嘉年華遊輪 (CCL) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Carnival Corp second-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, June 21, 2011.

It is now my pleasure to turn the conference over to Howard Frank, Vice Chairman and Chief Operating Officer.

Please go ahead, sir.

Good morning, everyone.

This is Howard Frank and I am here in Miami with David Bernstein who is our Senior Vice President and Chief Financial Officer.

On the line as well, but in London, are Micky Arison, our Chairman and CEO and Beth Roberts is with Micky.

Beth is our Vice President of Investor Relations.

So we will do the normal call.

As questions come in after David and I finish our presentations, I will kind of coordinate it.

So if you get a little silence at some points in time, don't worry about it.

It is just a little coordination activities and I will refer questions for Micky and Beth as needed.

So with that, I will turn it over to David and he will take you through color for the second quarter and the cost outlooks for the rest of the year.

Thank you, Howard.

Before I begin, please note, as some of our remarks on this conference call will be forward-looking, I will refer you to the cautionary statement in today's press release.

Also, all of my references to revenue and costs will be in local currency unless otherwise noted as this is a much better indicator of business trends.

For the second quarter, our earnings per share was $0.26.

The second quarter came in $0.04 above the midpoint of our March guidance.

The $0.04 per share improvement was driven by $0.02 from cruise operations as net revenue yields and net cruise costs were generally in line with expectations.

We also picked up $0.02 from a few miscellaneous non-operating items.

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

Our capacity increased 5% for the second quarter of 2011 with the majority of the increase coming from our European, Australian and Asian brands or as we call them our EAA brands.

Our EAA brands grew 9% while our North American brands grew only 3%.

Our net revenue yields increased 2% in the second quarter with similar increases in both net ticket and net onboard and other revenue yields.

Net ticket yields increased 2%.

The North American brands, however, were up 3%.

Let me give you some color by itinerary for the North American brand.

The Caribbean itineraries were flat for the second quarter, which was consistent with our expectations.

However, this does represent some sequential improvement as we talked in the first quarter that Caribbean itineraries were down.

We did expect that the Caribbean pricing pressure would ease as the year progressed and so far, we are on track.

All other itineraries for the North American brands were up except Europe, which was impacted by the conflicts in the Middle East and North Africa, commonly referred to as MENA.

Our EAA brands were up 1% for the quarter.

Their itineraries outside of Europe were up, particularly the Caribbean and other exotics.

However, as previously announced, the European itineraries were down as they felt the impact of MENA.

Net onboard and other yields also increased 2%.

The increase here was also driven by our North American brands as our EAA brands were also impacted by MENA itinerary changes in the form of lower shore excursion revenue.

On the cost side, net cruise costs, excluding fuel per available lower berth day, were up 3% versus the prior year.

We saw inflationary pressures in food costs, crew travel and other hotel costs that were anticipated and discussed on our last conference call.

In summary, the second-quarter EPS was $0.26 per share versus the $0.32 we reported last year.

However, fuel prices were up 35% costing us an additional $0.19 per share.

Therefore, excluding fuel prices, our EPS for the second quarter would have been up $0.13 versus the prior year.

Turning to our 2011 outlook, I will skip the net revenue yield outlook as Howard will discuss that shortly.

On the cost side, for the full year, net cruise costs, excluding fuel per available lower berth day, are forecasted to be flat to up 1%, which is the same as our March guidance.

One final note, I will share with you our current rules of thumb about the impact of fuel prices and currency on our results for the remainder of the year.

To start with, a 10% change in the price of fuel for the remaining half of 2011 represents a $0.14 per share impact.

And with respect to FX, a 10% change in all currencies relative to the US dollar for the remaining half of 2011 would impact our P&L by $0.16 per share.

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

Thank you, David.

So now I will go into a little bit of history by talking more about how the history is going to affect our outlook for the second half of the year.

As we previously announced, second-quarter business trends were more challenging than we expected, especially for our European brand companies.

At the time of our March guidance, we clearly underestimated the impact that the political unrest in the Middle East and North Africa would have on our business for the remainder of the year.

While we got the estimates right for the second quarter, which was [close in], we significantly missed our estimates for the impact of the MENA events for the second half of the year.

And to a lesser extent, our revenues were also affected by the unfortunate events in Japan, which had just occurred at the time of our March earnings call and it was too early to know how and to what extent these events would affect our business in that part of the world.

Looking at the picture for the entire Company, the fleetwide reduction in forecasted revenue for the second half of this year cost us approximately $0.20 a share.

In terms of this amount, approximately $0.17 per share was related to MENA and other European brand softness.

Approximately $0.02 was North American brand reduced pricing for European sailings and $0.01 per share for Japan.

At Costa Cruise Lines, the establishing of new itineraries for 280 sailings in order to avoid calling at MENA ports was far more disruptive to their business than originally thought.

Costa, with a significant commitment to MENA ports of call in 2011, was by far the most affected of our Company.

Other brands were also affected by MENA, but to a much lesser degree.

We had expected that once the new itineraries were announced, we would experience a period of cancellations and re-bookings for the newly designed cruises and that over time pricing would stabilize.

Reselling of these cruises was far more challenging than expected and we were eventually forced to reduce pricing for the summer and fall seasons to stimulate demand.

Although difficult to quantify bookings for the non-MENA-affected, European cruises were also affected by the lower prices offered for the redesigned MENA cruises.

