嘉年華遊輪 (CCL) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the second-quarter 2013 earnings conference call.

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

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

(Operator Instructions).

As a reminder, this conference is being recorded Tuesday, June 25, 2013.

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

Please go ahead, sir.

Thank you, Andre.

Good morning, everyone.

With me this morning is Micky Arison, our Chairman and CEO, at least he will be the CEO until sometime this early July.

Along with Arnold Donald, who is also here this morning on the call and Arnold of course is as you know from the announcement, will be our CEO beginning sometime in early July.

David Bernstein and Beth Roberts are also with me as well.

Let's start this morning off with some comments by Micky in terms of the changes that have been made.

Micky?

Thank you, Howard.

Most of you will have seen the organizational announcement that we released this morning.

I just want to make a few brief comments to reinforce what was said in the statement.

I have decided and the Board has agreed that this is a good time to split the roles of Chairman and CEO for Carnival Corp.

I am not going anywhere, I will remain Chairman and my plan is to continue in that role for the foreseeable future.

You can be assured that I will continue to do everything I can to add value to all our shareholders and in fact, all of our stakeholders.

I am very committed to the continued success of the Company and all of its brands.

I will work closely with the Board and our management team to guide the next phase of our growth and I am excited about the future.

I will continue to dedicate my experience and my energy to it.

I have been discussing this with the Board for some time now and we have had a robust transition plan in place with a deep bench of excellent internal executives in our brands and corporate functions plus a very strong group of individuals on our Board.

So we were well positioned to make this decision.

We announced today that our board member, Arnold Donald, will become CEO starting next month.

I believe Arnold is the best person for this job.

He has been an asset — he will be an asset to the future of this organization and I am very pleased that he has agreed to take on this role and will drive the Company to the next level.

Howard, our Vice Chairman and COO, will continue in that role.

He will continue to bring his many years of experience to the operation of the Company and he and I will work closely with Arnold to generate the growth and performance that everyone expects from our Company.

As stated in our release, Arnold's experience, qualifications make him well-suited for the CEO role.

He has a unique combination of Board level knowledge of our Company and personal experience building and leading successful businesses.

I know he will be as successful in his new role as CEO.

Many of you will have a chance to meet him in the coming weeks and months and I would like to invite Arnold to make a few statements.

Thank you, Micky.

Good morning, everyone.

As you all know, Micky is a great leader and in collaboration with Howard, you have witnessed him build with his team the largest and most successful leisure travel business in the world and I am personally honored and I am very enthused to have the opportunity to join and operationally lead the team here at Carnival in our next stage of growth.

My experiences in operating businesses and as a Board member certainly gives me the appreciation that it will be very necessary for me to spend some time getting into much greater depth on the Company's operations, finance, marketing and strategy but I am optimistic for an accelerated on-boarding process and being able to make a contribution as CEO relatively quickly thanks to having the advantage of some level of understanding of the Company from my governance role and many years of close observation.

I know a lot of the key people in this organization well having seen them present at Board meetings and other reviews for Board members and having spent time with them personally concerning their roles and their points of view.

Those experiences give me strong confidence that Carnival Corporation plc has a great team, excellent fundamentals of the business, a very bright future and we are well equipped to address over time, any challenges facing our industry.

I am looking forward to helping to more profitably consistently deliver on our promise of an exceptional, joyful vacation experience at a great value as perceived by our 10 million plus passengers yearly reinforcing our Company's strengths, expanding globally, the appeal of our Carnival lines and over time driving our return on invested capital at higher levels.

I am very much looking forward to meeting with our investors, our policymakers, our business partners around the world in the next several months and I want to assure you that I expect to be accountable, that I believe as the current management team does, in transparency and responsiveness when it comes to the important relationships our company has.

And I am very much again looking forward for the chance to meet with you over time.

I am fully committed to creating value for our investors and all of the stakeholders that Carnival serves and I'm very eager to start in the next few days.

Thank you.

Thank you, Arnold.

This is Howard again.

Let me — let's go back to the usual format and David will take you through the color for the second quarter.

David?

Thank you, Howard.

Before I begin, please note that some of our remarks on this conference call will be forward-looking.

I will refer you to the cautionary statement in today's press release.

Also all of my references to revenue and cost metrics will be in local currencies unless otherwise noted as this is a much more useful measure of business trends.

Our non-GAAP EPS for the second quarter was $0.09 per share.

The second quarter came in $0.03 above the midpoint of our May guidance driven primarily by the timing of SG&A expenses between second quarter and the remainder of the year.

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

Our capacity increased 1%.

The Europe, Australia and Asia brands known as our EAA brands, were up 4.6% driven by increases in AIDA and Costa while our North American brands were down 1% as a result of more drydock days in the second quarter compared to the prior year.

Our total net revenue yields in the second quarter declined almost 2%.

Now let's look at the two components of net revenue yields.

Our net ticket yields declined 2.7%.

Our EAA brands were down 3.8% driven by declines in Northern European brands partially offset by increases at Costa and P&O Cruises Australia.

The North American brands were down 1.8% driven primarily by promotional discounting at Carnival Cruise Lines.

Net on-board and other yields increased 0.5%.

The small increase in net on-board and other yields that we saw in the first quarter continued in the second quarter.

