嘉年華遊輪 (CCL) 2010 Q3 法說會逐字稿

Welcome to the third-quarter earnings conference call.

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

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

(Operator Instructions).

As a reminder, this conference is being recorded Tuesday, September 21, 2010.

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

Howard Frank, Vice President -- sorry, Vice Chairman and Chief Operating Officer.

Please go ahead, sir.

Thank you, operator.

Good morning, everyone.

This is Howard Frank in Miami.

David Bernstein, our Senior VP of Finance and Chief Financial Officer, is with me here in Miami as is Beth Roberts, our Vice President of Investor Relations.

Micky Arison is in Genoa, Italy at our Costa Cruise offices with Pier Luigi Foschi; he is also on the call but he is in Italy and he and I will coordinate on the Q&A.

Before I talk about the outlook I'm going to turn it over to David who will give you some color on the third quarter and the cost outlook for the fourth quarter.

David?

Thank you, Howard.

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

During this conference call we will make certain forward-looking statements, such forward-looking statements involve known and unknown risks, uncertainties and assumptions which may cause the actual results or achievements of Carnival to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements.

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

For the third quarter our EPS was $1.62; the third quarter came in above the midpoint of our June guidance by $0.17 per share.

The improvement was driven by a number of things -- first, net revenue yields in local currency came in up 6.2%; this was slightly better than the 5% to 6% forecast in June guidance and was worth about $0.03 per share.

As Micky indicated in the press release, despite ongoing economic concerns cruise ticket prices remain strong close to sailing, rewarding guests that booked early.

Secondly, net Cruise costs without fuel and in local currency came in down 2.4%.

This was significantly better than our June guidance of up 1% to 2% and was worth $0.08 per share.

$0.02 of the $0.08 relates to the one-time legal settlement, the other $0.06 was broad-based.

It was spread across most areas of ship operating expenses as well as SG&A.

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

Third, our results benefited $0.04 from lower fuel prices and a weaker dollar.

And lastly, several small items were worth about $0.02 per share.

Now let's look at the third-quarter operating results versus the prior year.

Our capacity increased 6.2% for the third quarter of 2010 with the majority of the increase once again going to our European brands.

Our European brands grew 8% while our North American brands grew 3.7%.

Our net revenue yields also increased 6.2% in the third quarter and this was driven by our North American brands that were up 14.3% with increases across all itineraries.

I'm happy to report that our North American brands recaptured more than half the yield they lost in the third quarter last year from the impact of the financial crisis.

Our European brand experienced flat local currency net ticket yields which were in line with our expectations.

We were pleased with this performance given the uncertain economic environment, their 8% capacity increase and the fact that the European brands held up so well last year giving them a more difficult prior year comparison.

For net onboard revenue yields we experienced a 1.3% increase in local currency which was in line with our expectations.

The increase in net onboard revenue yields occurred on both sides of the Atlantic.

In summary, we were very encouraged by the strong performance of our North American brand's net ticket yields, the solid performance of our European brands on increased capacity, and our overall improved onboard revenue yields.

On the cost side, cruise cost per available lower berth day, excluding fuel and in local currency, were down 2.4% versus the prior year.

If you exclude the charge for the British pension plan, which was included in our guidance, and the one-time legal settlement, which was not in our guidance, our costs were down 4% which was consistent with the first and second quarters.

The decline was driven by economies of scale, benefits of cost reduction programs and a low inflationary environment.

Fuel prices this quarter were up 17% versus last year costing us $57 million.

And while the stronger dollar translates into lower costs, overall the stronger dollar translated into $72 million of lower earnings.

So despite a fuel and currency negative impact of $0.16, our EPS improved $0.29 this quarter.

Turning to our 2010 outlook.

I will skip the net revenue yields as Howard will discuss that shortly.

For the full year net cruise cost per available lower berth day, excluding fuel and in local currency, are projected to be down 4%.

The decline is driven by the ongoing cost reductions which is widespread across all categories of cost, economies of scale and, once again, the low inflationary environment.

Based off of the current spot prices for fuel, fuel prices for the full year are projected to be $486 per metric ton for 2010 versus $363 per metric ton in 2009, costing us an additional $410 million or $0.51 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% for the year.

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

Thank you, David.

Let me talk about the yield outlook; I'll first cover our recent booking patterns during the last 13 weeks.

That's the period since our last earnings call.

These would be for bookings for cruises covering the next three quarters, the fourth quarter that we're currently in of 2010 and the first and second quarters of 2011.

Across the fleet bookings during the 13-week period, this past 13-week period, have been strong running 8% ahead on a year-over-year basis.

Ticket prices, excluding prices for winter Caribbean cruises, are running higher year-over-year.

