嘉年華遊輪 (CCL) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by, and welcome to the Carnival Corp.

third-quarter earnings conference call.

During this presentation, all participants are in a listen-only mode.

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

At that time, (Operator Instructions).

As a reminder, this conference is recorded on Tuesday, September 20, 2011.

It's now my pleasure to turn the conference over to Howard Frank, Vice Chairman and Chief Operating Officer at Carnival Corp.

Please go ahead, sir.

Thank you, Pam.

Good morning, everyone, or good afternoon, depending on where you are.

This is Howard Frank.

I'm here with Micky Arison, our Chairman and Chief Executive Officer; David Bernstein, our Senior VP of Finance and Chief Financial Officer; and Beth Roberts, our VP of Investor Relations.

I will -- I'm going to turn the first part of the commentary over to David Bernstein, who will provide you color on the third quarter on our cost outlook for the fourth quarter.

David?

Thank you, Howard.

Before I begin, please note, that as some of the 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 cost metrics will be in local currency unless otherwise noted, as this is a much better indicator of business trends.

Our EPS for the third quarter was $1.69.

The third quarter came in $0.07 above the midpoint of our June guidance.

The $0.07 per share improvement was driven by both net revenue yields and cost, as each were $0.05 better than expected.

The total operational improvement of $0.10 was partially offset by a $0.02 charge related to the sale of Costa Marina, which leaves the fleet in November 2011, and $0.01 from fuel prices and currency exchange rates combined.

The $0.05 net revenue yield improvement resulted from better-than-expected last-minute pricing.

In our June guidance, we slightly overestimated the negative impact from the conflict in the Middle East and North Africa, commonly referred to as MENA, on our strong summer booking season.

However, we believe we slightly underestimated the impact of MENA on the seasonally weaker fourth quarter.

So only $0.02 of the $0.05 improvement in net revenue yields for the third quarter flows through to the full-year September guidance.

In total for the back half of the year, yields are expected to be slightly better than our June guidance.

On the cost side, a portion of the $0.05 improvement from June guidance was due to timing, so only $0.03 of the $0.05 improvement in costs for the third quarter flows through to the full-year September guidance.

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

Our capacity increased 5%, 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 7%, while our North American brands grew 3%.

Our net revenue yields increase almost 3% in the third quarter, with similar increases in both net ticket and net onboard and other yields.

With respect to net ticket yields, the North American brands were up almost 6%, despite the negative impact from MENA on European itineraries.

The improvement was driven by higher yields in Alaska, Caribbean, and Mexican Riviera itineraries.

Our EAA brands, which are primarily cruising in Europe during the third quarter, were down 2%.

The yield decline was primarily driven by the impact of MENA on these itineraries.

In net, onboard and other yields, we experienced over a 2% increase.

The increase was also driven by our North American brands, as our EAA brands were impacted from MENA itinerary changes that resulted in lower shore excursion revenues and slightly lower spending in other areas.

On the cost side, net cruise costs, excluding the Costa Marina charge and fuel per available lower berth day, were up 2% versus the prior year.

We continue to see inflationary pressures in food costs, freight, crew travel, and other hotel costs that were anticipated and discussed on the last two conference calls.

As a result of our ongoing efforts to reduce fuel usage, our consumption per available lower berth day declined 4% this quarter, continuing a multi-year savings trend.

In total, this represents a 13% savings from 2007.

Fuel prices this quarter were 45% higher than last year, which cost us $0.23 per share.

Partially offsetting the increase in fuel price was the weaker dollar, which had a favorable impact of $0.10 per share.

In summary, the third-quarter EPS improved over 4% to $1.69 per share.

Before turning to our 2011 outlook, I want to update you on our current stock repurchase program.

As we previously indicated, stock buybacks could be used opportunistically to efficiently return cash to shareholders.

In mid-August, we restarted our stock buyback program.

Since then, we've repurchased 14.5 million shares at an average price of $31 for a total of $445 million.

At the present time, we have $343 million remaining on the existing general stock repurchase authorization program.

It should be noted that on a combined basis, the recent share repurchases and our 2011 full-year paid dividends represents 135% of forecasted free cash flow for the year.

Now turning to the 2011 outlook for the full year.

I'll skip net revenue yields, as Howard will discuss that shortly.

On the cost side, for the full year, net cruise costs, excluding fuels, are forecasted to be up 1%, which is the same as our June guidance, excluding the charge relating to the Costa Marina.

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

Thank you, David.

My comments this morning will focus on our revenue yield outlook for the first half of 2012, since the fourth quarter of 2011 revenue picture is largely baked right now.

Later in my report, I will separately comment on fourth-quarter revenue news.

For the first half of 2012, fleet-wide capacity will increase approximately 4.6%.

Pricing for bookings taken to date for the first and second quarter are nicely higher than a year ago, with occupancy flat in the first quarter and lower in the second quarter versus the same quarters in 2011.

For the first half of 2012, North American brand pricing increases were stronger than EAA pricing, but both markets show nicely higher pricing at this time.

On a fleet-wide basis, our bookings taken during the last 13 weeks for the first half of 2012 are higher year-over-year at higher pricing.

Booking volumes and pricing are higher for both North America and EAA brands.

While pricing during the earlier part of the 13-week period had been strong in more recent weeks, we have seen a modest fall-off in bookings and pricing.

This began in August, largely as a result of the debt ceiling political circus in Washington, and the related meltdown in the US equity markets during the month.

In Europe, the sovereign debt issues and the related concerns about the strength of European banks contributed to the slowdown in EAA brand bookings.

These issues, together with related declines in consumer confidence in the various markets in which we operate seemed to have contributed to the softened booking activity during this August and early September period.