On the cost side, net cruise cost per unavailable lower berth day excluding fuel, were up almost 9% versus the prior year.

This increase was slightly less than we expected in our May guidance.

The 9% increase from last year was driven by Carnival Triumph repair costs, non-recurrence of last year's one-time litigation and other settlements, incremental insurance costs and more drydock days compared to the prior year.

As a result of our ongoing efforts to reduce fuel usage, our consumption per unavailable lower berth day declined almost 6% this quarter which is much more than we had anticipated earlier in the year and saved us $0.05 per share versus the prior year.

Fuel savings this quarter — fuel prices this quarter were down almost 10% versus the prior year which saved us an additional $0.08 per share.

In summary, the second quarter non-GAAP EPS was $0.11 lower than 2012 earnings of $0.20 per share driven by higher net cruise cost without fuel, lower net revenue yields which were partially offset by lower fuel expenses.

During the second quarter, we took the opportunity to increase our fuel derivative coverage.

We now have zero cost collars to protect our P&L against fuel price spikes for about 40% of our consumption for the remainder of 2013 through 2016 and 25% for 2017.

In addition during the second quarter, we also took the opportunity to narrow the floor and ceiling bands on a few of our outstanding collars.

In our earnings press release you can see the complete list of our current derivative position for each year.

Now turning to our 2013 outlook, I will skip the net revenue yields as Howard will discuss that shortly.

For the full year, net cruise costs excluding fuel per ALBD are forecasted to be up 3.5% to 4.5% versus the prior year.

This is the same as our interim May guidance but 1 percentage point higher than our March guidance driven by increased selling and administrative expenses as certain of our brands expect to increase their marketing spend in the back half of 2013.

On a final note for 2013 at the midpoint of our guidance range, we expect our cash from operations to be $2.7 billion and our net capital investment is forecasted to be $2.1 billion.

At $0.25 per share, our regular quarterly dividend represents $775 million of cash being returned to shareholders on an annual basis.

Therefore, we expect that cash from operations will cover substantially all of our CapEx and our regular quarterly dividends.

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

Thank you, David.

I will comment separately on the call about the progress we made at Carnival Cruise Lines and Costa Cruises.

But first let me bring you up to date on the last 11 weeks of bookings since the end of March.

For this discussion, I've taken Carnival Cruise Lines bookings information out of the mix which I will also comment on separately.

All of the pricing information I will be discussing is using constant currencies.

Fleetwide bookings during the last 11 weeks from the end of March covering the next three quarters are running higher year-over-year at higher prices and as I said, this excludes Carnival.

The North American brand's bookings and pricing during this 11 week period are higher and for EAA brands, bookings are also higher versus the prior year.

We see the EAA booking pattern as particularly encouraging sign especially given the continued softness in the European economies.

For Carnival Cruise Lines, bookings and pricing over the last 11 weeks are both lower year-over-year in the high single digits, low double digits range we expected.

During the last six weeks, there is been a gradual improvement in Carnival's booking volumes and pricing and we are hopeful that this trend will continue.

With the successful reintroduction of the Carnival Triumph in Galveston two weeks ago, we believe this will serve as a bottoming inflection point and we are exciting Carnival Cruise Lines pricing to gradually improve over time.

Breaking the bookings down by major trades for North America brands, Caribbean itinerary booking volumes in the last 11 weeks covering the next three quarters and this excludes Carnival are slightly lower year-over-year at slightly higher prices.

Alaska bookings again excluding Carnival are significantly higher at lower prices and European itinerary bookings for North America brands and this of course excludes Carnival as well are slightly lower at nicely higher prices.

By major trades for EAA brands, European itinerary booking volumes in that approximately 60% of EAA capacity are significantly higher and at higher prices, a very encouraging signs.

Caribbean itinerary (inaudible) for EAA brands which are just under 10% of EAA capacity are running behind last year but also at nicely higher prices.

Now let me comment on the cumulative booking status for each of the third and fourth quarters of 2013 and Q1 of 2014.

For the third quarter on a fleetwide basis at the present time, occupancies are slightly behind last year at slightly lower prices.

North American brand occupancies and this excludes Carnival, are slightly behind at flattish pricing.

Alaska pricing is behind last year and North American brand European itinerary pricing is higher versus last year.

Carnival Cruise Lines pricing is lower on all of its major itineraries versus last year.

EAA brand occupancies for the third quarter which are largely in Europe trades, are slightly behind last year at lower pricing.

Occupancies for our Asian and Australian businesses are nicely higher year-over-year with slightly higher pricing.

The performance of Costa in China is particularly encouraging given the doubling of its capacity in Asia during the quarter.

As we said in the press release for the third quarter we are forecasting revenue yields to be lower by 3.5% to 4.5%.

If we take Carnival out of that mix, revenue yields will be lower in the 1.5% to 2.5% range.

For the fourth quarter on a fleetwide basis excluding Carnival cumulative occupancy are slightly lower at slightly lower pricing.

For North American brands excluding Carnival again, occupancies are lower at higher prices.

Carnival Cruise Lines occupancies for the fourth quarter are also lower at higher prices, slightly higher prices.

For EAA brands, occupancies are flattish year-over-year at lower prices.

Costa brand occupancies for the fourth quarter are nicely higher at lower prices.