Winter Caribbean pricing is lower, largely as a result of significant increases in industry Caribbean capacity, which in the first quarter is approximately 15% higher, and our fleet capacity in the Caribbean winter is up 10% in the quarter.

For the fourth quarter of 2010 close-in pricing has been strong, especially for North American brand bookings, as a result pricing has held up quite well and fourth-quarter local currency yields continue to strengthen versus last year at the same time.

Turning to the booking patterns by major markets, for North American brand cruises during the next nine months the booking momentum for the last 13 weeks has been strong.

As I previously mentioned, with the exception of Caribbean itineraries pricing for North American brand bookings during this 13-week period is significantly higher than a year ago.

However, even if we include the lower-priced Caribbean cruises the cost of continued stronger pricing in other itineraries, overall pricing on bookings for North American brands for the last 13 weeks is in line with last year's pricing.

The impact of the lower Caribbean pricing will be felt more significantly in the first quarter when our Caribbean capacity is greatest, and to a lesser extent in the second quarter when Caribbean capacity is reduced.

Our more recent bookings over the last six weeks covering the next few quarters is even more encouraging showing solid overall pricing improvement for North American brands.

For our Europe brand book volumes for the last 13 weeks have been very strong on a year-over-year basis for cruises during the next three quarters with slightly higher local currency pricing.

And booking volumes during the last six weeks for Europe brands have also shown significant improvement on a year-over-year basis.

The encouraging European brand booking momentum reconfirms our view that the less penetrated cruise markets in Europe will continue to grow profitably, despite the slow growth economies that currently exist throughout Continental Europe and the UK.

Given the current booking and pricing momentum taken together with the price increases for business already on our books, we are currently forecasting that fleet wide local currency revenue yields in the first half of 2011 will be higher on a year-over-year basis.

And this factors in the lower Caribbean pricing.

European yields will be stronger than North American yields for the first quarter, also the result of the lower Caribbean prices.

I will have further pricing color on the individual quarters later on in my report.

In terms of fleet expansion for 2011, we have four ships scheduled for delivery -- the AIDAsol in March, at the end of March of 2011; the Carnival Magic at the end of April 2011; the Seabourn Quest in late May; and the Costa [Fabulosa] in late June.

Our capacity increase in 2011 is estimated to be 5.4% for the full year.

Breaking that down by quarters it would be 6.7% in Q1; 4.9% in Q2; 5% in Q3; and 5.1% in Q4.

With the delivery of the four ships in 2011 our European brand capacity will be close to 40% of our overall fleet capacity, which is a target we set out after the completion of our merger with P&O Princess in 2003.

Although early we are encouraged with recent booking patterns and feel confident that we will have a solid financial performance in 2011 even in the slow growth global economic environment.

With estimated CapEx of $2.5 billion in 2011 we are forecasting that 2011 will be the first year for driving significant free cash flow in our business.

And as cash flow increases and our CapEx slows in future years free cash flow is expected to further increase.

As to 2010 earnings guidance for the full year 2010, as we've indicated, the midpoint of our earnings guidance is now $2.50 per share which is $0.30 higher than the midpoint guidance of $2.20 a share we established back in December of 2009 at the start of the year.

The major factors causing the earnings increase in 2010, looking at it with some perspective right now, are higher ticket yields of approximately $0.23 per share; higher onboard yields of $0.05 a share; lower cost of $0.21 a share; and positive one-off items of $0.08 a share.

Fuel and currency, on the other hand, affected earnings negatively by $0.27 a share, and this all nets out to a plus $0.30 over our original guidance.

Let me digress a second and take a moment to make a comment.

The achievement of our improved 2010 financial results during these difficult economic times is particularly gratifying and a tribute to our strong management teams throughout the world and their agility in responding to local economic conditions in their markets.

The strategy of having strong national brands supported by separate management teams in each of our major markets around the world provide us with a major competitive advantage in those markets including the ability to maximize our profits especially during these difficult and challenging economic times.

Now I'll turn to each of the quarters and give you a little bit more color.

The fourth quarter of 2010, the quarter that we're currently in, our capacity is up 5.8% -- 1.4% in North America, 10.7% in Europe.

On a fleet wide basis, with very little inventory left to sell in the quarter, occupancies are in line with the year ago with local currency pricing running nicely higher.

North American brands in the fourth quarter are 50% in the Caribbean, up from 45% last year, with all other itineraries individually below 10%.

Occupancies for North American brands in the fourth quarter are slightly ahead year over year with pricing also nicely higher.

Late fourth-quarter bookings for North American brands continue to be strong and yields have shown gradual improvement week on week.

By the time the quarter closes we expect North American brand revenue yields to increase in the 3% to 4% range on a year-over-year basis.

