嘉年華遊輪 (CCL) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the third quarter 2012 earnings conference call.

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

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

(Operator Instructions) As a reminder, this conference is being recorded, Tuesday, September 25, 2012.

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

Please go ahead.

Thank you, Andre, and good morning, everyone.

Let me just first comment that Micky Arison and Beth Roberts are in London at the moment, so they are joining the call from London.

David Bernstein and I are here in Miami.

I am going to turn it over to David and let him start with some of the color on the third quarter and talk a little bit about costs going forward.

Thank you, Howard.

Before I begin, please note that as some of our remarks on this conference call will be forward-looking, I will refer you to the cautionary statements 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 the most useful measure of our business trends.

Our non-GAAP EPS for the third quarter was $1.53.

The third quarter came in $0.09 above the midpoint of our June guidance.

The improvement was driven by better-than-expected pricing on close-in bookings worth $0.07, and lower net cruise costs, excluding fuel, were $0.05, both of which were partially offset by changes in fuel and currency costing a combined $0.03.

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

Our capacity increased almost 3%.

The North America brands were up 3.4%, while the Europe, Australia and Asian brands, or as we call them, our EAA brands, were up 2.1%.

Our total net revenue yields decreased 5% in the third quarter, of which three percentage points were driven by Costa.

Excluding Costa, total net revenue yields decreased only 2%, driven by a 4% decline in net ticket revenue yields, offset by a 5% increase in net on-board and other revenue yields.

With respect to the net ticket yields, the North American brands were down 4.8%, driven by declines in Europe and Alaska, while the Caribbean yields held up very well during the quarter.

Excluding Costa, our EAA brand net ticket yields were down only 1.8%.

For net on-board and other yields, again, excluding Costa, the increase was 5%.

For net on-board yields alone, the increase was over 3% on both sides of the Atlantic.

The rest of the increase was driven by other revenue yields which resulted from a small change in accounting for our Alaskan tour business.

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

This decline in net cruise costs per ALBD was greater than we expected in our June guidance.

However, part of the lower net cruise costs in the third quarter relate to the timing of expenses between the third and fourth quarter and not a reduction in expenses for the year.

As I said in the past, it is very difficult to estimate the timing for many of our expenses by quarter, and therefore, the best measure of net cruise costs performance is on an annual basis.

As a result of our ongoing efforts to reduce fuel consumption, our consumption per ALBD declined 5.7% this quarter, thus continuing a multiple year savings trend.

Fuel prices in the quarter were down almost 4% versus the prior year, which saved us $0.03.

However, this was partially offset by realized losses on fuel derivatives in June and July, which cost us $0.02 per share.

Currency rates this quarter versus the prior year cost us $0.09 per share as a result of the stronger US dollar.

In summary, the third quarter non-GAAP EPS was down $0.16 versus $1.69 per share last year, driven by the lower earnings at Costa.

Excluding Costa, our non-GAAP net income would have been up slightly.

Excluded from our non-GAAP EPS, but included in our GAAP EPS, were unrealized gains on fuel derivatives of $136 million, or $0.17 per share, resulting from marking to market our portfolio of fuel derivatives.

These gains almost completely offset the unrealized losses we recorded in the second quarter.

As a result, at the end of the third quarter, the marked-to-market balance sheet position on our fuel derivatives was an unrealized gain of $13 million.

As we first discussed on last December's call, we believe it is more meaningful to evaluate our earnings performance by excluding the impact of unrealized gains and losses on fuel derivatives until the gains and losses are realized.

This appropriately lines up the economic impact of the fuel derivatives with the underlying fuel price risk that it is intended to mitigate.

In June, we entered into additional zero-cost collars for 2014, 2015 and 2016.

We now have zero-cost collars in place that cover approximately 38% of 2013's consumption, 29% of 2014's consumption, 24% of 2015's consumption, and 15% of 2016's consumption.

As I mentioned on the June call, we are comfortable with the level of protection we have through the end of 2013, but we will look to opportunistically increase the other percentages over time.

Before turning to our 2012 outlook, I wanted to update you on our stock repurchase program.

On the last call, I indicated we had restarted the repurchase program.

Through the third quarter, we repurchased 2 million shares for $67 million.

Currently, there is $265 million remaining under the repurchase authorization.

Now, turning to our 2012 outlook.

I will skip the net revenue yield outlook, as Howard will discuss that shortly.

On the cost side, the full-year net cruise costs excluding fuel per ALBD are forecasted to be down 1% versus the prior year, which is consistent with our June cost guidance.

On a final note, I wanted to give you a preliminary view of costs for 2013.

As you know, we have had an excellent record of cost control.

In fact, over the last four years, from 2008 through 2012, despite inflation, we have managed to reduce our net cruise costs excluding fuel on a unit basis by about 2.5%.

Looking forward, our operating companies will continue to do an excellent job finding ways to reduce costs for 2013.

However, there are a few unique factors in 2013 that will be difficult to totally overcome, which will push our unit costs higher.

To begin with, we are expecting that Costa will fill their ships in 2013, which will lead to higher food and other unit costs associated with this higher occupancy.

This will simply be a reversal of the occupancy-driven unit cost reduction in 2012.

In addition, as I have previously indicated, our insurance costs will be higher in 2013.

Furthermore, we are anticipating charges relating to a closed multi-employer pension plan for certain British officers and crew.

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

Finally, our increasing emerging-market deployment for Japan by Princess, for China by Costa and for Australia by Carnival Cruise Lines will also increase our costs.

These unique factors alone will drive our unit costs up 1.5% to 2%.

Therefore, I am expecting overall unit costs excluding fuel to be higher in 2013 compared to 2012.

Over the next few weeks, we will be visiting each of our operating companies to review their 2013 annual plans.

We'll have a much clearer picture on costs for 2013 after those meetings, and it will provide detailed guidance on the December call.

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

Thank you, David, and again, good morning, everyone.