(technical difficulty) in the last several quarters that Costa has been ahead of the closer in booking curve this early in the booking process.

We read this as a very positive sign and are expecting Costa to have a nice increase in revenue yields in the fourth quarter.

The first quarter of 2014 data is very preliminary but the picture shows that on a fleetwide basis, and this includes Carnival, occupancies are lower year-over-year at higher prices.

North American brand's occupancies again including Carnival, are lower year-over-year at nicely higher prices.

The EAA brand's occupancies are also lower at slightly higher prices but this information is early and I wouldn't read too much into it.

Now let me just make some separate comments about the Carnival Cruise Lines brands if you will.

The impact of the ship incidents earlier this year on the Carnival brand has resulted in Carnival having to make a significant reduction in its profit forecast for the remainder of this year.

Carnival forecasted year-over-year profit decline is estimated to have a 50% per share effect on the Company's year-over-year results.

Of this approximately $0.27 is primarily due to lower revenue yields, $0.16 results from lost sailings and repair costs relating to the Carnival Triumph refurbishment, increased cost for Carnival's vessel enhancement programs and a higher planned marketing spend in the second half of the year for Carnival Cruise Lines amounted to $0.07 a share and that builds to the $0.50 decline year-over-year results.

As I said earlier, we do believe the successful reintroduction of the Carnival Triumph earlier this month together with the ship enhancements that will be made will be the catalyst for the Carnival turnaround.

I should add that the Carnival brand is very resilient with a very large number of past guests that understand the great fun experience and value of the Carnival vacation.

Almost 4.5 million guests sail with Carnival every year and have a great vacation.

We are confident that as time passes this brand will come back stronger than ever.

Having said that, our advisors are saying that the recovery will be gradual and it will take two to three years for the Carnival brand to fully recover but the good news is that it appears that the recovery has started.

Based on recent surveys, consumer perception of the brand has significantly improved since the incidence back in March and we expect this trend to continue as confidence builds back in the brand.

We will need to cycle through a full year before we begin to see positive pricing comparisons which should begin in the second half of 2014.

I also want to take this moment to thank the travel agent community for their support to Carnival Cruise Lines during this period.

Travel agents know that Carnival provides great fun packed vacations to a wide spectrum of consumers, families, adults, adult couples, singles and retirees and at very affordable prices.

Many of our travel agent partners have been very supportive of Carnival during this challenging period and for that we are very grateful.

On the other side of the Atlantic, Costa Cruises' market recovery continues.

The Company is forecasting a return to profitability this year from a loss in 2012.

Michael Thamm has made a number of changes in the management team and we are starting to see the results of those efforts.

The perception of the brand in the Italian market which is its largest market, has significantly improved from last year and continues to trend in a positive direction.

Recent year-over-year booking volumes and pricing have been strong and it appears that the Costa recovery is well underway.

Of course a major challenge in Europe right now is the weakened economies especially in Italy and Spain but we still expect to grow year-over-year revenue yields for Costa in 2013.

Second-quarter revenue yields for Costa were higher year-over-year, as David mentioned, and we expect Costa revenue yields for the third and fourth quarters to also be higher.

From an overall perspective while the year 2013 is disappointing for our Company, we believe the worst is over and a gradual recovery to our business is starting to build.

In North America, our premium luxury brands will have a solid performance in 2013.

However, it is clear that more needs to be done to strengthen consumer demand for taking cruise vacations.

So beginning in the second half of the year, we are planning to increase marketing spend across all North American brands and expect this to continue into 2014.

Let me bring you up-to-date on several recent management changes at the Company.

Roger Frizzell joined us just yesterday as a Senior VP of Corporate Communications.

Roger will be very helpful to us in working in our media relations as well as developing a corporate communications plan.

Roger joins Carnival after a very successful track record at several major companies including Pacific Gas & Electric, American Airlines, Hewlett-Packard and AT&T.

Captain David Christie has also joined the corporate management team as a Senior Vice President Maritime Quality Assurance.

David was instrumental in establishing our CSMART simulated training facility in Almere in the Netherlands and is leading the effort on behalf of the corporation to build our new global training facility which will also be located in the Netherlands.

This new training facility will include five bridge and four engine room simulators as well as an additional training and classroom facility for our ship and shore side staff.

We believe this new Carnival education and training center of excellence will be the largest and most comprehensive maritime facility in the world.

Captain Mike Kaczmarek has moved over full-time as Vice President of our Corporate R&D Technology Group.

This group has been responsible for developing the new scrubber technology which is now successfully operated under a pilot program on one of our ships.

We are planning to install the scrubbers on two more ships later this year and we expect to begin a full rollout of scrubber installations on our ship in 2014.

We have a number of other R&D projects underway primarily focused on fuel savings technology including the piloting of a bubble system on one of our ships later this year to improve the ship's hydrodynamics.

Later in 2014, we are pilot testing using LNG on one of our ships.

We have made significant R&D investments over the last several years and the results have been gratifying with fuel savings in 2013 although forecasted to be at 5%.

We have also begun the search for a Corporate Executive Vice President to oversee the various maritime departments in the corporate organization.

This includes our corporate maritime policy, our maritime quality assurance and which includes CSMART in our maritime auditing group.

This executive will also have a see-through line of sight to the senior maritime executives in each of the operating companies.

