Carnival PLC (CUK) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to your fourth-quarter earnings conference call.

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

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

(Operation Instructions).

As a reminder, this conference is being recorded Tuesday, December 20, 2011.

I will now turn the conference over to Mr.

Howard Frank, Vice Chairman and Chief Operating Officer.

Please go ahead, sir.

Good morning, everyone.

With me this morning is Micky Arison, our Chairman and Chief Executive Officer; David Bernstein, our Chief Financial Officer and Senior VP of Finance; and Beth Roberts, our Vice President of Investor Relations.

Before I go into the outlook for 2012, I will have David take you through our results for the fourth quarter and give you some color on that as well as our 2012 outlook for our cost metrics.

David?

Thank you, Howard.

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

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

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

Our earnings per share for the fourth quarter was $0.28.

The fourth quarter came in right at the midpoint of our September guidance.

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

Our capacity increased 6% with two-thirds of the increase coming from our Europe, Australia, and Asian brands or as we call them, our EAA brands.

Our EAA brands grew 10% while our North American brands grew 3%.

Our net revenue yields increased 1.4% in the fourth quarter with similar increases in both net ticket and net on board and other revenue yields.

With respect to net ticket revenue yields, our North American brands were up almost 8% despite the negative impact from MENA on European itineraries.

The improvement was driven by higher yields in the Caribbean, Alaska, Canada, New England, and transatlantic itineraries.

Our EAA brands, which are principally cruising in Europe during the fourth quarter, were down over 6%.

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

In net on board and other revenue yields, we experienced a 1.4% increase.

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

On the cost side, net cruise costs excluding fuel per available lower berth day were down 2% versus the prior year.

The decline was driven by ship incident repair costs in the prior year.

As a result of our ongoing efforts to reduce fuel usage, our consumption per ALBD declined 4% this quarter, continuing our multiyear savings trend.

In total, this represents a 15% savings since 2005.

However, fuel prices this quarter were 39% higher than last year, which cost us $0.21 per share.

In summary, the fourth-quarter EPS was $0.28, lower than the 2010 earnings of $0.31 per share as increased yields and lower net cruise costs excluding fuel mostly offset higher fuel prices.

Looking at the full-year 2011, our EPS was $2.42, which was slightly lower than the prior year's $2.47 as increased net revenue yields, a 5% capacity increase, and a favorable benefit from currency were more than offset by a 32% increase in the price of fuel.

For 2011, our net revenue yields increased 2%.

This was driven by an almost 4% improvement in our North American brands while our EAA brands were in line with the prior year despite all of their challenges.

Our 2011 EPS was $0.58 lower than the midpoint of the original guidance that we gave one year ago of $2.90 to $3.10 per share.

I think it's fair to say that 2011 was a year of unexpected challenges.

The geopolitical unrest in the Middle East and North Africa as well as the natural disaster in Japan resulted in over 300 itinerary changes which we estimate cost us $0.27.

Fuel prices increased 23% above our original guidance and while we benefited from currency, the net effect of fueling currency cost us an additional $0.41.

Absent these items, we would have been at the high-end of our original guidance range from a year ago.

In the end, our operating companies performed very well mitigating the impact of MENA, the European debt crisis, recessionary fears, and stock market volatility.

This is a testament to the quality of our management team, the power of our brands, and the value proposition of the cruise business.

Turning to cash flow, as Micky indicated in the press release, our cash from operations reached $3.8 billion, which was more than enough to fund the ship expansion and refurbishment programs that required a capital investment of $2.7 billion, leaving us with free cash flow of $1.1 billion.

Earlier in 2011, we increased our quarterly dividend to $0.25 per share.

Also during the year we opportunistically repurchased 14.8 million shares at an average price of $31 for a total of $455 million.

The majority of these shares were repurchased during the third quarter.

Only 300,000 shares were repurchased since our last conference call.

It should be noted that in 2011, the dividends paid and the show repurchases totaled $1.1 billion, which represented all of our 2011 free cash flow.

Before turning to the 2012 outlook, I would like to update you on our recently implemented fuel derivative program.

The program was intended to mitigate a portion of our economic risk attributable to essentially significant fuel price increases.

As part of this program we will evaluate various derivative products and strategies.

To date, we have bought zero cost collars for approximately 10% of our estimated fuel consumption for the second half of fiscal 2012 through fiscal 2015 with ceilings ranging from 125 to 135 and floors ranging from $71 to $75.

We designed the fuel derivative program to maximize operational flexibility by utilizing derivative markets with significant trading liquidity.

These derivatives act as effective economic hedges; however hedge accounting was not applied.

Accordingly, the impact of realized gains and losses on the fuel derivatives that mature each period as well as changes in unrealized gains and losses resulting from mark-to-market adjustments on our outstanding fuel derivatives are reported as a nonoperating item in our P&L.

We believe it's more meaningful to evaluate our earnings performance by excluding the impact of the unrealized gains and losses until the gains and losses are realized and we added a line to RP until to reflect this exclusion labeled non-GAAP diluted earnings per share.

Going forward, we will not including earnings guidance any year to date impact or any future estimates of the unrealized gains and losses on the fuel derivatives.

Accordingly, our earnings guidance will be on a non-GAAP basis.

However, we will forecast realized gains and losses on fuel derivatives by applying the current Brent oil prices to the derivatives that settle in the forecast period.

Based on this approach and the current prices, we are not forecasting any realized gains or losses for 2012 under our current fuel derivative portfolio.