I'm going to cover fourth quarter of 2012 and give you some highlights of how 2013 is shaping up, at least for the first half of the year, from a revenue yield standpoint.

As we indicated in the press release, on a fleetwide basis, excluding Costa, at the present time, advance bookings over the next three quarters are behind last year at slightly lower prices.

However, booking patterns have recently strengthened and the occupancy gap has closed considerably; still not fully closed, but it's closing.

My comments this morning will focus on booking and pricing patterns for the next three quarters through the first half of 2013.

Unless otherwise indicated, my comments on 2013 bookings and pricing will be inclusive of Costa.

Not surprisingly, two different pictures are emerging for our North America and EAA markets over the next three quarters.

For North American brands, advance bookings for the next three quarters are about at the same level as last year at slowly slightly lower ticket prices.

I will focus my comments on bookings on first half of 2013 and provide separate color on fourth quarter of 2012 advance bookings later in my comments.

First half of 2013, North American brand pricing is slightly lower than a year ago.

However, pricing for the 2012 first half at this time was significantly higher over the prior year, so this year's pricing comparisons are a bit tougher.

What is encouraging for North American brands is that in the last six weeks, bookings and pricing for the first half of 2013 are running higher year-over-year, so during the last six weeks, we are catching up on bookings at higher price points, a very positive sign.

Turning to EAA, as you might expect, the picture for EAA brands on a combined basis is quite different.

At this time, advance bookings for the next three quarters, excluding Costa, are at lower levels versus last year and at slightly lower local currency ticket pricing.

All my comments about EAA pricing are on a local currency basis.

I will also focus my comments on bookings for the first half of 2013 and provide separate color on the fourth-quarter advance bookings for EAA later in my comments.

For the first half of 2013, the lower year-over-year EAA occupancies are more significant for the continental European brands, Costa, AIDA and Ibero, which were more affected by the events of this past January.

However, when we fully cycle through January of 2013, we expect to see occupancy comparisons improve.

Having said that, we are forecasting that EAA pricing for the first half of 2013 will continue to experience a gradual decline as we build occupancies.

Of course, EAA booking patterns are also feeling the effects of the sluggish European economies, and we expect that to continue in 2013.

A very positive sign is that during the last six weeks, EAA bookings have been running significantly higher for the fourth quarter of 2012.

So we are seeing strength in EAA bookings, with bookings trending to closer-in dates.

On a fleetwide basis, for the first half of 2013, we are forecasting lower revenue yields in the first quarter and higher yields in the second quarter.

The anticipated increase in second-quarter yields results from an increase in ticket yields for both our North American and European brands against the easier comparisons to last year's second quarter.

As a reminder, until we cycle through January of 2013, the revenue yield picture will be challenging.

I should also mention that extrapolating the current booking trends, especially for the European brands, is far more challenging this year given the very different booking pattern we are experiencing versus last year.

So, take these forecasts as our best estimates of the revenue yield picture for the first half of 2013.

Let me make a few separate comments about Costa.

While our business planning for 2013 is still a work in progress, we are expecting that Costa cruises will swing back to solid profitability in 2013 after a very challenging 2012.

Based on consumer research, the brand perception in each of Costa's major markets is gradually improving, so we are greatly encouraged by the resiliency of the brand.

Beginning in the second quarter of 2013, we expect Costa's revenue yields to nicely increase year-over-year against these easier comparisons from last year's second quarter.

We are very pleased with the progress that Costa has made and our expectation is that Costa's financial performance will continue to improve as we move through 2013.

In 2013, we have two ships scheduled for delivery.

The AIDAstella for our AIDA brand in Germany will be delivered in March of 2013.

The very successful AIDA brand is one of our best-performing cruise brands in the Company, and we congratulate Michael Thamm and Michael Ungerer for the great job they have done in building this very successful franchise in Germany.

In late May, we take delivery of the Royal Princess, the first new ship for the Princess brand since the Ruby Princess was delivered in late 2008.

The new-generation Royal Princess has 3600-plus lower berths, with a potential capacity of 4100 plus passengers.

The ship has many innovative new features, including a dramatic overwater seawalk, private poolside cabanas and balconies on all of its outside state rooms.

Bookings for the Royal Princess, which begins sailing next summer, have been very strong.

Fleetwide capacity for 2013 is expected to increase by 3.4%, 4.1% in Q1, 3.2% in the second quarter, 3.8% in Q3 and 2.4% in the fourth quarter.

North American brands will be up 3.3% and Europe brands are up 2.8%.

The Europe Brands growth is in the German market, with the addition of the AIDAstella.

Capacity for our other brands in continental Europe and the UK is actually down slightly in 2013.

Australia and Asia is up 8.5%, as we continue to drive capacity growth toward emerging cruise markets with the addition of the Atlantica to Costa's Asian fleet in the spring of 2013, and Princess's opening of a new beachhead in the Japanese market with the Sun Princess later in 2013.

Apart from AIDA, which is our strongest-performing brand in Europe, we have slowed our capacity increases for our North American and European brands.

Of the seven ships in our current order book, three are for AIDA, two for Princess, one for Costa and one for P&O.

The strategy adopted by the Company several years ago was to limit capacity growth to two to three ships per year to our fleet, with the addition of new ships through our brands being done on a more selective basis going forward.

As a result, the Royal Princess delivered in 2013 will be the first ship added to the Princess fleet in five years.

And the new P&O ship in the UK to be delivered in 2015 is five years after P&O's Azura was delivered in 2010.

The strategy is to build ships for those brands with stronger ROIs and which have been successful in taking on additional capacity in their markets without compromising pricing with the existing ships in their fleet.

Turning to earnings guidance for 2012, our guidance for the full year EPS is unchanged, with a midpoint of $1.85 and a range of $1.83 to $1.87, stronger-than-expected revenue yields, together with lower costs and expenses is expected to be offset by an increase in fuel costs in the fourth quarter, which is higher than we previously forecast.