These corporate management changes are part of our plan to move towards a more consistent maritime and technical policies and practices throughout the worldwide fleet.

We've also made a number of changes to our management teams at Costa and Carnival UK and we are confident that under Michael Thamm and David Dingle's leadership our European businesses will continue to improve in 2014.

The Carnival Cruise Lines and Marine and Technical management team has recently been augmented with the additions of Richard O'Hanlon, a former U.S. Navy Admiral as Vice President of Nautical Safety Operations, and Mark Jackson, a former Coast Guard Captain as Vice President of Technical Operations.

Turning to our newbuild program, our current schedule includes seven new ships to be added to be fleet between now and 2016.

Two of the ships are for the AIDA brand, the strongest performing brand in the fleet and the remaining five ships on order are spread across five of our other major brands.

We believe these new ships which have a capacity of 50% to 70% higher than the existing ships in their respective fleets are far more fuel-efficient and will help to improve our return on invested capital for the Company.

We plan to add ships to our fleet only where we believe we can generate higher overall ROI for the brand.

In other words, ships that will improve the brand's operating margins without negatively affecting the margins on the existing ships in the brand.

At the same time, we continue to seek buyers for certain of our older and smaller ships and those efforts are ongoing.

So with those comments Mickey, Arnold and the rest of the team is here to answer any questions you might have.

Andre, can I turn it over to you now?

(Operator Instructions).

Felicia Hendrix, Barclays.

Good morning, everybody.

Micky, for you first.

Congratulations on your Heat win and also on the next chapter of your life.

I am just wondering as you transition to your Chairman-only role, are you immediately relinquishing all the day-to-day roles including those related to operations, shipbuilding?

Just wondering how involved you are going to be.

You were deliberate to say in your prepared remarks that you weren't going anywhere so I am just wondering how you view your role going forward?

Primarily, I view my role as doing whatever Arnold needs me to do.

My basic philosophy has been with all of our CEOs that I am there to help them be successful and anything that I can do to make to help Arnold become hugely successful and the Company hugely successful, I am prepared to do.

So I obviously will continue to work on areas that I have extensive knowledge in new buildings and other areas but it is really going to be a collaborative thing between me and Arnold to decide what are the best uses of my time.

I am going to be looking to Arnold to run the day-to-day corporate operation and I may even take a couple of golf lessons.

Sounds nice.

I am kind of jealous.

Arnold, congratulations to you as well and also since you aren't new to the Company and now in the CEO role, what do think are going to be your immediate agenda items?

Thank you.

Immediately we are T minus eight days or nine days, whatever it is before I come in.

But the immediate thing is to spend in-depth time with the leadership team and we have some tentative plans as a team Mickey, I and Howard together and we will refine those through conversations with the rest of the leadership team.

But immediately is to spend time with them and then ultimately of course to contribute to a very strong team that is already proven in the industry has built the world's largest leisure travel business and has continued to operate successfully and to join that team and help drive over time the return on invested capital and additional customer satisfaction.

Okay, thank you.

Howard, have I burned through my question or can I ask one more?

You can because you are so nice, we are going to let you have one more question.

Thank you.

Howard, this one is for you.

On the Carnival brand, you gave us some great color as usual.

I appreciate that but just wondering what areas do you think you have the most work to do?

Is it with the travel agents, is it with the consumers, is it both?

Just wondering if you could walk us through some specific examples of efforts you have been making there and maybe highlight some of the near-term wins that you may have had if any?

I think the Carnival team, the marketing team and the sales team have been increasing their engagement with the travel agent community and that will continue.

There are more things to roll out.

I think the reintroduction of the Triumph was sort of the tipping point I think for beginning that process and they are very encouraged by the early responses they have been getting and we have been seeing it actually in the booking pattern itself.

The successful reintroduction of the ship in Galveston was a very positive event for the Company.

We have also put out a lot of communications on all of the investments we have been making with the ships to get people to rebuild trust in the brand and especially that is important with the consumer and the first time cruiser.

That is going to go on for quite some time.

So there is a multitude of efforts being made by Jerry and his team to move this forward and you will see a lot more unfold I think over the next six months.

If I can just add that when you are carrying 4.5 million passengers most with of coming from the United States meaning that upwards of one and three passengers that go on a cruise in the United States go on a Carnival cruise and 99% of them are coming back happy and telling their friends and getting on Facebook and Twitter and telling people what a great time they have had, that is powerful.

90,000 folks every single week coming off those ships in the US and talking about the great experience, and then right now the great value they got as well.

So I think that will help accelerate the come back of the brand.

Okay, great.

Thanks and congratulations, Micky and Arnold again.

Greg Badishkanian, Citigroup.

Great, thank you.

Congratulations, Arnold and Micky as well.

My questions are first just in terms of your two- to three-year estimate for recovery of the Carnival brand, what assumptions are behind that of the people that you spoke with?

I don't think there is any past industry events but did you look outside the industry for examples or what helped you determine that?

Yes, our consultants have basically used an analogy of two other — non-industry events and we are tracking the same way — in terms of consumer perception, we are tracking the same way which was a significant falloff in brand perception and a gradual recovery until it is three years out.

