes for certain itineraries, which I'll comment on later.

For our North American brands on slightly lower year-over-year booking volumes for the last 13 weeks, we have experienced double-digit price increases.

Keep in mind our comparisons of this year's booking volumes are against a 26% increase in booking volumes for the same period as last year when we were selling at deeply discounted prices to move our inventory.

With respect to bookings by itinerary, during the last 13 weeks for North American brands, we have seen strong volumes and pricing for Caribbean programs, which comprises 52% of North American brand capacity over the next three quarters.

Alaska, which is 11% of our North American capacity on lower booking volumes, has experienced significantly higher year-over-year pricing and Europe itineraries, which comprise 9% of our capacity, has also experienced lower booking volumes, but with significantly higher pricing as well.

We have also seen stronger year-over-year pricing for our Mexican Riviera itineraries for the first time in awhile.

All of our North American brand itineraries have booked quite well during this 13-week period with good pricing.

For our European brands during the last 13 weeks, booking volumes for the next three quarters have been quite strong with moderate year-over-year local current pricing improvements.

Booking volumes for European itineraries during the 13-week period, which comprise two-thirds of European brand capacity during the next nine months, had been higher and are keeping pace with year-over-year European brand capacity increases.

These bookings are showing moderate increases in prices on a local currency basis, which is quite satisfactory considering the large increase in European brand capacity during the next nine months.

So looking back over the last 13 weeks, it is fair to say that demand for cruises has been solid and we have continued to achieve higher year-over-year price increases.

Now let me talk a little bit about the last six weeks.

Beginning in early May, the effect of the volcanic ash issue in the UK and Western Europe did cause nervousness about air travel, particularly for North American consumers taking airline flights across the Atlantic.

Compounding this was the European sovereign debt crisis and the resultant negative effect it had on global equity markets.

Indeed, in late April through late May, US equity markets, as we all know, were down about 12% or so.

We believe this caused consumers, especially those in North America, to rethink their discretionary travel decisions.

But even with these events, fleetwide bookings for the last six weeks for our cruises over the next three quarters continue to run ahead of last year on a fleetwide basis.

Significantly ahead for Europe brands and just slightly behind for North American brands.

And prices for bookings for North America and Europe brands continue to be running nicely higher.

Looking at bookings over the last six weeks by major trades for North American brands, Caribbean itineraries, which are more than 50% of North American capacity over the next nine months, continue to be strong at higher prices.

Bookings for Alaska cruises, however, ran behind the last six-week period, but at substantially higher prices.

But fortunately, there is very little Alaskan inventory left to sell.

Bookings for North American brands Europe programs were also lower, but there was also not much inventory left to sell in Europe for the remainder of the year.

Despite the brief slowdown in these trades, we are still expecting significant year-over-year pricing improvement for Alaska and Europe for 2010.

We have seen, anecdotally, over the last couple of weeks that with the recent strength in the equity markets that demand in North America for these trades has started to pick up.

Interestingly, the effect of these external events seems to have been felt more in North American markets than in European markets.

Our European brand bookings during the last six-week period have held up extremely well with significant improvement in booking volume and solid improvement in year-over-year local currency pricing.

This is yet another example of how the European consumer appears to be more resilient to geopolitical and economic events than is their American counterparty.

So to sum this all up, despite the events that have occurred around the world over the last six weeks, people are still booking their vacations and our businesses held up quite well.

Now turning to our full-year earnings guidance.

As we indicated in the press release, we are maintaining earnings guidance of $2.25 to $2.35 a share.

Since our first-quarter guidance, currency movement is largely the result of a strengthening dollar.

Net of lower forecasted fuel prices for the second half of the year have caused a 7% per share downdraft in our earnings.

Offsetting this has been the better-than-forecasted second-quarter earnings of $0.04 and another $0.03 resulting from lower-than-expected costs in the second half of the year.

When we combine these movements, we get back to the same earnings guidance as we provided last March.