Now turning to our 2012 outlook.

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

On the cost side, for the full year net cruise costs per available lower berth day are forecasted to be flat versus the prior year, which is at the low-end of our longer-term guidance of flat to half of inflation.

As fuel and currency are assumptions that impact our results, it should be noted that the current spot price for fuel used in our guidance is essentially in line with 2011's average price.

However, based on the current FX rates, currency is expected to have a negative impact on our earnings next year of $0.17.

On a final note, I wanted to share with you our current rules of thumb about the impacts of fuel and currency on our results.

To start with, a 10% change in the price of fuel represents a $225 million or $0.29 per share impact for the full year.

In addition, note that the 10% change obviously moves along with the price of fuel.

With respect to FX movement, a 10% change in all relevant currencies relative to the US dollar would impact our P&L by approximately $0.25 a share for the full year.

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

Thank you, David.

Let me frame for you, if you will, the 2012 outlook for our business.

We have three new ships scheduled for delivery in 2012 -- the Costa Fascinosa, which gets delivered in late April; the AIDAmar in May; and the Carnival Breeze in late May.

So we have three spring deliveries.

This will drive a fleet wide capacity increase of 4.8%, 3.6% for the North America fleet, and 6.6% for the EAA fleet.

Earnings guidance for 2012 has been established with a range of $2.55 to $2.85, which gives us a midpoint of $2.70 a share.

Using the midpoint, we estimate that operating cash flow for 2012 will approach $4 billion with CapEx estimated at $2.6 billion, free cash flow for the year should be approximately $1.4 billion.

With two ships currently scheduled for delivery in each of 2013, 2014 and 2015, we are expecting that free cash flow will continue to increase in each of these subsequent years.

Going back to our 2012 earnings guidance, we have established this wider range of guidance this year given the uncertain global economic outlook and the even greater uncertainty in European markets because of the sovereign debt crisis.

The $0.30 per share range for 2012 compares to the $0.20 share range we have used in recent years.

Needless to say our crystal ball for 2012 is somewhat hazier than in past years and thus a little more caution to our guidance.

However notwithstanding the global economic uncertainty, we are confident we can grow our earnings in 2012; the amount of earnings growth will depend on the revenue yield improvement we can achieve during the year.

Turning now to our booking trends, our more recent booking trends, there has been an ebb and flow to booking patterns over the last 13 weeks.

Lower consumer confidence around the world and worries about the European sovereign debt crisis and its effect on European consumer pocketbooks have caused some delay in consumer vacation decisions and resulted in a closer in booking window.

Although fleet wide booking volumes during the last 13-week period have been running nicely, higher year-over-year, we have achieved this volume by reducing prices for our cruises.

But the good news is that consumers have responded to these lower prices and the booking volumes have increased.

North America brand booking volumes for the 13 weeks have been running higher than a year ago at lower prices; EAA brand bookings are slightly higher at lower prices.

More recent bookings over the last six weeks have seen an even stronger pick up in booking volumes for both North America and Europe brands, which is an encouraging sign.

The booking patterns during the upcoming wave season, which starts in early January, will give us a better indicator as to what the revenue yield picture will look like for the remainder of the year.

In terms of our current booking status at the present time based on bookings taken to date, constant dollar ticket prices for both North America and EAA brands are slightly higher than a year ago on slightly lower occupancies.

This is a combination of stronger booking patterns during the last spring and summer and the weaker prices for bookings experienced during this last 13-week period.

We are currently guiding to yield improvement of a range of 1% to 2% for the year or a midpoint of 1.5%.

To some degree this yield improvement results from the significant hit we took on pricing and occupancy for our European Mediterranean itineraries in 2011, which arose from the political upheavals in the Middle East and North Africa.

We expect to improve our year-over-year occupancy for these cruises, which will be a major contributor to the forecasted revenue yield improvement in 2012.

Given the bookings already taken for 2012 and our forecasted pricing for the remainder of the year, which has factored in the economic headwinds in our various markets, we are comfortable with the 1% to 2% revenue yield range improvement for the year.

In terms of our earnings guidance for 2012 broadly speaking, our forecasted earnings improvement for 2012 comes from the higher yield of approximately 1.5%, a fleet wide capacity increase of 4.8%, and it's offset by the negative effect of the changes in currency which David mentioned before on a year-over-year basis.

Our fuel pricing forecast is relatively unchanged year-over-year although it does have a significant impact on the first quarter of 2012 which I will comment on later.

As we indicated in the press release, earnings for the first quarter of 2012 will be lower than a year ago principally because of the higher fuel costs and the higher number of drydock days.

However, we expect to get back to positive earnings growth from the second quarter onward as fuel steal comparisons become more favorable.

For the present time, we plan to maintain our quarterly dividend of $0.25 per share, which represents approximately 37% of our earnings and is in line with our stated guidance of paying a dividend of 30% to 40% of earnings.

Now turning to the first quarter, fleet wide capacity for the first quarter is expected to be 4.9% higher than last year, 4.5% for North America brands and 5.6% for EAA brands.

At the present time, first-quarter occupancies on a fleet wide basis are slightly higher year-over-year with constant dollar pricing also higher.

There is very little inventory left to sell at this point for the first quarter.

North America brands in the first quarter are 65% in the Caribbean, approximately the same as last year with the balance in various other itineraries.

Caribbean pricing is higher than a year ago at slightly higher occupancies as compared to last year.