European brand bookings unrelated to MENA itineraries also appear to have been affected by the weak economies in France, Italy and Spain, the main markets in which they sell into.

This coupled with a significant increase in Mediterranean capacity this year by European and US cruise companies could also have been a factor in the deterioration of European pricing.

However, the redesigning of the MENA cruises and offering them at greatly reduced prices was clearly the greatest contributor to reduced European revenue yields.

Regarding the UK market, both P&O Cruises and Cunard experienced a slowdown in bookings during the winter and early spring.

The UK government's austerity measures introduced during the period caused a major decline in consumer confidence and we felt this in our UK bookings for several months over the winter and early spring, a critical time in our booking period.

In order to stimulate demand, prices were reduced as was our revenue forecast for the UK.

However, I'm pleased to say that more recently consumer confidence has rebounded in the UK and our booking patterns in May and June have stabilized.

For the North American brands in the second half of the year, we did experience some impact from MENA sailings and to a lesser degree sailings around Japan, especially for our premium priced cruise lines, which have had a number of sailings in those parts of the world.

Most of the reduced North American revenue forecast relates to MENA and Japan with the balance attributable to lower-than-expected pricing for Mediterranean cruises.

This was partially offset by better than expected pricing in Alaska and other cruise markets.

Now turning to the current booking status and recent booking trends, presently fleetwide local currency pricing for the second-half bookings is nicely higher year-over-year, more significantly so for North American brands and slightly higher for EAA brands.

Occupancies for the second half of the year are lower, slightly lower for North American brands and lower for EAA brands.

Looking at the booking window over the last six weeks, however, the picture is showing a solid improvement on a fleetwide basis with booking volume significantly higher year-over-year for North America and EAA and with stronger pricing for the North America brands and lower pricing for EAA brands.

This is consistent with my previous comments on our current forecast for EAA brand revenue.

We view the MENA disruptions in 2011 as a significant and unusual event in our business.

While our business is global with our fleets sailing around the world, we, of course, recognize that our business is subject to the risk of political unrest in those countries to which we sail and we provide a factor for that in setting our revenue forecast and earnings guidance.

However, the magnitude of the MENA events in 2011 on our business was unprecedented and could not have been anticipated.

With regard to the European market, the European consumer has been quite resilient in the past and we believe Europe continues to represent an excellent growth market for our business.

Perhaps the silver lining in all of this is our North America brands, which have continued to perform well despite the less than robust US economy.

We are greatly encouraged with the recent strength of our North American brand performances here, that is from a booking standpoint, which bodes well for our 2012 business outlook.

Now turning to our full-year earnings guidance for 2011.

As we indicated in our press release, we are now guiding earnings to $2.40 to $2.50 a share or a midpoint of $2.45.

This represents a $0.15 lower earnings guidance than that provided in our first-quarter earnings guidance in March.

The principal reasons for the change, as we previously indicated, are reduced revenues in the second half of the year of approximately $0.20 per share primarily from the impact of MENA.

Some of the reduced revenue is offset by cost savings, as well as certain nonoperating items of approximately $0.05 a share.

Given the recent reductions in fuel prices, we are now estimating that fuel costs net of currency exchange benefit is unchanged for the rest of the year, so the net of all this amounts to $0.15 a share reduction in our guidance to the midpoint of $2.45 from $2.60 previously.

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

Turning to the third quarter, capacity in the third quarter is expected to increase by 4.8%.

3.3% of that is in North America, 7.2% for EAA brands.

On a fleetwide basis, third-quarter occupancies are running slightly behind last year with fleetwide local currency pricing nicely ahead year-over-year despite the challenges in Europe.

That is the current picture.

For North American brand capacity in the third quarter is 36% in the Caribbean, which is down from 41% last year, 25% in Europe, an increase from 17% last year and 23% in Alaska, which is about the same as last year.

Pricing for North American brand business in the third quarter is well ahead of last year on the same year-over-year occupancies and booking volumes for the last six weeks have been strong with very little inventory left to sell.

More specifically, pricing for Alaska itineraries is running significantly higher than last year.

Pricing for Caribbean itineraries are slightly better than a year ago, which is a nice improvement from the first half of the year.

And pricing for North America brand European itineraries is lower than a year ago for the reasons I've previously discussed.

Taking this all together, we are forecasting that North American brand pricing for the third quarter will be nicely higher than a year ago.

Moving over to the EAA, brand capacity is 83%.

EAA brand capacity is 83% in European itineraries.

At the present time, EAA local currency pricing is slightly ahead of last year on lower occupancies.

EAA brand bookings over the last six weeks have been strong with pricing running lower than a year ago.

Despite all the challenges in Europe, we are currently forecasting that EAA revenues will come in only slightly lower than last year by the time the third quarter closes.

Looking at this on a fleetwide basis, we are forecasting third-quarter local currency yields to be higher in the 1% to 2% range driven by the stronger North American brand yields.

Turning now to the fourth quarter, on a fleetwide basis, capacity is up 5.8%, 3.2% in North America, 10% for EAA brands.

Local currency pricing on a fleetwide basis for the fourth quarter is nicely higher year-over-year, a similar pattern to the third quarter.

Occupancies are lower than last year, slightly lower for North American brands and lower for EAA brands.

North American brands are 42% in the Caribbean, down from 50% last year, 14% in Europe versus 9% last year and 10% in Orient Pacific, which is about the same as last year on the balance of the itineraries in various other places.