Now let me take you through some of the color for each of the next three quarters.

For the third quarter, fleetwide capacity is 6.2% higher than last year, 3.7% in North America, 8% for Europe brands.

At this point, with very little inventory left to sell in the quarter, fleetwide capacity is slightly ahead -- fleetwide occupancy, I should say, is slightly ahead year-over-year with local currency pricing well ahead.

For North American brands during the quarter, they are 41% in the Caribbean, 25% in Alaska, 17% in Europe.

Overall pricing for North American brands is well ahead of last year with slightly better occupancies.

Even pricing for Mexican Riviera cruises out of California, which has been a struggle for us over the last couple of years, is showing nice improvement.

We are expecting that third-quarter ticket pricing for North American brands should increase in the low double digit levels by the time the third quarter closes.

For European brands, they are 97% in European itineraries in the third quarter.

Currently, pricing for Europe brands is slightly higher year-over-year, which is a very positive sign given the 8% capacity increase in our European fleet during the quarter.

All brands are performing well, although pricing for our Spanish cruise brand, Ibero Cruises, which had a 37% increase in capacity in the quarter, is expected to be lower.

By the time the quarter closes out, we are expecting European brand pricing to be flattish year-over-year, which is a very good result given the 8% increase in capacity.

As I indicated in the press release, or as we indicated in the press release, we are forecasting third-quarter fleetwide revenue yields will increase in the 5% to 6% range on a local currency basis, flat to up slightly on a current dollar basis.

Costs, excluding fuel, are expected to be higher by 1% to 2% on a local currency basis largely as a result of the British officer pension fund charge that David referred to earlier.

On a local currency basis, costs, excluding fuel, are expected to be lower in the 2% to 3% range.

Fuel cost for the third quarter is expected to be higher by $74 million year-over-year, or $0.09 a share and as we indicated in the press release, earnings are forecasted to be in the range of $1.43 to $1.47 for the quarter versus $1.33 per share in the third quarter of 2009.

It's always nice to get back to positive earnings improvements on a quarterly basis.

Now turning to the fourth quarter.

Fleetwide capacity is up 6.1% in the quarter, 1.7% in North America and 10.6% in Europe.

On an overall basis, fourth-quarter occupancy is slightly lower with local currency pricing running nicely higher.

North American brands in the fourth quarter are 50% in the Caribbean with all other itineraries individually below 10%.

At the present time, pricing is running nicely again year-over-year with lower occupancies.

However, booking volumes for the fourth quarter for North American brands continue to be strong and by the time the quarter closes, we are expecting pricing to be nicely higher year-over-year.

European brands are 73% in Europe in the fourth quarter with all other itineraries individually under 10%.

Europe itinerary pricing on a local currency basis is nicely ahead of last year with slightly better occupancy.

Bookings continue to be strong for the fourth quarter and we are forecasting that by the time the fourth quarter closes, Europe brand local currency pricing will be higher year-over-year, which is a very good result considering the 10% -- 10% plus capacity increase that we have during the quarter.

On a fleetwide basis, we expect fourth-quarter revenue yields to be up approximately 3% on a local currency basis.

That is combining Europe and North America.

And I should add it is nice to see a positive sign for European pricing, which we haven't had in quite some time.

And that is despite the considerable increases we have had in capacity, which has been absorbed quite nicely.

And we have been able to expand our markets at the same time in Europe.

So now I am going to turn to the fourth quarter of 2011 where our fleetwide capacity is going to be up 6.6%, 3.8% for North American brands and 11.7% for European brands.

Let me emphasize that the first-quarter booking data is still in the early stages of development and is provided to give you a picture of how the quarter is shaping up at the present time.

Overall, our first-quarter pricing is running higher on a year-over-year basis with occupancy running slightly behind.

This is a pattern that is similar to the fourth-quarter pattern for 2010.

North American brands are 66% in the Caribbean, 11% in Mexican Riviera cruises and the balance in all other itineraries.