Although fleet-wide bookings during the last six-week period covering the next three quarters were not as strong as earlier in the quarter, on an absolute basis, volumes for the six-week period were higher year-over-year, with pricing on these booking slightly lower than a year ago.

So even during this difficult August and September period, bookings have held up quite well, which is a testament to the resiliency of our cruise business, and that even in a weak economic environment, the consumer will continue to book their vacations, especially value-based cruise vacations.

Given the high percentage of business already booked in quarter one of 2012, it does appear that first-quarter 2012 yields will be higher than a year ago.

I will provide more specific information on our booked business by quarter later in my comments.

For the full year, we are now guiding earnings to a range of $2.40 to $2.44 a share or a midpoint of $2.42.

This is a slight change from previous guidance, and results from currency and fuel working against us by approximately $0.06 a share; a loss on the sale of a ship of $0.02 a share that David referred to.

This $0.08 combining the $0.06 and the $0.02 to get to $0.08 earnings per share negative impact is offset by improved revenue pricing of a couple of pennies a share and reduced costs of $0.03 a share.

For 2012, we have three ships scheduled for delivery -- the Costa Fascinosa in April, the AIDA Mar in May, and the Carnival Breeze in May.

Fleet-wide capacity is expected to increase by 4.5% in 2012 -- 3.5% for North America brands and 6% for EAA brands.

By quarter, Q1 2012 capacity is up 4.9%; second quarter of 2012 is up 4.2%; third and fourth quarter of 2012 are up each by 4.4%.

Now some color on each of the next three quarters.

Turning to this fourth quarter that we're in right now, the fourth quarter of 2011, on a fleet-wide basis, capacity is up 5.8% -- 3.2% for our North America brands and [10.10%] for EAA brands.

Local currency pricing on a fleet-wide basis for the fourth quarter is higher year-over-year, with occupancies at a slightly lower level than last year.

For North America brands, we have very little inventory left to sell at this point; but for EAA brands, we still have some amount of inventory left to sell.

This is primarily related to Mediterranean cruise itineraries, many of which had to be changed over the summer as a result of the problems in the Middle East and North Africa, as we've told you in the past.

North American brands are 42% in the Caribbean in the fourth quarter, down from 50% last year -- 14% in Europe versus 9% last year, and 10% in the Orion Pacific area, about the same as last year.

The balance is in various other itineraries.

North American brand occupancies in the fourth quarter are at approximately the same levels as last year.

North American brand pricing is nicely higher than a year ago.

Booking volumes for North America brands in the fourth quarter continues to be solid at higher year-over-year prices.

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 various other itineraries.

EAA occupancies are lower than a year ago, primarily attributable to the changed itineraries for our Med Cruises.

Although occupancies for Med cruisers have caught up significantly, they are still behind last year.

Pricing for EAA brand itineraries is behind last year, primarily attributable to the late booking of the Med Cruises.

By the time the quarter ends, we expect local currency EAA pricing to be lower than a year ago.

On a fleet-wide basis for the fourth quarter, we are forecasting higher local currency revenue yields in the 1% to 2% range, driven by the stronger pricing for the North American brands, offset by the lower pricing for the EAA brands.

Now turning to first quarter of 2012.

As I indicated, capacity is 4.9% higher than last year -- 4.5% for North America brands, 5.7% for EAA brands.

At the present time, first quarter occupancies on a fleet-wide basis are approximately flat year-over year, with pricing nicely higher.

North American brands in the first quarter are 66%, and the Caribbean approximately the same as last year, with the balance in various other itineraries.

The Caribbean pricing is nicely higher than a year ago, on approximately the same occupancies as last year.

Pricing for all other itineraries taken together in the first quarter is also higher than a year ago, also on approximately the same occupancies.

EAA brands are 22% in the Caribbean versus 20% a year ago; 19% in Europe, down from 23% last year; 18% in South America, up slightly from 16% last year, with the balance in other itineraries.

For all EAA itineraries taken together, local currency pricing is higher than a year ago at approximately the same year-over-year occupancies.

With a good percentage of our bookings for the first quarter done, as I previously mentioned, we are forecasting that revenue yield for the quarter will be higher than a year ago.

Now turning to the second quarter of 2012, fleet-wide capacity is up 4.2% -- 2.9% for North America brands, and 6.3% for EAA brands.

At the present time, on a fleet-wide basis, local currency pricing is nicely higher than a year ago, with occupancies running behind last year.

While the second-quarter booking picture is encouraging from a pricing standpoint, it's still early in the booking cycle; so I caution not to read too much into the second-quarter booking picture at this time.

North American brands are 56% in the Caribbean, approximately the same levels as last year, with the balance in various other itineraries.

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

All other itineraries taken together are also nicely higher than the year ago, also at lower occupancies.

EAA brands are 53% in Europe, down from 55% last year, with the balance in various other markets.

EAA brand pricing for European cruises is higher than last year on slightly lower occupancies.

Pricing for all other EAA brand itineraries taken together is also higher than a year ago at lower occupancies.

Although occupancies in the second quarter are lower than a year ago, they are not significantly behind.

In talking to our brand executives, there is a general view that because of the continuing stream of negative economic news, and the related decline, and more recently, a related decline in consumer confidence, consumers are delaying their decisions to take their cruise vacations, with the result that the booking curve for 2012 has come closer in.

So that's sort of the status of the second quarter where we're seeing closer-in booking curve taking effect.

And with that, Pam, I will turn it back to you and we'll start to take some questions.

Thank you.

(Operator Instructions).

Felicia Hendrix, Barclays Capital.

So, Howard, you have given us some good color, as usual.

You've also given us some caution on just the recent booking picture, given everything that's going on in the world, starting in August.