Pricing for North American brand itineraries in the fourth quarter is nicely higher than a year ago and the booking volume for North American brands in the fourth quarter continues to be strong.

By the time the fourth quarter closes, we expect North American brand pricing to be nicely higher.

EAA brands are 71% in Europe versus 64% last year with the balance in other itineraries.

Fourth-quarter local currency pricing for EAA brands at the current time is higher than a year ago, but given the current lower occupancy versus last year, we expect EAA pricing on a local currency basis for the fourth quarter to continue to decline.

While booking momentum has picked up, it has been at the lower price points.

So by the time the quarter closes, we expect EAA local currency pricing to be lower than a year ago.

On an overall fleetwide basis for the fourth quarter, similar to the third quarter, we are forecasting higher local currency revenue yields driven by the stronger pricing from the North American brands.

Now turning to the first quarter of 2012, for the first quarter of 2012, capacity is 5.5% higher than last year, 4.5% in North America, 7.2% in EAA brands.

At the present time, on a fleetwide basis, local currency pricing is nicely higher with occupancies running slightly behind last year.

On the first quarter, booking picture is encouraging.

It is still early in the booking cycle, so I caution not to read too much into the first-quarter booking picture at this time.

For North American brands, we are 65% in the Caribbean, which is about where we were last year with the balance in various other itineraries.

Caribbean pricing is nicely higher than a year ago on slightly lower occupancies.

Pricing for all other itineraries is also higher than a year ago, also at slightly lower occupancies.

EAA brands are 22% in the Caribbean, (inaudible) last year 20% in Europe and down from 23% last year; 18% in South America, up slightly from 16% last year; and 40% in a variety of other itineraries around the world.

For all EAA itineraries taken together, local currency pricing is slightly higher than a year ago at slightly lower occupancy.

From an overall fleetwide standpoint, booking volumes and pricing in the last six weeks for the first quarter of 2012 have been strong and at this time, it appears that Q1 is off to a good start.

However, please keep in mind that it is still early in the booking process and we have a long way to go before the first quarter of 2012 is closed.

So that sort of summarizes the booking status and the booking picture as we go through this period of time.

And with that, Tina, I will turn it back over to you and we will take some questions.

(Operator Instructions).

Felicia Hendrix, Barclays Capital.

Hi, I guess I have to say good afternoon to most of you.

Howard, as always, you gave us great color for the next several quarters.

I am going to push a little bit.

I know it is early, but I am also -- I have been really wondering what the current turmoil in the MENA region and throughout is doing to your forward Med and European bookings for next year.

I know that's beyond what you can see for the first quarter, but I was wondering if you could give some color on that.

And just wondering -- you talked a little bit about what your capacity changes were, at least in the first quarter, but I was wondering, industrywide, do you have an idea of what the capacity is increasing in Europe and in the Med for next year?

Yes, let me take the first question and I am going to have Beth -- I am not sure if she can answer the second question, but I'm going to send it over to her to respond to if she has got the industry data.

I am not sure we have it by markets yet.

Look, I think, in Q1, I think that Costa repositioned, Q1 2012, and I know you want to go beyond Q1, but for Q1, they repositioned a number of cruises away from the med.

They repositioned an additional ship down to South America for this winter and the first quarter, another ship into the Caribbean, all sourced from the European market, by the way and they made a few other itin -- and those ships came out -- the knock-on effect is those ships came out of the Middle East or North Africa, so there is less dependence in the first quarter on those itineraries.

Going into the second and third quarters, it is still early.

I had a conversation with the Costa people this morning about it.

They are still watching it.

Those itineraries are still tending to be a little bit soft.

So further out, they may have to do some other things, but right now, they feel pretty confident that if things don't get any worse in that area of the world, that they will stay with the current plan.

If they see booking momentum falling off, they will have to consider making some changes.

But the benefit -- what happened this year is I think a lot of the changes that were made were made during wave season or towards the end of -- mid and end of season, which was strong booking periods for us and as you get into the weaker booking periods of April, May and June, it became more difficult for them to catch up.

I think they have the ability now to make these decisions and be a little bit more agile knowing what they are up against.

And so it is possible they may make some other changes, but I think it will give them sufficient time once they make those changes to get those itineraries out.

So I think they feel much more comfortable in terms of at least having a better sense as to what their revenue yield picture is going to look like from those programs in 2012.

But it is still very, very early for second quarter and summer.

I don't have any picture of the summer at all right now to be honest with you.

So I don't even see that.

And is that normal for this time of the year?

Yes, yes.

We basically -- they are still in the process -- while they have got their itineraries all done for next year, they are still in the process of formulating their budgets, their revenue budgets and so on, so I have no feel for it.

I do not have the deployment by market for 2012.

I can tell you that our North American brands' capacity is up 3.5% and our European brands' capacity for next year is up closer to 8%.

From an industry perspective, we are showing North America up less than 3% and Europe up 6%, but that is again brand sourcing European passengers, not necessarily the deployment.

Okay.

Hopefully, I can get some more granularity on that from you later, Beth?

We'll try.

All right, thanks.

Janet Brashear, Sanford C.

Bernstein.

Hi, thank you.

As we are thinking about the Middle East and the disruption there, I am wondering what you are thinking.

If things get worse in Athens, how many of the ships would be affected and how many of the brands would be affected by that since that is obviously a very significant port in the Mediterranean?