For European brands, they are 72% in Europe itineraries, down slightly from 78% last year for the fourth quarter, with all other itineraries individually under 10%.

European local currency pricing is also higher year over year with occupancies at approximately the same levels.

We are currently forecasting an increase in European brand local revenue yields in the fourth quarter by approximately 2%, which is a very positive result considering the 11% increase in capacity for the Europe brands during the quarter.

From an overall standpoint, as indicated in the press release, we are forecasting fourth-quarter fleet wide revenue yields to increase in the range of 2.5% to 3.5% on a local currency basis and lower by 1% to 2% on a current dollar basis as a result of a strengthening dollar during this period on a year-over-year basis.

Costs excluding fuel are expected to be down 1% to 2% on a local currency basis and on a current dollar basis lower by 5% to 6%.

Earnings per share for the quarter are expected to be in the $0.32 to $0.36 range, this includes the impact of unfavorable currency and fuel costs of $0.07 per share in the fourth quarter and also compares to the $0.24 per share in the fourth quarter of 2009.

Now turning to the first quarter of 2011, fleet wide capacity for the quarter, as I indicated, is up 6.7%, 4.2% for North American brands, 11.3% for Europe brands.

On a fleet wide basis first-quarter 2011 local currency pricing is higher on a year-over-year basis with occupancies running slightly behind, a pattern similar to what we experienced in the fourth quarter of 2010.

For North American brands, they're 66% in the Caribbean, up from 62% in the prior year, and 11% in the Mexican Rivera, which is about the same as the prior year, with the balance in various other itineraries.

As I mentioned in my earlier comments, winter Caribbean pricing is lower than a year ago on lower occupancies.

Mexican Rivera pricing is nicely higher from the lower levels we experienced a year ago on higher occupancies and pricing across all other itineraries is higher on slightly lower occupancies.

Taking all itineraries together, including the Caribbean pricing -- including the Caribbean pricing, is currently in line with last year.

Looking at our European brands in the first quarter, they're 25% in European itineraries; 23% in the Caribbean, down from 29% the prior year; and 18% in South America, which is about the same as in prior year, with the balance in various other itineraries.

Local currency pricing across all European itineraries is higher year over year on slightly higher overall occupancies.

We are very pleased with the booking patterns and pricing in Europe to this point which is being achieved despite the 11.3% increase in European capacity in the first quarter.

From an overall standpoint in Q1 based on what we're seeing in North America and Europe, on a local currency basis we are estimating that fleet wide revenue yields for the first quarter of 2011 will be higher in the 2% range driven largely by strong forecasted increases in European brand pricing net of a small decline in North American pricing, largely the result of the lower pricing environment in Q1 in the very competitive Caribbean winter market.

Current dollar pricing at today's exchange rate is forecasted to be slightly down year over year, this is in Q1.

Turning to Q2, fleet wide capacity, as I indicated earlier, is up 4.9% in the second quarter -- 2.5% for North America, 8.5% for our European companies.

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

On a fleet wide basis second-quarter 2011 local currency pricing is higher on a year-over-year basis with occupancies in line with the previous year.

For North American brands, they're 55% in the Caribbean, about the same as last year, but 11% lower than in the first quarter of 2011.

The balance in various other itineraries all individually under 10%.

Currently pricing for North American brands in the second quarter is higher than a year ago with occupancies currently in line with last year.

Similar to the first quarter Caribbean pricing is lower in the second quarter, but improved from the first quarter and pricing across all other North American brands itineraries is higher year over year.

For European brands, they're 61% in Europe, itineraries up from 57% a year ago with the balance in various other itineraries.

Similar to the first quarter, local currency pricing for European brand cruises is running nicely higher year-over-year; occupancies are slightly down from the prior year levels, but given the 8.5% capacity increase in Europe of the Europe brands is quite acceptable especially given the higher pricing currently being achieved.

While the booking picture for the second quarter of 2011 is still in its early stages of development it is progressing quite well.

And assuming no significant changes in current booking patterns, we currently are forecasting that fleet wide local currency revenue yields in the second quarter of 2011 will be higher for both North American and European brands.

And with that, operator, I will turn it back to -- for questions from those listening in.

I would ask that everybody limit their questions to two questions if they would.

And I'll turn it back to you.

(Operator Instructions).

Rick Lyall, John W.

Bristol.

Hi, guys.

Nice results.

Two questions.

First, can you comment at all on where the returns stand in the US versus Europe?

The US brands came back very strongly this quarter, so on a year-to-date basis how do they stack up?

Well, overall, Rick, I mean we don't give the details by the different brands or the different segments.

But as we've said before, the European brands have got better yields and better returns than the North American brands.

And as a result of the North American brands coming back that gap has closed a little bit.

But Europe is still higher.