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

For EAA brand, they are 22% in the Caribbean in the first quarter versus 20% last year, 19% in Europe and down from 22% last year.

And 18% in South America versus 16% last year.

So a bit of a shift from Europe to South America with the balance in all other itineraries.

EAA constant dollar pricing in the Caribbean is higher than a year ago on lower occupancies.

EAA pricing in Europe is lower year-over-year but with higher occupancies and EAA South America pricing is nicely higher than a year ago on higher occupancies.

With respect to the first-quarter outlook with a good percentage of our bookings for the first-quarter completed, we are forecasting that constant dollar revenue yields for the quarter will increase in the 1.5% to 2.5% range compared to last year.

Net cruise costs excluding fuel are expected to increase in the 3.5% to 4.5% range in constant dollars largely due to the higher year-over-year drydocking days scheduled in the first quarter of 2012.

Fuel costs are significantly higher in the first quarter this year versus last year and are expected to increase by approximately $93 million or $0.12 a share.

Incremental costs for the increased number of drydock days versus the first quarter of 2011 is approximately $0.06 a share.

This is a timing difference, these drydock days, that will reverse during the remainder of the year as the drydock days for the full year 2012 is approximately the same as 2011.

Taking all these factors into consideration including the higher fuel prices, the Company is guiding first-quarter non-GAAP diluted earnings to be in the range of $0.06 to $0.10 per share.

For an apples-to-apples comparison if we add back the $0.18 per share for the fuel price increases and drydock days, the earnings per share would have been $0.24 to $0.28 versus the $0.19 per share in 2011.

Turning to the second quarter and our fleet wide capacity for the second quarter is up 4.7%, 2.9% for North America brands and 7.6% for EAA brands.

At the present time on a fleet wide basis, constant dollar pricing is slightly higher than a year ago with occupancies lower than last year.

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

Caribbean pricing is nicely higher than a year ago on approximately the same occupancy levels of last year.

Pricing for all other itineraries taken together is higher than a year ago on lower occupancies.

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

EAA brand constant dollar European cruise pricing is slightly higher than a year ago on slightly lower occupancies.

EAA brand pricing on all other itineraries taken together is slightly lower than last year, also at lower occupancies.

On an overall basis, our estimate is that constant dollar revenue yields will be flattish for the second quarter by the time it closes.

Turning now to the third quarter of 2012, capacity in that third quarter is expected to increase 4.7%; 3.3% in North America; and 7% in EAA.

Third-quarter booking patterns are still in early development, so I caution you not to read too much into this data.

On a fleet wide basis, third-quarter constant dollar pricing is higher than a year ago on lower occupancies.

Our North America brands capacity in the third quarter was 39% in the Caribbean versus 36% last year; 24% in Alaska, slightly higher than a year ago; and 25% in Europe, which is about the same as last year.

Pricing for Caribbean, Alaska, and Europe itineraries are all higher than a year ago.

Occupancies for the Caribbean and Alaska cruises are running at about the same level as last year with occupancy for Europe cruises lower than last year.

EAA brand capacity is 88% in European itineraries in line with last year.

EAA brand constant dollar pricing for European and all other itineraries is nicely higher than a year ago on lower occupancies.

While the pricing picture for the third quarter is quite good right now, there is a considerable amount of third-quarter inventory remaining to be sold.

Much of the third-quarter revenue picture will depend on the strength of the 2012 wave season.

As I mentioned earlier, we expect that revenue yields for the last three quarters of 2012 will benefit from the easier comparisons to the 2011 year, which took a hit as a result of the itinerary disruptions in MENA.

All things being equal, that should have produced higher yield improvement in 2012.

However, 2012 is proving more challenging than originally thought because of the European sovereign debt crisis and lower consumer confidence in Europe.

So that's our thoughts about how 2012 is currently shaping up.

And with that, Tommy, I'll turn it back to you for -- we are ready for questions.

(Operator Instructions).

Felicia Hendrix, Barclays Capital.

Good morning, guys.

Howard, I was wondering if you could just -- you mentioned that you are seeing lower pricing now and I was just wondering if you could give us some color on that.

For example, how much discounting or how much lower are you seeing in terms of pricing of where you were hoping to be?

And then also on the first quarter, if you look at it kind of month by month, December, January, February, I was wondering if you are seeing any particular patterns there.

For example, is pricing or demand strengthening or weakening within the quarter?

When you look at the pricing picture across the 10 brands, it's really an amalgamation of what's happening in each of their markets and demand profiles can differ greatly.

In fact in some of the markets we're doing just fine on, pricing and other markets we are feeling more -- we are seeing less demand.

Particularly I think more so in Europe than in North America broadly speaking.

That has been more of a challenge for us.

We have taken a number of pricing actions in those markets and as I mentioned, what we are seeing is softer pricing and we are also looking at options for how to move inventory moving from one market to another and that sort of thing in Europe which we think will be -- which will have some benefit.

But clearly as you look at Southern European markets, it's more of a challenge, less so as we've seen in UK and Germany.

And broadly speaking, the US more or less seems to be holding up well except I think we are seeing more of a challenge on our European programs this coming summer for our North American brands and that could be a combination of factors including higher air costs and just some -- all the noise that Americans are hearing about what's going on in Europe although you wouldn't think it would affect your vacation decisions, I think the psychology of the consumer today is that there is a greater concern.

And the patterns come closer in -- but we are holding it.

