Carnival Corporation (CCL) F1Q10 (Qtr End 02/28/10) Earnings Call Transcript March 23,

2010 10:00 AM ET
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the first quarter Carnival
Corporation earnings conference call. (Operator instructions) As a reminder this conference
is being recorded, Tuesday, March 23, 2010.
It is now my pleasure to turn the conference over to Mr. Howard Frank, Vice Chairman and
Chief Operating Officer. Please go ahead, sir.
Howard Frank
Good morning everyone. With me this morning in Miami is Beth Roberts, David Bernstein,
and Micky Arison, Chairman and Chief Executive Officer of Carnival.
And what we will do is as we normally do is I will throw it over to David, and he can give you
the full color on the first quarter of 2010, and then will come back to me, and I will give you
I will start to discuss the outlook situation going forward. Thank you.
David Bernstein
Thank you, Howard. I will begin the conference call by reading the forward-looking
statement. During this conference call, we will make certain forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties and
assumptions, which may cause the actual results, performances or achievements of Carnival
to be materially different from any future results, performances or achievements expressed
or implied by such forward-looking statements. For further information, please see Carnivals
earnings press release and its filings with the Securities and Exchange Commission.
For the first quarter our EPS was $0.22 per share. The first quarter came in above the
midpoint of our December guidance by $0.12 per share. This was driven by a few things.
First, the $0.05 per share again during the quarter from the sale of P&O Cruises' Artemis.
Second, revenue yields that came in better than expected, declining 2.3% in constant dollars
versus our December guidance of down 3% to 4%, which was worth $0.04 per share, which
came from higher than expected pricing on last-minute bookings. Third, a variety of cost
savings measures and timing of certain expenses, which benefited us to the tune of $0.05
per share.
All of this was partially offset by higher fuel prices costing $0.02 per share. In addition there
were other small items going both ways that netted out to zero.

Now let us take a look at our first quarter operating results versus the prior year, our
capacity increased 9.6% for the first quarter of 2010 with the majority of the increase going
to our European brands. Our European brands grew 14.5% while our North American brands
grew 5%. As I previously mentioned, overall net revenue yields in local currency declined
2.3% in the first quarter versus the prior year.
Now lets take a look at the two components of net revenue yields. For net ticket yields we
saw a yield decline of 4% in local currency. Our North American brands were down 2.6%
driven by declines in all itineraries. Our European brands experienced 6% lower local
currency ticket yields driven by your challenging winter season in the Brazilian market,
which had significant increases in capacity this past winter. If you exclude the six ships we
had in Brazil, the European brands only saw a yield decline of 1% in local currency on
significantly higher capacity for our continental European brands.
For net onboard and other yields, we reported a yield increase of 3% in local currency. The
increase was driven by minimum guaranteed payments for calendar year 2009 and a onetime other revenue item related to a litigation settlement. Without these items the firstquarter on board and other yields would have been essentially flat. This is a trend which we
anticipated and we are forecasting for the remainder of the year.
In summary, because of our advanced bookings, we all know that that is a time lag between
the price changes and our reported revenue yields. So let us keep in mind that as a result of
this time lag for the first quarter of last year, our net revenue yields in local currency only
declined 5.2% as the quarter benefited from bookings that were taken prior to the financial
crisis in late 2008.
However, in the second, third, and fourth quarters of last year we experienced revenue
yields that were down about 10% to 12%, thus feeling the full effect of the economic crisis.
Therefore, we are very encouraged by the 2.3% decline in the first quarter of this year. I say
this because if you combine this year's decline of 2.3% with the 5.2% decline from last year,
the combined decline of 7.5% is less than the 10% to 12% decline in the second, third and
fourth quarters of last year.
We also expect the sequential improvement that we saw in the first quarter will continue
throughout the remainder of the year.
On the cost side, in order to get an apples-to-apples comparison, you need to exclude the 44
million reduction in other ship operating expenses for the recognition of the gain on the sale
of P&O Cruises' Artemis. When you do that, our cruise costs per lower berth day excluding
fuel and in local currency were down 4.5% versus the prior year. However, because of the
timing of certain expenses the best measure of cruise costs are on an annual basis, which I
will touch on in a moment.

The strength of our revenue and cost performance in the first quarter 2010 was clearly
masked by rising fuel prices. Fuel prices this quarter were 80% higher than last year and the
cost was an additional $176 million or $0.22 per share. However, as a result of our ongoing
efforts to reduce fuel consumption, I'm happy to report that our fuel consumption per ALB
day declined 3.1% in the first quarter, continuing our multiple year savings trend.
Turning to our 2010 outlook, I will skip the net revenue yields as Howard will discuss that
shortly. On the cost side, net cruise costs per available lower berth date for the full year,
again excluding fuel and in local currency are projected to be down 2% to 3%. The decline is
driven by the gain on the sale of P&O Cruises' Artemis, lower dry dock costs and tight cost
control.
Based on the current spot price for fuel, the fuel price for the full year is projected to be
$507 per metric ton for 2010 versus $363 per metric ton for 2009 costing an additional $483
million or $0.60 per share. So in the end fuel is driving our costs up and therefore in current
dollars and including fuel our costs are expected to be up 3.5% to 4.5%.
At this point I will turn the conference call over to Howard.
Howard Frank
Thank you David. As we indicated in the press release as a result of the continuing strength
of the booking pattern during wave season, we have been able to increase revenue yield
guidance on a local currency basis for 2010 to a 2% to 3% range from a flat to 1% increase
from our previous guidance. Current dollar revenue yields are forecasted to increase in the
2% to 3% range as a result of the weakening sterling and Euro currencies.
During the last nine week period, on a fleet-wide basis bookings for the next three quarters
are up 8% with pricing for these bookings running 17% higher on a year-over-year basis.
Breaking this down by markets, North American brand bookings are higher by 7% with
pricing up 26% on these bookings, and European brand bookings are higher by 10% with
local currency pricing up by 6%. As we indicated during the last quarter call, our cumulative
level of bookings had essentially caught up with historical booking levels, and during the late
fall we started to selectively raise pricing. During the wave season, we have been able to
more broadly increased pricing and still achieve booking volumes consistent with our
capacity increase for the remainder of 2010.
North American brands which have a 3% increase in capacity over the next nine months,
pricing on bookings for this last nine week period has been higher for all itineraries with
particular pricing strength in Europe and long and exotic cruises. As a result of the reduced
capacity in the Alaska market, Alaska pricing is showing some improvement, but is still well