Okay, thanks very much.

Second question, fuel efficiency looks -- continues to look strong.

How much more room do you have there?

Yes, we improved another couple of points in the third quarter.

And I think as Micky has said before, we're working on hundreds of different items and those things have not been rolled out on all 97 ships.

So there are still opportunities and we do expect 1% to 3% fuel consumption of efficiencies per year over the next couple of years.

And let me just comment, Rick, that as the size of new builds, new ships that are delivered are larger than the overall average size of the fleet ships, you will get a natural improved metric from a fuel standpoint.

Yes, but you have -- you still have same-store efficiency improvements on the existing fleet.

We do.

We do.

We absolutely do.

It's a combination of those two.

Okay.

Great, thanks very much.

Assia Georgieva, Infinity Research.

Good morning, excellent results, excellent job obviously across the board.

A couple of questions in terms of the outlook, maybe, Howard, you can help me.

Looking at Q1 2010, core yields on a local currency basis were down about 2%.

So you expect in 2011 that you will make up those 2%, but nothing more than that?

Or are you just being conservative?

Yes -- no, I think that's fair, Assia.

I think that's how we see it right now, yes.

I mean I think we are -- I think without the Caribbean -- heavy Caribbean capacity I think we wouldn't have this situation, but I think we're absorbing a lot of Caribbean capacity this winter as all the ships come back.

One thing that you do have to keep in mind when you look at the first quarter of 2010 is 2010 did not -- I'm sorry, 2009, it did not -- let me rephrase that.

On a year-over-year basis when you take the two years together, 2009 and 2010, each quarter was down about 7% to 8%.

So, we're in a situation where we're looking at multiple year changes.

And we don't expect the variances between the quarters in 2011 to be as wide as what you saw in 2010.

So on a cumulative basis Q1 2011 is about 5 points off the pre downturn levels.

Right.

One of the things we've tried to point out in the past is that, again as we build the European presence, the seasonality of the business increases as well.

And so first quarter, just by the very nature of the way the business is growing, is going to be more challenging making it up in the third.

Thank you.

All of this is very helpful.

And is it also fair to say that with increased capacity in the Caribbean with a more hesitant consumer relative to other upturns, meaning that right now we are experiencing a slow recovery, it is more of a challenge for you to forecast Q1 today than it was during previous downturns?

I think right now I think we've got pretty good data on Q1.

We're well booked in Q1; we still have a ways to go, it's not like the fourth quarter.

So I think we're -- and we're feeling -- clearly we're feeling the impact of slower economies both in North America and Europe and this is a result of it all.

But I think if things stable at these levels I think that's where we think we'll end up for the quarter.

Whether it's a downturn or not, I think over the course of the last two to three years, despite the wild changes in the economy and the global nature of our business, we've forecasted yields pretty well.

I mean, we haven't missed them by very much.

And they've been basically rounding errors over the -- like I said, over the last couple of years despite the crisis.

Well, but Q4 and Q1 seem to be more difficult than the other quarters and, again, that's why I wondered if that might be part of the issue or you just basically expect 2%, not much higher.

And it seems that 2% is the number.

Can I ask one last question on the litigation settlement, if you can provide any details?

Okay, last question.

I did ask everybody to limit their questions to two questions.

Go ahead, David, do want to go?

I'm sorry.

Yes, it's just -- was a $17 million settlement that had to do with the Queen Mary II Azipods.

Okay.

Thank you, David.

Tim Conder, Wells Fargo.

Thank you and congratulations also.

A couple -- two questions here.

Can -- obviously the industry as a whole, including yourselves, appears to be doing better in Europe than some of the land-based tour operators given some comments in the summer related to those, out of some of those.

Other than the penetration are there other reasons that you feel that the industry is doing better just in Europe relative to those land-based operators?

I think it's a deeper question than this call really allows.

I mean the whole question of their model and the all-inclusive tour operating model in Europe I think is under question.

And clearly with our low penetration and our value relationship, in effect we're taking share, but we're still a very small share of a very big market.

Okay, okay, and then overall, Micky, just an estimate based on the addressable market, what the industry's share is of the broad vacation market as a piece to follow up to that question?

I mean, country by country it's quite different.

I mean, the UK's penetration is the highest; I think Germany is next and Italy is after that.

But still less than half the penetration in North America.

Okay.

And the second question would be, Howard, just a little bit of clarification for the first and second quarter, if I heard you correctly, you said that over the last six weeks the booking trends and pricing that you have seen in both the Caribbean and in Europe has improved significantly.

Is that correct, what I heard is based on your preamble?

I think what we experienced during that 13-week period was that from the early spring period or the early spring May and June I think bookings were -- we saw some softness in the booking pattern, then in July, August and September we started to see this improvement.