We're holding as much pricing as we can.

We think that if we have a decent wave season we should be just fine.

Okay, you kind of (multiple speakers) go ahead.

I was going to say that keep in mind that at this time last year, we looking at a very different economic environment overall and so when we say pricing is down, it's down versus a very strong period at the end of last year on a year-over-year basis.

Things didn't start deteriorating -- we are not going to annualize until about mid-February, when the Arab spring started and all this other European stuff started, so right now year over year, we are in comparisons to a very, very strong period last year and we and our competitors last fall were very, very optimistic about '11.

On first-quarter pricing, Felicia, we sold a good part of the first quarter in the fall and it seems to have shaped up okay, but we had a lot of that inventory sold.

So the last 13 weeks have had less impact on the first quarter, more impact on the second and third quarter and we're in pretty good shape for the first quarter at this point.

I'm not quite sure exactly what you were driving at.

She was asking about the months.

To be honest, Felicia, with 5000 voyages, 10 brands, and everything else, we look at it quarter by quarter and we leave the brands to get into the detail month by month.

Okay, that's helpful.

Howard, you just touched upon something with Europe.

I think you kind of answered my next question but if you look at your major regions, the UK, Italy, Germany, you said Italy was probably the weakest but if you could just give us kind of what you are seeing in terms of the behavior from each of those markets, that would be helpful.

No, I mean basically that's it.

I think we are pleasantly surprised by what we are seeing in the UK and Germany.

Of course the economy is still holding up well but given all the austerity measures that have been taken by the UK government, our business seems to be holding up quite nicely.

But when I talk about Southern Europe, which is mostly I'm thinking about Spain and Italy but to some degree France, I think that psychology is affecting the consumer and it's a much more -- especially in Italy, Italians are quite conservative and they are concerned about -- there's no clear path for them right now and I think once the austerity measures hopefully are passed by the Italian government, people will understand what they have and what they're going to have to pay in terms of increased taxes and increased VAT.

And I think knowing the reality I think gets the issue behind them and we found that to be true in the UK.

So I think if -- once those issues are dealt with in these countries, I think the consumer psychology -- consumer confidence will start to come back some.

Okay, great.

Very helpful, thanks.

Can I just add that the countries we're talking about are basically in their off-season period and first quarter, the wintertime tends to be a slow time for them anyway and if a booking patterns in, it's too early to really see the third quarter kick in.

So some of this may be a function of booking patterns.

Thank you.

Harry Curtis, Nomura.

Just a couple of quick questions.

First of all, I am curious as to why when you devised your 2012 estimates you used the full year for the trailing 12 months for fuel, but the current FX number.

And then secondly on a related topic, if you could give us your thoughts on the spread between Brent and bunker, it's stubbornly wide.

And then recently although the Europe -- although the euro is down around 10%, bunker is down only a fraction of that.

So why do you think bunker pricing is resisting the declines that you typically occur when the euro and Brent are lower?

Well, to start with, we didn't use the historical rates for our 2012 guidance when it comes to fuel.

We used the current spot price.

It just so happens that the current spot price for 2012 happens to be very much in line with 2011.

That's more of a coincidence.

It's not that we used the 2011.

As far as Brent and bunker, really there was a big dislocation in the market that seemed to occur about a year ago where Brent and bunker seemed to move in different directions.

I think they got as wide as about $25 or $30 a barrel difference.

There's a lot of issues with WTI and you know and Brent and the correlation between the two.

But if you look at over time I think what you will find is that Brent and bunker, or our fuel prices had a much better correlation.

The correlation used to be in the 70s, in the mid-70s.

It did move up into the 90s.

It's recently come back to the high 80s and it has stayed in the high 80s, low 90s for a period of time now so there's been a pretty good correlation, one of the reasons why we chose to use Brent as part of our fuel derivative program.

The long-term movement between the 70s and the high 80s has a lot to do with refining capacity and all types of things that we have talked about historically on the conference call.

So I am not expecting that the crack spreads will come down when you compare our fuel price to Brent.

As far as your last question, the correlation between the euro and bunker, we have said historically that there is a -- that these are -- move in opposite directions.

That has worked most of the time but they are not a complete offset to each other.

There's many other economic factors affecting these two items.

I am sure that all of the dislocation and all of the debt crisis and everything else going on in Europe today is causing the euro to move and that's much more so than the overall price of bunker.

So while they have been a nice natural hedge, it doesn't always work perfectly for us and they don't move in opposite directions all the time.

Thank you and just a follow-up question.

Have you seen any significant differences in refining capacity for bunker in the last 12 months versus, say, the past three years?

Well, you know, bunker is a residual and I think one of the reasons not significant differences but as they get better and better in their refining capacity, there's less and less residual and that's one of the reasons why the crack spread has moved up is what I was referring to before.

All right, that's helpful.

Thank you.

Robin Farley, UBS.

Great, thanks.

I have two questions.

One is on the expense side and I know your net cruise costs [excluding] in Q1 is just a timing issue and the full year looks fine.

But Q4, I think your net cruise costs ex fuel maybe came into slightly worse than your guidance originally.

If you could just give a little color on that?

And then, I also have question about European bookings but I will just ask (inaudible) --

Sure.

Our net cruise costs in the fourth quarter came in a little bit above guidance.

It was a few cents above.

The timing as I've always said by quarter is very, very difficult.

If you went back to the third quarter, we were $0.05 below guidance in terms of cruise costs.

