Carnival Corporation (CCL) F2Q09 Earnings Call June 18, 2009 10:00 AM ET

Operator
Welcome to the Carnival Corporation second quarter earnings conference call. During the
presentation all participants are in a listen-only mode. Afterwards we will conduct a
question-and-answer session. (Operator Instructions)
It is now my pleasure to turn the conference over to Mr. Howard Frank, Vice Chairman and
Chief Operating Officer of Carnival Corporation. Please go ahead, sir.
Howard Frank Blake
Good morning everyone. This is Howard Frank speaking and I together with Micky Arison are
here in Genoa, Italy having just taken delivery of the new Seabourn Odyssey a few hours
ago. I am at Costa Cruise Line offices and Pier Luigi Foschi, Chairman and CEO of Costa in
our continental European cruise companies is here on the call with us. In Miami, David
Bernstein, our CFO, is there together with Beth Roberts, our VP of Investor Relations.
I will turn the call over to David to give you the color on the second quarter financial results
and then David will toss it back to me and I will give you some comments on what the
outlook looks like. David?
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 or other
factors, 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 second quarter our earnings per share were $0.33 versus $0.49 for the prior year.
The second quarter came in above the mid-point of our March guidance by $0.02 per share.
This was driven by a variety of cost-saving measures, timing of certain SG&A expenses and
reduced fuel consumption which benefited us to the tune of $0.05 as a result of tight cost
controls and cost saving initiatives while better than expected pricing on close in bookings
benefited us to the tune of $0.03.
All of this was partially offset by higher fuel prices costing $0.02. The impact from disruption
of our Mexican cruises in response to the CDCs recommendation against nonessential travel

in Mexico due to the flu which cost us $0.03 and a shortfall from expectations in net onboard and other revenue yields that cost us about $0.01.
Overall for the second quarter our total revenue yields came in towards the lower end of the
range, down 9.8% in constant dollars versus March guidance of down 8-10% driven primarily
by the impact of the flu. Given the uncertain times and the flu disruption, I think the
operating companies did an excellent job beating our guidance.
Looking at our second quarter operating results versus the prior year, our capacity increased
5.9% for the second quarter of 2009 with a majority of the increase once again going to our
European brands. Our European brands grew 8% while our North American brands grew
4.2%. Also during the second quarter Costa Asia over doubled in size and Costa Classica
joined Costa Allegra in China.
As I previously mentioned, overall net revenue yields in local currency declined 9.8% in the
second quarter versus the prior year. Now lets look at the two components of net revenue
yields. For net ticket yields we saw a yield decline of 10% in local currency. Our North
American brands were down 14% driven primarily by declines in Alaska, Europe and not
surprisingly in Mexico due in large part to the CDC travel restrictions relating to the flu.
However, yields in the Caribbean and other exotic itineraries held up somewhat better in the
second quarter compared to the prior year. Our European brands experienced 6% lower local
currency ticket yields on higher capacity driven by declines in all itineraries.
For net on-board and other yields, we reported a yield decline of 9.4% in local currency. We
saw declines in most of our brands around the world; a trend we had anticipated. Net onboard and other yields in our European brands were down less than our North American
brands similar to our experience in net ticket revenue yields.
Net on-board yields in all major categories of bar, casino, shore ex, shops, photo and spa
were down in the second quarter versus the prior year.
In summary, you should note that while the second quarter net revenue yields were down
almost 10% they still benefited from some strong pricing on bookings taken prior to the start
of the financial crisis last fall. As we look forward to the back half of 2009, all of which was
essentially booked after the start of the financial crisis, expect to see slightly larger yield
declines as the back half of the year feels the full brunt of the recession and is impacted by
the seasonal deployments in Alaska and Europe.
On the cost side, our cruise costs per available lower berth day excluding fuel and in local
currency for the second quarter were up 1% driven by the $24 million increase in dry-dock
expense this year versus the prior year which was due to more vessels being in dry-dock.