A few things.

One is, what is your confidence that your outlook for the first quarter remains stable?

I know that you said it's largely booked, but those last-minute bookings always kind of affect things.

And then for the second quarter, do you -- what is your optimism that you can end with pricing and occupancy up?

On the first quarter, I think -- and I think we saw this in the third quarter of 2011, our late bookings seem to be holding up quite well versus year-ago pricing.

So I think we feel fairly confident on where we stand on Q1.

Where it exactly comes in from a yield improvement standpoint, it's -- I don't think we want to venture right now, but we are nicely ahead right now from a pricing standpoint.

So even with a little bit of a downdraft, we should be just fine in the first quarter.

I think less so confidence in the second quarter, simply because we just -- we don't have as large a percentage of our business booked in the second quarter as we have in the first quarter, naturally.

And we have seen -- started to see some evidence of a booking curve coming in.

I think consumers are delaying their vacation decisions.

It seems clear -- any major spend decisions because of lower consumer confidence seems to be -- people are pulling back on it.

But at the end of the day, talking to our brand managers, they seem to be pretty confident that the business will be there at the end of the day.

And so I think they're more confident in holding price.

Felicia, one of the things you have to keep in mind is that when we talk year-over-year, this time last year, bookings were very, very strong.

We didn't feel the impact of MENA and all that stuff until starting in January first quarter of last year.

So the fact that we're okay versus last year's pattern now, if we don't have a repeat of the MENA situation or similar, or tsunami in Japan and all that other stuff, then the comparisons should get easier as we get into the second quarter.

So our level of confidence, all things being equal, if there isn't another major geopolitical event, should be pretty good.

Right.

Okay, thanks.

And then, Howard, can you just tell us -- you've talked -- you said a few times that the booking curve has come in.

Can you just quantify that?

And then I'm wondering if someone could just tell us how the Company is deployed in the Med for the summer '12 season?

Yes.

No, I mean, it's come in only a small amount so far.

Remember, when I talk about booking curve, I'm talking about nine different brands.

So -- and when I give you that data, I'm looking at nine different brands and their booking curves.

Some are better than others, but we start to see some evidence, especially to some degree in the US markets, a little bit in the European markets and the UK markets.

It's hard to tell because of the MENA impact, but it appeared to have started to move in a little bit in the spring.

So it's not recent -- it's not the last six weeks.

I mean, it started to move in after the MENA impact.

And, of course, when you've got that many itineraries moving, it becomes really hard to see what's exactly happened.

But it's moved a little bit in and it seems to have started sometime in the spring.

As to your second question, I don't have the Med broken out from Europe, but I do have Europe and the Med combined.

It's about 49%, 50% for 2012.

It was virtually the same in total for 2011, it was 49%.

Full-year '12 Med is 19%; Europe --

No, she said summer, third quarter.

For '12?

Yes.

-- is 25% for the Med and 26% for Europe, without the Med.

I would say (multiple speakers) that we have modified, especially cost, though, which was most impacted by the MENA impact, and Ibero, and to some degree, AIDA.

They've already, particularly Costa, have already modified a lot of itineraries to mitigate any possible future problems next year.

That's not to say that we don't have any of those countries on our itineraries, we do have some, but we've scaled back quite a bit and have less -- quite a bit less than we had this time last year.

And I think it's important to keep in mind that we know what we're confronting going into our European itineraries in the Med this coming year, at this point in time.

So I think our ability to react quicker now, rather than as we reenacted later in the spring of last year, will give us the ability to mitigate the effects, if there are going to be any effects this year.

We do have to react -- we'd have to react with a lot fewer itineraries impacted.

Okay.

Great.

Thank you so much.

Steve Kent, Goldman Sachs.

Two questions.

First -- and maybe, Mickey, you could handle this one -- on the free cash flow story, it looks to me like you're going to generate about $2 billion in free cash flow next year.

You've kept supply in check, so could you talk about how the Board is thinking about a dividend increase?

And the reason why I think it's so important at this point is that it would signal both that you're returning cash to shareholders in a very efficient way, besides the share buyback, and that you're going to keep your supply growth in check.

And then, second, Howard, can you just define for me, just because I haven't heard it in a while, what nicely really means?

Has that definition changed over time?

So is now nicely up 1% to 2% versus a few years ago where it was up 3% to 4%?

If you could just give us a general sense of what nicely means, that might be helpful.

Thanks.

Maybe Micky could answer nicely, too.

I don't use nicely.

(laughter)

You guys could decide that.

Steve, I'll go through your question on the cash flow and the dividends.

Essentially, we have been very open about our dividend policy.

We've talked about a 30% to 40% payout on the regular quarterly dividend.

Right now we're at $1.00 a share -- I mean, you can do the math and you can see where the numbers are.

We are committed to the two to three ships a year.

And we are -- the Board is -- we've talked to the Board, and we are committed to returning all of the excess, all the free cash flow over and above the CapEx to shareholders.

As you can see, this year, we returned 135% already with the stock repurchases.

So I think the commitment for the reduced capacity is there.

We've talked about the two to three ships.

And there's not -- for '12 and '13, those numbers are locked in.

And you know what's on order for the future years at this point.

Okay, Steve, I'm going to try "nicely" on you.

Thank you.

The way I -- when I look at the numbers, to me, when we talk about flattish, I usually mean flat between plus or minus 1%.

When I say up, it means better than 1%, but I mean -- and not just 1.2%, though.

And when I say "nicely up," it means well north of just being up.

(laughter) So without quantifying it for you -- we're getting a lot of guffaws here (laughter).

I think you are, on the conference call, too.

(multiple speakers) They'll ask me the same question.