Presently, Caribbean pricing is slightly higher on lower occupancies and Mexican Riviera pricing is higher on higher occupancies.

Pricing on virtually all other itineraries, mostly longer premium priced cruises, is higher on lower occupancies.

European brands are 25% in European itineraries, 23% in the Caribbean and 18% in South America with the remaining in various other itineraries.

Local currency pricing for Europe and South America cruises is running higher on lower occupancies and pricing for European brand Caribbean cruises is higher on higher occupancies.

Overall pricing in local currency for Europe brand cruises is nicely higher at this time with occupancies, when you combine it all, at the same level as the prior year and that is adjusted for the 11.7% capacity increase we have in the first quarter for Europe.

Again, I caution this is an early picture for Q1 of 2011 and not to read too much into this information.

And with that, Sarah, I am going to turn it back to you for questions.

Thank you.

(Operator Instructions).

Felicia Hendrix, Barclays Capital.

Hi, good morning, guys.

A quick two questions for you.

First, Howard, you gave us great color on the third, fourth and first quarter.

I just wanted to talk about the fourth quarter for a moment.

I was just wondering, at this point in time, are you surprised that the occupancy is lower year-over-year or is that trending how you expected and how has the booking pace trended through the quarter and since the second quarter has closed?

Yes, we have been running this lower occupancy and actually have been pacing lower.

I think principally what is happening is that the yield -- and it varies by brand -- but the yield management people are working on getting stronger pricing for the quarter.

They are less concerned about the lower occupancies.

The booking pace has been good for the fourth quarter, as I indicated.

So they are pretty confident that they are going to get to the yield numbers that I gave and they feel pretty good about the situation.

I think there was a little bit of a hiccup, I would call it, for a period of time back in May and I think the pace has now picked up again and I think they are feeling pretty comfortable as they go forward for the fourth quarter.

But we were running behind in the fourth quarter really as I can recall I think throughout the year and we have never really -- pressed to pick up the pace because we are really focusing on getting better pricing and that seems to be happening.

Okay, that's good.

And then just turning to --.

One more comment.

I should add that booking pace has picked up for the fourth quarter without having to give away any price.

So we have been able -- it has been a successful strategy.

Good.

And then just on onboard spend, I was just wondering if there has been any impact since the end of the quarter given the macro environment and what has been the most recent onboard trends that you have seen?

I will let David talk about that.

Since the end of the quarter, Felicia, here at corporate, we don't get all the detailed reports by voyage, by brand.

So the latest information I have is as of the end of May for the second quarter.

Overall, essentially all of the categories, except for casino, was up in the second quarter and we are expecting that trend to continue throughout the rest of the year.

Okay, that's helpful.

Thanks, guys.

Robin Farley, UBS.

Thanks.

I just wanted to clarify, in your guidance, you talked about onboard revenues coming in a little bit up for the year, which is better than the flat that you had talked about previously, but your total yield guidance is unchanged.

So I guess just want to clarify should we think about the implied guidance on ticket prices being the same increase as what you had previously expected or is it slightly lower?

In other words, is it enough to be a rounding error or is there an implied less of an increase in ticket price?

Yes, Robin, it is really just a rounding error.

And remember, when you give guidance in a range of 2% to 3%, you can go up by 0.1% or 0.2% and you don't necessarily change your whole your range.

So it really is just rounding.

That's great.

I just wanted to clarify that.

And then also on the pension charge you are talking about in Q3, just to clarify, that is in your full-year EPS guidance today, but was not in there previously, right?

In other words, is that --?

No, no.

That has always been in our EPS guidance since December.

It may have changed by $1 million or $2 million, but it has been there since the beginning.

We expected it all along.

Okay, that's helpful.

Thank you.

Rick Lyall, John W.

Bristol.

Hi, guys.

I have a couple questions.

Post Katrina, the Gulf and Florida pretty much stopped booking and I am wondering what the trends have been in the Gulf in terms of domestic demand.