It just is a lot of little items relating to a variety of things.

It's very hard to predict on a $9 billion cost base every single dollar we're going to spend and the timing within a month or a quarter.

So we missed it by a few cents but there were a couple other positives that offset that and we did wind up right on the guidance.

Great, and '12 obviously looks like it's no issue.

My other question on European bookings, obviously there's a lot of concern about the European consumer and since the cost of Costa brand in particular, it's not really comping against a great year or even a normal year this past year with all the disruption from the Middle East and North Africa and ports in Japan.

I guess I wonder if it would sort of help investors to think about why yields could still be up.

If you could quantify -- I know you don't normally give yield change by brand but just in kind of a ballpark sense about maybe how much cost yields were down in 2011 to sort of make it clear that it's comping against a challenging year, that you have kind of easier comps than one would think just from looking at the economy.

Robin, you know, not to get involved with yield information with individual brands, having said that, Costa did feel the biggest hit last year from MENA given the disruption, enormous disruption to their business.

So that as they kind of go around and come full circle on it, I think that they are certainly set -- certainly can anticipate what's going to happen a lot better this year than last year and I think what they're looking for is going to drive -- they are going to drive a lot more occupancy this year than last year.

So they will benefit from occupancy improvement, which will give them yield improvement.

But I think it's still early to say exactly.

Clearly we have our estimates and that is what we base our guidance on and we feel comfortable that Costa is going to have a good year and especially because they can yield manage through this 2012 barring another breakout of some kind of geopolitical event in their part of the world.

But we are pretty comfortable with where they are right now and feel that they are going to have a good year and they feel they're great and the good year.

They're going in -- we're fairly confident right now.

Just to reinforce one thing Howard said is that when you're moving around so many itineraries so late, it just made it very difficult to fill to their normal full occupancy.

It was just too late and although they did recover pretty well considering the circumstances, the reality is that a lot of the improvement for them next year, as Howard said and I just want to reiterate, was occupancy-driven, not price-driven.

Keep in mind that when you look at last year, we are lapping the MENA impact.

We had said the MENA was a negative impact for the whole Company last year of 1.7% was probably for -- or EAA brands was probably over double that and so while they are recovering that yield, there is an economic factor which is partially making it more difficult, as Howard and Micky indicated.

So, it's the MENA impact that is -- and lapping that that is allowing us to show the year-over-year yield increase despite everything else.

Okay, great.

Thank you.

Steven Kent, Goldman Sachs.

Could you just talk about how you are thinking about cash flow?

It seems to me that you have now started to lock in your building program.

You started to lock in your fuel program and that gives you a lot more opportunity to be more aggressive on buyback or dividend and you do mention in your commentary that you are generating a lot of cash flow.

Can Micky or one of you talk about how the Board is starting to think about the buyback or the dividend and what are some of the key measures you are looking at?

And then I know you gave this about the drydocks, I think David, how much that was impacting you.

But can you just repeat again what those drydocks are and if they are one time and how we should be thinking about that impact to the cost saves?

And essentially what I'm asking is if you didn't have those drydocks, would you be showing an improvement on a cost-saving basis in 2012?

Why don't you deal with the drydock first.

I'll deal with the drydocks.

Overall ships going to drydock depending on the ships once every three years, twice every five years, so there's a regular schedule for drydocks and we are always going to have drydocks.

On a year-over-year basis, '11 to '12, the total number of drydock days were pretty much in line.

They went up slightly with capacity overall, so on a year-over-year basis, it's really no issue.

It's just the timing.

Remember the brands individually choose to do drydocks in what appears to be the most convenient time for them, usually the lowest profit season.

And this year we just happened to have more drydocks scheduled for the first quarter and less drydocks scheduled for the second and fourth quarter, so it's just a timing within the year and not an issue on an overall basis for the year.

And our cruise costs are flat.

The drydocks are not affecting cruise costs for the full year, only the seasonalization of cruise costs between the quarter.

As far as the cash flow is concerned, I think the story really hasn't changed from what we have been saying for the last couple of years.

We have been talking about the fact that we do expect to have free cash flow.

It's our goal to return the free cash flow to shareholders.

We have indicated -- I think Howard mentioned in his comments the 30% to 40% payout ratio for a regular quarterly dividend.

In addition to that, we have constantly been saying we will look at opportunistic share repurchases and if need be, we can look at an additional annual dividend on top of that.

We managed through the quarterly dividend and the opportunistic share repurchases to return all our free cash flow in 2011 and in 2012, we will take a look at the opportunities as they arise.

Okay, thanks.

Greg Badishkanian, Citigroup.

Great, thank you.

Can you talk a little bit about the Northern European consumer?

You mentioned Spain there that made buying patterns for cruises were soft, but how about the rest of Europe in terms of sourcing?

Well, I did say that Germany was doing well, that UK is holding up also quite well even given the new austerity measures.

In Scandinavia, our business in Northern Europe tends to be going reasonably well right now.

Scandinavia, we don't source a huge amount of passages from Scandinavia, so I really don't know the answer to that.

But we know in the Netherlands where we do have significant sourcing that that's going well.

That country is -- the economy is okay and it really seems to be going in the direction of where the economies are going in those countries and the consumer confidence in those countries.

That's what -- and we are seeing it in demand patterns as well.

Helpful.

And with respect to your -- the 1% to 2% that yield guidance for 2012, what type of macro or geopolitical outlook are you assuming?