Now let me turn to the fourth quarter.

Fleetwide capacity in the fourth quarter is expected to be 3.2% higher than last year, 3.9% for North America brands, 1.3% for EAA brands.

Fleetwide pricing, and this excludes Costa, is lower than a year ago, on slightly lower occupancies.

There was very little inventory left to sell in the fourth quarter.

North American brands are 43% in the Caribbean, slightly higher than a year ago, 14% in Europe, same as last year, with the balance in a variety of other itineraries.

North American brand pricing is lower than last year with similar year-over-year occupancies.

Caribbean pricing is flat versus a year ago, and Europe itinerary pricing is lower versus last year.

Pricing for all other itineraries taken together is slightly ahead of a year ago.

EAA pricing in the fourth quarter is lower versus last year at slightly lower occupancies.

This excludes Costa.

Pricing for Europe cruises, which represent 61% of EAA itineraries, is lower.

And for all other itineraries taken together, pricing is flat.

Costa's occupancies across all itineraries have caught up with last year, but at lower prices.

We do expect, however, that Costa's year-over-year revenue yield performance in the fourth quarter to improve from the third quarter.

Fourth-quarter 2012 earnings guidance is forecasted to come in between $0.07 and $0.11 a share for a midpoint of $0.09.

The $0.19 per share swing from the $0.28 per share in the fourth quarter of 2011 is comprised of lower pricing of $0.22 a share and negative changes in fuel and currency costing $0.08 a share.

And that $0.30 a share is offset by lower costs than we previously forecasted to get to the $0.19 downswing.

Now turning to the first quarter of 2013, for the first and second quarter of 2013, my comments include Costa's data for both years.

Fleetwide capacity for the fourth quarter of 2013 is expected to be higher by 4.1%, 3.5% in North America and 5.1% in EAA.

At the present time, fleetwide occupancies are lower than a year ago, with pricing slightly lower versus last year.

In the first quarter for North American brands, they are 65% in the Caribbean, about the same as last year at 13.5%, and Asia Pacific, up about 2.5 points from last year, and the balance is in various other itineraries.

North America brands taken together, occupancies and pricing are slightly lower year-over-year, as reported in our last call.

The pricing is higher for all but one of the North American brands, but slightly lower in total, probably due to itinerary changes and mix for that one brand.

As previously mentioned, revenue yield comparisons for first quarter 2013 versus first quarter 2012 will be tougher, given our strong first-quarter North American yield performance in 2012.

Caribbean pricing is slightly higher than a year ago, Asia Pacific pricing is lower, pricing for all other itineraries taken together is lower.

As to EAA brands in the first quarter, EAA is 24% in Europe itineraries versus 19% the prior year; 18% in the Caribbean, down from 22% in the prior year; 24% in Asia Pacific versus 21% in the prior year; and 18% in South America, which is about the same as last year.

On a fleetwide basis, EAA brand occupancies are behind last year, with slightly higher pricing excluding Costa and slightly lower pricing when Costa is included.

Although pricing and occupancy for Costa's bookings in Q1 are lower on a year-over-year basis, the year-over-year price differences from the third and fourth quarters of 2012 are narrowing.

Caribbean and South America pricing is slightly higher than a year ago and Europe and Asian Pacific pricing is lower.

On a fleetwide basis, we are currently expecting that by the time the first quarter closes, revenue yields will come in lower than the strong first quarter of 2012, primarily as the result of the lower EAA brand pricing.

Turning to the second quarter of 2013, fleetwide capacity for the second quarter is up 3.2%, 2.3% for North America, 4.5% for EAA brands.

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

Similar to the first quarter, the second-quarter comparisons are against the prior year, which at this time had stronger pricing.

Because of the falloff in bookings beginning last January, we expect second-quarter occupancies and pricing to show gradual year-over-year improvement as we fully cycle through January of 2013.

However, I should also caution that it is still early in the booking cycle and you should not read too much into the second-quarter booking picture at this time.

For North American brands, they are 53% in the Caribbean versus 56% last year, 13% in Asia Pacific versus 10% last year, with the balance in various other itineraries.

For North American brands taken together, occupancies and pricing are slightly lower, Caribbean pricing is slightly higher than a year ago, Asia Pacific pricing is lower than a year ago, prices for all other brand itineraries taken together are lower than a year ago.

EAA brands are 59% in Europe, up from 53% last year, with the balance in various other trades.

EAA brand pricing for Europe cruises is lower than last year and pricing for all other EAA brand itineraries taken together is flat versus a year ago at lower occupancies.

Although occupancies and pricing for the second quarter are lower than a year ago, we do expect to see a catch-up when we fully cycle last January's incidence.

And while it's still early in the second-quarter booking cycle, as I mentioned earlier, because of easier comparisons, we do expect to see an improvement in revenue yields beginning in the second quarter for both North America and EAA brands by the time the second quarter closes.

So, that is how we see the first half of 2013 shaping up from a revenue standpoint, as well as from a cost standpoint, as David pointed out.

With that, we will turn it back to you, Andre, for questions.

Thank you.

(Operator Instructions) Felicia Hendrix, Barclays.

Hi, good morning, and good afternoon to Beth and Micky.

First question is, Howard, I wonder if you could just touch on for a moment the promotional environment.

We know it's been heavy throughout this year.

But as you are looking towards the first half of '13, just wondering if you could tell us what that looks like.

Are you seeing a declining need to stimulate demand through promotions?

Well, you know, this is -- Felicia, it's a question that covers a number of different brands.

But broadly speaking, I think it is fair to say that in order to keep demand going, we have been and will continue to have fairly heavy spend in promotions and sales.

That seems to be driving the business.

And if we do it smart and we do it selectively, I think that's fine for us, I think.

But that has been going on for quite some time.

It really hasn't changed.

Now, look, that will vary by brand.