But it is -- it means it's a stronger pricing improvement than you would just -- than just saying it's just (multiple speakers) --.

So, Howard, if you ever say --

I hope that clarifies it for you, Steve.

So if you ever say, like, holy cow, things are really good, is that like up 10%?

I mean --

(multiple speakers) That's not my nature -- that's only (multiple speakers) --.

Alright, well, thank you.

That was helpful.

And David, I appreciate your answer.

Thank you.

I want to reiterate David's answer.

You asked me the question, but I would -- the key underlying item in that question, I think, was we'll maintain discipline on the newbuilding side and the answer to that is, yes, we will.

Thanks, Micky.

Robin Farley, UBS.

Yes, I've got two questions.

One is I just wanted to circle back to the idea of the ports that you would be revisiting in 2012 in the Middle East and North Africa.

I don't know if you quantified this past year, it was originally I think 7% to 8% of your itinerary.

So for 2012 at this point, what percent of your itineraries would be touching those -- any of those ports again?

Why don't we do this -- why don't we -- we'll see if we can pull that together for you, because I don't think -- we may have it, but they don't have it in their books.

(multiple speakers) It was about -- it was 9.5% of this year's itineraries were impacted.

And I believe, if I remember correctly, we did an analysis.

We reduced our exposure by about 12%.

So there was a reduction in the number of itineraries that went to the affected regions.

Costa replaced some of -- replaced Tunisia with some islands off the coast of Italy.

They took ships out of Egypt and went to the Greek Isles and the Holy Lands.

So there were a number of changes that resulted in that 12% reduction.

I could say Costa basically reworked their entire 2012 Med program and re-released their program a couple of weeks ago.

So it's not that easy to say, because rather than have itineraries overlapping, they kind of took a fresh-piece-of-paper approach, and have a lot of new programs that they're feeling very, very excited about.

When -- in reality, when they had to react last-minute, they really couldn't look at it in the same way.

So I think they've taken a fresh approach.

They've basically done the kinds of itineraries that their nationality of passenger will really enjoy.

And those nationalities were most impacted -- Italian, French, Spanish, by the MENA issues.

So, I don't think we can quantify it at this point; maybe, Beth?

It looks like last -- the total impact that we had in 2011 in the Middle East and North African region was roughly 10%.

And it's expected to be 8.5% in 2012.

But the 8.5% will be at ports of call that were not as challenged, let's say, as they were last year, like Egypt and Tunisia.

(multiple speakers)

Yes, Costa traded Egypt for the Greek Isles and the Holy Land cruises.

They traded Tunisia for islands off the coast of Italy.

In total, their Med deployment is flat with less trips to Egypt or touching Tunisia.

And the incremental capacity was deployed away from the Med to the winter Caribbean, South America, Northern Europe, the Far East, and Asia.

So they dispersed it everywhere else outside the Med.

Okay, (multiple speakers) --

Now you know, they're still going down to Dubai and selling it, and places like that -- those cruises are doing okay.

Yes, they still have cruises out of Dubai and Sharm el-Sheikh, but less capacity.

They've cut their capacity.

Okay, great.

No, that's helpful.

And then the second question is, can you just remind us for your ship orders sort of outstanding?

Kind of which have financing in place and which would still be in the process in terms of anything that was guaranteed, export credit facilities and the contracts, just in light of a lot of changes going on with European banks.

Just kind of a (multiple speakers) --

Sure.

Yes, we've got 10 ships on order.

The only one that does not have financing associated with it is the Costa Favolosa for 2012 (multiple speakers) -- Fascinosa, sorry -- for 2012.

The other nine -- seven are already signed and done, and we're working on the last two.

So we will have export credits for the other nine.

We just haven't finished the last two, with the AIDA ships that we ordered in Germany.

But the contracts were subject to financing.

Yes.

Okay, great.

And so -- I'm sorry, you said for the Fascinosa for next year that the financing is done for that?

No, no.

That's the only ship (multiple speakers) --

It's the one out of nine that we didn't lock in export credit.

It's complicated, but export credit for an Italian shipyard for an Italian flag ship is not -- it's complicated.

So we passed on that one because it's not in export.

An export.

(laughter)

You can't get an export credit -- you're not exporting.

Okay, great.

Thank you.

Janet Brashear, Sanford C.

Bernstein.

I wanted to ask a little bit about discounting for 2012.

Some travel agents have said that they feel that the discounting for all of 2012 feels stronger than they might have expected.

As you look at your pricing, I know you said earlier that the brand managers are trying to hold price, believing that consumer confidence may still rebound.

Are you feeling like the discounting environment is normal for this time of pre-bookings for 2012?

I think -- there are a lot of sales going on and programs going on.

Most of that, Janet, would be for more closer-in business, as opposed -- and some of it is not dissimilar to what we've done in prior years.

So when the travel agents see it, I'm not sure they see it in the same way we see it, in terms of our yield management systems and what we need to do to get it done.

And in many cases, we do go out with different kinds of programs, but -- and we may do them in a little bit different ways than we've done in past years.

So they don't have the ability to really understand the apples-to-apples comparisons that we work with, in terms of our pricing.

So -- but yes, (multiple speakers) it is out there, it is out there, sure.

So, it's always out there, though.

Yes.

Okay, thank you to -- you had talked about a fuel cost protection program.

I won't say hedging, because I think you were doing something different, which is just protecting at the extreme cost swing levels.

Is that progressing?

Yes, we're working on the administrative back office to be put in place and the systems, controls and procedures.

But we haven't started doing anything yet.

And that's at some point in the near future.

And when we start, we'll let everybody know.

Great.

Thanks.

Harry Curtis, Nomura Securities.

A couple of quick questions.