And the same kind of question in southern Europe, have you see any material impact in demand from either of those two regions given some of the events that have transpired?

Rick, I'm not sure I understand your southern Europe question, other than unfortunately, we don't carry a lot of Greek passengers.

The Gulf cruises have been virtually unaffected by the spill.

We are operating and passengers are not even aware of it.

The ships are navigating around it.

There may be a slight increase in fuel consumption because we have to navigate around what may be the worst areas, but the ships are being inspected every time they return to the US.

We haven't had to clean a hull once yet.

We have seen no slowdown in booking pattern.

Clearly, we are offering an outstanding vacation option for people in that region and one that they don't have to concern themselves with the spill during their vacation.

We are -- in an attempt to try to help the region, we are encouraging, on Carnival's website, people stay a day or two before or after the cruise in the region to try to kind of stimulate tourism in the region.

But from our point of view, it hasn't affected business at all.

Okay, southern Europe, I was thinking about Italy.

We know Spain has been weak, but I was wondering about Italy, Greece, etc.

No, I mean in terms of those markets, they have been fine.

They have been solid all the way through.

We haven't seen any discernible change in demand in continental Europe right now.

Remember, we took delivery of an AIDA ship this winter.

We took delivery of a Costa ship this winter right after two ships last spring for Costa and we have absorbed that capacity with no deterioration in yields.

Europe is performing, I would say, fantastically.

Okay, last question for David.

Given the very, very low bond yields available today, any thoughts about refinancing debt early or moving anything around with the current spreads?

Rick, we always look at that, but, fortunately for us, we have a significant number -- I think right now we have seven export credits available to us going forward that are at even lower yields and lower interest rates than most funds.

So we are in very good shape.

We don't have any financing needs, but we do consistently look at that on an ongoing basis.

Okay, thanks very much.

Good job, guys.

David Leibowitz, Horizon.

Yes, the advanced bookings on the balance sheet show that they are up 25% year-over-year.

And the question is how much of that is pricing, how much of that is going further out on the calendar and how much of that is the additional capacity that has come onstream this year?

As you have asked the question, David, David Bernstein is going through his book now to see if he can give you some directional --.

I think you're looking at year-end versus --.

It depends on what you're measuring against.

What are you measuring against, David?

Year-over-year or --?

I am using the 3.2% versus the 2.6% that shows up on the balance sheet that was reported today.

I apologize; it is year-end.

Yes, part of that is seasonality as well.

Remember, as we get bigger, and this is an important factor that everybody has to understand, as we get bigger and bigger and bigger in our European brands, we become more and more seasonal.

So our advance ticket deposits at the end of the second quarter is always going to be significantly higher than at the end of the year.

I mean it is just the way the business is going to be.

And the reality is, as we grow the European brands, you can expect lower earnings in the first quarter and more earnings in the third quarter.

It is just going to be a more seasonal business because the European business is so seasonal.

David, if you want to compare back to the prior year, it is 3.2% today, it was 2.9% a year ago in May.

And we got hurt a little bit on FX rates because the dollar did get stronger.

And remember, that was more than offset by the capacity increase.

And then, of course, the big difference was the pricing increase because the prices that we are getting today for the back half of the year are up considerably versus the prior year.

So those are the big swings and it nets to an increase of almost $400 million.

And my second question has to do with newbuild and your domestic brands.

At what point do the domestic brands get the incremental attention given how much of their capacity are 20 to 30 years old at this point?

We don't have any 30-year-old -- I'm sorry, but the age of our fleet is much younger than you characterize.

The only thing I would say is that we have two very large ships on order for Carnival Cruise Lines.

We have two very large ships on order for Princess.

We have said that, going forward, '13 and beyond, that our CapEx will be lower, significantly lower than it has been in recent years, probably two to three ships a year and that is what you can anticipate.

We also have the new Amsterdam being delivered for Holland America later on this month and next year at this time, a new -- the third in a series of a Seabourn ship for the North American -- principally the North American --.