Some brands experiencing more demand right now, other brands a little bit slack demand, depending on the markets that they are in.

But they are pretty smart guys, and if they see kind of revenue falloff or booking falloffs, they are out there with their promotions in order to stimulate the market.

Okay, helpful.

And then --

I don't know if I can answer the question any better than that.

No, that's actually helpful and it gets to the crux of it.

I appreciate that.

And then just in terms of visibility, obviously you said second -- we all know when you look out that far, it's -- but has your visibility improved at all?

I guess what I am really asking is what does the booking curve look like?

Is the nature of the business still very close in?

And I am, again, not so concerned about the rest of this year.

But as we look to early '13, is it still very close in or is that getting -- is the booking curve getting extended a little bit?

For certain brands, it is still pretty -- it is still close in.

You are starting to see some evidence of it pushing out more recently, because of the recent increase in bookings over the last quarter.

But it's still closer in than it has been historically, so we are starting -- and that has been the pattern.

It is more so the pattern in the European brands, we're seeing it more in the European brands, but we are also seeing a little bit of it, but not quite as much, in the American brands.

Okay, thank you very much.

Sure.

Robin Farley, UBS.

Thanks.

I wanted to clarify one thing you said, Howard, and then I have a question.

Just looking at kind of the incremental rather than the cumulative booking, when you -- you made a comment about the last six weeks, that the first half of 2013 was higher, was that in volume or in price or was that both?

I don't know if I completely caught the specifics of that.

Yes, let me go back and check.

But I think -- it certainly wasn't volume -- it wasn't volume, and I think would depend on the market.

David?

What --?

Yes, we did comment in the press release.

It was up 9% for the last six weeks, excluding Costa, and prices were in line with last year's level.

And over the same period for Costa, we said 9% increases at lower prices.

Right.

Okay.

And then just looking at Costa and what has happened this year, obviously it looks like your full-year yield guidance didn't change that much for Costa, right?

It was sort of the non-Costa brands that has gotten a little better, and Costa yields may be still being down that 15% to 20% for the year.

Can you quantify how much of that you expect to be occupancy decline for the Costa brand this year versus price?

Because just thinking about recovery in 2013, that the occupancy is easier to see that coming back without having to even think about raising prices, just kind of thinking about that part of the recovery.

Yes, I think -- and David is looking up the occupancy declines year-over-year.

But when we look at -- when we go beyond into the second quarter and third quarters and fourth quarters, a good piece -- we're not -- a good piece -- I think we are looking for both price and occupancy increases.

Clearly, we expect occupancies to get back to more normal levels for the Costa brand.

But I think we are also expecting increase in pricing because of the easier comparisons.

But a good chunk of what we lost was -- in 2012, a good part of what we lost was occupancy, because we stopped -- we lost all the bookings during wave season, once it started, for Costa, and they didn't really get back into the market in any significant way until later on in the spring, and then still not in a very significant way.

So it was a tough year for marketing for Costa.

So it has been a struggle.

But we are starting to see the turnaround, but we won't start to really see it in the numbers until the second quarter of 2013.

Howard, the occupancy drop was 5% for the year, but it was over 11 and almost six for the second and third quarters.

So there was very significant occupancy hits in the second and third quarters, the third-quarter obviously being most important.

Yes, and as I mentioned, the fourth quarter was actually back with the same occupancy year-over-year, as you can see.

That -- the biggest hit was in that second and third quarter.

Yes, we are virtually flat in the fourth quarter with occupancy.

Right.

Okay, great.

Thank you.

Harry Curtis, Nomura.

Good morning.

A quick follow-up question on Costa.

Of the $3 billion to $3.1 billion in EBITDA that Carnival will generate this year, how much of a drag, EBITDA drag, was Costa?

And then by the same token of the $3.78 billion of EBITDA last year, how much did Costa contribute?

Why don't we focus -- can we focus easier on operating earnings -- operating earnings, Harry?

Will that work?

All right, that's fine.

Yes, that's fine.

Yes, you know, Harry, we had said back I think it was on the March call, that we had expected a decline in about (technical difficulty) that we expected them to lose --

Can you start again, please?

I'm sorry, David, we were interrupted.

No, that's okay.

Back on the March call, we had indicated that we were reducing our earnings as a result of Costa by about $500 million, and that Costa would lose about $100 million this year.

So, that was what we gave back in March.

It turned out to be a little bit better than that, but not significantly different.

Okay, and then --

The swing was $500 million negative.

The swing was $500 million negative from the December guidance, but the absolute was negative $100 million.

Okay, and then the second question I had relates to just changes in deployment.

If you move a ship from the European or Mediterranean market to Asia, should that generate higher or lower pricing at this point, and what impact does that have on your EBITDA?

Well, let me just mention to you that the Costa ship in Asia this year, which was a single ship, the first time we've had a 2000-passenger vessel, had enjoyed -- actually because it was very positive revenues and actually stronger revenues than we had for the rest of the Costa brand.

But, of course, the Costa brand was affected by the events of last January.

We're also -- and the reason for moving a second ship to Asia is, Costa was the first company really to start deployments in Asia for the Asian market in China.

And for many, many years, we made an investment in terms of taking up some losses.

We had first a small ship, then two small ships, and then we moved to the Costa Victoria, which is a larger ship.

We had these Classica there for a while as well.

So now we are going to show a small profit on the one ship in Asia, and that -- at good prices.

So we are going to move the second ship over.

It is not just China; it is all the other Asian markets as well for Costa.

So we expect it to be profitable.

And what sort of pricing, incremental pricing, are you -- do you expect to see over the course of the next six to 12 months in Asia?

I don't have that in front of me.

And to be honest with you, I haven't -- we are just in the process of starting to review operating plans, and I haven't even looked at the Costa operating plans.

We start that next week.

One of the reasons Micky and Beth are already over in London is -- we are flying over -- David and I are flying over on Thursday and we start our planning and budgeting reviews of each of the brands in Europe next week -- or later on this week.