The first is, you mentioned that in 2011, you'll be returning about 145% of your expected free cash flow to shareholders.

To what degree would you be willing to use your balance sheet over a longer term period to repurchase stock?

I think, generally speaking, we've talked about returning free cash flow, I think, in this particular year where there was an opportunity to buy back stock at a quite attractive price.

And we had the program already in place to do it.

We decided to go ahead and do it, so we're running a little bit faster than free cash flow for 2011.

But I think over the long haul, I think that the thinking is that debt levels would remain relatively constant and we'd use free cash flow to buy back stock or -- and/or increase dividends.

And if you could just give us a -- or remind us rather -- the range of net debt to EBITDA that you feel comfortable with.

What we're really looking at in terms of -- we look at it more in terms of ratings.

What we're looking at is an A- credit rating is what we're generally targeting as opposed to a net debt to EBITDA.

Although if you look at the S&P, A- will equate to somewhere between 2 and 2.5 times, roughly speaking.

Okay, that's great.

And then just a bigger picture question -- and it's really a philosophical industry question.

The airline industry over the past few years has taken 10% to 15% of their capacity out and they've enjoyed a relatively strong increase in pricing power.

And next year, the cruise industry is still going to see about a 4% increase in capacity.

And I'm just wondering if you've thought about the positive impact that you might see on pricing if the industry itself reduced capacity?

And by the same token, what would be the argument against it?

With only the challenge to reduce capacity, although we do over time, we do try to sell off some of our older tonnage if we can get reasonable prices for them.

But it's -- unlike the airline industry, it's not easy to get -- to move out your older ships.

Also, newer ships give us so much better economies of scale that we're inclined to order newer ships, larger ships that give us the scale benefits and returns that we can't get on the older tonnage.

But over time, we will move out older tonnage.

Will we ever get to a flat or down capacity year-over-year from a cruise industry standpoint?

I don't know.

I mean, I don't -- we still see huge potential to grow our business in certain markets.

And I think when we order ships today, we're ordering it for those markets where we believe we can continue to grow our capacity at good profit improvement and improved return on invested capital.

So it is a much more targeted approach.

There could come a time when we stop ordering ships.

And for certain markets, we've done that.

But not for other markets.

So I think it is a much more targeted approach -- if that answers your question, Harry.

It does.

Thank you.

Tim Conder, Wells Fargo Securities, LLC.

Howard, could you give us a little bit more detailed color on how things have trended on a regional booking basis?

Particularly for European-sourced passengers since that August period -- I guess for the Northern European or Western itineraries, looking into the first half of next year versus the Southern European itineraries.

I don't -- to be honest with you, Tim, I don't have that information.

All I looked at it was from a (multiple speakers) --

The European -- you're talking for next summer -- next year?

(multiple speakers) Yes.

It's way too early for places like Italy, France, and Spain.

I mean, you know, Costa just issued their revised brochure two weeks ago.

They just started taking bookings, so it's way too early for those countries to be commenting on next year.

And Northern Europe tends to be a much shorter season, starting later and ending earlier.

So it's -- they're not comparable between Europe and -- Northern Europe and Med.

Med will start to go out a little bit earlier.

Okay.

So I guess then the root of the question is, you haven't seen any major shift since prior to the beginning of August in the patterns of bookings for Northern Europeans versus Southern Europeans?

I haven't looked at it from that standpoint, to be honest with you.

I'm just looking -- it's tough enough to take nine different businesses, pull it all together, and come up with an answer directionally that makes sense.

But to start to analyze it itinerary by itinerary, by business by business, and to give it to you would -- it wouldn't make a lot of sense and it would take a long time to do that.

And it's just not possible to try to take all the information, pull it together, and do it in a way that gives you proper and good direction in terms of how the business overall is going.

I would say that for the European brands, clearly, they haven't -- they've had very strong last-minute bookings, which is a combination of things.

I think the economy, but it's also the fact, because of MENA, there was more availability last-minute than there were in prior years because of all the itinerary changes.

And they feel it.

So -- and when you look at the bottom line for the third quarter, they were down 2 points, which, considering everything that happened this year, that's not a terrible result.

Okay.

Okay, no, very fair, very fair answers.

Thank you, gentlemen.

And then what at this point, as you see the world and based on what the brand managers are telling you, what are you looking at as far as in FY '12 -- the recovery out of what was triggered through the tsunami impact and the earthquakes in Asia?

And then relative to -- are you looking for any recovery from the MENA area in particular?

And then I guess the other part would be -- you cited the UK as being a little tepid, if I interpreted your remarks correctly.

How are you looking at that year-over-year from -- as you see the world today and what the brand managers are flowing up?

Well, what the brand managers are telling me is really more anecdotal based on what happened in the last four or six weeks or so.

So I wouldn't want to give you an overall sense of what 2012 looks like.

I do think it's too early -- we are all over now in Europe and starting our meetings with our brand managers on reviewing 2012 budgets.

Later on in September, early October, we'll be doing the same with our US brands.

And so I'm always a little bit uncomfortable right now given the fact that it is September, talking too much about 2012 because I don't think we feel comfortable doing it yet.

I mean, there are a lot of very positive things out there.

I talked about the yields for positive pricing in Q1 and Q2, which we think is -- we're pleased with.

But I think, given all the noise that we're hearing in the US and Europe about economic challenges, that I'd like to wait until December to give you more concrete guidance on 2012, when we have a little more confidence in how it's going to shape up.

So I hesitate to give you anything right now.

Even in December, it's going to be -- we're going to do it; it's going to be tricky because, again, we're going to be looking at comparisons that didn't have any of the MENA impact yet.

And again, December last year, we were looking at a very, very strong year.