We have plenty of capacity coming for the North American brands.

I think the oldest ship in North America is 1988, 22 years old.

Probably, probably, about 20 years old.

And we don't have many of those.

Assia Georgieva, Infinity Research.

Good morning, guys.

One question, given that North American, especially Carnival brand, pricing seems to be driving Q3, could you comment on the threatened price increase back in March and how far along relative to that figure of up to 5% [Jerry] has been able to get pricing to?

I think the way to answer your question is I think that strategy brought forward some business, which is a logical conclusion of that kind of marketing strategy, that people would book earlier to take advantage of the lower pricing before the price increase.

So I think that worked very well and as far as I know, all the pricing that was taken at that time has held.

Assia, did you make a comment -- I am not sure I heard you right that the Carnival brand was driving the pricing improvement in the third quarter?

Yes, she did.

Well, I think relative --.

I think all brands are -- all North American brands would -- all the major North American brands -- Carnival, Holland America, Princess -- their pricing is also nicely up.

And previously, we --

Howard, you are right.

Okay.

That's just a clarification.

I'm sorry that I did say that.

The Carnival brand pricing will be actually what will be driving Q3, but what I meant more was that North American brands, and especially the Caribbean, would be helpful and I think, in Q3, you only have or mostly have Carnival with a little bit of Princess in there.

So my expectation had been that the Carnival brand's price increase is a significant factor to Q3 yields and bookings.

I think as Howard stated, it is pretty much across all our North American brands.

I mean at Carnival -- Carnival -- they are all up, they are all up nicely, including Carnival.

You have to remember that, as we said on the prior call, that Europe bookings for the North American brands and Alaska bookings for the North American brands pricing-wise was very strong, particularly during the wave period.

Well, it is good to hear that, especially on Alaska.

We know the whole fiasco there.

So thank you very much for answering.

That was my only question.

Greg Badishkanian, Citigroup.

Great, thanks.

Did you guys notice any pickup in cancellations when the equity markets began to decline in late April or is it pretty consistent?

Pretty consistent.

We didn't see any discernible increase.

Well, we tended to see, and Howard I think mentioned it in his notes, is that our premium North American brands tend to be more sensitive and longer cruises more premium and luxury-type cruises tend to be more affected by market volatility and gyrations.

And so in the month of May, we felt some of that.

It didn't -- everybody seemed to be asking us questions about Europe, but it didn't seem to impact Europe at all.

Right, which kind of leads me to a question just on the differences in the consumer in Europe versus North America.

When the negative news lines hit and stock market was declining, you saw more of an impact in the North American consumer.

Were there any other kind of differences between the two types of consumers?

I think the European consumer is -- it is a much more stable consumer.

It doesn't have a lot debt, consumer debt.

There's not a lot of consumer debt there.

There is not a lot of credit card debt.

There are strong social systems that support the Europeans.

And the way they -- this whole psychology is that vacations are really right at the top of their list of priorities of how they spend their money.

So I think it is a very different consumer and their behavior is different and I think this is another way of seeing how it is manifested.

It is really very interesting, especially when you talk about the whole sovereign debt crisis and we talk to our colleagues in Europe and they were all concerned about it, but they didn't see it affect their business that much, which is -- the consumer, the day-to-day consumer in the market doesn't really think that much about it.

What is interesting is even during this period when the market was falling, the onboard revenue yields were even up more in North America than they were in Europe.

I had indicated it was up about 4.6%, the North American brands in the second quarter and 3.2% for the European brands.

So despite what was going on, people were still out there spending.

All right, interesting.

Thank you.

Tim Conder, Wells Fargo.

Thank you and, again, congrats on great execution, everyone.

A couple of -- two questions here.

Micky, on the last call you talked about the letters of intent for the two Princess ships and you said that those would be finalized very shortly, which they were.

And then you said at that point in time that behind that, you really had nothing material in discussions in the pipeline.

If you could update us on that statement, that is question number one.