And to some extent, maybe a good port now, particularly with the ships coming out of Middle East and North Africa.

So can you talk a little bit about (multiple speakers)?

Yes, sure, Janet.

I think Athens has been a challenge for us for several months now.

I mean there has been quite a bit of turmoil in Athens, but it seems to be in Athens and it seems to be much more localized.

While we do call on Athens and we do turnarounds in Athens, most of our calls are in the Greek Islands and which have been unaffected by all this and indeed Athens is really unaffected by it as well.

So we haven't -- I haven't heard that Athens has been any significant problem yet and we hope that things just start to, in the next couple of weeks, there is some clarity on what is going to happen in Greece so that things will calm down, but we will see.

We'll see.

It is an important area though for us to sail in -- Greece.

The majority of our turns in Athens are done by Seabourn Quest.

I was aboard Seabourn Quest yesterday for the naming ceremony and talked to Rick Meadows who is the President of Seabourn about this issue and he said, as of right now, they have not had any visible impact to their Athens turns, their [petirious] turns.

With respect to our exposure to Greece, it looks like roughly 8% or 9% of our capacity touches Greece in the back half of the year.

As Howard said, most of that is Greek Islands, which is unimpacted, not impacted.

Most of that is already booked too.

Great, thanks.

Greg Badishkanian, Citigroup.

Great, thanks.

Just wanted to follow up on the first-quarter trends.

It seems like they are relatively strong and you said not to take too much weight into it though.

But historically, this time of year when you are looking out to the first-quarter bookings, is it a decent indicator if things are strong that assuming no change in the macro environment they will continue to be so?

It's hard to know.

Certainly it is a positive indicator, but I hate to -- since it is early in the booking process, as ships start to come back to the Caribbean, and if -- you are almost subject -- while we are booking nicely -- to what your competitors are doing as well.

And from the last-minute standpoint, and if they are not filling as quickly as we are, you just don't know.

It is probably less now of an economic issue.

I think that we would have -- if it was an economic issue, we probably would have seen it by now.

So I think as the economy kind of moves along and it is not a great robust economy, we are seeing people taking cruise vacations and we are getting positive pricing trends right now.

And the booking volumes are good for Q1 right now.

So we are feeling -- we are a little bit buoyed by it.

On the other hand, we don't want to -- there's a long way to go before the quarter closes and we don't want to make any promises right now that may not become real -- we can't realize by the end of the quarter.

So we will have a better sense of it in the next quarter, I think and if, over the summer, bookings continue to be strong, I think we probably will be able to give out some better guidance on what Q1 yields are going to look like.

Thanks.

Assia Georgieva, Infinity Research.

Good morning.

Howard, I had one question.

Maybe in your conversations with the different brand heads, you may have been able to gauge this.

Do you think there might be an additional risk related to the MENA events at this point?

Or do you think it has been captured given that we are into Q3 and Q4 has less exposure to that geography in general?

I mean with respect to 2011, no, I think -- I think we are certainly close enough in on the third quarter to get it right.

And while I think we have some -- a little bit more exposure in Q4, I think we brought our yield forecast down enough so that we are fully covered for the second half of the year.

I don't see any significant exposure.

And I am encouraged by the fact that, in other markets, we are seeing some strong volumes, strong booking volumes, which is a very positive indicator.

So I am hopeful it could be better than what we are saying, but you don't know until the quarter ends and we will see what happens.

(multiple speakers).

I'm sorry, David, go ahead.

No, I was just going to say we had a lot more time to look at this and study it for this quarter than we did last quarter.

There was a lot of things that occurred last quarter that happened right before the conference call, which made it very difficult for us to predict the future at that point.

(multiple speakers)

I think people forget that the Japan event occurred a few days before the call and the actual bombing of Libya occurred just a couple of days before the call.

So the impact of those two events we hadn't felt yet and while the ongoing conflict in Libya has not been a major issue in the media in the US like it is in Southern Europe -- I mean if you can imagine in the southern part of the United States, if there was constant bombing of Cuba, what kind of media there would be and that is kind of the geography we are dealing with.

Libya is very close to Southern Europe and so it is -- it was a very big ongoing story.

It continues to be a big ongoing story, that it only started a couple of days before our last guidance.

So now, as David said, we have had three months to really study what impact it has had and hopefully, we have done a better job now of estimating the full impact of this year.

And it sounds like you are being very conservative on Q4, right, from what both you, Micky, and what Howard said?

We hope so.

And the second question, Alaska has been exceptional this year.

Do you think that this might be sort of pent-up demand after several years of very high head taxes or might it be something that does not continue into 2012?

I know it is very speculative at this point, but just wondered what your thinking was on Alaska.

I would say a couple of things.

First of all, capacity was reduced after the referendum passed.

It took a number of years for that reduced capacity actually to roll through and I think that has helped.

And second, historically, when Europe weakens, those people that are looking for kind of sightseeing destinations, Alaska becomes a very positive alternative.

And so Alaska winds up benefiting from the negative issues that occur when North Americans travel to Europe.

And you have got the combination of that plus higher airfares to Europe, which are not quite the case to Seattle and Vancouver.

And you put all that together and it wound up to be a very, very strong Alaska season.

Okay, great.

Hopefully, next year it will continue.

Yes.

Thank you.

Steve Wieczynski, Stifel Nicolaus.

Yes, good morning, guys.