behind pricing we achieved in prior years. The current strength in the booking pattern for all
itineraries is a very positive development for our seasonally strong third quarter.
All North American brands with the exception of Seabourn are forecasting increased yields
for the year with more significant yield increases forecasted for our premium brand.
However, I should remind you that the premium brands took the pricing hits last year. So it is
not surprising to see the stronger comeback.
Seabourn, our six star luxury brand, which has a 57% increase in capacity, is forecasting
lower yields for the year. So given the attractiveness of Seabourns pricing in the market it is
a good time for all of you out there who are listening to book a luxury Seabourn cruise.
For our European brands, our capacity is up 11% over the remaining three quarters. Pricing
for bookings during the last nine week period is higher, with virtually all itineraries with
pricing for European cruises, which makes up the majority of European brand itineraries
running nicely higher year over year.
With the exception of Costa NIE [ph], which have significant capacity increases, the
remaining European brands are forecasting flat pricing in 2010. Pricing for Costa NIE is
expected to be slightly lower for the year, but given the continuing softness in European
economies this is not a surprising result. Indeed, most of the pricing erosion for the
continental European brands will be in the first-half of the year with Costa and Ibero being
particularly impacted by challenging winter season in the Brazil market, which is what David
pointed out, which had significant increases in capacity in the first quarter.
Despite the continuing softness in Spain's economy, our Spanish cruise company
IberoCruceros has begun to show improvement with stable revenue yield forecasted for the
remainder of the year, and that is with the 31% increase in capacity. Although the Spanish
market continues to be a challenge, we believe that this market has great potential, and
once the economy recovers Ibero will be a very profitable business for us.
To provide some perspective on our European business, it is important to remember that the
decline in European revenue yields in the 2009 year was far less than what we experienced
for our North American brands, something in the neighborhood of down 6% for Europe,
versus down 13% in North America. So looking at our yield performance over the two-year
period, our European brand revenue yields have held up far better than North American
brands. And the European brands have had more capacity, far more capacity during this
period.
On a fleet wide basis, since our previous guidance last December, we have raised constant
dollar revenue forecast by approximately $170 million for 2010. We are also forecasting net
cost of expenses, including interest and other items will be lower by approximately $112
million. Offsetting these positive variances from our December guidance is increased

forecasted cost for fuel for the year of $117 million and the negative impact of the
strengthening US dollar, which amounts to about $85 million.
The net result of all these changes from our previous December guidance is a positive swing
of $80 million. So we are increasing our December guidance by $0.10 a share to $2.25 to
$2.35 for the year or the midpoint of $2.30.
Now let me give you some color on each of the quarters for the remainder of 2010. For the
second quarter on an overall basis, our fleet wide capacity is up 8.3%, 4% for our North
American brands, 13% for our European brands. At this juncture, fleet wide occupancies are
about level with last year, slightly higher in North America, and slightly lower in Europe
which given the 13% capacity increase in European brands is well within our expectations.
We have experience continued pricing strength in the second quarter bookings during the
last nine weeks and as a result we are now forecasting local currency yield increases in the
range of 1% to 2%.
With respect to our North American brands for the second quarter, Caribbean itineraries
represent 57% of capacity and long and exotic cruises 26% with the balance in various other
itineraries. Pricing for North American brands is slightly higher than a year ago, and
continues to improve, but of course there is still there is very little inventory left to sell. We
expect second-quarter North American revenue yields to be higher by approximately 2%.
European brands capacity is 57% in Europe and 35% in long and exotic cruises with the
balance in other itineraries. At the present time, local currency pricing for European brands
is slightly lower than last year's levels. Similar to North American brands there is very little
inventory left to sell. European itinerary pricing and occupancies are slightly lower than last
year, and we're forecasting local currency European yields also to be slightly lower for the
second quarter. As I previously mentioned, for the second quarter fleet wide currency, local
currency revenue yields are forecasted to be up 1% to 2%, and on a current dollar basis
2.5% to 3.5% versus last year. However, fuel costs are expected to be higher by $176 million
versus last year or approximately $0.22 a share. Based on these factors we're guiding to
$0.26 to $0.30 earnings per share range for the second quarter versus $0.33 for the year
ago second quarter.
Now turning to the very important, seasonally important third quarter. On a fleet wide basis,
capacity for the third quarter is up 6.2%; 3.7% of that is for our North America companies,
and 8% for our European companies. Fleet wide occupancies in the third quarter are nicely
higher, more significantly higher for North American brands, but also higher for our
European brands despite the 8% capacity increase.
North American brand capacity in the third quarter is 40% Caribbean; 25% in Alaska, which
is down from last year; and 16% in Europe, which is also down from last year. Currently
pricing and occupancy are higher for virtually all itineraries with solid pricing improvements