Are you assuming kind of the trend stays the same or maybe things get a little bit worse?

What are you kind of --?

What's going into your model?

I am assuming, look, when we provide these yield outlooks, it's an amalgamation or an aggregation of a lot of different -- and different markets and different brands, so -- and each one is a little bit different.

But I think it's fair to say that we are assuming it's pretty much as is right now.

And as our brand managers, revenue managers see their business, so which I in many cases assumes that pricing will continue to be a challenge in certain of these markets.

But less so in the stronger markets.

So it is really a combination of all of those things including the US market, which seems to be relatively good right now.

All three of our four US brands seem to be performing well with the possible exception, as I mentioned earlier about summer Europe, which is okay from a pricing standpoint at this point but has fallen behind from an occupancy.

And -- but we are sustaining it right now and it could be a function of how the US consumer sees Europe right now with all the noise over there and so on.

And we think that's going to -- we think Europe is going to be fine, actually.

So we don't have that much increase of capacity so we should be doing okay in Europe for this summer.

Good.

Thank you.

Steve Wieczynski, Stifel Nicolaus.

Good morning.

Howard, you talked about early in your remarks the booking windows starting to contract.

I just want to know if you could kind of compare where we are today relative to where we were back in 2008, 2009.

And just kind of what your thought process is in terms of as we move into 2012 if that can get -- if that's going to -- if you guys think that's going to contract anymore?

Well, let me -- really compared to 2008, I'll let somebody speak to that issue but before that, let me comment on the booking window for 2012.

We do believe that while the booking window has come in, it's not a huge amount but it has come in, which always makes it more of a challenge when you are sitting in a revenue management seat in terms of how to price your cruises and how firm you want to be on your pricing knowing the business does come in late.

But at the end of the day, we fill up.

We will fill up with the same kind of occupancy levels as last year.

Actually this year we are going to probably be up at least a point or more from an occupancy standpoint.

But we need to manage through that process given the closer in booking window and each of the revenue management teams in different brands do it slightly different.

They don't use the same revenue management approach and so it will depend on how they see the world.

But as long as bookings are sustainable at the levels we are talking about today, we should be just fine because we -- as I said, bookings for the last 13 weeks, actually there's been some ebb and flows but they have been okay.

We have been able to move pricing slightly downward and the bookings have picked up.

And in the last six weeks, it has even been stronger.

Don't ask me why, by the way.

You never really know but bookings have been stronger and if that sustains itself, the booking window will extend out.

That is what we look to try to do and then we can revenue management pricing a little bit better.

In comparison to our booking window today and compared to last year and the year before, and over the last two years we have indicated a number of times on just about every conference call that we were slightly behind in terms of bookings because the booking window has moved in a little bit but we are being patient because we do believe that people will book.

We consistently, as Howard said, do fill up and get the pricing.

We could always move the booking window further out but there's a cost to that in pricing, so we'd rather be patient.

It seems to be working well for us over the last couple of years.

In terms of 2008, 2008 if you go back, that was the year that was really an aberration.

If you -- we had looked back from 2003 through 2011 and the one year that really stuck out was 2008.

I think on the March '08 conference call, we had said that the booking window was historically as far out as we had ever seen it and our customer deposits were as high as they had ever been at that point in time.

So 2008 is an aberration but the last couple of years, it has moved in a little bit.

Okay, got you.

And then for Howard, I guess this is kind of a hearsay type question.

I'm not sure if you're even going to be able to answer it.

But if you guys didn't lower pricing over the last call it six weeks or two months, do you still think volumes would be ahead of where they were versus last year?

Well, I think the reason that we lowered the pricing was to pick up the volumes.

Had we not lowered the prices, would we have had the higher volumes?

I'm not in a position to answer you and really it is a market by market decision and each of the brands make it and I think they felt they had to do it.

So my guess is if they were to answer the question, they would say no, we don't think we would have these volumes.

Now whether they are right or not I don't know but I certainly don't know the answer to that question.

I assume that they reduced prices in order to pick up the volumes and if they are able to do that for a sustainable period of time they feel they can start to move the pricing back up a little bit which is the purpose of moving the pricing down to try to get back to where you want to be from a demand standpoint.

And then you gradually tweak the pricing up and that's what a lot of the brands will actually do.

Okay, I got you.

Thanks, guys.

I appreciate it.

Tim Conder, Wells Fargo Securities.

Thank you.

Back to the impact that you are going to have on MENA this year, David or Howard, I think you alluded to in a prior question that basically absent the 1.7% impact on yields from MENA, you would anticipate the net yields guidance being down on a constant dollar basis.

Any additional color you can give there, order of magnitude that you are looking for in the overall rebound?

I guess another way to phrase the question is that 1.7%, if your overall pricing, say, was down $100, do you expect to recover a certain percentage of that this year from the MENA impact?

It's so hard to say, Tim, because there are so many factors that are out there -- MENA, itinerary changes, economic situations, that to get more definitive and to quantify it to that level would be very difficult.

It would just be guesswork.

What I was just trying to say in response to the question of yield, our yield projection being up and giving people some comfort that the up yield was a reasonable estimate was trying to compare it to the MENA impact last year.

Okay, okay, so again it's fair to say that yields ex the MENA recovery would be down as far as your projections for '12?

Yes, well, the midpoint of our guidance if you take the midpoint of 1.5 and you subtract 1.7, I guess it's down 0.2.