Howard, I guess for the people that canceled the cruises in the Middle East due to the Middle East stuff and the ones that have not rebooked, what is the theory as to why they have not rebooked?

Is it that they have their heart set on that itinerary?

Are they waiting for a better economic environment?

Can you give a little color there?

I'm not sure they haven't rebooked.

I think there may have been some delays in their rebooking or they just rebooked at lower prices or booked other itineraries.

What happened is, when we brought prices down for the MENA-affected cruises, because we are starting from zero again so to speak, that prices for all other Med itineraries had to compete with that and so pricing came down all over.

And I think while I don't know for sure what percentage of people who canceled didn't rebook, I think probably -- my guess is most people rebooked their cruises, but they booked them to other itineraries, but they booked them at lower prices.

And I think what we are feeling is really the lower pricing across all Mediterranean cruises.

(multiple speakers) and not directly MENA-affected.

When you have that many itineraries being changed and that many guests being impacted, you wind up with a huge amount of churn and you are not always able to link the cancel with the new booking because a person cancels one day and maybe rebooks with a different line or that line, but a different itinerary a week or two later and there is no necessarily a system linkage to the two events.

So much of that was happening over such a short period of time that it is very hard to know what the actual movement was.

And it is possible when it is all said and done and the brands do a postmortem, we would have a better understanding of how that happened, but we are still in the middle of it.

A lot of these itinerary changes happened in the second, third and beginning of fourth quarter.

So we are still right in the middle of all of this movement.

Although I would say it has settled down now and as Howard said, the booking pace has now picked up again.

Okay, got you.

And the last question, David, the $0.05 cost savings that are coming out in the back half of the year, can you just give a little bit more color as to where those are coming from?

Yes, what we are referring to is we have got some improvement in fuel consumption in the back half of the year, as well as a number of non-operating items, most of which, by the way, showed up and were realized in the second quarter.

So that was what made up the $0.05.

Thanks.

I appreciate it.

Remember, we came in $0.04 better in the second quarter, so we took down the guidance by $0.15 to incorporate that as well.

So we get the benefit of that.

Tim Conder, Wells Fargo.

Thank you.

Howard, could you comment a little bit on the cadence that you have seen in onboard spending throughout the second quarter and then what you have seen so far in June here?

I will let David do that.

David?

Yes, Tim.

We are seeing a couple of percentage points improvement in onboard spending.

We are expecting, on a normalized basis, a couple of percent for the year.

And really it's -- I think I said this on the last call, it is across all categories of onboard except for the casinos.

And we have talked about the challenges that we have with the casinos.

So nothing has changed much from March guidance for the June guidance in terms of onboard.

We are expecting it 2% higher this year.

2% improvement in yield.

Which is about how we ran in our first half.

Correct, on a normalized basis because we talked about the first quarter -- in the prior year, we had some unusual items, so the first quarter looked lower, but on a normalized basis, excluding those guarantee payments last year, we were up about 2%.

So despite the fluctuations in bookings, what you have seen out of Europe and so forth, there has been no broad fluctuation in onboard spending?

Is that a fair statement?

No broad fluctuation, but that is historically the way we have seen far more volatility in ticket prices than onboard, generally speaking.

We did get hurt on the shore excursions because of the itinerary changes and we took that into account.

But generally speaking, the onboard spend is (technical difficulty).

Okay, okay.

And then could you give us a little bit more detail on the non-operating items (inaudible) kind of from a modeling perspective next year?

It sounds like nonrecurring nonoperating items.

Yes, we had two LILOs left, which is leases on some ships we were able to get out of.

Actually half of one of them, which we picked up a couple of cents there and we also had some FX gains.

So these are all one-time items that occur.

Every year, there seems to be one or two here or there.

We still have a lease and a half left to go and we're working to get out of that.

So maybe we will pick up another cent or two from that next year.

(multiple speakers) very unpredictable.

Okay.

And finally, just to clarify, it doesn't sound like there is any impact, but the Chilean volcano causing disruptions in Australia.

Any issues with Australia and New Zealand cruises at this point?

I haven't heard anything.

I didn't even know about it.

Okay, great.

Thank you, gentlemen.

Robin Farley, UBS.

Thanks.

Two questions.

One is, just to clarify, you were talking about repositioning some things away from the Med for next year, but, in 2012, you are not returning at all to any Middle Eastern, North African ports, is that correct?

That is not at all in your plans for 2012 now?

No, no.

What we did -- we did some repositioning in Q1 away from some of those ports of call.

Q2 and beyond, we still have pretty much the same programs in effect for those -- for the various MENA ports.

We haven't changed.

Things have really settled down in Egypt, for example and in Israel, we started to go back to Israel.

Even though Israel was not part of it, we had to stop calling in Israel because people were nervous about even going to Israel.

We'll start our Israeli calls later on this year, actually in the fall.

But we still have those calls and beginning next spring and summer, we still have Middle East, North Africa calls.

But it is still early in the game for that and if they have to be changed, they will be changed, but right now, we still have that same risk exposure I would say.

Just to clarify, the itinerary changes Howard talked about was for the first quarter, just pulling ships out of the Med entirely and then moving to South America, a couple of ships.

But no, there hasn't been changes beyond that.

Okay.

Okay, great.

And then the other question is, on fuel hedging, can you just give us any color on kind of your current thinking there, whether that is something you think about more than you have previously.

We have been thinking about it a lot.