So their view is that while we are a very different industry it is likely that we will follow the same pattern and that of course assumes that we get it right and we get the marketing out there right and we get our media communications out there properly and we continue to stay in touch with our consumers and our travel (technical difficulty)

— were added to the Triumph, a few were added to the Triumph but all of them were put into the Carnival Sunshine.

And the response from the guests of all of these various new features have been just absolutely fantastic.

So I think Jerry and his team as far as upgrading the product and making Fun Ship 2.0 a really viable addition to the Carnival brand particularly on Carnival Sunshine has been hugely successful.

Good, thank you very much.

Harry Curtis, Nomura Securities.

Good morning.

Can you give us a sense of the repair costs that you have isolated in 2013 as $0.16 per share, how much of those are likely to bleed into 2014?

The repair cost should be for the Carnival Triumph should be completely done.

There is a little bit in the third quarter but that will be it.

And what about retrofit, will that continue into 2014?

You are talking about the vessel enhancements?

Correct.

Yes, we had talked about the vessel enhancements being a multiple year process so there will be some of that in 2014 as well.

Can you quantify that for me?

Not at this point.

It was probably around $0.06, $0.07 a share in 2013 but we are working through those issues as we put together the (inaudible) detailed schedule for 2014 and I will probably give you more color on that later in the year.

We typically wait and to do that we will have really much better information later on in the year after we go through the individual business plans for the operating companies and see what their plan is for the 2014 rollout of these investments.

Keep in mind though that the overwhelming majority of the $600 million to $700 million that was in the press release is CapEx.

There is only some small pieces that will be in the P&L.

And then a similar question as far as marketing, you isolated that at $0.07 a share this year.

Do you think that that incremental cost stays about the same next year or does it go higher or might it come down a bit?

Harry, again, let's just wait until the end of the year when we go through the business plans.

I think each of the brands and it is also true in Europe as well, are also looking to get changes in their marketing approach.

So we will have a better sense of overall increase in marketing for 2014 but that won't happen until sometime later in the fall.

Okay.

And then greetings, Arnold.

You have been on the Board for 12 years, you have got a pretty good idea of how Carnival runs.

Do you see any pretty clear opportunities to improve the Company's return on invested capital?

Is there any low hanging fruit that you think you might want to focus on?

As you know, there is a difference between being on the Board and being in operation so I have had close observation.

I think the team in place has been in continuous improvement in terms of cost management as well as revenue generation so I feel strongly that we will discover some opportunities, additional opportunities, along the way but I feel the team is performing very well right now.

Okay, very good.

Let me just jump in here for a second.

I think the view is that to drive increased — we can at the margin improve ROIs in a variety of different ways including some of the things in terms of a new builds that we have that are much better more efficient ships and so on but drive much higher returns but clearly revenue improvement is part of our plan.

We need to do that.

I think we will see some of that naturally occur as the Costa brand improves and as the Carnival brand improves, we will start to see some benefit from that.

And I think one of the thoughts that are going around in the various companies is the increase in the marketing spend I think that we are talking about is also being planned I think to drive better revenues than on the net line.

So I think those are the kinds of strategies that we are talking about right now.

Thanks.

Appreciate it.

Sure.

Ian Rennardson, Jefferies.

Thank you.

I've got two lines of questioning for you please.

Number one is regarding the new CEO role.

Did you search both internally and externally for the new CEO?

What is the mandate and do we really see any material shift in policy and strategy?

Do you think we will be adding more capacity than planned?

And then the second revolves around the ECA, the oil price.

2015 is not that far away on your 10-K tells us you have got in a worst case $265 million of extra costs because of the low sulfur fuel requirement.

Are you in a position to talk to us about how you can mitigate that to what degree you can mitigate that and if you can mitigate it, what the extra CapEx might be?

Thank you.

First, on the issue of the Chairman, CEO role, we have been talking — I have been talking to the independent Directors of the Board for quite some time about where we go from here as far as corporate management and structure.

We said 10 years ago in our discussions in the UK that we were totally committed to the [BLC] structure, very sensitive to UK governance and have moved in that direction over the years and obviously a key element of those discussions over the last 10 years has been splitting of the Chairman and CEO role.

So I have been sensitive to that for quite some time.

We have been about it for quite some time.

Myself and Stu Subotnick, who is the lead independent Director and Chairman of the Nominating Governance Committee, talked extensively with the committee about various candidates.

We did not do a full — we didn't hire consultants to do a full external search.

We felt very, very comfortable.

I recommended Arnold as a choice and Stu and the committee immediately supported that as well as all of the independent directors.

So we felt we had the right candidate, there was no reason to go beyond that and I am delighted that we didn't know when Stu called Arnold whether it would be something he would entertain and we were delighted he did and that is the direction we went.

Clearly this ties much greater with the UK governance model than the US but I think even in the US, it is starting to move in this direction.

That is the way it all happened.

Thank you, Micky.

Howard did mention in his notes that we had a scrubber that is successfully operating on one of our ships and we are going to put scrubbers on two more ships later this year and that we then expect to roll out the scrubber installations in 2014.

We may not have every single ship equipped with scrubbers by January 1, 2015, but we will clearly prioritize those ships that have the biggest impact.

So into 2015 with the new ECA, we do believe we can mitigate a significant portion of that $265 million.

We may not get it all in 2015 but we will get it all shortly thereafter as we do the installation.

It is about $1 million to $1.5 million per engine.