Then question number two is just kind of looking out a little bit more, the North American ECA, the new fuel standards, how do you guys feel about your ability to deal with those as they start to phase in in, I think, the middle of 2012, and the potential impact on your fuel costs?

I am going to take a pass on the first part of your question and kind of defer to my two to three a year starting in '13, and kind of leave it at that.

Okay.

As far as ECA is concerned, Tim, we did disclose in our 10-K that for 2012, the impact on our fuel costs would be somewhere in the range of $50 million to $70 million, which took into account not only the North American ECA but other rules and regulations around the world.

On the ECA issue, I think a large part of those costs are related to sailings in Alaska and to some degree Hawaii.

We don't have that much capacity in Hawaii.

And we are still working to see if we can get some deferral of the implementation of the ECA in those waters.

I don't know if we will be successful, but it is something we're working on.

Okay.

And I guess --.

It would greatly reduce the effect that David talked about.

Okay.

That was the root of my question is over the year-to-date here, has anything changed where you feel that that cost impact would be lower.

And I noticed that recently also Costa announced that a ship that is currently visiting, I think, the Canadian New England itineraries will not be returning, I think, in '11 or '12.

So you are working more on the deferral side, and anything I guess internal from -- whether that would be scrubbing technology or change in some potential engine types or anything like that?

Well, it gets very complicated, but there is a whole concept of reducing consumption or equivalencies, if you will, of other ways of saving or having less pollution from in the ECA zones.

And by the way, relative to the St.

Lawrence Seaway, we are also working with the Canadian authorities, local Canadian authorities, to see if we can get some help in that area.

But it gets to be very complicated.

We are working -- we are trying to mitigate it to the extent possible, so hopefully what David has given you is a worst-case basis and hopefully, it will be less than that.

And I think as part as far as new technologies and things, it is more of a longer-term strategy.

And the shorter term is the deferral and reduced fuel consumption, which we continue to work on.

And we're still working on the scrubber technology, but that is -- not with a whole lot of success yet.

But I think it's -- we are still working on it.

We are working with a number of companies in the area as are many of our competitors in the cruise industry, so we are trying to find other solutions to this issue.

Okay, great.

Thank you, gentlemen.

Harry Curtis, Lazard Capital.

Good morning.

A quick question for Micky.

When you consider the last two recoveries, what does your experience tell you about how the 2010 recovery is going to be different?

The world is so different now that the size of our business, the global nature of our business, it is so hard to translate past.

I mean, historically, we bounce back in two to three years.

Three years.

So it is -- but it is so hard to make the comparison.

And if you would have told me six months ago that we would have to be dealing with volcanoes and earthquakes and oil spills and have to navigate through that in the quarter, I mean if you look at our risk section, I don't think volcano is in that.

And you'd think we would throw the kitchen sink at it.

And somehow we have been able to navigate through that.

Our guys have done a great job, and all I can say is that you know we will recover as quickly as demand will allow us to, and that really depends on a lot of things.

But clearly the economy and how the economy does is going to be a factor, just like it is going to be a factor for all leisure businesses.

Do you have any sense of, going back to the prior consumer question, of the condition of the consumer in this recovery, again compared to the last two recoveries?

You know, we saw -- it was an interesting comment we saw from an analyst right after the announcement was that our volumes in the press release we said are slightly up versus last year, and the comment was that last year was a disaster.

And I think everybody forgets that we had a huge bounceback in March of last year in volumes.

Now that was at much lower prices, but our volumes were extraordinarily strong from March on last year.

They were up 26%.

They were up 26%.

And when we said we are up slightly, we were talking volume year-over-year at higher prices.

So we took that as a very bullish statement and immediately analysts came out and said it was a negative statement.

So it is very interesting.

I mean the reality is that the bounceback was very strong.

It happened very quickly because, if you consider the financial crisis in September to be bouncing back as strong as we did in March, albeit at much lower prices, I think it was a very encouraging sign that the consumer viewed our product as a very, very value-oriented product and one that has great value.