We have had a lot of discussions, including with the Board.

We are looking at a program that is probably more like fuel insurance than fuel hedging.

I think we talked about this a little bit on the last call where we would like to protect ourselves against large fuel spikes as opposed to locking in prices.

So we will be -- we haven't done anything to date, but we are talking and looking at it and we will be opportunistic in our decisions.

I think one of the big issues we have is trying to get, for the kind of program we have in mind, trying to get correlations right because, based on what we have experienced this year, the difference between WTI and what we pay for fuel has been enormous in terms of the movement of those fuels.

And so part of the studies we have been doing and working with consultants on this of trying to get to an answer that will -- so that if fuel does move one way or another, so will our fuel costs move.

So we need to make sure we have got it right and that is why it is taking so much work.

Okay, great.

Thank you.

Harry Curtis, Nomura.

Good morning, can you hear me?

Yes, I hear you fine.

A quick question on the cost side.

Through the first three quarters of 2011, your constant dollar cost per (technical difficulty) will average in the high (technical difficulty) and your guidance for the year is flat to up 1%.

If you could just walk us through the cost savings that are going to drive that annual number down to flat to 1% for the year.

Sure.

There were a couple of one-time items in the fourth quarter of 2010, which hopefully won't repeat themselves, which result in some cost -- overall cost reduction in the fourth quarter versus the prior year.

And the other thing, and we have said this before, that the quarters aren't necessarily a good picture of the whole year, that the whole year is a much better picture because you do see (technical difficulty) across the quarters that is different from year to year, particularly in advertising expense and some other areas.

So the full year is a much better measure of our cost control.

Remember, we had a very significant cost in the fourth quarter last year from the fire on the Carnival Splendor.

So looking ahead to 2012, what should be the difference between the kind of high 2% cost per ALBD over the last several quarters?

Going forward, particularly given or in light of your comments that there are some inflationary costs, should it be kind of comparable to the first three quarters that we have seen so far this year?

What we have been telling everybody is while historically we have been able to keep our costs flat on a unit basis, excluding fuel, going forward, we are looking at something more like flat to half of inflation because it is getting more difficult as we slow down the growth of the fleet, we get less benefit from economies of scale, so it will be more difficult.

I keep saying this and Micky keeps proving me wrong.

It is all sorts of things happening all the time.

The reality is that we made a move to merge the back office of Seabourn into Holland America for example and create significant cost synergies that we disclosed earlier, but the costs of all that was in the first half of this year where all the redundancy payments and everything was done in the first half of this year and all the synergies will flow through the second half of next year.

And a similar thing we are working on in Australia between Princess Australia and P&O Australia.

Similarly, we merged our two different hotel businesses in Alaska and that happened this spring and the synergies hopefully will flow through next year.

So you have got these kind of things happening that can give you a bump in a quarter or two, but hopefully over the long term keep us closer to zero than zero to half of inflation.

Okay, that's helpful.

And then one question that is probably a little harder to answer and that is, in Northern Europe, given the capacity increases, I am sure you are sensitive to the issue of saturation points.

Do you have any sense of whether or not some of the recent lack of pricing is related to saturation as opposed to consumer confidence?

Our Northern Europe business is performing very well across virtually all brands, at least compared to Southern Europe where we are dealing with all the MENA situations.

And in the UK then?

With all the noise in there, Harry, it is really hard to know -- as we went into the summer booking season for Europe, it was very strong and it looked like we were going to have really some very strong yield improvements in our European sailings both on North America brands and European brands.

Indeed even some of the numbers today are showing improvements despite all the things that we have seen.

So our feeling is that it is really much less a capacity issue and much more a geopolitical issue.

And just to be clear, my answer was itinerary, not necessarily source markets, but itineraries in Northern Europe.

Norway and the Baltics are performing better than obviously the Mediterranean because of MENA.

I wasn't talking about source markets per se.

Okay.

And then just one last -- if you could address that same question relative to the UK.

I think Howard just did.

I think UK seems -- look, there are so many -- there is continuing austerity measures and things going on in the UK.

I think what happened is, in the winter and spring, the introduction of a lot of these measures was a major shock to consumer confidence.

And as they have settled in, I think business, as I indicated to you, has started to come back in the UK.

We have taken on all of our UK capacities.

So from our standpoint, I don't think -- Micky, you can correct me -- that we have got any -- I can't recall -- Beth, you may have the data -- any significant capacity increase in the UK other than for annualization of ships that we already put in.

Actually, our UK brand capacity is down slightly because we have the Artemis that went out and the Adonia that came in is slightly smaller.

I think (multiple speakers)

I think where UK capacity gets hurt is when you have got something like MENA and you have got competitors who view the UK as not a primary source market, but a dump market, that they come in and they dump very, very low prices to fill up ships that are having problems because of something like MENA.

So we have some competitive dynamics happening in the UK and some other markets as well where these last-minute itinerary changes needed to be filled, not just by our brands, but by some of our competitors.

And source a lot of business (multiple speakers)

That helps me understand it though.

That is helpful.

Thank you.

Jamie Rollo, Morgan Stanley.

Yes, thanks.

Good afternoon.

Just a few more questions on the MENA hit, please.

I'm just trying to get a feeling for -- just to quantify the lower revenues on the ships you have repositioned and what might happen next year in more normal itineraries.

So you said that MENA has taken off about 1.5% off group net revenue yields for the year and those 300 repositioned cruises look to be around 6% of group capacity growth.