in Europe for North American brand European programs, and more modest pricing
improvements for the Alaska programs.
While we are seeing pricing improvement in Alaska because of the reduced capacity, Alaska
cruise tour business is down again from last year and continues to be a challenge for us.
Pricing for Caribbean and all other programs is higher and booking momentum over the last
nine weeks has been strong. Because of the strong booking environment and currently
higher year-over-year occupancies we have been able to raise ticket pricing, and are now
forecasting significant increases in North American brand yields in the third quarter.
As you know, our forecasted yield guidance includes both ticket prices and on board and
other revenues. Because of the wide dispersion of forecasted pricing in the two revenue
streams for our North American brands in the third quarter, I will provide guidance estimates
for each revenue stream. Our forecasted ticket revenue yield for the North American brands
is now expected to increase in the low double-digit levels in the third quarter, reflecting the
stronger than expected comeback from last year's deeply discounted prices. And our on
board and other pricing is currently forecasted at flat on a year-over-year basis. Combining
the two revenue streams, we are forecasting revenue yield improvement in the high single
digit levels for the third quarter, and this is for our North American brand.
European brands, which are substantially in European itineraries in the third quarter,
currently on a combined basis European brand pricing is slightly lower than a year ago, but
the pricing gap continues to close as booking demand remained strong. Based on the
current booking pattern, we are forecasting flattish to perhaps slightly lower local currency
revenue yields for our European brands for the third quarter.
As previously said, this has been entirely satisfactory result given the capacity increase in
our European brands, combined with the sluggish European economies. On a fleet wide
basis for the third quarter, combining North America, Europe and our Asia Pacific brands, we
are now forecasting local currency revenue yield increase in the mid-single digit levels for
the third quarter.
Turning now to the fourth quarter, on a fleet wide basis, capacity for the fourth quarter is up
6.1%, 1.7% of that is the North American brands and 10.6% for European brands. The fourth
quarter booking picture is encouraging, but is still early in the booking cycle so I caution not
to read too much into the early picture that I will provide you. For North American brands,
we're 50% in Caribbean itineraries, 28% in long and exotic cruises with the balance in
various other itineraries.
Pricing is higher in virtually all fourth-quarter itineraries, but with currently lower
occupancies. However, fourth-quarter booking demand is strengthening as significantly
higher pricing and the occupancy gap has closed over the last nine weeks. For European
brands, 73% in Europe, and the balance in various other itineraries. European itinerary

occupancies and local currency pricing are higher year-over-year and booking demand for
European brands is holding steady at pricing well above last year.
While it is still early to have a more precise picture for fleet wide fourth-quarter pricing,
we're forecasting local currency revenue yields will be nicely higher in the fourth quarter.
And with that, that summary of the outlook, I will turn it back to the operator for questions
from everyone. Thank you.
Question-and-Answer Session
Operator
(Operator instructions) And our first question comes from the line of Felicia Hendrix from
Barclays Capital. Please proceed with your question.
Felicia Hendrix - Barclays Capital
Hi guys. Excuse me. Good morning. Hi, David, just a quick housekeeping, when you had
talked about the 19 million settlement and the impact it had on your on-board yields, can
you just combine that and just let us know what the impact it was on your overall yields, just
if you combine ticket and on-board?
David Bernstein
Yes. For the first quarter it was probably three quarters of a percent.
Felicia Hendrix - Barclays Capital
Okay.
David Bernstein
So, we would have instead of being 2.3%, would have been 3%.
Felicia Hendrix - Barclays Capital
Okay, and then David you talked about cost and the benefit that you got in the quarter,
some of it had to do with timing. I was just wondering if you could just walk us through in
more detail what exactly that meant, and then I'm just wondering with costs, what you didn't
know when you gave the guidance in December versus what you ended up knowing today,
you know, or as you reported the quarter?
David Bernstein

Sure. I been more broadly in December we talked about costs being down 1% to 2%. Now
the cost guidance is down 2% to 3%. So we have increased the reduction by a whole
percent. About half of that has to do with the gain on the sale of the P&O Artemis, and really
the other half has a lot to do with the fact that, you know, we perhaps underestimated the
favorable impact of all of the actions that we had taken to reduce costs.
You know, when you go through and you try to plan out some of the fuel consumption
savings or what we have done with the port negotiations or the impact of e-ticket
documents and a whole bunch of other things, I think when you get into the detail you find
that some of our operating companies just simply underestimated the favorable impact, and
we are now actually starting to see that flow through.
So we were able to increase the cost guidance reduction by an additional 0.5% over and
above the gain in the sale of the ship.
Howard Frank
Felicia, I think this is Howard. I think broadly speaking; our operating executives will tend to
hold back on reducing costs in their forecasted budgets until they actually achieve them,
because they don't want to come back to us with a negative surprise, especially in the cost
area. So this tends to be on balance a tendency to perhaps overestimate cost. That is the
whole lot, but by some amount, but it all adds up if you add up all the companies because
they rather be safe than sorry at the end of the day. So there is that tendency, and I think
this is the track record weve had for a few years now with these. That's okay. We are okay
with that.
Felicia Hendrix - Barclays Capital
It is okay. Thank you. I just wanted to understand that. I'm just on the (inaudible). In Alaska
that there has been some press, the governor seems to be getting more I guess positive in
terms of helping to rectify the situation there with the tax. You know, obviously it is probably
a long road politically, I was wondering if you could make some comments, but more
specifically you know if something were to happen this year with the capacity that you have
there, is there any way that we should think about the potential cost savings that you could
get from the ships that are already there if there were some kind of legislation change?
Micky Arison
Well, first of all we were clearly encourage by the fact that the governor devoted time to
come down here and learn a little bit about the industry. I think it is the first time I have ever
met a Governor from Alaska. And so we viewed that as clearly very positive. The meetings
went very well. I think we came away learning some political realities in Alaska, and I think
he came away with a better understanding of our industry.