You have to do at least a couple of engines on each ship so it is a significant amount of CapEx but the numbers that we have been giving out for CapEx do include our anticipated scrubber CapEx as well.

So those are already in the numbers you have heard Beth give out.

Okay, that is very clear.

Thank you.

Jamie Rollo, Morgan Stanley.

Thank you.

First question, I think you said the Carnival brand that as you cycle through next year that yields wouldn't recover until the second half.

So is that sort of an informal guidance for yields on the Carnival brand to be down in the first half broadly?

And then the second question was on the implied yield guidance for the fourth quarter, it looks like quite a wide range of between zero and down 4% and zero would be a pretty big recovery from Q3's minus 4% guidance figure.

I was wondering if you could talk a bit about that please and where the risk lies within that Q4 range?

This is Howard.

The Carnival cycling through a full year before it starts to see positive pricing was not meant to be guidance.

What I meant to say is that we will begin to see in the second half of 2014 the possibility of yield improvement on the pricing that we are taking on a year-over-year basis.

So it will be — because of the easier comparisons and if you assume improvement in the perception of the brand, that we should start to see some pricing improvement.

How that falls out in the third and fourth quarters remains to be seen so I'm not suggesting that is guidance but we are hopeful that that will be the beginning of a positive year-over-year improvement in pricing.

On the issue of yield guidance, I'm going to turn it over to David.

Jamie, this is what happens when you round everything to whole percentages in all.

I understand the math that you are working through.

The expectation on the fourth quarter is that we will see a little bit better than the third quarter.

We are, as Howard mentioned, we are seeing continued improvement particularly in Costa in Europe and as those brands improve in the fourth quarter, the number will be a little bit better than third quarter.

Still down but a little bit better than third.

Okay, thanks.

Can I just follow up from the previous question on scrubbers.

I was under the impression they made engines a bit less fuel efficient just on a consumption basis obviously cleaner with sulfur but — would there be any impact on fuel consumption once they are fully rolled out?

There are some incremental operating expenses relating to the scrubbers but there really isn't anything significant in the way of fuel consumption changes.

Thank you very much.

Lena Thakkar, HSBC.

Thank you.

A couple of questions.

Firstly, I just wonder if you could give a little color around the comments of nicely higher, just trying to think what that means?

Is that a low single-digit number or sort of mid-single digit?

It is just I've heard that a few times through the call and just trying to understand what that means?

And secondly, if we think about Costa, I understand most of the recovery so far this year has been occupancy driven.

Are we now to assume that the remainder of the Costa recovery is therefore pricing driven?

And I wonder if you could tell us how much or what sort of year-on-year improvements Costa has seen so far and if you expect that sort of a run rate for the rest of the year or you expect the revenue, the yield improvements to be sort of lower going forward given that they are based on pricing rather than occupancy?

Thanks.

That is the first time I have had a question about nicely higher in a while.

So nicely higher is somewhere between slightly higher and significantly higher.

I hope that answers your question.

It is in the mid to high single digits range when I talk about nicely, it is usually north of 5%.

That is kind of how I see it and so if you can come up with a better term for me, send me a note.

On the Costa occupancy and pricing improvement yes, it is on both sides of the ledger and with the second quarter pricing was up, I'm not sure if it was driven more by occupancy, yields were up I'm not sure if they were driven by occupancy and pricing.

But clearly we are seeing even further improvements assuming our forecasts are correct here and their forecasts are — further improvements in Q3 and Q4 over Q2 and a lot of that is going to be driven by pricing.

You know what happens with Costa because each quarter was so dramatically different you get a mix impact.

Remember their pricing was down in first quarter because of the year-over-year comparison in the strong prior year so in the back half of the year, we are definitely seeing the overall yield increase is much greater than the occupancy increase.

We are seeing the pricing there, as Howard indicated.

Okay, that is helpful.

Thank you.

Assia Georgieva, Infinity Research.

Good morning, congratulations, Mickey, on having more free time.

And Arnold, congratulations on having less free time going forward.

I have a couple of questions again discussing the Costa recovery where basically a year and a half since the incident.

At the time you had expected the $500 million swing to profitability and we seem to be — have recovered the vast majority of that so in 2014, do you think we will be back to regular profitability?

And the second question is related, can that serve as a model or a potential pattern for the Carnival brand?

Yes, well first, I don't think — you are right they guidance was I think originally that we took a $500 million hit to operating.

I don't think we have gained anything near that back.

We went from a loss to a profit right now and so we are well on our way back but we have still got plenty of room to recover on Costa.

And we are hopeful we will start to begin to see more of that in 2014 but that will even continue into 2015.

But we are greatly encouraged by what we are seeing at Costa right now.

Of the $500 million, roughly $100 million of that swing was the lost capacity which we do not expect to get back until the ship returns via the next delivery which is in [2015].

(multiple speakers)

We had indicated Costa's yields for the year were down 16%.

We had indicated back in December that we had expected to get about half back this year but because of the difficult economic environment in Southern Europe, we are expecting to get back a quarter of it and we do expect to see continued improvements as we go along.

With respect to using Costa as an example of what will happen at Carnival, it is really hard to say because each situation was unique and different in the markets that they trade in largely are different and Costa is still dealing with the issue of the Concordia still in the water and probably won't get — the process for Parbuckling moving it out will take probably the next six to nine months.