So as we look at the last six weeks the pattern for the six weeks is much better than the pattern for the overall 13-week period which includes the six weeks.

So I think that's right, yes.

That's what I was trying to say, that there was a period and I think other businesses experienced the same thing, especially in North America where other businesses experienced some softness in the spring and then consumer confidence perhaps came back and the markets got better and our business picked up.

Okay, and you're seeing more of that relative strength tilted a little bit towards Europe just given what you're seeing in the Caribbean for primarily the first quarter?

Well actually we've seen strength on both sides of the Atlantic, both in North America and Europe in the last six weeks.

Okay, great.

Thank you, gentlemen.

Janet Brashear, Sanford C.

Bernstein.

Thank you.

As you look at the four new ships that you have coming on in 2011, I wonder if you could just give us a little more information about the revenue premiums you expect for those ships and what drives them, as well as the cost savings profile relative to fuel and operating cost?

Well, it really often depends on the brand.

But typically new ships will give us -- we'll have a halo and we'll get a lot of demand, and typically we will get higher pricing on a new ship versus the ships in the rest of the fleet -- I mean, that's always the case.

From a cost standpoint, I don't think -- I mean, most of the ships that are being delivered are part of the series of ships that we've ordered.

So the cost metrics should be similar to the same size ships that we have in the fleet of that size.

In general a 36 -- a 3,000 passenger ship is 10% to 15% more efficient than a 2,000 passenger ship on a per unit basis.

Yes.

Yes, I mean the overall metrics, cost metrics will improve.

I think that's a good point that that made.

Because these ships are larger than the overall average size of the fleet ships.

Okay, thank you.

Did you follow that, Janet?

Are you with me on that, Janet?

Yes.

Okay.

Jamie Rollo, Morgan Stanley.

Yes, thanks.

Good morning.

Just in terms of your yield guidance for Q1, if I can just go back and look at the two-year yield change.

Two years ago your Q1 yields fell 2%, they were down -- I'm sorry, 5% two years ago, last year they were down the 2%.

And Q1, 2011 you're saying up 2%.

So as best that's sort of down 5% from the peak.

Is it fair for us to extrapolate that to a full year and say that in 2009 your yields fell 10% and that if you want to get back to that minus 5% sort of peak to trough figure, then given this year you're up 2.5%, that would imply 2011 should be up 2.5% on a full-year basis.

Or is that sort of rather simplified by the fact that Q1 is going to be somewhat weaker than usual given the seasonality you mentioned (inaudible)?

Well, I think Q1 (multiple speakers).

I think you one is -- Micky indicated earlier demand -- that is probably the one quarter where I think demand is more of a challenge than the other quarters.

I don't think you can extrapolate Q1 to the rest of the year though.

I think the demand patterns differ greatly, as they did during this past year.

And you can see where yield improvement improved significantly in the third quarter.

Actually in the fourth quarter they're not all that bad either.

So I don't -- I think we'll be in a position on the next call to -- and have a better sense as we go through budget reviews in the next four to six weeks where we'll have a better sense as to how all the brands see their full 2011 here.

But right now it would be too early to comment on that.

But we certainly don't think you can extrapolate the 2%, no.

One of the dynamics -- I said this before, but one of the dynamics is you've got this huge capacity shift.

I mean, one of our competitors basically for the summer season has as much med capacity as the average of MSC and Costa which is European brand.

And all of that turns right around and comes back to the Caribbean.

And so you get this huge uptick in capacity that as they have built up and as all the brands have built up more and more and more European capacity, a significant amount of that comes back to the Caribbean in the fall and it's just very difficult to absorb.

And so the first quarter becomes tougher and tougher, on the other hand, the flip side of that is the better third quarter.

So it just makes the analysis that you said very difficult because -- I don't know what the total capacity increase is in the Caribbean for the first quarter industry wide -- Beth, do you have that number?

-- but it's a big number?

15%.

Well, it's up 15%.

Year over year.

15% capacity increase year over year.

But when you compare the first-quarter capacity to the third-quarter capacity it's probably 100% -- I'm guessing that.

(multiple speakers) capacity is down, Caribbean.

Okay, thanks.

Thanks for that.

Just the second question is just on the dividend if we can.

You talked about CapEx being $1 billion lower.

Certainly on my numbers you could afford to go back to the $1.60 annual dividend as soon as next year.

Is that premature to think about it in that way?

Jamie, I think as we've said before, the dividend decision is something that we review with the Board every quarter and that it's a Board decision.

And we don't want to preempt the Board and we'll be discussing that with them as we go forward.

But, you're right, as Howard indicated, with CapEx going down and with our cash flow from operations there should hopefully be over $1 billion of free cash flow next year.

Thank you very much.