Although, Harry, I can tell you, if you look back, the ship in Asia did better than the average of the Costa fleet in -- or expected to do in 2012; albeit keep in mind that those are depressed yields for Costa in 2012.

You also have to keep in mind you are talking about one ship on a 100-ship fleet.

So increased profitability or not on the margin is small compared to the 100-ship fleet.

That will do it for me.

Thanks.

Steve Wieczynski, Stifel Nicolaus.

Yes, good morning, guys.

First of all, I guess the on-board spend was a lot stronger -- well, not a lot stronger, but a good bit stronger than what we were looking for.

Can you just kind of comment?

Was that across-the-board?

And maybe what you've seen in terms of the European brands and how on-board has kind of trended over the last couple of months.

Yes, on-boards have been strong all year.

First of all, if you break out just on-boards from on-board and other, because the other was impacted to some degree, as I mentioned, by the accounting change we had for the Alaskan tour operations.

But on-board was up a little bit over 3%.

Excluding Costa on both sides of the Atlantic in the third quarter, it was up in the neighborhood of 2% to 3% in the first two quarters, and we're expecting -- we are forecasting about 2% in the third quarter on a normalized basis.

I say on a normalized basis because we had a couple of credits last year from guarantee payments in the fourth quarter of last year, so if you actually look at the as-reported numbers included in our forecasts, on-boards would look more flattish to down.

But we've had steady increases all year long and we've been very pleased with that, and it's essentially across all of the major categories.

We've seen increases in bar, we have seen casino, shore ex and shops, and those four categories make up about 80% of our on-board, so we are very pleased.

Okay, thanks.

Second question, I guess you guys just made a recent change in terms of your commission structure for just the Carnival brand.

Is this -- is that something you'll essentially try to push out to the rest of the brands?

And then kind of second question.

That is, has there been much pushback from your Asian community?

Yes, we didn't make any change in the commission structure.

All we did -- all Carnival Cruise Lines did was play some catch-up on override targets.

Virtually all our other brands and most of our competitive brands adjust their override targets based on capacity increases, and do it either every year or every other year, but do it on a relatively regular basis.

Carnival Cruise Lines hadn't done it in 10 years.

And so basically that was a catch-up of capacity increases, which over those 10 years was 50%, and adjusting and also simplifying the override goals.

That's all it was.

Okay, great.

Thanks for the color.

Steven Kent, Goldman Sachs.

Hi.

Good morning.

Could you just talk a little bit more about the capital allocation plans?

You did return some cash to shareholders through the $67 million stock buyback this quarter, but you have capacity for much more.

Could you just talk about how you were thinking about that, especially versus dividend.

And also, David in the past has talked about essentially a variable dividend where you would true up some kind of dividend payout based on your earnings or your cash flow.

How is the Board starting to think about these issues over the next six to 12 months?

Steve, you've got to keep in mind that our excess free cash flow for this year based off of our September guidance is almost about $400 million.

So we have returned in total -- I think it's $69 million through the share buyback program this year.

So there is not a huge amount of excess free cash flow for 2012.

But we will continue to opportunistically buy back shares.

As I mentioned, we still have $265 million remaining under the repurchase authorization.

You know, hopefully, that excess free cash flow will continue to increase.

And then as it increases, we have got to talk to the Board about the variety of alternatives we have that we've gone through in the past, including a formulaic annual dividend as one option.

But at the moment, these are things we're thinking about for the future when the excess free cash flow grows.

And the idea -- we've seen some other companies start to talk about a special dividend, especially this year.

Should we assume that is off the table?

Well, look, we have -- Steve, I think it is fair to say we have an October Board meeting when we discuss -- when discussions of dividends, purchases of stock, treasury stock and so on, come up.

So if there is anything to be said after the Board meeting, we will make an announcement.

I don't think that (multiple speakers) --

I don't want that to suggest that we are going to do anything.

Special dividend has not been high on our consideration list for this year.

Okay, thank you.

Greg Badishkanian, Citigroup.

Great, thanks.

Two questions.

First one, as you look across the different big European markets over the last month, two months, three months, has anyone market either gotten a lot better or a lot worse?

I would say the UK and Germany has held up better than we expected in the last two conference calls, I would say a little bit, while Italy, France and Spain struggled.

Well, I would say France did okay.

Italy and Spain continue, especially Spain, to be very difficult.

And actually surprisingly, Costa, despite having a difficult time pricing-wise, maintained its market share in these markets.

They either maintained or even increase market share in these markets, so I thought that was an interesting stat.

Good.

That's helpful.

And also, just with the volatility in the Middle East, has there been any impact to what you are seeing from your either North American or European source business over the last week or so?

I know the last six weeks have been pretty good, but in the last week have you seen some volatility around kind of the recent events?

We've had some itinerary port cancellations, but we only have -- I think if you look at '13 -- about less than 10% of our capacity calling in those kinds of ports, and most of it is behind us for '12.

The peak of it is generally in the third quarter, so it hasn't been much of an issue to date.

We do have one ship, the Costa has a small ship operating next year in the beginning of the year in the Red Sea, and that could be an issue if this continues much longer.

But other than that, it is just one small ship really.

Good, thank you.

Assia Georgieva, Infinity Research.

Good morning, guys.

My first question is with regards to your expectations about wave season 2013.

We had a very strong start to wave 2012, and so one would think that unless we had exogenous events we should probably expect a pretty decent wave 2013.

Has the changes in the European economies made you think that it may be less troubles than what we saw a year ago -- or earlier this year, rather?

I think at this point, it's difficult to say.

I think that Europe has been soft for a while, throughout this year, even -- last -- throughout '12, even '11, and we are seeing a continuation of it.

So the comparisons may not be all that difficult for us in Europe insofar as wave season is concerned.

We lost a lot of the wave last year after January.