And things started to come apart the middle of January.

So when we're sitting and looking at year-over-year comparisons, we're going to have to try to factor in what happened (technical difficulty).

So it's going to make those predictions a little bit trickier than in the past.

The one thing that will definitely be a positive is 2011 had the short-term disruption of all those itinerary changes and all those cancellations.

And hopefully, we won't, as Micky mentioned before, we won't see that again in 2012.

And that would be a year-over-year positive.

And to your point, I think, Micky, earlier, you mentioned that given all that, and you had strong bookings this time last year, you were already -- from what you're seeing right now, it's still fairly, fairly solid, given that you're going to get those strong comps at this point in time.

Yes, I think the point Howard made was well taken.

We're booking very strongly into the spring and early summer.

Again, part of that was the fact that we had all the disruptions so we had a lot more capacity available close-in.

But part of it was obvious demand, especially for the peak holiday season.

But despite a slowdown in August and early September, we were up year-over-year.

And that's a good sign, but there's no question that people are tightening their belt a little bit and making decisions a little bit later based -- because of everything that's going on and what they're watching on television every day.

Thank you, gentlemen.

Kevin Milota, JPMorgan.

Just was wondering if you could give some update thoughts on where you are from a fuel hedging perspective?

Understandably, you guys don't do that now, but there's been some commentary in the past that you were thinking about more of a fuel insurance going forward.

And then also from a MENA perspective, not to beat a dead horse here, but was wondering, is it possible to quantify what sort of drag pricing is going to have next year?

Or maybe you could speak to it in terms of how long do you think it will take to get back to pre-turmoil levels, in terms of pricing for those itineraries?

You want to go ahead on it and answer?

Yes.

As far as the fuel hedging, we've talked about our philosophy a number of times on fuel hedging.

And the kind of program we're looking at is more of a fuel insurance.

And the example I think I've used historically could be something like a zero cost collar with a wide collar, so that if fuel did spike up, we have some protection.

Those are the types of things we're looking at doing.

And I mentioned before, we're putting together the administrative back office to begin to do that at some point in the future.

Yes, Kevin, on the MENA pricing for 2012 versus 2011, I think, certainly, we're hopeful that we'll see some nice improvement in pricing versus 2011, given the lateness of the changes in the itinerary due to disruption -- not only to the MENA cruises, but to all of our Med cruises, resulting from the last-minute changes and the re-booking patterns that we had to go through.

How much of that will be -- I think it's still too early to say.

Will we recapture everything we lost?

I don't think so.

I don't think we're even thinking in those terms.

But we do think we'll start to see some improvement but it may take us a couple of years to get back to the levels of pricing that we enjoyed pre-MENA.

Just to put it in perspective, I mean, we did say that the MENA impact this year in 2011 was about a 1.5 points of yield, which just kind of gives you a total perspective of the magnitude of the issue.

Okay.

Many thanks.

Greg Badishkanian, Citigroup.

Hey, guys, it's [Jeff Hans] on behalf of Greg.

Can you talk a little bit about some of the tactical promotions or discounts out there today?

And is that any different than what you've seen during past periods of volatile bookings?

Or has it been a bit more aggressive?

We discount of sale, and it's part of a marketing strategy.

Again, it's -- if we were talking for one or two brands, it would be much easier to answer your question.

Every one of our brands has different kind of promotions, different tactics, different sales.

They have them virtually every year -- not necessarily at the exact same time.

They all watch their booking curve.

They all have trend lines.

And when they get below the trend line, they may activate a discount program.

Once they get above it, they'll pull it back and so on.

So, it's a lot of moving pieces.

It doesn't -- other than the fact that you've got all this noise going on because of what's going on in Washington and what's going on in Wall Street -- and also in Europe, obviously, with the financial crisis in Europe -- all that noise is just making it really difficult to tell.

But like we've said a number of times on the call today, our volumes are still up year-over-year.

So it does not feel like any different than -- it definitely doesn't feel like '08, where we saw significant drop-off -- it doesn't feel anything like that.

No, it's nothing like that.

You know, you do see -- when you look from the springtime until now, an ebb and flow to bookings.

And some weeks are very strong and other weeks are not as strong.

And at the end of the month, we kind of look at the overall and so far, it's been positive.

And remember, we can move business.

So you're not quite sure if you have a strong booking month, it's because we're moving business at lower prices or -- and if we pull back and our booking volumes are lower, it's because we may have pulled pricing up.

And you're talking about eight or 10 -- you know, eight or nine different yield management systems.

And each business approaches yield management in different ways.

So it is really difficult to talk about a particular program of moving business and how it's affecting that particular business -- looking at it from the way we look at it, from a global standpoint.

Right.

I didn't mean as much you guys; I meant just from what you're seeing out there, given the volatility over the last four to six weeks.

I mean, there's been periods of volatility, obviously, over the past 12-plus months.

But just wondering if you've seen other players out there discounting a bit more aggressively than other periods of volatility?

Or has it been just your sort of normal course of business?

You do see tactical pricing.

And every once in a while, one of our -- we'll have a conversation, or Micky will, or David will, with a brand manager and saying, our competitors are doing this at this ridiculous price in this particular market -- but it's usually for a particular cruise that they need to fill.

And sometimes we do the same thing.

So you can't really go too much by the anecdotal information.

Right (multiple speakers) --

I'd like to say that beyond the MENA itineraries, which continue to be last-minute fill because there was so many changes, beyond that, I don't think it's any different than what we saw last year.

Perfect.

Thanks.

Assia Georgieva, Infinity Research.

I had a quick question on Q4.

It seemed that implied yield guidance had previously been in the 2.4% range and now you're offering us 1% to 2%.