However, the best measure of cruise costs are on an annual basis and I will touch upon that
in a moment.
Fuel prices this quarter were 43% lower, saving us $180 million or $0.22 per share. Our fuel
consumption for available lower berth day this quarter declined 6%, saving us $27 million or
$0.03 per share. As a result of numerous conservation measures we have been seeing 2-3%
fuel efficiencies per year for a number of years now. The stepped up focus in this area has
benefited us through the whole first half of 2009 with an even larger decline in fuel
consumption.
While currency movements have reduced our costs for the second quarter overall currency
was a negative drag on our earnings of approximately $55 million or $0.07 per share as the
dollar strengthened versus the Euro and the Sterling.
Before I turn to the outlook I would like to say a few words about liquidity. At the end of the
second quarter pro forma for the recent loan signings we had $4.8 billion of liquidity. This
included $1.7 available on our revolver, $232 million of cash excluding cash on hand, $200
million of committed bank term loans, 550 million Euros of commitments from the European
Investment Bank and $1.9 billion of export credits, two export credits remaining for 2009
and one per year for 2010, 2011 and 2012. Since the March conference call we have
completed six financings worth $1.7 billion; two Italian export credits for 2009 worth $570
million, one for Costa Pacifica and one for the Seabourn Odyssey which we drew this
morning upon delivery. We also had the European Investment Bank loan which was
mentioned in the press release for 550 million Euros and we did three bank facilities worth
$350 million.
As I mentioned on our last conference call the Italian export credits for Costa Pacifica and
Seabourn Odyssey completed our financing needs for 2009 and we are now on target to
complete the rest of our financing needs by the end of September for 2010.
I will skip the net revenue outlook as Howard will discuss that in a few moments and I just
wanted to touch on our cruise cost outlook for the year. Cruise costs per available lower
berth day for the full year excluding fuel and in local currency are projected to be in line with
the prior year, up just about 0.3%.
During the March conference call I said that while we were happy that we were expecting to
have another year of essentially flat costs we would not rest there and we didnt. Our
operating companies managed to find additional opportunities worth $33 million in lower
costs excluding fuel price and currency, bringing the total savings since the December
guidance to $150 million. Based on the current spot price for fuel, fuel prices for the full year
are projected to be $353 per metric ton for 2009 versus $558 per metric ton in 2008, saving
us $660 million.

In addition, FX rates have moved from a 2008 average of Euro 149 and GBP 190 to 2009
guidance of Euro 137 to GBP 154. In the end, fuel and currency are driving our costs down so
in current dollars and including fuel our costs are expected to be down 12-14%. While the FX
rate movement reduces our costs it also reduces our revenue. Given these FX rates the
year-over-year profit impact from currency is expected to be a reduction in the bottom line of
$175 million or $0.22 per share.
As fuel and currency are big factors impacting our 2009 results I wanted to share with you
some of the current rules of thumb about the impact of exchange rates and fuel prices on
our 2009 results. To start with, a 10% change in price of fuel represents approximately $110
million or $0.14 per share impact for the full year on our P&L. The 10% impact in fuel
obviously moves with the price of fuel. With respect to FX movement, a 10% change in all
currencies relative to the U.S. dollar would impact our P&L by approximately $130 million or
$0.16 per share.
Fortunately for us, FX and fuel items have generally moved in opposite directions acting to
some extent as natural hedges of each other. At this point I will turn the call back over to
Howard.
Howard Frank
Thank you David. To start this morning I would like to mention that given the challenges
during 2009 it has been gratifying to see the Carnival business model holding up so well
during perhaps what is the most significant slow down in the world economy in our lifetime.
The positive take away for us during this historically significant period is that the strategy of
attractively pricing our cruise vacations in order to maintain our high levels of occupancy
has continued to enable us to attract new customers and to achieve solid profit margins.
Also during 2009 we have taken further steps to reduce operating and shore side costs
which David discussed which will continue to benefit us in the future periods. So as we
emerge from this global economic slow down we believe we will be a far stronger and more
profitable business than before.
Before I move on to my quarterly comments I would also like to touch upon our strategy of
maintaining a strong balance sheet with high levels of liquidity. This has enabled us to
successfully navigate through this very difficult economic environment which as you know
also included the bank liquidity crisis and the freezing of the credit markets.
Our low leverage ratio and solid investment grade rating provide us with the ability to
access credit facilities at costs considerably below current capital market rates. David talked
about the various financings we have accomplished during the last several months. That
gives us maximum flexibility as we emerge from the recession.