So I think all of that is positive. If what he is proposing passes the session, it is going to be
too late for this summer to affect pricing. My guess is, although we haven't really discussed
it, is we would get the money back to the passengers through on board credits, which
hopefully would have some minor impact on our on-board revenue for the Alaska season.
But then of course it will affect pricing for 2011. So if this proposal passes, it is a great first
step in turning the situation around in Alaska and very encouraging.
Felicia Hendrix - Barclays Capital
Great. Thanks.
Micky Arison
Thank you.
Operator
Our next question comes from the line of Janet Brashear from Sanford Bernstein. Please
proceed.
Janet Brashear - Sanford Bernstein
Thank you. As I understand that you are saying that there is revenue you dont pressure on
your European results. For very good reasons with capacity through Q2 and Q3, and then
you are going positive perhaps in Q4. Is that correct in if so, do you see that positive trend
continuing during the (inaudible)?
David Bernstein
I think Janet, I think broadly speaking we are saying it is flattish to slightly down in each of
the quarters. Fourth quarter is still early to tell, but it probably will be in the same range.
Micky Arison
Similar to what we had in the first quarter ex-Brazil, I think we had down one, ex-Brazil, and
we only have Brazil in the first quarter. There is no Brazil in the following quarters. So it is
pretty consistent with what we saw in the first quarter.
Janet Brashear - Sanford Bernstein
Are you seeing any sense of a turnaround in (inaudible), and given the strength we are
seeing in the UK on the hotel side, are you saying that same strength in the UK in cruise
time?

David Bernstein
We have added capacity. We have added another ship into the Spanish market beginning
this spring, and we are pleased that it seems to be, everything seems to be booking okay.
And we are hopeful that we will have flattish yields for the remainder of the year including
the 31% capacity increase from this additional ship that is for Spain.
Micky Arison
I don't think we are seeing a turnaround in Spain. I think the reason why Spain has stabilized
as you have to remember that we only took full control of the operation a year ago last
March, which was clearly too late to affect last year. Up until that time the operation was
totally in control of Orizonia in Spain. We believe that the team that we put together in Spain
now are doing a much better job, and have stabilized the situation.
We also believe that once the economy turns in Spain, and that new management team is
going to be able to take advantage of it and do very well.
David Bernstein
In the UK market, I think we have been very pleased with the P&O and Cunards
performance. Despite a very weak economy in the UK, I think a large measure; a lot of that
business comes from a demographic that is not as much affected by the economic cycles
and unemployment issues and so forth. And you know, even in the UK unemployment is not
at the same levels as they are in the US. We are somewhere in the mid-7% I think. So
basically business is holding up quite nicely in the UK. We are adding the P&O Azura, which
arrives in April, for us to sale in April, and then at the end of the year I think sometime in
September, we have the Queen Elizabeth that is added to the Cunard fleet. So we got a lot
of new capacity coming in, but overall I think we are quite pleased with what we are seeing
in the UK.
Janet Brashear - Sanford Bernstein
If I could just ask one more quick clarifying question, you said that you are a higher price
brands were having a stronger comeback, as it might be expected, and Seabourn was
forecasting lower yields. Could you just define a little bit why Seabourn isnt following that
pattern?
David Bernstein
I think you have to understand that Seabourn, first of all our highest priced product, and
second of all for two decades Seabourn capacity was only 600 beds. And by this summer the
capacity will go from 600 beds to 1500 beds, and for a brand that has been that small for

that long, it is going to take some time for them to absorb that capacity, unlike our premium
brands that have very little capacity that they have taken on this year.
Janet Brashear - Sanford Bernstein
Thank you.
David Bernstein
Thank you.
Operator
And our next question comes from the line of Assia Georgieva from Infinity Research. Please
proceed.
Assia Georgieva - Infinity Research
Good morning. I had a couple of questions. One is a follow-up to Felicias question, the
Alaska head tax, given that Princess South America [ph], the Carnival spirit, the Royal
Caribbean celebrity, everyone here expected 2011 itineraries, would you expect some sort
of action by the legislature in Alaska over the near term, and Micky, I am sure you may have
an answer to this.
Micky Arison
What I the question is what I expect from action? All I can tell you
Assia Georgieva - Infinity Research
Very quick action.
Micky Arison
Well, the session I believe is only four or five weeks more to run. So if there is an action in
the next four or five weeks, there won't be action this year. All I can say is that the governor
has made a proposal, and whether that passes or not, you know, I have no idea. I would
think based on what has happened, the understanding that the governor now has on the
way the industry operates, and the huge negative impact it has had on Alaska, there is a I
think a likelihood, and this is a guess on my part that it will pass. But I don't know, I
obviously don't know the sentiment of legislature. I do know that the governor is fully
supportive of the bill he has introduced.
Assia Georgieva - Infinity Research

Well, but I think the gesture by all the major cruise bins [ph] in the two public companies is
significant enough to, you know, help, push the legislature along.
Micky Arison
I'm not sure what you're referring to. The only thing that we have, the only thing that we
have agreed to do is to drop our losses in exchange for this legislature.
Assia Georgieva - Infinity Research
But there is also pricing available for 2011 Alaska cruises, the itinerary may be subject to
modification and the number of ships that might operate there correct?
Micky Arison
No. I can't speak for all our competitors, but our itineraries are in place for 2011. We
explained to the governor that would be impossible for us to make any changes at this time
and he understood that. You know, when this initiative passed, the backers of the initiative
one, have no skin in the game, and two, have little understanding of our industry. And so
after one year when nothing happened they claimed victory and the reality is that for
something to happen it takes time. It takes lead time and now they're feeling, years later
they are now feeling the full impact of the initiative.
It will take a similar if not longer amount of time to recover, and there are number of ways to
recover and then it's not just additional capacity, but also as Howard pointed out our cruise
store business, which is what from an economic point of view is the best business for Alaska,
because it's into the interior, it's on the motor coaches, it's on the rail cars, it's into the
hotels in Alaska, and that business has been really very, very highly impacted and to get
those jobs back and to get that economic engine going again it's not just beds, but its crew
stores that have to be sold and marketed, and we need to work together with Alaska to do
that, and I think as I said this is a good first step to head in that direction.
Assia Georgieva - Infinity Research
And it seems that even with the 33% reduction that is being proposed at this point, and
given that Alaska is about 20% of your capacity in Q3 that just purely doing the math would
help you by about 2% in yield in Q3, and probably help EPS by about $0.10 in 2011. Is that
roughly
David Bernstein
To be honest with you we are having a hard enough time trying to forecast 2010 much less
2011. We can move on from this.