As David said, as you got into the second half of '11, part of the MENA impact had to be the economic issues in Europe as well and those two things clouded each other and it is very hard to kind of pinpoint to the 10th of a percent what we are dealing with.

All we can say is that right now, we are comparing to a period where we didn't have the economic turmoil, we didn't have -- and we are comparing that booking pattern to our booking pattern now.

And until we annualize, it's difficult to kind of come up with these numbers, but I think we've taken our best shot at it.

Okay, very fair, Micky.

Maybe the second question, Micky, maybe more for you or whoever wants to take it, any commentary that you can talk about on your market shares, gains relative to the tour operators and especially given the commentary coming out of -- struggles out of certain tour operators in particular, Thomas Cook?

And then just a broad commentary that's coming out of both Thomas Cook and Tuohy about their perspective business?

How are your market shares relative to the major tour operators or other alternatives?

Obviously our market share -- the package holiday business in Europe in general is shrinking while the cruise business is growing.

So obviously we are effectively taking share but our share is so small in numbers compared to the overall package holiday business in Europe, it's unrecognizable.

I would remind you that while these guys are tour operators, they are also very, very powerful retail travel agents and Thomas Cook is a very, very good distributor for us and we're working very closely with Thomas Cook to make sure that our distribution with them continues to be effective.

And I must say that while their businesses down, they are recovering and we're very hopeful that they will get out of this fine.

Great.

Thank you.

Ian Rennardson, Jefferies International.

Two or three questions here.

Number one, the capacity numbers you gave, Howard, does that include -- I think I read today you sold the Pacific Sun from the middle of next year.

Are those capacity increases before or after that?

The second question is regarding the dividend.

Now last year or this year, 2011, you made the decision on the quarterly dividend in February I think at a Board meeting.

Is that the case for the next dividend decision or was that already made into 2012?

Thank you.

I thought you said you had two questions, Ian, or three questions?

That was two questions, sorry.

The capacity is after taking out the Pacific Sun midway through the year in Australia.

And as to the dividend, I think what I said is that right now the plan is to pay the $0.25 quarterly dividend.

That doesn't mean that we couldn't take a decision later on in the year, could be February, could be maybe later on in the year.

Depending on how the year unfolds, we would take another look at the standard dividend or look at alternative share buybacks or a special dividend at the end of the year.

We are just looking at different alternatives so we are keeping our options open and it's ultimately a Board decision.

Yes, generally I think last year we did it after the January Board, quarterly Board meeting and we review it with the Board every quarter and it's totally a Board decision.

I would want to make one comment.

When we made our last new building announcement, we tried to make it clear that that new building announcement shouldn't be considered totally incremental capacity because we were working to move out capacity.

And since we made that announcement, we have sold two ships, the Costa Marina and the Pacific Sun and that continues to be our strategy.

While we are building two, three ships a year, we do intend to move some ships out over time.

Thank you.

And just as a follow-up on the disposal of the Pacific Sun, we know what your accounting treatment of these is regarding depreciation and residual values.

How did the value of what you got for the ship equate to to your accounting treatment?

We took a very small charge in the --

Net, it was like $0.01 a share, a very small --

We took that in the third quarter because we already had a handshake for that sale then.

It was only finalized the day we announced it.

Okay, thank you.

Jamie Rollo, Morgan Stanley.

Thanks.

Just first question is just on your yield guidance, which is pretty tight onto the sort of highly uncertain circumstances, you say.

You also said a lot depends on the wave season.

I'm wondering what sort of wave you are factoring in?

Are you assuming no further price weakness from here like we've seen in the last 12 weeks or are you factoring in some further weakness into the lower end of your guidance?

Thanks.

Jamie, it's hard to answer that question because as I say, it's a composite number, so in certain markets where we are sustaining pricing and our volumes are good, we continue to probably believe that we will be able to do that.

In other markets where we are experiencing some lower pricing and we are probably using -- I think the view is that that's going to be factored into how the yield will be for that particular market.

And so we add them all up at the end of the day and we come up with the overall guidance, which is the 1% to 2%, and I think as I indicated to you earlier in my comments that I am comfortable with that guidance right now.

That doesn't mean that if there's an extraordinary event that occurs, a dissolution of the European currency or something else could affect it.

But right now factoring in all of the events we see, we think that's a pretty good range to be in right now and we are pretty comfortable with it.

I would say anecdotally, not in referencing our guidance, but for us to be having the kind of volumes we're having at what is historically the slowest time of the year would be a nice indicator that we should expect a good wave.

And I personally would expect that we'd have a pretty good wave.

There is also probably a dividing line as Micky indicated in February, with the whole MENA impact, where perhaps before that line, we may be running behind last year in terms of (multiple speakers)

Just pricing, but also just --

I'm readily available if --

Understand, Jamie, we are talking weaker versus last year, versus what it was -- weaker versus last three months ago.

So it's all relative to last year where we didn't have an economic situation, we didn't have an MENA situation yet.

So again the comparisons remember we were in a very optimistic booking trend this time last year.

And you can remember some of the statements that were being made by us and competitors in the fall of last year, which were very optimistic.

That is what we are comparing to.

I would say this just to kind of try to help you in some way, Jamie, is that where we have seen -- the overall pricing weakness that we have seen in bookings is not significant.

However, it is weaker and it's a little bit more weaker in -- for the European brands than it is for the American brand, which is fully understandable from our standpoint, especially Southern European markets.

Okay, and one really quick one on the fuel protection strategy.