Now to the booking environment. Since the beginning of this year our booking volumes for
the back half of the year have been running approximately 16% ahead of 2008 volumes. As
we indicated in our press release since March the bookings volumes are now running 26%
ahead of last year. The cost of these bookings had been at lower price points which I will
comment on later.
So despite the soft economy, rising rates of unemployment in North America and Europe, we
seem to have found a price point that incentivizes the consumer to book a cruise vacation.
With the strong bookings, prices are beginning to show signs of improving for certain of our
itineraries which is encouraging.
Looking separately at our North American cruise brands we are seeing a modest
improvement in pricing for our premium products. However, pricing for contemporary
cruises has suffered because of the flu related travel restrictions to Mexico. In that regard we
have restarted our sailings to Mexico this month and except for the initial disruptions
Mexican itinerary booking volumes continue to be strong and we expect that pricing for
Mexican cruises will strengthen over time.
As to our European brands, pricing has held steady and there appears to have been very
little fall out from the flu issue in Europe. As we indicated in our press release, the main
factors affecting our earnings guidance for the year include fuel which is now forecasted at
$353 per ton versus $279 per ton in our prior guidance. This higher than previously
forecasted fuel cost announced at $0.29 and the strengthening of the Euro and Sterling kind
of offset that by a favorable $0.06 per share.
While the impact of the flu on our Mexican deployments put a negative $0.10 per share on
yields it was largely offset by better than expected revenue yields for our other deployments
which was $0.14 per share and we expect a further $0.04 savings on costs for the year. So
the sum of total on these items if you can follow all that nets out to $0.15 per share and new
guidance range for 2009 of $2.00 to $2.10 per share which is down from our previous
guidance of $2.10 to $2.30.
Now turning to the next three quarters, for our third quarter our fleet wide capacity is 5.6%
higher than a year ago; 3.8% in North America and 7.4% in Europe. At this time, fleet wide
occupancy for the third quarter is running behind the year ago with pricing substantially
lower. For our North American brands, third quarter capacity breaks down as follows: Alaska
is 28% of our capacity with Europe at 19%, the Caribbean at 36% and balance in various
other itineraries.
Pricing for our North American brands is lower across all itineraries with the steepest decline
in our Alaska programs. Mexican Riviera cruise pricing is also considerably lower because of
the impact of the flu on Mexican itineraries. European itinerary prices for North American
brands is lower but not as low as originally anticipated as a result of recently stronger

booking demand for European cruises. Caribbean pricing is lower also in part affected by
those Caribbean itineraries which call on Mexican ports.
Occupancy for our North American brands at this stage are lower year-over-year for our
Caribbean, Mexican Riviera and Alaskan itineraries and slightly higher at this point for our
European itineraries. We expect that North American brand revenue yields will be lower in
the double digit range by the time the third quarter closes.
For our European brands in the third quarter pricing is lower year-over-year but our European
brands have not suffered the steep pricing declines experienced in North America. Our
continental European brands, Costa and AIDA, have lower pricing with yields expected to be
down in the single digit range by the time the quarter closes. Our U.K. brand yields are
expected to be only slightly lower by the end of the quarter. Our Spanish brands, our Ibero
cruises, have suffered the steepest decline in yield because of the very weak Spanish
economy but fortunately this is a very small part of our European brand portfolio.
Overall we expect European brand pricing to be lower in the single digit range by the time
the third quarter closes. As we indicated in the press release we expect overall revenue
yields in the third quarter on a local currency basis to be 14-16% lower year-over-year and
earnings per share in the third quarter is expected to be in the $1.15 to $1.19 range.
Let me just comment on the Spanish Ibero cruises. Despite the currently weak Spanish
economy we do believe in the long-term future of the Spanish brand. In fact, we have
entered into an agreement to purchase the remaining 25% minority interest in Ibero for 23
million Euros and have recently made a number of changes in the organization in order to
further integrate Ibero into the Costa group in Europe.
We also recently moved a senior Costa executive to Madrid to manage the company and
have brought in several new executives to Ibero to support these efforts which is already
beginning to yield very positive results. So long-term, we are going to be in Spain and we
think that is going to be a very good business for us.
Turning to the fourth quarter, fourth quarter fleet wide capacity is up 7.6%, 5.7% in North
America and 9.4% for our European brands. Fleet wide occupancies are running behind yearago prices and year-over-year pricing is lower but on a relative basis better than third
quarter pricing.
For North American brands, capacity breaks down as follows: 45% Caribbean, Alaska and
Europe combined is 17% and long and exotic cruises are 12% with the balance in various
other itineraries.
North American brands Caribbean pricing is lower but the fourth quarter booking momentum
versus the 2008 period has been strong similar to the third quarter. Pricing for Alaska cruises