Assia Georgieva - Infinity Research

Okay. Could I ask a question on the
David Bernstein
But if you didnt hear Beth corrected you by saying it was, sorry Beth.
Beth Roberts
15% of overall capacity in the third quarter.
David Bernstein
15% of overall capacity.
Assia Georgieva - Infinity Research
15, okay. I thought it was 19, but thank you Beth. I appreciate it, and could I ask one
question on one-time items, across the Europe our charters with Thomson, and the
cancellation of the two voyages also Star Princess impact following the Chile earthquake and
if you can quantify in Q1 the minimum guarantees and the tax benefit, which I imagine is
either things you can carry or some cost related items?
David Bernstein
Yes, the if you look at the bottom of the P&L we have footnotes that basically quantify you
know, the minimum guarantee, the litigation settlement, the tax benefits and all of the other
positive one-time items. There were also some ship incidences as you mentioned in the first
quarter, which was probably in the range of $0.03 to $0.04 a share.
Micky Arison
It's all in our numbers. It's in our forecast as well. I would point out that the guarantee items
are not necessarily onetime items. This is a reconciliation that goes on every year. The
reason why it falls into our first quarter because it really relates to the prior year is because
all of our agreements are calendar, which means the reconciliations are done in January, and
normally in a normal year or good year the number is too small to even footnote, but
because we had down onboard revenues the number grew much higher and that therefore
had to be footnoted, but it is a reconciliation, the reconciliation every year.
David Bernstein

By the way, could I ask that as we go forward on this that in the interest of everybody
having questions that we limit it to only two questions per person. Thank you.
Assia Georgieva - Infinity Research
I was trying to make them into two, but with several footnotes. Okay. I appreciate that is in
Alaska. I will bother Beth later. Thank you so much.
Micky Arison
Thanks.
Operator
Our next question comes from the line of Rick Lyall from John W. Bristol. Please proceed.
Rick Lyall John W. Bristol
Hi guys. Nice numbers. Can you talk about the behavior of the two premium brands, you
know, since they serve different demographics, is Princess behaving differently than Holland
in North America?
Micky Arison
Not really Rick. Theyve both have made a very strong comeback. I mean, you're right that
they do have a slightly different demographic, but both brands seem to have made very
strong comebacks. The comeback numbers are very close to each other actually.
Rick Lyall John W. Bristol
Okay. That is good news. And then can you comment on fuel efficiency assumptions for the
full year, 3.1% saving in the first quarter, but you have got initiatives that I imagine are
rolling out as you dry dock ships et cetera. So what is the is there a progression to that
number?
David Bernstein
You know, when we did our original December guidance, we had talked about a 1.5% for the
year, and so we had indicated at that time that that was a conservative number, and we
really still probably have a conservative number within the balance of the year at this point.
We are still working with the operating companies to try to take every dollar out of their fuel
consumption, but we could see a little bit more than we are currently forecasting.

Micky Arison
Since we started, the really heavy effort to reduce consumption in our carbon footprint.
Every quarter weve beaten our internal estimates of what we can save. So hopefully that
will continue.
Rick Lyall John W. Bristol
Okay. Thanks very much guys.
David Bernstein
Thanks Rick.
Operator
Our next question comes from the line of Steven Kent from Goldman Sachs. Please proceed.
Steven Kent - Goldman Sachs
Hi, two questions. One, can you just talk about selling and building more ships. What are you
seeing on the assets sale front, is there more to look forward to and how do you view that
and then on the building side, just it sounds like the shipyards are clamoring for more
business, and what are you seeing on the pricing side of that and then just, Howard, on
second, third and fourth quarter what percentage of volume is booked right now or some
measure of that, if you could give us that?
Howard Frank
Okay. Let Micky talk about the ship situation.
Micky Arison
Obviously, as you know, weve been talking about this Princess deal for a very long time,
and actually we've been working on it for almost 2 years because of the financial crisis,
because of these huge fluctuations in steel and component parts, as well as dealing in a
prototype and negotiating based on getting the kinds of returns we require in a very tough
yield environment.
It has taken two years to do this deal and it's not done yet. I mean, we are very hopeful that
the final contracts will be signed by April, but we're still working on it, and because of that
and because we don't have another deal right behind it or when we work we put all our
focus on finalizing this Princess deal, it's going to take a while before you see anything else. I
wouldn't be surprised if we don't do another deal this year, although it's possible particularly

for a sister, but for prototype it's going to take the kind of time that it took to do this
Princess deal.
So I don't expect anything very quickly after the Princess deal is finalized hopefully in April.
As far as the competitive landscape, we understand that there is some movement now as
youre right, the prices are more attractive and some of our competitors are looking at
potential projects, but like I said we have nothing, beyond the Princess deal we have nothing
that's hot right now.
Howard Frank
Steve, as far as the future quarter bookings are concerned, we don't give out the detailed
numbers by quarter, but weve always said that historically at the time of the conference call
typically the next quarter, which in this case is second-quarter is 85% to 95% booked. The
following quarter for the third quarter would be historically 55% to 75% booked, and for the
fourth quarter historically 30% to 50% booked. So that's what we have said historically and
this year falls within those ranges.
Micky Arison
The other point I'd like to make about shipbuilding, I thought a little bit is that, you know, yes
prices are down from where they were 18 months ago or two years ago, but these are
obviously very, very big capital expenditures. They are for long-term assets and if the price
is down 10% or 15% from where they were two years ago. That is not going to entice us to
build a ship we wouldnt have otherwise built. Clearly wed be happier with lower rather than
higher, but we're not going to build ships we don't need.
Steven Kent - Goldman Sachs
But Micky to be clear you still think that you are under penetrated, especially in a lot of
markets, and at some point, you do have to add that capacity in order to stimulate that
demand?
Micky Arison
Yes, and we said that two or three ships going forward beyond 12, 13 is probably a
reasonable estimate to model from, but you know, some years may be one ship less, and
some years maybe one ship more, but overall we think two or three over the long-term is
probably the right number for us.
Steven Kent - Goldman Sachs
Okay, thank you.