This is primarily due to the slower August and September booking volumes?

Or is it primarily because of Costa or a combination of the two?

It really is primarily as a result of the seasonalization of the MENA impact.

As I mentioned in my notes, we had over-estimated the impact on the third quarter and under-estimated the negative impact of MENA on the fourth quarter.

So when everything came in and we started to look at it, the total impact of MENA, we were very close and we felt good about that; the yield difference is driven by those MENA itineraries.

We had expected MENA to be roughly 2% in the third quarter.

It turned out to be more like 1.5%.

And in the fourth quarter, we had expected it to be a more like 0.5% -- oh, 1.5% and it turned out to be more than 2%.

So it was just a forecasting estimate on our part and a flip-flop between the quarters.

Can I just say that when you consider that we changed 300 itineraries just before we gave you the second-quarter guidance, the fact that we're basically right on our guidance for the second half of the year, I think is pretty remarkable.

Our folks did a great job of being able to forecast this stuff.

And the fact that it's a little bit higher in one quarter and a little bit lower in another quarter, I mean, come on, you're moving 300 itineraries.

That's pretty good.

I think the thing to keep in mind is that for the second half of the year, we actually came in yield-wise a little bit -- just slightly better than (multiple speakers) we'd forecasted, yes.

Yes, slightly better.

But it was a flip-flop between Q3 and Q4.

That's what you're seeing.

Okay.

And Micky, I think we all appreciate how difficult it is and especially for the Costa brand, what they have had to go through.

By the same measure, is it possible that close-in bookings might be helpful in Q4 -- not only in the Bahamas and the [Short] Caribbean but also in Europe, if you still have inventory available to sell more than in past years?

We're pretty well along now.

So -- but if last-minute bookings are stronger than anticipated, then we'll do a little bit better.

But we're pretty well booked for the quarter, so we (multiple speakers) --

Typically, the third quarter is the stronger summer season and it has more opportunity for upside on close-in pricing than with the shoulder periods.

Given stronger demand in Q3, you typically can get some upside.

Q4 is a little bit more challenging.

I think North America, as I mentioned, is substantially done right now.

And really what we need to do is some backfill still on the MENA sailing.

That's really that's all that's significantly left.

So, could it come in better than we anticipated?

Sure, but there's not that much room, no.

Okay.

Thank you so much for all your answers.

Richard Lyall, John W.

Bristol & Company.

I've got a couple of questions.

Are you implicitly saying that the booking curve on the North American business has moved out?

No.

What we're saying is the booking curve on all our business has moved in a little bit.

Okay.

But given the strength in pricing and the fact that you're already booked, is not saying that North America has moved out?

No.

No, the opposite -- it's has moved in a little bit as well.

Okay.

Thanks.

Second question is, historically, when there's been uncertainty coming into a new year, you've been aggressive on pricing.

And this time around, you're holding off on the pricing card and saying we're going to stick with what we've got, and play the card later in the year if we need to.

Why the different philosophy?

Well, let me just say this, that I don't think there's any one philosophy here.

There are a multitude of philosophies on yield management and each brand manager approaches it -- can approach it very differently.

And what we're giving you is a blend of all that information.

So, in some cases, I think some people -- some of our brands will go in with a stronger pricing early on and hope to maintain it, and move whatever inventory is left at the end at somewhat lower pricing.

Other brands will go in at early -- at lower pricing to begin with, expect to fill, and then move the volumes as they need to in order to fill up.

So there's just different approaches, each one we'll do, and what we're giving you is a blend of all of them.

Okay, thanks, Howard.

(multiple speakers) Go ahead.

I don't think there's been any change in the philosophy.

It's just yield management folks recognizing a movement in the booking curve will retract the line of what they expect and want.

So they will react a little bit later than they would have in a prior year with the booking curve further out.

Did that make sense?

Sure.

Yes, sure.

It's a little bit riskier, but you're betting that the booking curve has moved in and there's a lot of good anecdotal evidence to prove that it has.

And so you might as well play that curve rather than react too early.

No, I understand.

I just think it's interesting you're doing things differently this time.

(multiple speakers) Last quick question is -- I thought Pierre Foschi said that he had not changed itineraries for 2012 beyond first quarter of 2012.

So what occasioned the changes in itineraries?

Did you decide that the situation would be more negative longer so you needed to deploy capacity differently?

No, you're reacting to a conversation I know we had in July, correct?

No, I had a conversation with him at dinner.

In July?

Whenever that was.

In July.

(laughter)

At the analyst meeting, whenever it was.

This is now September -- this is now September.

I just wanted to clarify that for everybody who wasn't at dinner.

The reality is since July, we've had a number of conversations and the question became a mitigation of risk.

And so they basically went back to the drawing board, took a clean piece of paper, and said, okay, what is the best itineraries we can operate for our major nationalities and mitigate the MENA risk?

And that's what they did.

And they came up with a whole new set of itineraries, some very, very innovative ones, I think, and some great ideas.

We're very hopeful that they'll be very successful, but they have to go back to the drawing board, reprint a brand-new brochure for next spring and summer.

They've done that; it's now in the marketplace, but it's only been in the marketplace about two weeks.

So it will take some time to see how all that flies.

But we're very glad that they did that.

We think they've made a lot of good decisions.

And we'll see what happens six months from now.

The deployment changes were announced September 1.

And today is -- for the brochure, yes.

(multiple speakers) [About two brochure lines].

I don't speak Italian.

Okay, thank you.

Jamie Rollo, Morgan Stanley.

Just a first question on costs.

I know you haven't done your budgets yet for next year, but if we do see a bigger-than-expected downturn, how much flexibility do you have to take further costs out?