In the last couple of recoveries, you were able to get your pricing back in just over a year.

Do you think that it is too aggressive to think that it will come back that quickly this time?

If you can tell me what the economy is going to do over the next 12 months, I will tell you, but it really is very, very --.

It is a little bit different.

I mean we have got these really unprecedented levels of unemployment that we are all dealing with in North America and an economy that is recovering, but not quickly, not dramatically and I think it is reflected in what we are seeing in the business.

And I think it may be a longer haul recovery and I think that is what we are kind of -- we are modeling on a longer haul basis as we look at our yields and saying this is not all going to come back in a year or two.

It may take another year or even more, so I think it is going to be a long haul.

One of the things that everybody is talking about is austerity, budget issues, raising taxes, whether it is in the UK or the US and obviously, you raise taxes, that is going to have a negative impact on the consumer.

Yes, I think the current administration and even the Congress is taking -- some of these things that they are doing is really going to hurt the consumer; no question about it and we will feel that.

So that will slow the recovery as well.

It is surprising because you would think the one thing that they would be working on is jobs and getting more jobs and you have to pump money into the economy to do that, but that is not what is happening; it is just the reverse.

They are taking money out of the economy.

I guess what we are saying -- and I think we have said this all along is we are much more susceptible to geopolitical events than our business itself.

And all we can say is if the economy is weak that we will outperform other forms of leisure and I think we have proved that time and time again, but we will be impacted.

Thanks, guys.

(Operator Instructions).

Brian Egger, Affiliated Research.

Good morning.

It was pretty clear from your previous comments that you have experienced no demand or operational impact from the oil spill in the Gulf region.

And my question is, at some point if that situation were to change, do you have any flexibility to change the homeport status of the ships you have got homeported in New Orleans and Mobile?

I mean I think there are two, but I don't know if midseason or mid-program they are established, if there is any operational flexibility to change itineraries with the base of origin for ships that are homeported in those two ports?

We don't believe that that should be necessary.

Even if there is an oil issue, that there is a cleaning process to go through to clean the hulls as they come in and out of port.

So it would delay our arrivals and departures and we would have to adjust for that.

But as I said, to date, we have not had to clean at all, which is a testament to the captains and their ability to maneuver around this thing.

And hopefully, as we get closer to August, this thing will get capped and we can all move on.

I think hopefully I mean everything suggests that the worst is over.

They are certainly limiting the amount of oil coming out right now and hopefully by mid-August or even earlier, they will have it fully cut off.

So I think the worst is over.

Brian, I haven't heard your name in a long, long time.

Yes, good to be back.

Thanks again.

Janet Brashear, Sanford Bernstein.

Thank you.

You said earlier this quarter that you are discontinuing air transportation bookings.

Can you talk a little bit about how significant that is?

I know that is a low portion of your business, but what impact that will have and how it might filter through?

We didn't say that.

Carnival Cruise Lines changed their air policy not to sell, let's say, deviation because air is such a small piece of their business, but all the other brands are still -- have made no change and Carnival still sells its traditional flyaway non-deviated program.

So it is a very small piece of our business now.

I don't know what the percentage is, but it's --.

It is like 10 --.

10% in the quarter.

And in fact I think it was last quarter that Princess implemented their EZAir where you can now book either our standard air program or restricted air at the time of booking for the cruise to make it easier for the consumer.

So each brand has got their own strategy that is appropriate for them.

Yes, Carnival Cruise Lines just eliminated one part of their air program and that is all that was announced.

We didn't announce anything across the board.

Oh, okay.

Thanks for clarifying that.

If I could dwell on Europe for just one more second here, although I know we are beating it to a pulp, you have said that demand trend has been great in Europe despite the economic headwinds here.

If the economic headwinds continue for another three to six months, is it possible that some of the reaction by the European consumer is just delayed given booking patterns and whatnot and that three, six months from now, if the trend gets no worse, but stays the way it is, that that will start to show up in the bookings?