So they are still dealing with that issue in Italy but remember they market into, and you know this well, into Italy, Germany, France and Spain.

That is their primary markets.

Carnival is principally US markets and it is too early in the process to know if the changes are going to be analogous or not in terms of — or the improvements are going to be the same or not.

I think it is just too early to know.

Great.

Thank you so much.

This was great color.

Jaime Katz, Morningstar.

Good morning.

You guys have mentioned marketing spending increased a couple of times already on the call.

Can you talk a little bit about how you are allocating those dollars to reach the consumers and where you are getting the most bang for your buck?

And then also if you have seen any pockets of strength or weakness change in consumers globally?

Would you be able to offer that information?

Jaime, I think we are talking about a number of different brands all doing — making changes and talking about anticipating increasing their spend in the marketing area.

A lot of it is going to be focused on travel agents and travel agent co-op marketing or trade advertising.

A lot of it is social media and Web based marketing and there is also further consideration to going back and doing more TV.

So it is a variety of these things.

Having said that, we haven't seen — we are going to start the process later on earlier in the fall to go ahead and look at the marketing program for each of the brands and we will be better able to articulate exactly what the spend is going to look like and where it is going to be allocated to.

I don't know if that helps but it is still early for me to comment specifically.

Okay.

And your second question was — say that again.

Were there any kind of pockets of strengths or weakness as far as like geographically with consumers that you saw a change over the last quarter or two?

I know Europe was mentioned as kind of looking a little bit more promising but has anything like the North American consumer become significantly stronger or weaker or is that too hard to parse out with the Triumph?

All I can tell you is that patterns both in North America and Europe on a year-over-year basis pricing and volume seem to be pretty good right now so it is a pretty positive story.

I understand it more North America.

I kind of scratch my head a little bit in Europe to be honest with you but I will take it.

Things seem to be I think maybe it is consumer confidence strengthening or positive things that are going on and so we are very encouraged by what we are seeing in Europe right now.

Excellent.

Thank you.

Tim Conder, Wells Fargo Securities.

Thank you.

First of all, Micky, congratulations on the Heat, and Arnold, congratulations on the new duties.

A couple of things here.

Relating to Europe in general, if we can characterize using December as the benchmark, you first called out at that time that you had some concerns about Northern Europe.

You mentioned that a little bit here in your preamble.

Maybe give us some color regarding Northern Europe relative to then.

And then it appears that maybe Northern Europe on a year-over-year basis is a little weaker but Southern Europe obviously off of an extremely low bar here is starting to turn to the positive.

So a little color on Europe I guess number one.

And question number two would be related to the redundancies in the retrofits on the ships.

It sounds like mid-2014 is when a decent amount of those where you are mitigating a lot of the risk.

If you could just give us a little more color and confirmation on that?

I can start with Europe.

When we went through the guidance in December, we had indicated that we expected our Northern European brands to be down and I think as I also indicated just a moment ago, we expected Costa to get back about half the yield it had previously lost.

As the months and weeks passed, we did see more weakness throughout Europe than we had anticipated and as we talked on the previous conference call, we brought down the yield guidance relative to Europe actually in both Northern Europe and for Costa.

As I said before, Costa is only expected to get back a quarter of what it previously lost.

Now with that said, even though our Northern European brands the yields are going down, the yields in P&O Cruises and AIDA are still some of the highest in our fleet.

They are performing incredibly well and the return on investment to those brands is again above average for our fleet.

So it is a directional change in reduction but it is still — their absolute performance is very good.

As far as mitigating risk, I would say we have done a number of things to mitigate risk immediately.

So that the risk level is clearly mitigated again I have to reiterate that it is not a safety issue and that the items that we talked about in our press release, the CapEx, we are rolling out as much as we can in operations, some of it will require dry docking and because of that there may be a two- or three-year rollout of some items but many are being programmed and taken care of while the ships are being in operation.

So it is a variety of things but believe me every day the risk is being mitigated more and more.

Would you say, Micky, that it is fair that the risk of another incident, I know it can never be zero but of a repeat type of incident by mid-2014, is that a fair timetable when a lot of that will be taken away?

You know, there is nothing you can be assured of except death and taxes.

But we are doing everything we can to mitigate the risk as quickly as we can.

By the way, I would just say this, Tim, that risk exists not just — if you are talking about relative risk, these are essentially enhancements.

We've got to keep in mind — and we've said it a number of times — that Carnival Triumph situation didn't result in anybody being even injured.

So the systems worked and that is important to remember.

All we are doing now is we are enhancing, further enhancing the systems and further making sure that our customers are comfortable and that we deal with the issues more quickly and more effectively so that we can get the ships back up and running should something happen.

But by and large, this is just enhancements and the rollout of this will be largely — what you have to do is you have to manufacture a lot of this equipment before you can even install it and in many, as Micky said, many of the installations have to be in dry docks.

Some of the installations can be done on the run, many of the items have already been ordered and we are waiting for delivery of it and then the installation of it.

But the rollout of this will be this year, second half of this year, 2014 and 2015 when most of the work will be done.

And while we are rolling out the work, the more permanent work, we are putting power packs on the ships very quickly and that will mitigate some of the risk that we talked about in terms of comfort in the unlikely event anything happened.