Operator
And our next question comes from the line out Tim Conder from Wells Fargo. Please proceed
with your question.
Tim Conder Wells Fargo
Thank you. David, just a little bit more of a housekeeping item. Could you elaborate a little
bit on the cost that you said from a timing perspective, and then the litigation and tax gains
that you recognized in the first quarter, was that baked into your initial guidance in
December?
David Bernstein
As far as the litigation was concerned, we knew about that early in December. So that was
baked in, but when it comes to the tax gains that was not baked in, but remember there
were also some ship incidences and other things that we werent aware of in December. So
some of these other extraneous items netted out as far as the guidance was concerned.
Tim Conder Wells Fargo
Right. It usually does all the time. I mean there is always something every quarter. Okay.
David Bernstein
Yes, and as far as the cost items, you know, in the first quarter we really the timing of
some of the expenses is always very difficult by quarter, particularly on the SG&A side. So,
you know, we did see some timing and some of our operating companies pushing out some
of the things that they had originally forecast it to be spent in the first quarter, which is why
we saw a 4.5% reduction in the first quarter versus what I was talking about 2% to 3% for
the balance of the year. The timing of the expenses is very tricky. You're talking about $6
billion of net cruise cost trying to project all that in the perfect timing by quarter does get
difficult at times.
Tim Conder Wells Fargo
Okay, very fair. Very fair. And then finally on the EU side, any color you can give is, I mean
historically the onboard spend in the EU has trailed that of North America, but that, you guys
have been working on that for several years and have narrowed that, and but just any color
as how the current state of trends are going onboard in the EU versus the US and just I
guess the mix of the EU of the ticket versus the onboard?
David Bernstein

Well, in the our European brands are still currently below our North American brands.
Basically broadly speaking, the Europeans drink more and gamble less than the North
Americans, but overall, on balance they are spending a bit less onboard, and that's been
pretty consistent as far as back as I can remember and it still remains the same.
Howard Frank
Europeans are much more virtuous population than Americans.
Tim Conder Wells Fargo
Okay, thank you Howard.
Micky Arison
Howard was kidding.
Operator
And our next question comes from the line of Greg Badishkanian from Citigroup. Please
proceed.
Jeff Jones Citigroup
Hi, this is Jeff Jones [ph] actually speaking on behalf of Greg. Question on fuel, I guess with
some encouraging signs in the industry and your business and oil prices moving above 80,
just want to understand your thinking about potentially reimplementing the surcharge at this
point?
David Bernstein
Well, you know, we put out a statement a while ago that basically we're standing by. You
know, we reserve the right to reinstate to save the fuel surcharge, but at this point we have
no present intention to do that. We will, you know, we will continue to monitor the situation,
review it, but we have no present intention to reinstate it.
Jeff Jones Citigroup
Okay. And then just any update you can give at all on booking windows, have you seen that
extend further out versus where you were back in December?
David Bernstein

No I think weve said that we are basically at historical levels, and now, that's pretty much
still the case.
Howard Frank
And we are being very patient you know, in terms of making sure that we yield manage
appropriately to get the price. We could always extend the window, but it may not
necessarily be the right thing to do, and so were being patient looking for the price
increase.
David Bernstein
I mean, clearly you know, when I talked about the fourth quarter, our occupancies are down
year-over-year. That's pretty much on purpose. I think the feeling is in North America, I think
the feeling of our yield managers in North America is that there's enough momentum in the
booking pattern right now to close that occupancy gap and to maintain pricing, which is
what they are focused on doing. So really there is now, everybody is focused on pricing as
opposed to volumes, it is fair to say.
Howard Frank
I think just to clarify what I said I think what we showed at recent presentations is that the
curve is similar to what it was four out of the last five years with the exception of 08, which
was ahead of the curve.
Jeff Jones Citigroup
That is great. Thanks so much.
Operator
Our next question comes from the line of Jamie Rollo from Morgan Stanley. Please proceed.
Jamie Rollo - Morgan Stanley
Yes. Thank you. Micky, you said before on some of the previous calls that you thought it
would take longer in this downturn to get the yield reduction back. And based on what you
have seen this calendar year, would you stick to that, or do you think you could recover the
yield within the sort of normal historical two-year timeframe?
Micky Arison
Jamie, I just want to correct. I didn't make that statement.