Ian Rennardson, BoA.

Good morning, everybody.

Just a quick question on the cost side of things.

You seemed to come in -- if you just go into a little bit more detail as to why you beat your June guidance by quite so much.

I mean, you were looking for 1% to 2% up I think excluding oil and you actually declined 2.4%.

If you could give us some more granularity on that that would be great.

Thank you.

Sure.

You know, Ian, it's a wide range of items that are included that result in this.

There are things that we've been doing and I'll just try to give you some examples.

Howard talked about our operating companies around the world and while we have a global presence and a global sourcing purchasing group, the advantage that we have from the local operating companies is we are well aware of different issues, different products, and so many times we will switch our sourcing so that perhaps the European brands might be sourcing certain products from North America or vice versa.

And that allows us to gain significantly better pricing.

We continue to lever down pricing with the volumes we have by renegotiating deals and capturing savings from there.

We've captured savings from reducing specifications.

We developed a bridge simulator in Europe which not only improved the training and reduced training costs of our maritime crew and officers, but also lowered our insurance costs as well.

So, those are just a sample of a few items, but there are many others.

There's no one particular item that made up the whole difference.

I mean, I think suffice it to say, Ian, that our cost guidance that David developed is based on what he gets from the operating companies.

And to some degree we suspect, and it's been going on now for a couple of years, they will always err on the conservative side when it comes to cost.

They don't want to surprise us with any negative variances.

So there is an element of conservatism usually in the cost outlook.

Okay, that's great.

Thank you.

Robin Farley, UBS.

Great.

I wonder if you could talk a little bit about -- in terms of new ship orders, there's a lot of talk about how the yards are under so much pressure now that ship build pricing can't go much lower.

Are you tempted to pick up your ordering activity a little bit to take advantage of prices like this that you might not see again?

Robin, we don't make new building decisions based on sales at the ship yard.

It's not like used cars.

They're long-term strategic decisions.

We look at it brand specifically and, as of right now, we have nothing hot right now.

I think we're probably, probably done for 2013.

And of course we're always looking, discussing, looking at the future.

But there's nothing imminent despite what is a very aggressive pricing situation right now -- other than of course the AIDA deal that we just recently did.

Would you do anything for 2014 earlier than you normally would?

We would do something for 2014 when we felt it was appropriate timing wise to do it, if we do it.

I guess we have one ship right now for 2014?

Is that right, Pat?

Yes.

Yes.

Just the Princess ship.

So it's -- even now it wouldn't be early, 2014 is only three, three and a half years out.

I mean that's kind of -- three to five years is normal timing for new ships delivery.

So I would say that I don't expect it to be doing anything between now and the end of the year, but who knows.

And so, I really don't understand your question about early because even now wouldn't really be early.

So I just mostly was interested in your thoughts on the shipyard prices, which I think was good to hear.

So, thanks.

The prices are very, very competitive right now.

The dollar is at a reasonable level right now.

But again, we're going to do it based on brand needs and strategic needs at the appropriate time, not based on a yard putting a deal in front of us -- for sale sign, so to speak.

We're going to negotiate the right deal at the right time for us.

That's great.

Thank you.

Rachel Rothman, Susquehanna.

Hi, good morning.

Just to follow up if I could on Robin's question and understanding fully that you would make the decision in the context of an EDA positive investment.

Would you mind just reminding us where per berth construction pricing is now relative to where it was in the peak?

How much it's come down?

First of all, we don't disclose per berth construction prices at all in the peak or (multiple speakers).

Well I guess if we were to imply it from (multiple speakers)?

What we (multiple speakers) is our all-in cost per berth.

Correct.

And we -- based on confidentiality agreements with the yards and so on we don't disclose anything beyond that.

I would say that our recent all-in costs are probably in the range of 20% to 25% lower than they were at the peak for us which was not the peak of -- we never constructed the peak, we rejected the peak.

So it's 20% to 25% lower than our peak, does that make sense?

Yes, absolutely.

And then can you just remind me -- I understand that you don't feel comfortable commenting for the Board or on behalf of the Board with respect to the dividend.

But the timing of the Board meeting, is that in early November?

Do I remember correctly?

We have a Board meeting in mid-October.

Or historically when it has been?

We have a Board meeting -- the next Board meeting is in mid-October.

Perfect.

Thank you so much, gentlemen.

Greg Badishkanian, Citigroup.

Thanks.

This is Jeff Hans actually on behalf of Greg.

I think last quarter you guys had noted that some of your North American luxury brands were seeing a bit of volatility during May.

And I just wanted to get a sense of whether the trends of those brands have stabilized over the past few months or has that volatility been persistent?

No, I think the North American premium brands have picked up nicely their businesses, from the comments that were made back at the last call.