So all the brands impacted last year's wave.

So relatively speaking, we came on strong, but then it weakened considerably in 2012.

This year, we suspect that it will be a more sustainable wave, but we will have a better picture of it later on in the year when we can see -- because we haven't really -- a lot of the more -- more marketing starts later in the fourth quarter, so will have a better sense of it from a demand standpoint.

Later in the fourth quarter, we will see how things go.

But I think we are feeling pretty positive about the situation.

But Europe is challenging, but we are there for the long term.

It is a strategy that we think will work.

We like the European demographics.

We like the market.

We think we are still -- the market is still considerably underpenetrated relative to other developed markets.

So we like our investments in Europe from a long-term standpoint, and we will get -- once we get through this quiet -- this difficult economic challenges that we are experiencing, especially in southern Europe, as Micky indicated, I think we will start to see some stabilization and some very positive results for the Company longer term.

Okay.

And my second question relates to Costa.

I understood that occupancy is flat at present year-on-year.

Am I correct in that or did I miss something?

No, what we said, it was in the fourth quarter that we -- our expectation was for occupancy to be especially essentially flat year-over-year.

Okay.

Right now, the existing occupancy, at this point, fourth-quarter, they have caught up, so they are flat year-over-year, relatively.

Okay, and based on that, should we expect that in 2013, instead of a loss -- the loss of $100 million in operating income that we saw this year, we may see profitability in the $200 million range?

Is that in the range?

We are not in a position at this point to give specific guidance on Costa for 2013, but we do expect Costa to do better next year and it will continue to improve.

We will see more improvement, obviously, in 2014 as well.

And so we will give you more color on that in December.

What I did say in my comments is that we are expecting solid profitability for Costa in 2013; so yes, we will get back to profitability.

You have to remember also that Costa will operate next year with three less ships than they had this time last year, because we sold the Marina and Allegra and we know what happened to the Concordia.

So even if they do very well, they are not going to have the revenue from those three potential ships.

But they may get pricing because they have less capacity to sell, hopefully.

Hopefully.

Okay.

Thank you so much for your answers.

Lena Thakkar, HSBC.

Hi, good afternoon -- and good morning, sorry.

Just firstly on Q4 yields, I am just trying to square this [up] along your guidance of minus 5 to minus 6, which is similar to where Q3 actually came in.

But then in Q3, you said a part of -- 3 percentage points of the 5 were down to Costa, and in Q4, the occupancy goes back to flat versus -- I think it was minus 6 in Q3.

So I am just trying to understand where the weakness -- the incremental weakness comes from.

Is it Costa pricing or pricing on brands outside of Costa in Q4 that you are expecting?

I think one of the things you've got to keep in mind is when you look at the fourth quarter, the on-board and other yields are down considerably from the third quarter because of all of the fourth quarter items that we had last year that I mentioned before in on-board and other.

The net passenger revenue is more flattish with the third quarter when you compare -- when you look at the total Company.

But I think what we said is that Costa's -- on a year-over-year basis, their pricing will come down from the third quarter because the fourth quarter is typically a challenging quarter, notwithstanding, because it's out of season as the demand factors are lower.

But we are seeing a narrowing on a year-over-year basis, meaning an improvement in Costa's pricing when you look at it.

And we expect that to continue into Q1 as well.

So, it is getting better.

But right now, as we sell -- we caught up on the occupancy; we are selling at lower prices to do that.

That is what I said.

I am not sure if I answered your question, but --

Yes, it was a fairly convoluted question, but that's helpful.

Thank you.

I would say -- the fourth quarter for Costa yields were slightly better, but it was more pricing than occupancy.

And for the rest of the Company outside of Costa, we are expecting yields to not show the same level of close-in demand that we enjoyed in the summer season, because it is seasonally a little bit weaker in the fourth quarter than you normally would see it for close-in demand during the summer.

Okay, that's helpful.

Thank you.

Thanks, Beth.

And then just a quick one on fuel consumption.

Obviously, the reduction there of 5.7% recently is significant.

I am just wondering how we should think about that going into 2013, and what your sort of ambitions are on reducing fuel consumption in the midterm.

We have this question every year now for three years.

We are working very hard to reduce consumption and we believe that we can continue to do that at significant levels, and I think next year we will do it again, is my perception.

Yes, I don't know that we will continue to achieve a 6% improvement, but it is certainly what we target.

We're looking 3% for the year, right?

We are looking at 3% for the year.

3% for the year (multiple speakers).

So are there any (multiple speakers)?

Go ahead.

Are there any special measures that you have taken to get it to that 6% level?

There isn't any one -- it is an accumulation of hundreds of little things that we have done over time to get to the 6%.

But there is a lot -- as we go through the next -- this past few years and the next several years going forward, there is a lot of retrofitting of equipment onto the ships to reduce consumption, power consumption; just more sophisticated controls, fan systems and so on.

And also where the opportunity comes up, we can change around itineraries a little bit to get some reduction in fuel costs.

So there is a variety of things that we are doing.

Okay.

Thank you very much.

Also I should mention from a metric standpoint, as we add ships to the fleet, the newer ships are far -- are designed for lower fuel consumption.

So we are seeing some marginal benefits in those numbers from that as well.

Okay, thank you.

Sure.

Jaime Katz, Morningstar.

Good morning.

Thanks for taking my call.

There was something in the press release that said due to the timing of certain expenses.

Can you refresh our memories on what those expenses might be, and if that is a permanent change going forward?

No, that was just a timing between the third and fourth quarter, and that was part of the reason why our costs were better than we had guided for the third quarter versus the June guidance.

You know, the largest item was an adjustment to one of our insurance reserves.

We expected the actuary to deliver the report in September and they delivered it last week in August, so we wound up making a journal entry.

There were some other changes in advertising, professional fees, hotel maintenance, et cetera, and it's really just the timing difference between the third and fourth quarter and not a permanent difference for the year or on an ongoing basis.