Great, thank you, gentlemen.

I just wanted to add on to the capacity comment about Europe.

Northern Europe versus the Med.

I think it is fair to acknowledge that the Northern European product did have a significant capacity increase this year relative to the Med and we do not expect that to recur in 2014.

Going back to the risk issue, I do want to reiterate what the former head of the NTSB said that the risk of driving to the port is a lot higher than anything you do once you get on the cruise.

It is probably true the risk of getting in your shower is a lot higher too.

Great, thank you.

Robin Farley, UBS.

Great, thanks.

Just your guidance excluding the Carnival brand that you talked about booking volume and pricing up for the next three quarters.

I was wondering if you could give us a sense of if you excluded the Costa brand as well from that whether the rest of the fleet would be up in volume price just since Costa is obviously being helped by being the year-over-year comparisons, the rest of the fleet up in price and volume excluding Costa as well as Carnival?

We have the information someplace but I don't have it right at hand.

Why don't you give Beth a call after.

We don't have the information cut that many different ways right here at the table.

Okay, sure.

And then my other question is you talked about the reintroduction of the Triumph, this kind of marking the bottoming of the Carnival brand and I certainly understand symbolically how that would.

But I wonder if you could sort of translate that into more specifically — you mentioned volumes have been up since then but can you talk about whether that is with price having to be down or just sort of quantifying something a little more specific to bookings to see that that was the bottom more than just kind of the symbolic reintroduction?

Clearly pricings has been sharp in Carnival Cruise Lines but to the context of Howard's point, they haven't been sharper since the Triumph has been reintroduced.

We haven't done anything to reduce price since the Triumph has been reintroduced.

I think what was important was that it was reintroduced looking fantastic with a lot of media aboard, a lot of hoopla in the area and I think that created a positive spin in an area that was most impacted which is the Greater Texas Houston area.

And I think the coverage was terrific.

George Lopez did a great job; Guy Fieri did a great job, DJ Irie did and the whole Carnival team there introducing some of the new Fun Ship 2.0 features and so on and the ship looked great so that clearly had to help.

Okay, great.

Thank you very much.

Nick Thomas, Merrill Lynch.

I wondered whether you could first of all just provide a little bit more color within your full-year yield guidance in relation to try to sort of split that out between the North American brands and the EAA brands.

And also an idea on your expectations for the Carnival brand within that?

Secondly, I think a few questions ago and I apology if I've missed some of the color that was given around this, but a few questions of ago you indicated a degree of encouragement around what you are seeing in Europe fairly recently.

Most of the data points that you gave in terms of the next couple of quarters were still sort of occupancy and pricing being down.

I wondered whether you could provide a little bit more color around what it is you have been seeing more recently in [Europe] that leave you more encouraged?

Thanks very much.

On the North American Europe pricing for the year —?

The full-year is down two, three in total.

North America in total is slightly more than the average and Europe is slightly less than that so they are averaging out into the middle part of that range.

And Carnival Cruise Lines is down in the mid single digits for the full-year overall.

So hopefully that gives you a little bit of color and Carnival is what is driving the North American brands obviously to be down for the year.

My recollection is that the premium and luxury brands in North America have a flat, flattish yield year-over-year at Carnival.

So within North America in total, that would be slightly worse than the down 2% to 3%?

The Carnival brand which is broadly half of North America to be down mid single digit, therefore that means that the rest of the North American brands would still need to be down broadly in line with the overall group guidance?

(multiple speakers) Flattish to get to the high-end of the range.

So presumably —.

What I suggest you do is you double back with Beth on this stuff and she can take you through it.

Flattish for the rest of the North American brand is what you are saying?

Correct.

That is correct.

On Europe, essentially what we have seen in the last 11 weeks is an uptick in European bookings and pricing across all — I believe substantially across all brands.

I can't remember every brand there but so it has been a very positive development in Europe.

That is about all I can tell you.

Presumably that has been skewed given the statement you made sort of five-ish weeks ago when you had the intra-quarter update when at that stage Europe was a little worse than it had been.

Presumably the comments you are making was your improvement over an 11-week timeframe, that is actually quite skewed towards the latter five weeks post that more recent update.

Is that fair to — ?

No, I think we had a little bit of apples to oranges comparisons.

What I was saying five or six weeks ago or I think what we were saying is Europe is softer than our expectations and our guidance our earlier guidance.

This is more year-over-year bookings and so that has shown improvement over the 11-week period including that earlier period that we were talking about.

However, it was short of where we thought it would be so it wasn't as strong.

We thought it would be stronger but it wasn't as strong as it was based on our earlier guidance.

So they are a little bit of different comparisons.

Okay, but compared with sort of five weeks ago, nothing particularly material has changed versus your expectations five weeks ago is the year-on- year number that you have seen improving?

I can't recall exactly — we have six weeks data and we have 11 weeks data and the six-week data didn't differ materially from the 11-week data.

We really haven't changed — (multiple speakers).

Okay that is great.

Thank you.

Haven't changed our expectations.

We presently have no further questions at this time.

Thank you very much.

I know there will be follow-on questions and Beth is a around and we appreciate it and we look forward to Arnold and Micky and I, Dave and Beth look forward to seeing everybody soon.

So thanks very much.

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

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