I know you took quite a big chunk out in '09, but do you think -- do you have sort of a backup plan if things are quite soft?

You know, Jamie, you know, I mean, we are always looking at ways to reduce costs.

We're not a business where we have a lot of fat in the business, so when there is an economic downturn, we can change our model and all of a sudden take all that fat.

We run very lean and we're constantly looking for ways to reduce costs.

So we're hoping we can offset the inflation next year.

We've told everybody our long=term cost guidance is flat to half of inflation.

Hopefully, we'll be closer to flat than half of inflation, as we work through all the cost savings.

Okay, thanks.

And just the other question was relating to a comment I think one of you made on maybe selling some more ships in the future, some of the old ships.

I think you've seven or eight ships that are 20 years or more in age.

I'm just wondering, first, does that have a meaningful impact on the group net cruise costs, just given these ships are significantly less efficient than modern ships?

And also the loss you made on selling the Mariner, I know it's small, but you didn't normally make book value losses when you sell ships.

So are you happy with the book value of your fleet today?

Thanks.

Yes.

In terms of the book value of our fleet, we're very happy -- you know, you're picking on one ship, but I did look at the last eight ship sales.

It turns out that in the last eight ship sales, we had four gains and four losses.

The total cumulative net for the eight was a positive -- I think it was $45 million.

So, on each sales, to have it turn out to be that way, we felt very comfortable with our book value overall.

As far as the cost impact of selling these older ships, I think the last time I looked, those seven ships represented about 3% of our overall capacity -- because remember, they tend -- the older ships tend to be smaller.

So, even if we sold all seven of them, I doubt you would see a dramatic change in our net cruise costs, because it's just 3% of the total.

Great.

Thank you very much.

Gentlemen, we have actually two more questions, do I have your permission to proceed?

Sure, Operator, go ahead.

David Leibowitz, Horizon Kinetics.

A few unrelated items.

Nothing was said about Alaska and China.

Could you update us on those two for 2012?

Alaska was very, very good in 2012.

And I don't see any reason why it wouldn't be as good in '12; but it's way too early, again, to comment about third quarter of next year.

But we're very happy with the way it turned out in '11, and I don't see any reason why it wouldn't be similar in '12.

And we did -- Princess did announce one more ship for Alaska for 2012, so (multiple speakers) --

Yes -- Alaska is up 11% next year.

And the early signs for Alaska for the second quarter, we have a few sailings in the second quarter -- so far, positive, but I don't think you can take that too seriously right now.

And the summer is really what drives it.

On China, I think that it was rough -- this certainly was a rough year for China, given the problems in Japan and also the dislocation of itineraries and moving things around, and cancellations and re-bookings and so on.

So it was a tough year, but we do think that 2012 will be better, it's getting off to a better start.

But still very, very early for the China booking season.

But we certainly are hopeful that we'll show some nice improvement in China in 2012.

Second question, you have nine brands you're adding to the three ships a year.

How many of your brand managers would like to have more capacity sooner?

I think nine of them would.

All of them want to have more capacity.

I don't think there is one out there that doesn't believe that they can add ships and increase their profitability and their returns.

But we want to be -- we've given them their hurdle rates to do that.

And until they reach their hurdle rates, they're not going to get those allocations, that allocation of capital.

The reality is all but three of our brands have newbuildings coming.

So, I mean, they're all focusing on (multiple speakers) --

They're all in the pipeline.

Yes, they're all in the pipeline and have newbuildings coming.

You referred to hurdle rates.

Of the nine brands, how many of them are meeting their hurdle rates as we speak?

Well, I think a good number of them are and some are not.

And that's about as much as you're going to get from me on that.

(laughter)

You know what tends to happen is, if you look at their newest ships, they tend to meet the hurdle rates.

And those that have older, smaller ships, they tend to bring them down.

Keep in mind that the newer ships that we're building are twice the size of the average ship in the fleet.

And also the newer ships are considerably more fuel-efficient than the average ship in the fleet.

So the returns for those ships tend to be quite a bit higher.

And the last question -- several of your brands have discontinued brochures that tell everybody to just go onto the computer, or at least this is what travel agents are telling me.

What is the dollar cost savings there?

I have no idea.

David, I mean, that's just -- it's probably less about cost savings.

It's more about efficiency and getting the travel agents and consumers to be more efficient, and driving more electronic bookings and that sort of thing.

It is the future and we are moving along with that.

We're trying to move that along.

And by the way, David, that's occurred over a period of years -- that wasn't a one-year phenomenon.

And my question would be for a first-time passenger who has never sailed, do they really get the same understanding of the cruise, the same possessiveness and looking forward to taking the sailing when they don't have a brochure?

If they have a brochure -- I mean, if they have a computer.

If they don't have a computer, I guess they won't.

I don't know how many of our passengers don't own computers, but --

In fact, they get a much better picture on the computer with all of the videos and other things that we have to offer that you would never find in the brochure.

Okay, David, we have to move on.

Thank you.

Thank you, gentlemen.

And continuing on, our final question comes from the line of Ian Rennardson from Jefferies.

Please proceed with your question.

I think in the past, you've said that at any one time, you're between 55% and 75% booked for the next quarter.

Where are you in quarter one?

And how does that compare to maybe this time last year?

Thank you.

Yes, it is 55% to 75% booked.

And we are within that range for quarter one.

And I think Howard had mentioned we were flattish with --?

Last year.

-- flattish with last year.

Okay.

Super, thank you.

Okay, all right.

Okay, Pam, I think that will conclude it.

Perfect.

Thank you, Mr.

Frank.

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

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

Thank you once again.

Thanks, everybody.

Have a wonderful day.

Thank you, everybody.

Have a great day.

Bye bye.

Thank you, sir.