It is hard to predict, but, Janet, Europe, the European consumer tends to have more ability to consume in these environments because they are not as strung out as in North America.

They don't have the housing issue that we still continue to have in North America.

They don't have as large of mortgages as we have in North America.

It is a very different consumer.

They are not buying the cruises on credit.

So I don't think so.

I mean we found over the years that the European consumer is far more resilient than their North American counterparties.

I think we are also losing sight of the fact that it is still, despite the growth, an underpenetrated market and still significantly behind North America as far as penetration.

So there is still a lot of growth left.

Now if we look at the North American consumer in Europe, is there any fear around the Mediterranean bookings?

I mean are the North Americans at all gun shy about economic events in Athens and the potential for riots or anything as they are booking or are they pretty comfortable on the same booking patterns relative to the Mediterranean?

We haven't seen any concern.

Obviously, if there was an issue in Athens, we would just divert around it.

We do not use Athens as a homeport, so we really don't have an issue there.

No, it hasn't been a problem.

If there was any problem at all, as we said earlier, was the premium brands saw some hiccup during the severe volatility in May in the market.

Thank you.

Kevin Milota, JPMorgan.

Good morning.

I was hoping to speak a little bit more about the forward bookings and appreciate your commentary on the European consumer.

I was hoping you might be able to give us some commentary on what you have seen from the booking curve for the European customer and also domestically for North America.

Have you seen a lengthening or shortening in the booking curve and how much inventory you have left to sell for the fourth quarter and first quarter of next year for both regions?

Well, the curve is about at the same levels as last year.

There is no discernible difference and it kind of moves -- sometimes it moves above the line, sometimes it moves below the line.

I don't know exactly where it is right now, but it is more or less about the same.

As far as what is left to sell -- I mean we don't give out the exact booking, advance booking percentages, but typically for the next quarter, which in this case would be the third quarter, we are always 85% to 95% booked two quarters out, which is the fourth quarter.

Our historical range is 55% to 75% booked and for three quarters out, which would be the first quarter, traditionally, we are in the range of 30% to 50% booked and we are still in those historical ranges.

Okay, many thanks.

Ian Rennardson, Bank of America.

Yes, good afternoon.

It is Ian Rennardson, Bank of America.

A quick question on the dividend.

You maintained it at $0.10 I think for this quarter.

Things seem to be progressing pretty well.

When do you think you might consider a raise in the dividend?

Thank you.

The dividend is a Board decision.

The Board, of course, takes up the dividend at every meeting because they do have to declare it.

The Board is well aware of the financial situation with the Company, as well as the reduced CapEx next year.

And I don't want to predict what the Board will say, but they will make an appropriate decision at the right time to change the dividend.

So I don't want to predict what they will say or what they will decide.

Okay, thank you.

Sharon Zackfia, William Blair.

Hi, good morning.

David, I was hoping you could go over on the net cruise cost, the reduction that you had there.

How much of that is due to a stronger US dollar and if you could give us a rule of thumb as to what percent of your net cruise costs are in non-US dollar?

Well, basically, we do give the cruise costs out in current dollars.

So for instance, when I was talking about like for the second quarter being down 4.9%, that is in current dollars.

I don't have the overall costs in terms of the costs themselves, but typically what we do say is that, if the US dollar strengthens or weakens by about 10% versus all currencies, it impacts our bottom line by about $160 million, or $0.20 a share.

So since we have got so much of our revenue in foreign currencies, as well as costs, there is a -- there are offsetting factors there and the impact is $0.20.

Thank you.

Thank you.

And at this time, I am showing that there are no further questions from the phone lines.

So I will turn the conference back to our speakers for their continuing presentation or closing remarks.

Thank you.

Well, thank you all very much for your very good questions.

And as you know, Beth is available to answer calls and provide any more detail that you may need that she is able to do after the call.

And we look forward to seeing everybody soon.

Have a great day.

Thank you.

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.