Okay.

And then, has any of the delivery of the ships in the future changed, where capacity growth maybe has changed a little bit for the forward years, or does that remain the same?

That's the same.

No, we haven't changed any delivery dates for existing -- for the existing order book.

Okay, perfect.

Thank you so much.

Rick Lyall, John W. Bristol.

Hi, guys.

Two questions.

One follow-up on the fuel conservation question.

The 6% number is maybe twice what you guys have realized previously in any quarter.

Can you talk about how much was itinerary and how much was on-board efficiency?

Rick, we don't have the detail between the technology versus itineraries.

There is a tremendous amount of detail we would have to go through to try to split that out.

We did actually forecast about a 4.5% increase within the third quarter.

We did better than we had expected.

I think I've said this in the past -- typically, our maritime guys are a bit conservative.

Hopefully they've been conservative for the fourth quarter as well, and we will do better than what we are expecting there.

But I don't have the detail to break that out.

Okay, thanks.

Follow-up question, just kind of looking at the numbers you cited on Costa, if we think about a $500 million swing and perhaps $100 million being removed due to capacity adjustments, should we think about your normalized level of profitability for Costa as $300 million?

You mean to get back to where we were the prior year?

Yes, yes.

Yes, I mean -- well, as a broad number, you could say that.

But a lot of the ships that went out --.

Look, the capacity that left were the two smaller ships, in addition to Concordia, so they were never very profitable ships to begin with.

So there's a devil in details here.

So I would rather not commit to anything like that.

But certainly, they are going to try to get back to as much profitability as they can.

It may -- but to climb back to where they were before will probably take another year or two beyond 2013.

Okay.

That was my follow-up question, if you thought you get there by three years, would be kind of like a return cliff or a return ramp?

We would hope.

We would (multiple speakers).

Okay, that's helpful.

Thanks very much.

Sure.

Sharon Zackfia, William Blair.

Hi, I apologize.

My phone has been going in and out during this call, so David, if you already talked about this, my apologies.

But you mentioned a few items that would pressure net cruise costs next year.

I was hoping you could give us some sort of order of magnitude on those buckets.

Sure.

Well, the largest is the deployment change.

They are all fairly similar in size, but the deployment change is the largest.

The MNOPF, or the multiemployer pension plan, is worth about $25 million next year.

And the Costa occupancy is slightly smaller than that on a unit cost basis.

And those are -- that is the relative magnitude of those items.

Okay, and of those three items, is the multiemployer pension plan kind of true-up, is that a one-time only issue for next year or is it ongoing?

Well, I would love to believe that it is one-time only, but we have had this one-time only issue every three years now for a number of cycles.

Apparently, the way it works is they do an estimate every three years and then they bill us.

This, remember, is a closed plan, so we've got no new members going in or anything like that, but we do have to fund the existing commitments.

So, if it was a deficit, depending upon what the stock market -- what happens in the stock market and all their investments over the next three years, there could be a deficit or surplus in 2016.

If there was a deficit, we would have to fund it.

Okay, thank you.

Ian Rennardson, Jefferies Capital.

Hi.

A couple questions for you.

The first one is the language you use to describe the outlook in the Q3 statement is almost the same as you used in the Q2.

So I was just slightly puzzled as to what you think has changed materially for the better in that period.

And then sort of leading on from that, what would you view as a good result for 2013 net revenue yield increase?

What would you be happy with as a management team?

Thank you.

I'll answer the first part.

The language in the press release is similar with regard to booking volumes.

Booking volumes were strong both in the period leading up to June and the period leading up to September.

In this current outlook, pricing has improved, so we're generating the same level of booking volumes with less price action.

Okay.

And, Ian, on the question of yield expectations for 2013, I think we will be in a much better position -- it is still early for us -- after we get through the planning process, which starts this week (multiple speakers) have a better --

Okay, and just --

We don't have it right now.

Okay.

Just as a quick follow-up would be, I think either you, Howard, or David said that the booking curve was a little bit closer than historically was the norm.

Does that mean you're outside of those numbers you have given us in the past about 55% to 75% next quarter out booked, or is it sort of still at the bottom end of that?

We're at the bottom end of the numbers that we've historically given you.

Yes.

Okay, fantastic.

Thank you.

I think what was said was that the North American market is basically in the norm, booking-pattern wise, but it's really the European market that's gotten a little bit closer in.

Okay, super.

Thanks.

Nick Thomas, Bank of America Merrill Lynch.

Yes, hello there.

I realize this is probably quite a difficult question to be precise about, but I wonder whether within your full-year net yield guidance, excluding the Costa brand, whether you could provide any sort of estimate of the extent to which that is negatively impacted as a result of what happened re the Costa Concordia in terms of the disruption to bookings curve at that stage of the year?

Nick, you were right on your introductory comment to that question.

It would just be a -- it would be a guessing game to know.

There were so many -- there was so much noise that we've had in the markets this year, apart from the event last January, including deteriorating economies, problems in Greece -- I mean, there are so many -- so many factors here.

Higher air fares this year for North Americans flying to Europe and the impact from that, I don't -- I couldn't even begin to guess.

Is there any validity -- I guess thinking back to the guidance that you gave in December on a groupwide basis, the guidance excluding Costa now is probably sort of a couple of points worse than that guidance.

Does that provide a decent steer, or is there too many other things that have occurred subsequently?

Clearly, at the time we gave the December guidance, we were comfortable with that guidance; you can do the math.

But a lot of things other than the events of January, as Howard said, has happened.

But I think clearly, right up until January 13, we were very, very comfortable that guidance was good or even conservative.

I mean, if you look at our guidance back last December, which was the midpoint of $2.70 a share, if you take fuel and currency changes, which affected us by about $0.30 a share, and just the Costa swing in profit is about $0.64 a share, that more than makes up for -- for where our guidance is of $1.85 today, that $0.90, $0.95.