What is the long-term target?

I presume it's not going to be 10% for the options.

Is there a [specific target] you have in mind?

No, we haven't decided on a specific target.

We will over time continue to layer in more protection, but we will be opportunistic and we will make those decisions as we go along.

Thank you very much.

Kevin Milota, JPMorgan.

Great, thank you very much.

Most of my questions have been answered but just one surrounding the consumer.

I was wondering if you've seen any differentiation between some of your higher-end brand and more of your contemporary segmented brands?

And seeing -- speaking to -- are your higher price point of rooms getting taken out?

And you still have a tremendous amount of lower-priced capacity.

That would be great, thank you.

That last part is tough to note because it will vary -- it could vary significantly by brand.

I will say this, Kevin, though, there's not a huge difference between our premium and contemporary brands in terms of their patterns right now.

Nor for that matter -- as we look at the business in certain parts -- certain of our markets, I think part of the reasons we are holding price and bookings have been strong in certain markets is because some of the premium products here in the US and to some degree in Europe and our market segment, which is towards retired people or wealthier people is holding up fine.

We have seen that well.

So that has held up nicely for us.

And I think that's -- even in the UK where there's a huge -- a number of austerity programs being implemented , it seems to affect less the consumer who is retired and they feel more comfortable with their holdings and their retirement plans and so on.

So we're getting good business out of the UK.

And in terms of our US premium brands are doing quite nicely, yes.

With the one exception I would say is that what I mentioned before again is that the summer Europe is still falling behind and we have taken pricing down.

We'll take two more listeners, Tommy, and then we'll have to

Assia Georgieva, Infinity Research.

Good morning and thank you for taking additional questions.

I know we are over the time.

I had one question.

Howard, you mentioned that for Q2, pricing is flat and again, as Micky and David pointed out, we still need to get to that mid-February late February time point to start annualizing.

In a hypothetical scenario where today's pricing stayed flat through the end of Q2, the absolute dollar amount, do you think you would be able to show yield improvement?

Look, this is what I said.

I think I said two things.

One is that Q2 pricing is now slightly ahead year-over-year and I think what I also went on to say is that we expect that by the end of the close of the second quarter, it should be flattish and when I say flattish, it could be slightly up and maybe slightly down but within a small range.

And secondly, are you more cautious because of Costa's new itineraries with which I imagine they don't have as much historical experience and therefore there's more risk in terms of yield managing?

No, the response to the Costa itineraries from the market has been actually quite good.

So no, we don't see any issues right now with Costa's itinerary.

They feel very good about it.

They've got some new itineraries that they put in there this year and they are booking well.

So they're very pleased with that.

I think the major change in Costa's deployment is to offer voyages that are of shorter duration, which helps to bring the price point down to the local market and it's attractive in this kind of economic environment.

Yes, but it's also later booking.

The shorter the cruise, the later the booking.

Sure, but could that also be more helpful to onboard since shorter voyages tend to have better onboard?

Yes, absolutely.

Alright, it will be interesting to see how Q2 turns out.

Thank you.

David Leibowitz, Horizon Kinetics.

Briefly, what is the cost of putting on the fuel derivative program?

We did zero cost collars.

There's no cost.

A couple of accountants.

And going from the ridiculous to the sublime, if the Eurozone breaks apart and the euro ceases to be a currency, what happens to your euro denominated debt?

Does that go to the German mark or wherever you've booked it?

I assume that if that happens, that there would be some sort of conversion pricing that would take effect and it would be converted at that conversion pricing, but you are asking a real hypothetical question.

David, I read about five different articles on that possibility and had five different answers.

So I don't think anybody knows nor do the Europeans want to think about it because it's going to be -- to have such a staggering impact on their economies if this does happen.

So my guess is it's very unlikely to happen except that every once in awhile you pick up the Wall Street Journal or the Financial Times and somebody -- Mario Draghi, makes some comment that it's kind of scary.

But apart from that, I think it's unlikely to happen.

I think the intent is ultimately to save the euro really.

Thank you very much.

Mr.

Frank, we do have one more question in the queue.

Okay, let's do it.

Janet Brashear, Sanford C.

Bernstein.

I will make it short since I am the last.

I was just curious about a comment you made earlier about your flexibility to position ships within Europe.

How flexible are you sort of in the year, for the year if you find some markets are working better than others given the positioning of each brand toward specific populations?

I'm not sure what you're referring to but obviously we showed it last year by moving 300 itineraries with 30 days notice.

So we can do it.

There's clearly a negative repercussion and cost to it because we you wind up losing a lot of the people you have booked and you have to rebook them and that tends to force you to lower prices.

So that's a last resort when the situation is really dire, so it's not something we would want to do at the last minute.

It's something that we clearly can do year-over-year at adjusting to booking patterns and customer taste and that's what Costa did and a number of our brands did.

We tweaked the itineraries, increased capacity a little bit in Alaska, increased capacity a little bit in Northern Europe, held capacity in the Mediterranean.

So we tweak this from year to year but close in only in a dramatic situation would we move like that.

Thank you very much.

Mr.

Frank, we have no further questions on the phone line.

I will now turn the call back to you for any closing remarks.

Okay, thank you all.

We all here wish you happy holidays and a happy and healthy New Year and hope to see you in the New Year.

All the best to everybody.

Thank you very much.

Ladies and gentlemen, this concludes the conference call for today.

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

Have a good day, everyone.