So we've been very encouraged by North American brand premium -- the premium brand bookings, as well as the contemporary brands.

I mean, overall the picture has just improved broadly.

I think that that -- their business is largely a function -- it's less of economic cycles and more a function of the wealth factor.

And I think when they're feeling more comfortable when their psychology for spending money comes back, I mean they'll go ahead and book their vacations and we see that happening right now.

And then could you provide just some color on some of the onboard spend categories, what you're seeing there?

Thanks.

Sure.

Sure.

Yes, as I said in the quarter, the onboard spend was up 1.3%.

Essentially all of the categories except for casino and shore excursion were either flat or up.

Casino we've talked about a lot, the headwinds we have there because of the proliferation of casinos in North America.

As far as shore excursions are concerned, shore excursions in the third quarter were impacted by some charters we had as well as the fact that we had moved itineraries.

So while we make decisions like we had taken some ships out of Alaska and moved them elsewhere, moved other ships and changed itineraries, we make decisions based off of the total profitability and then there are some items that might suffer as a result.

And so we did see some lower shore excursions.

Next question?

Kevin Milota, JPMorgan.

Good morning, everyone.

Most of my questions have been answered.

But I was wondering, I mean you've talked in the past about divesting some of your older ships.

I was wondering if you have anything on the horizon for 2011.

Well, we have (multiple speakers).

Well, it's --.

Sold the Artemis -- have sold the Artemis, it will be delivered spring of 2011 to a German tour operator.

Howard, you were going to say something else?

Yes, the second hand ship market is a bit of a challenge these days, but we do have -- I mean, if the opportunity comes along for certain of our smaller, older ships we would certainly consider selling them off.

The economies of scale of those ships just don't work as well as the larger ships.

So, but we don't see anything, to be honest with you and we don't see anything imminent right now.

Okay.

And then as you look at increased capacity in the Caribbean, does it make sense to move any of those ships to more of the emerging markets to deepen the penetration in South America or some of the newer European markets?

Those (multiple speakers) go ahead, Micky.

Well, the problem is when you look at winter deployment, if you move a ship it's really on the margin.

I mean, for example, Costa this year is bringing one less ship to the Caribbean than they brought last year.

I think Princess is bringing one less ship.

So, we can move ships, but the options in the winter are quite limited especially for the North American brands.

And so when we actually do that, and I believe our 2012 deployment will have a little bit less as a percentage of capacity in the Caribbean, but it's only on the margins that you can really do it.

Okay, thanks a lot.

Steven Kent, Goldman Sachs.

Sharon Zackfia, William Blair.

Hi, can you hear me okay?

Hello?

I can hear you, Sharon, yes.

Okay, great.

I'm experiencing luxury in the heart of Chicago.

So on the Caribbean pricing --.

Can I put you on hold?

we're getting a little bit of a technical challenge here right now.

Sure.

Hold on.

Yes, I believe it was Steven Kent.

Okay.

Sorry about that, Sharon.

Good now?

Okay.

On the Caribbean pricing, are you saying that impact a particular brand more than others, or are you just seeing that kind of proportionally across all of the brands that you have in the Caribbean in the first quarter?

No, it really is all the brands, all of the brands have experienced it.

Okay.

And then separately, David, obviously you guys have done an excellent job year-in/year-out on the net cruise costs on the elements you can control.

I know you typically say that you expect that to grow in line with inflation.

But as you look into 2011 do you think there's another opportunity to keep that flat to down ex-fuel and constant currencies?

Well, I've been saying for a number of years now that we would grow, that we would be flat to half of inflation and have been wrong for the last three years.

Micky always reminds me of that.

But it is a little early to talk about 2011.

We'll give you some good guidance on that come December.

All right, thanks.

Since inflation last year was zero, I think half of inflation is perfectly okay.

Thanks, Micky.

(Operator Instructions).

Tim Ramskill, Credit Suisse.

Thank you very much.

The first one for me was, just I don't know if Beth has got the numbers at hand, but in terms of how the Caribbean capacity shapes for the balance of the quarter into next year, just so we can understand how that looks?

I have it for our capacity growth in 2011, I do not have it for the industry.

And I will give it for the total company which includes both North America and our European brands.

The Caribbean is up 7% in the first quarter; 10% for our North American brands; the second quarter is one up -- call it flat; the third quarter is down 8%; and the fourth quarter is down 11%.

And as we go throughout the year the Caribbean is at about 50% of our total capacity in the first quarter, stepping down to 36% in the second and 22% in the third, and finishing the year at 27% in the fourth quarter.

So, in essence it's that shape of things that, at the moment, leave you guys relatively relaxed about this being a specific Q1 issue?

I think that's fair, yes.