I know it is very simple, but is it fair to say that you have lost broadly a quarter of the revenue of those ships?

And if that is the case, in a more normal environment, would you expect some order of that to come back next year?

Beth, does that sound right -- that kind of analysis?

I can't do that one on --.

I'm going to work on that.

Why don't we go on (multiple speakers)

We will get back to you on that.

Okay, okay.

One of the problems we have is, you are right, that we have isolated MENA to the itinerary changes, but there is a domino impact of MENA that we are treating separately.

And I just described one of the domino impacts earlier when dumping in certain markets.

But we are unable to quantify that, so the way we've quantified MENA is just those itineraries and those ships that were impacted by those itineraries.

Okay, well, that sort of answers the question then.

And then the other question was is there any more color you can give us on trading in the last six weeks?

I see all customer deposits at the period end were up pretty sharply year-on-year, but is there any other trends in the last six weeks or just solid demand across the board?

It has been strong across the board, stronger at better pricing at higher prices for North American brands and stronger at lower prices for certain of our European brands that are trying to fill their ships, especially the Southern Europe brands.

But overall, the volumes have been strong, which is very encouraging.

Okay, thanks.

When you are talking deposits, are you comparing May to November?

No, May to May.

May to May?

Okay, we don't have that in front of us.

Yes, it is probably up about $400 million May to May.

It is strong.

That is always a nice indicator.

Thank you.

Ian Rennardson, Jefferies.

Hi, good afternoon.

A couple of questions.

How have the events in MENA altered your thinking regarding the dividend and possibly any share repurchases and if so, in what way?

That is the first question.

The second question is can we get the Mediterranean into context?

You mentioned Israel has been a place that people didn't want to go to.

I am assuming you didn't do anything in Libya.

What other ports did people have an aversion to?

And that is it.

Thank you.

If I could just add one thing to Jamie's question, part of that customer deposit issue is currency.

Benefit.

Yes, currency benefit that affects the advanced ticket deposit balance sheet account.

I don't know if -- do you guys want to respond to that?

I think Libya was different in that Egypt was a key port of call.

Libya became a marketing issue because of the adverse publicity of the amount of military activity occurring extremely close.

When I say military, I am talking naval ships, missile carriers, helicopters in the vicinity of South of France and Italy and whether that is a pleasant area to cruise around when you have that kind of activity on the front page of every Italian newspaper, every French newspaper, every Spanish newspaper.

So it was quite different than calling in Alexandria.

You are right.

We had very few calls in Libya.

We did have some, by the way, prior to this event, but very few.

But it was the impact that we hadn't taken into account in March because the bombing had just started to occur a few days before and the impact of the publicity hadn't been felt yet.

Okay.

The other country affected is Tunisia.

We have quite a few calls in Tunisia and we had to stop doing that as well.

Okay.

(multiple speakers).

On the balance sheet and the dividend here?

Yes, dividend and share repurchase, I don't think MENA has any real long-term impact when we are thinking about the dividend and share repurchase.

That is a long-term strategy.

We are still committed to returning the excess free cash flow to shareholders.

As a result of MENA, maybe we have a few dollars less to return, but it doesn't change the long-term strategy and our thought process.

Okay, that's great.

Thank you.

Brian Egger, Forecastle Research.

Good morning.

Just as a point of clarification relative to your preannouncement on June 13 because I think you had identified $0.15 from the operating itinerary changes and $0.05 from fuel and FX, and it would appear that in the last week, with fuel having backed up a little bit, that maybe you got a little bit of that effect in terms of fuel costs back.

So I just wanted to know if, just a point of clarification, if your guidance today reflects any of that change in the last 10 days or so?

Yes, it was just basically we updated for fuel and currency and so that $0.05 went away.

Everything else pretty much stayed the same.

Our announcement would have had a $0.20 drop in our forward guidance and in fact, we wound up with a $0.15 and the only difference was the updating fuel and currency.

Okay, thanks for clarifying.

(Operator Instructions).

David Leibowitz, Horizon Kinetics.

Good morning.

Briefly, what is the impact of the Mexican situation?

I noticed that Princess is moving out of at least one of their ports in Mexico.

Mexico, there are some problem spots, but generally Mexico seems to be okay.

Certainly, East Coast of Mexico doesn't seem to be a problem at all right now.

West Coast seems -- occasionally something comes up, but our sailings are doing okay so far.

No, we have got -- I think there has been some reduced capacity in the Southern California market, so that has been helpful, so we seem to be okay in Mexico.

Princess announced yesterday a cancellation of Puerto Vallarta.

That just happened yesterday.

As I said, I was in Barcelona, so I don't have the details of what happened.

But in reality, while we have had cancellations primarily in Mazatlan, we have not had any issue with any passenger in that location.

So hopefully, if we can get the State Department to clarify their warnings since ports have not really been impacted, but I think Princess was reacting more to the State Department.

But again it just happened yesterday and I really can't give you a whole lot of color on it right now.

Thank you.

And the second question, if the earnings come in in that $2.40 to $2.50 range that you gave guidance on today, what number should we be using as our baseline starting 2012 if we add all the one-off items back into the number?

I thought that was what you were supposed to do.

Well, once you have given guidance, Howard, we are not embarrassed to ask for further guidance.

I don't know -- there were so many -- there were several one-offs here and we would have to take a look at it.