Howard Frank
I can say Jamie. I made that statement. It is Howard. You know, I think that at times of
financial crisis I was a little bit I just think it may take a while to get it back, but I think
we've been surprised to be honest with you. I don't want to be overly optimistic here, but I
think were surprised at the strength of pricing that has come back this year. I don't think we
obviously we you know, when we forecasted it we didn't expect this to come back this
dramatically.
It has come back. Whether we can sustain this kind of levels as we increase pricing whether
we can sustain the booking volumes is the next question. I don't think we're going to know
that for a while, but clearly that's the focus of our revenue managers and, but it does look
like it is coming back a lot faster in North America. Europe you know, never tailed off all that
much and it looks to be flat to down slightly this year. So were kind of pleased with what we
see in Europe and that's with all our additional capacity. So, combining the two, yes, I think it
is better than we originally thought.
David Bernstein
Jamie, just to reemphasize we offer the best vacation value or holiday value in leisure, and
because of that we should have a lot of upside in yields and hopefully one day we are going
to get it, but the reality is the value relationship is strong or stronger than ever, and
therefore the opportunity for higher pricing is there and the opportunity for great vacation
values for the consumer is there now, and they should be taking advantage of it.
Jamie Rollo - Morgan Stanley
Okay, thanks. And just the other question, on the commission and transport costs, which
were down about 3% despite ticket prices revenues rather being up 6%. (inaudible). So, I
mean what is happening to commission levels, and to process the change you have made to
your search engine policy for sampling, and somehow increasing the direct sales elements of
your mix?
Beth Roberts
Comments in the air/sea mix it was down considerably, it was down 25%. So in the first
quarter of last year 16% of people purchased air from us, whereas 12% of people purchased
air from us in the first quarter of this year and that is a material difference.
David Bernstein
So it's primarily that. I think there is a misunderstanding on this whole search engine thing.
There was nothing in that policy change that would affect direct business. The reality was

the only thing we are trying to accomplish was to stop competition in places like Google for
our trademarks. The reality is all of us were competing with our distribution system for our
own trademark and pushing the cost up. And all we wanted was to bring the cost down to
buy our trademarks and we succeeded in doing that. That's all it was about. It is ridiculous to
have to pay a premium to find Carnival or Princess in Google because six or seven other
guys want to buy Carnival or Princess in Google, and so always did.
Micky Arison
We own the name.
David Bernstein
We own the name and we don't want to pay a premium and compete with other people to
buy our own name. That was all it was about.
Micky Arison
And I think it was misunderstood by a lot of people and there was a lot media follow up with
agents who never bought our name. I mean only five, six, seven agents have ever bought
our name, and yet we had agents complaining about it. We really didn't understand what we
did.
Howard Frank
In fact, I think the great majority of agents had no problem with it, because they thought it
was leveling the playing field which was were trying to do.
David Bernstein
Because they couldn't compete with the five or six agents who could afford to buy our name.
So the vast majority of agents found that they were on a level playing field with those five or
six agents. So, and all it did was lower our search cost significantly and we are very pleased
with the outcome.
Jamie Rollo - Morgan Stanley
Okay, thank you very much.
David Bernstein
Okay Jamie, thank you.
Operator

Our next question comes from the line of Robin Farley from UBS. Please proceed with your
question.
Robin Farley UBS
Thanks. Most of my questions have been asked. Just want to get some clarification on your
onboard revenue guidance, I understand there were different items in Q1, but your full year
guidance saying that you expected to remain flat. It seems like historically as ticket prices
have moved up nicely at that higher paying customer often spent more on board, and I
guess I'm just wondering if your guidance was flat, if you are just being conservative, or if
there is a greater mix of I know you have talked about in the past about the European
brands not having as high an on-board spend. Is it that mix impact that is keeping it flat
offsetting what you would expect to be an increase from higher paying customers?
David Bernstein
I mean, in part it might be that but I mean I think they're just you know, this is the first you
know, year or 15 months where weve had flat for a while. So I think our the operating
companies that forecast their onboard revenue, I think have a tendency you know, not to get
overly aggressive in that area because there is one thing, it's hard to predict. We have a
good ability to predict ticket pricing, because we have bookings way in advance of recording
the revenue, but onboard of course is at the moment and it's hard to know.
In theory, in theory what you're saying should be true. I mean, I think once the ticket prices
go up, you're getting a slightly different customer buying that or they are feeling better
about spending money, you'd expect to see some increase in onboard revenues, but to be
honest with you, we haven't put that into the estimates, into the forecast right now, and if it
happens all the better. There is also some changes in the dynamics of onboard revenues.
You know, people are spending money differently. You know, there is less, there is no
challenge in the casino areas because casinos have become so popular on land and that's
sort of thing. So and we were constantly looking for new ways to increase onboard
revenues, and we've had some good successes, but where it all comes out at the end of the
day, well have a better sense of that I think as we get through the year Robin, and in terms
of whether onboard, they are now starting to pick up, but you're right for the year weve just
focused more or less flat. I mean it's slightly up, slightly down depending on which brand
youre talking about.
Micky Arison
I do think you make a good point. Sometimes it's forgotten. As we grow our European brands
faster than our North American brands there is a number of factors, including what you
describe as a mix factor for onboard. There is also the seasonality, the European business

has higher seasonality and therefore our earnings by the nature of that growth be lower in
the out quarters and higher in the third quarter.
Robin Farley UBS
Okay, great. Thank you.
Operator
Our next question comes from the line of Kevin Milota from JP Morgan. Please proceed.
Kevin Milota JP Morgan
Hi, good morning everyone. Was hoping you could give some more color on the closing
pricing picture, where in particular you saw the strength by brand or by region, it would be
helpful, thanks?
Micky Arison
I mean, when you talk about closing pricing, it's all relative to last year when were
forecasting yield improvement right now. So I mean, I don't there is not any particular color
we can give you other than that given the demand we've seen during wave season closing
pricing has exceeded our estimates and continues to do so. So we are pleased with what we
see. David, you have anything more on that?
David Bernstein
No.
Micky Arison
It's hard to be more specific than that because it's you know, if you're talking about 9 or 10
different brands, each behavior is slightly different than the other, and some brands have
much further in advance than others and so on. So it's a mix issue here as well.
Kevin Milota JP Morgan
Okay, thank you.
Micky Arison
Okay.
Operator