I'm not quite sure I would characterize anything as being relaxed.

But I do think that we feel that this is going to be -- the first quarter will be the most challenging quarter.

And assuming demand holds up the way it has and bookings are sustained the way they're coming in right now we feel pretty good about the rest of the year, yes.

That's great, thanks.

David Liebowitz, Horizon Asset Management.

Thank you and good morning.

I have two questions unrelated.

First, when the new Panama Canal opens what changes will that mean for you in terms of itineraries and perhaps shifting capacity outside of the Caribbean when it comes from Europe?

The only thing it adds is a bit of flexibility to our post-Panamax ships, obviously we have post-Panamax ships that become Panamax it gives us a little bit greater flexibility.

But I wouldn't say it's a huge indicator.

I mean, the only one that really has post-Panamax ships positioned on the West Coast is Princess with a few and Carnival Cruise Lines with one.

So theoretically they can move back and forth healthy.

On the margin, again, it just gives you some more flexibility, but I wouldn't consider it a huge factor for us compared to the factor it will be for the cargo industry, which will be quite big.

Second question, normally we talk about progress being made in China, I did not hear anything at all said about the Asian market today.

Could you update us?

I'll be happy to do that.

Pier, would you like to do that or do you want me to make the first comment and then you can jump in after?

I think generally we offer to take the first comment to you but --.

Okay well -- I think overall I think we're satisfied with our China program.

We had two ships in China this past season and they did well, albeit not at prices that we would have liked, but the prices were okay.

And the results were good and we probably almost doubled, I think, our sourcing of Chinese passengers during 2010.

2011 Costa has taken the decision actually to, at least for this period of 2011, to downsize from two ships to one ship and with a strategy of trying to get higher prices in 2011 in anticipation of upsizing to a much larger ship in 2012 to get to establish the higher price points in the market.

We think it's something that is very achievable.

We're still very positive about China.

And we've taken -- but it has been in large degree an experiment.

And we continue to move different ships in and out to see what works, the product is extremely well accepted by the Chinese market.

There are periods when the Chinese and their families will go on holidays and there are periods when it doesn't -- so it's always a challenge to find out how to utilize -- how to source business to those ships during periods outside of the period when the Chinese will go on cruises.

And I think Costa has been very successful in doing that.

So the strategy is to stay in China and to continue to build it, but we will take a little but look downward in 2011 and then come back with a larger ship in 2012 with the view that it will then be a profitable business with us with a larger ship.

It will be only a modest -- modestly -- actually we should get operating profit in 2011 even with the one ship, one smaller ship in 2012 we should get the profitability in China.

I think you covered it, Howard.

Long story but -- pardon?

I think you covered it; now to Pier.

Nothing to add.

Okay, okay.

By the way, I was able to tell you that because I had a conversation about this with Pier yesterday, so I fully understood exactly what the strategy was.

Rick Lyall, John W.

Bristol.

You guys didn't talk at all about Alaska; this is the big season for Alaska.

Can you give us an update on what's going on in that market and what your outlook is there?

Yes, I think we had a -- go ahead, Micky.

No, you go ahead and take a shot at it.

No, I think we had a -- look, we had a stronger Alaska on lower capacity.

So clearly taking capacity out gave us the ability to have good yield improvement this summer in Alaska.

I think -- and with the head tax greatly reduced going into Alaska 2011 I think we're very encouraged that 2011 will be a good Alaska season.

Very early indications from those brands that are operating, that operate in Alaska are -- and it's very early, are quite positive.

But it's still early to talk about the summer of 2011.

But overall it was a good -- it was a much improved Alaska season with the reduced capacity, but we -- obviously if it continues to strengthen we'll add more capacity over time.

Can you just comment on tour operations relative to cruise there?

Well, tour passengers were down in 2010 because of the lower capacity.

Okay thanks very much.

Tour business was so-so, I would say, it's never fantastic business, but it's really there to drive the Alaska cruise business.

You know that the Alaska season is just wrapping up now and I think that because of what's happened in recent years and the change in the law we're going to do a very careful postmortem of the season and try to make sure that the political leaders in Alaska understand how it went.

And we'll be doing that over the next couple of months and maybe can give you a little bit more the next -- on the next call when we really have a full understanding of exactly what happened.

I think it's very important to have as much transparency as possible with the political leadership in Alaska so they understand what's going on and the impact of the legislative changes they've been making.

Okay, good enough.

Thanks very much.

And there appear to be no further questions at this time.

Please continue with your presentation or closing remarks.

Okay, well thank you all very much for your questions and calls.

And you know Beth is available after we hang up to answer any specific issues that you have in mind.

I wish everybody a good day.

Thank you.

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

We thank you for your participation and ask to please disconnect your line.

Have a great day, everyone.