So all of the -- in all other respects, I think we performed as expected.

And we gave up a little bit in yield on the outside of Costa with the other brands, but we've also saved quite a bit on the cost side.

And in fact, I think those two elements, if you take them together, probably would have taken us down even further than $1.85.

So we've improved from the operating line if you take fuel and currency and Costa out.

I am talking about now all the other brands to kind of give you a global picture.

In terms -- it's also how we see it, too.

So even with all that noise out there, we did okay.

The other brands did just fine, actually, if you take out the fuel part.

Sure, sure.

And then a completely different question if I can, just in relation to the fact that you have recommenced some share repurchases recently.

Whilst you're not going to be drawn on sort of how you will return funds to shareholders, is it logical, given you did some share repurchasing last year and you've done a little bit more recently, that we should be looking at your sort of overall leverage structure maybe on a debt-to-EBITDA basis this year and last year's end, and thinking about that as a level with which the management team is comfortable with?

And therefore going forward, to the extent that you've got excess free cash flow, one way or another, whether that is dividends, special dividends, share buybacks, you would look to keep that kind of leverage structure in place.

Is that a logical way to think about how you think about that issue?

It's close.

The answer is yes.

Thank you.

Tim Conder, Wells Fargo Securities.

Thank you.

Can you hear me?

Yes, we can hear you fine, Tim.

Okay, I apologize.

Just a follow-up on one of the previous questions.

Costa getting back to roughly a $300 million normalized run rate, it would then be reasonable -- again, just to clarify a previous answer -- you are saying 2014 or 2015, you feel more comfortable in that area, without honestly really knowing?

Yes, I mean, it --

We get the capacity back at the end of 2014, so that would give them the opportunity really of getting back fully in 2015.

But it's going to take some steps, as Howard said.

It's going to take two or three years.

But we are going to make a very positive step.

We believe we're going to make a very positive step in the first year.

Okay.

And I apologize if I missed this, but just any color on dealing with the increased emissions requirements going forward and some of the things that have been coming out regarding credits and so forth?

And again, I apologize if you made any commentary on that earlier in the call.

No, we didn't comment on the call.

We continue to work with EPA to try to come up with an arrangement, at least for the next several years, to see if we can do something called averaging, weighted averaging.

We haven't been successful, but -- we have got that also from a legislative agenda standpoint in Washington.

We are also pushing for a legislative fix to allow us a period of time to demonstrate what we can do on a weighted averaging basis.

But I would also say that when it comes to this issue that there's a number of new technologies that are going on in the R&D area and research area that we are very hopeful on that could help us in this respect as well.

So, we continue to work so that by the time 2015 comes around, when these ECAs get spread across the globe, we can mitigate the increased fuel cost.

But there is a lot between now and then -- a lot of time between now and then, and we're hopeful we can get it done in one form or another.

And then again also, the $180 million guidance that you've given previously on that, that was on a static fleet at that point in time of guidance.

And clearly, you've made additional progress since then, so even more opportunity beyond now, correct?

Yes, we will take a look and update those numbers in our 10-K.

Okay, great.

Thanks, David.

Talking about 2015.

Yes.

Jamie Rollo, Morgan Stanley.

Yes, thanks.

Just two quick ones on cost please.

Has your underlying cost guidance changed?

I see the one-offs you've mentioned.

But are you sort of looking for net unit costs of flat to half inflation, or are you finding sort of more pressures as your capacity growth slows?

I think what I was trying to indicate is we have these unique items that are going to affect our costs next year, which would be probably on top of flat to half of inflation, is a good way of thinking about it.

So the 1.5% to 2% excludes the flat to half inflation?

It excludes the flat to half of inflation.

But I will throw in one other point to think about, is that this year, we did have some unique items relating to ship incidences, which will go away, which will benefit us to the tune of about a half a point.

So net, you're probably looking at 1 to 1.5 points on top of flat to half of inflation.

Okay, thanks.

And then the other one is just on your bunker guidance for Q4, 739.

It's about 20% above the guidance a quarter ago, but wholesale price is up by about half that or less.

Is there anything in that number?

It looks very high to me.

Well, you've got to keep in mind that there's also some additional ECA requirements in the fourth quarter that weren't in the third, because on August 1 is when the ECA requirements started, and so that will affect the comparisons that you are looking at.

What is the impact for 2013 then on that basis, for the remaining nine quarters?

Let's see.

On an annualized basis, you are probably looking at an ECA impact of, let's just say, $50 million to $55 million, and probably a third or 40% of that was in this year.

So you've probably gone an incremental 30 odd million dollars next year.

Okay.

Thank you very much.

Felicia Hendrix, Barclays.

Okay.

Hi, thanks.

Just quickly, Beth, if you could just give us your second, third and fourth quarter deployment in the Med.

And I think, Micky said that you have about 10% in Eastern Med.

Just wanted to confirm that.

Yes, for the second, third and fourth -- you're asking for 2013?

I'm just trying to figure out --.

Yes, 2013.

So 2013 in the Med, we have 6% in first quarter, 17% in the second quarter, 25% in the third quarter, 28% in the fourth quarter, and 19% of the full year.

And that is both east and west.

So of the 19%, roughly half of it is the eastern portion.

And how much was eastern this year, in 2012?

It was about the same.

It was less than 10%.

Okay, great.

Thanks.

Rick Lyall, John W. Bristol.

Just one last question, guys.

What were the unreimbursed or uninsured expenses that ran through your P&L for the yet incident?

It was about -- well, through the nine months, about $30 million.

And that is pretty much it for the year.

There may be another million or something, not much.

Okay.

Thanks, David.

We have no further questions at this time.

Okay.

Well, thank you all very much for your questions, and if there is any follow-on, I guess people will get in touch with Beth.

But everybody have a great day.

Ladies and gentlemen, this does conclude the conference for today.

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

Thanks, everybody.