Our next question comes from the line of Ian Renderson [ph] from Bank of America/Merrill
Lynch. Please proceed.
Ian Renderson - Bank of America/Merrill Lynch
Hi there. Ian Renderson, Bank of America. Back in December, I think you said that oil, the
increase in fuel cost would cost you about $0.46, but that foreign exchange would be $0.08
benefit, so your net cost of fuel and oil was going to be $0.38. I calculate now you were
looking at the cost being about $0.70, that being $0.60 on the oil and the $0.10 hit on
foreign exchange. Is that correct and therefore you have got a $0.32 swing in your guidance
based on the new FX, the new oil assumptions?
David Bernstein
Yes, thats
Beth Roberts
Broadly right.
David Bernstein
Its broadly correct. Hang on one second. Let me just
Micky Arison
Sounds right, Ian. I don't know about the specific
David Bernstein
It's about $0.25 in total.
Ian Renderson - Bank of America/Merrill Lynch
Okay.
Micky Arison
Obviously, up through the December quarter we were seeing a counter effect between
currency and fuel. One was offsetting the other in movement and this quarter for the first
time we saw them both move against this, and the link between fuel and currency seem to
delink at least for a quarter. Now, the last few days they seem to be linked again and so we'll
see.

Ian Renderson - Bank of America/Merrill Lynch

Okay. And the 10% on oil is $0.20 on earnings I think, or of earnings here?
David Bernstein
Yes.
Ian Renderson - Bank of America/Merrill Lynch
Yes, thank you.
David Bernstein
Okay. Sure. Thank you Ian.
Operator
Our next question is from the line of Sharon Zackfia from William Blair Corporation. Please
proceed.
Sharon Zackfia - William Blair Corporation
Hi, good morning. Most of my questions have been answered, but I'm curious on the rate at
which you have held the cost down, and secondly the decline in admin expenses, and I
guess I'm just curious as we go forward and we are looking at a rebounding environment, is
there an element of cost to that rebound. Are we going to see some of these line items grow
at a faster pace in an absolute dollar sense going forward or I guess a rate of growth
perspective?
David Bernstein
It's very hard to tell. Obviously, if you look at the overall advertising environment, you know,
in a normal year you may say well they spent less on advertising. So, you know, they're
mortgaging the future, but the reality is we're probably getting more for our advertising
dollar this first quarter than we have in the past, because there is no question. One, our
search cost has come down dramatically based on the discussion we had earlier.
You know, advertising cost for magazines, as you know, the magazine industry is really
struggling, and so were buying advertising more efficiently than we probably ever bought
before and so the cost can go down and the effectiveness can go up, which is unusual and
whether, how long that will continue to stay, you'd have to be an analyst for the advertising
industry to really predict that, but right now it seems to be the trend that we can buy
eyeballs cheaper than we're able to buy them before.

Micky Arison
The other thing is, you know, it's hard for us to predict what inflation will be. I mean at the
moment you know the numbers as well as I. There's really no inflation broadly speaking out
there today, but going forward, you know, we've been talking for a while about our various
operating companies working together, and getting tremendous cost opportunities, whether
it be things like negotiating port charges collectively or shore excursions collectively. There is
a lot of things we are working on. So to the extent that there is inflation, we expect to be
able to offset some or all of it with these cost opportunities as we continue to attack these
projects collectively.
Sharon Zackfia - William Blair Corporation
Maybe phrasing it a different way. Given what might be a structural shift in fuel costs course
over the last five years, do you think as the yields rebound and we are looking at something
better three years from now is there a structural impediment to getting EBITDA margin north
of 30% again?
Howard Frank
Itll be more of a yield revenue situation than it would be a cost situation. I think we
managed the cost side of it very well. The revenue part is something it's just hard to know
for years down the road, but clearly if our revenues continue to go up, you could get back to
close to historical levels. I dont see any reason why not.
Sharon Zackfia - William Blair Corporation
Okay, great. Thanks.
Operator
Our next question comes from the line of Tim Ramskill from Credit Suisse. Please proceed.
Tim Ramskill - Credit Suisse
Thank you. Two quick questions for me, firstly, just with regards to what you have
experienced in Brazil during the first quarter are you likely to therefore alter your
deployment plans for next year on the back of that? And then the second question is just
when you come to look at the performance of your European brands, clearly you don't have
sort of premium brands in Europe per se in the same way you do in the US. But within your
European brands, whether it's more expensive cabins or itineraries, are you seeing similar
consumer behavior in Europe when it comes to recovery in the more higher price segment?
Micky Arison

Id rather not disclose what our plans are for Brazil other than to say that we may hedge it
with a little bit more capacity for Argentina than we did this year, but other than that I'd
rather not say, Howard.
Howard Frank
Yes, I don't know that I've got a good you know, the continental European brands tend to
focus on a middle to upper middle market, whether it be AIDA, I would call upper middle
market AIDA and Costa and Ibero. so I don't, and while there are high-priced cabins in the
categories, I really couldn't answer the question whether how well, how strong they are
selling, but overall the behavior of those brands tends to mirror more of a contemporary
brand than it does a premium brand I would say.
Beth Roberts
I think it's fair to say since they didnt take a big hit last year, they are not experiencing the
same level of recovery that we are saying in the premium product.
Howard Frank
Right. That is a good point.
Tim Ramskill - Credit Suisse
Great, thanks.
Howard Frank
Okay, sure.
Operator
Our next question comes from the line of Joe Hovorka from Raymond James. Please proceed.
Joe Hovorka - Raymond James Securities
Thanks guys. My questions have been answered. Thank you.
Howard Frank
Thanks.
Operator

And speakers there are no further questions at this time. Ill turn the call back to you. Please
continue with your presentation or closing remarks.
Howard Frank
Thank you very much. If there are any follow-on questions, Beth is available and she enjoys
hearing from all of you. You all have a great day and hope to see you soon. Take care. Byebye.
Operator
Ladies and gentlemen, that does conclude the conference call for today. We thank you for
your participation and ask that you please disconnect your line.

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