But look, when you look at the whole year, what happened in 2011, fuel has been the major driver to the reduced guidance and it depends on where you price fuel.

But if you price fuel where it is today and we are off to a relatively good start in 2012, I think you have to look at -- 2012, I think you need a base here.

I think you look at 2012 as a fresh start, so to speak.

You know the yield guidance we took down as a result of MENA.

You can factor some of that in and then some of the one-offs, but that is it.

The biggest item is the 1.5 of yield guidance relating to MENA.

But then you are going to have to be the economist and tell us what GDP will be in Europe and what GDP will be in the United States and maybe we will give you some more guidance.

We are greatly encouraged by what is happening in North America despite what everybody says is a struggling economy.

Our business seems to be pretty good right now, which is a major positive and somewhat surprising.

I think people may have delayed their vacation decisions and we are starting to see that now during wave season.

We are starting to see people coming back into the market both here and in Europe.

I think a lot of that is going on so that -- (inaudible) take their vacations (inaudible).

And we will go through that whole process, David, and we will give you our guidance in December taking all those events into account.

What was interesting is that -- who knows what will be happening in the Middle East over the next six months, but the reality is prior to the demonstrations in Tunisia and in Cairo, despite a huge industry capacity increase in Europe, our advanced bookings prior to all that happening were very, very strong and very encouraging on all brands.

So you would have hoped it we would go back to that kind of booking level, but, of course, it is all subject that things at some point settle down and these governments either get changed or whatever, that there is some sort of resolution to these issues.

Just thinking -- I mean just as a more anecdotal than anything else, but Seabourn, which has struggled the last couple of years as it expanded capacity, now just took on their third ship two weeks ago.

And Micky was there for the naming ceremony last night and their business has really come back nicely.

And that is at the really luxury end of the market.

So we are very encouraged by what we are seeing even at the luxury end.

So the premium luxury cruises and even the contemporary products in North America, the demand is very strong right now.

So we are very encouraged.

Thank you very much.

Nick Thomas, Nomura.

Yes, hi there.

I think the impression that I think you have been giving is very much the MENA impact you are seeing this year is very much (technical difficulty) short notice, which you have had to make redeployments across your fleet.

In that regard, I wonder whether you could just sort of talk a little bit about planning for next year.

Obviously, you have already indicated that you have made some redeployments into the first quarter of next year, but probably not beyond that.

Is that sort of how you're going to look at this?

Sort of maybe a six to nine months ahead of sailings, you will look to make decisions based on the environment that you can see at that point in time and maybe sort of three months from now, you will probably have an update for us on how you might be thinking about the second quarter for next year?

Well, we would love to be able to make these decisions prior to getting into the peak booking curves for these periods and that didn't happen this year.

On the other hand, events have an impact on our decisions as well.

As you know, Egypt has called for elections in September and the impact of those elections will either be very positive or not.

And that could obviously affect the decision.

So you have the combination of trying to make your decisions far enough out so you are outside the peak booking curve so you don't have the disruption from a booking point of view.

On the other hand, you do have to deal with events as they occur and try to understand what is happening on the ground.

Okay, thank you very much.

We will take one more question, operator.

Rachael Rothman, Susquehanna.

Asked and answered.

Thanks, everyone.

(multiple speakers)

Would you like to take one more, gentlemen?

Yes, that would be fine.

Sharon Zackfia, William Blair.

Hi, good morning or afternoon wherever you are.

A couple of quick questions.

I think most everything has been answered, but I know you are encouraged by North America relative to what is happening for the European and Asian and Australian brands, but I am just curious given how concerned people are on the street, is North America as good as you had expected when you entered the year?

I think so.

I mean we had a period of lull I think earlier and then we -- it has picked up nicely.

I think the only area that I think is a little bit disappointing, but it is also the MENA affect, is the European business for the North American brands, which started off very, very strong and then seemed to have tapered off during this period of the political unrest.

And so we lost a little bit of momentum, but the impact of that, to be honest with you, is not all that significant in the overall numbers.

Alaska is much better than we thought; Caribbean is coming in just fine, as David indicated.

Any bookings have been strong.

Exotic bookings, world cruises, all of that seems to be quite good, yes.

Okay, and then just one follow-up question.

There were a lot of questions on potentially redeploying some of the Mediterranean cruises next year.

Even though the Med is down, I am just wondering, is it still higher yielding than other potential regions that you would redeploy to if the issues persist in the Middle East and North Africa?

Well, those decisions are -- those are revenue management decisions based on what the people who are studying the various itineraries and what kind of revenue and yields they can bring to the total revenue picture.

And so I don't think we are in a position to tell you specifically where revenue is better in one trade versus another trade.

They make those decisions whether they go to North Europe, whether they go to the Caribbean, whether they go Eastern Med, whether they go Western Med, whether they go to South America.

It is very complicated and it is not -- there is no easy answer to that other than they look to optimize their revenue by going into those itineraries and those trade that will give them the best possible revenue yield.

I should also say this though that often the decision on revenue yield is not just solely a revenue yield decision; it as an operating income decision for that particular program so that they look at fuel costs as well in terms of coming down to an operating margin that makes the most sense.

So they tend to look at the operating margin first and then revenue yields as a function of that more.

So that is what we're focused on.

Good, great, thank you.

I think we can wrap it up now, Tina.

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 all lines.

Thank you and have a good day.

Thanks, everybody.

Thanks, everybody.