during the [shoulder] period are considerably lower. Europe itinerary pricing, although lower,
is holding up better than Alaska.
Long and exotic cruises with the higher price points are also considerably lower than a year
ago. While occupancies for North American brands fourth quarter are still lower as a result of
the strong booking volumes during the last several months we have caught up considerably
and are now only modestly behind in occupancy.
European brand itineraries are 78% in Europe and 11% in long and exotic cruises in the
fourth quarter. European brands pricing during the fourth quarter continues to be better
than our U.S. brands although pricing for European and long and exotic cruises are lower
year-over-year and the declines are not as deep as the U.S. brands.
Similar to the North American booking pattern, fourth quarter bookings in Europe continue
to be strong and occupancy levels although lower than a year ago have caught up
considerably as a result of the recently strong booking levels. Overall by the time the
quarter closes we expect fourth quarter pricing to be lower year-over-year but improving
from the third quarter expected price declines.
Now turning to the first quarter of 2010, and this will be the first time we have commented
on the booking trends in the first quarter of 2010. Fleet wide capacity in the first quarter is
expected to be higher by approximately 9.2%. 5.2% of that is for North American brands and
13.3% is for European brands. The booking information for the first quarter of 2010 is still in
its early stages of development so I caution not to read too much into this information.
Having said that, at this time we do expect to have yield declines in the first quarter of 2010.
This results from year-over-year comparisons being very difficult since a good percentage of
2009 first quarter business was booked before the economy began entering into the
recession in the third and fourth quarters of last year.
From a fleet wide standpoint while bookings at this time are below last years levels as a
result of the strong booking volumes in recent weeks we are currently tracking last years
booking levels even with the 9.2% increase in capacity in the first quarter.
North American capacity for the first quarter of 2010 breaks down as follows: Caribbean is
62%. Mexican Riviera 11%. Long and exotics are approximately 16% and all of those are
approximately the same percentages as we had in last years first quarter.
North American brand occupancy and pricing across all itineraries are lower than last year.
However, current pricing on booked [visit] is still ahead of the pricing we finished with the
first quarter of 2009. So if the strong booking momentum continues it is possible we could
see a narrowing of the current year-over-year pricing declines.

European brand pricing has at least at this point held up quite well and is running at
approximately the same levels as last year. Although occupancies are lower than a year ago,
booking momentum has been strong which is quite encouraging but as I said earlier it is still
early in the booking window for the first quarter of 2010.
So that is the outlook for the first quarter of 2010. We will be able to provide you with more
color on the first quarter revenue picture in our next call this September.
With that, Operator I will turn it back to you for questions from our callers. Thank you.
Question-and-Answer Session
Operator
(Operator Instructions) The first question comes from the line of Felicia Hendrix Barclays
Capital.
Felicia Hendrix Barclays Capital
I have a question for you on the EIB loan. I was wondering if you could walk us through the
structure of that. The rate and the terms. Were there any guarantees? Im just wondering is
there any significance to starting to be able to borrow from the EIB? Will we see that again in
the future?
David Bernstein
Im sure. Well the EIB loan is actually a loan that will be taken out by Costa Crociere. It
actually finances a couple of their ships. The loan is 550 million Euros. 200 million Euros will
be drawn this year, 200 million Euros in 2010 for Costas next ship and then 150 million
Euros in 2011. The loans are guaranteed of course by the parent company; both Carnival
Corp. and Carnival PLC and it is a 15-year structure. The rate is very favorable and as we
have been achieving on all of our loans it is very competitive and very favorable compared
to the type of financing we would get in the capital markets today.
This was a great opportunity. Actually this opportunity was a result of something that Pier
Luigi Foschi, who is there in Genoa with Micky and Howard. As a result of the credit crisis of
last year we all started thinking and scratching our heads about what to do as the credit
markets became more difficult and Pier came up with the idea of approaching the EIB. We
have been working on this since last September. It is a very unique opportunity because
remember the EIB is looking for projects to stimulate growth in the European economy and
these ships are going to be sailing in the Med as part of the European economy. So we have
been working with them since last September and we were able to finalize the loan earlier

this month. Whether there are more opportunities in the future is something we will always
continue to look at as the rates are very favorable.
Micky Arison
What allowed us to do this is the fact the company is Italian owned, Italian based with Italian
flag operating in the Mediterranean so obviously the economic benefits all flow to Italy and
the Mediterranean area. So it was a unique set of circumstances that may or may not be
able to be repeated in the future. We dont know. But again it was very creatively put
together and with the help of Costa and [inaudible] and the EIB we were able to get it done
and the Italian representative for the EIB played a very important role.
Felicia Hendrix Barclays Capital
On capacity, now we are half way through 2009 and we havent seen any orders in the
industry for obvious reasons. That definitely bodes well for 2012. As you think about your
strategy over the next few years I am wondering if you envision continued growth of your
fleet or if you think we will see a lull in your ship orders over the next year or so?
Micky Arison
I do think we have been saying we expect capacity growth beyond what is known now to
slow down but I dont expect it to stop. Clearly we have brands that have needs and in
recent years or two we have had issues both with the dollar and commodity prices meaning
new building prices sky rocketed. While some of our competitors ordered under those
circumstances we held back and we havent ordered in quite some time. With everything
that has happened over the last 9-12 months a lot of these commodity prices and other
prices have come down significantly. Pricing is starting to resemble pricing we had when we
did order. We continue to talk to yards and continue to look at opportunities and if we have
the right opportunity for the right brand that meets the capacity and the pricing is right we
will consider it. I do expect capacity growth will slow but it wont stop.
Operator
The next question comes from Steve Kent - Goldman Sachs.
Steve Kent - Goldman Sachs
When I look at your results, third quarter net yield came in towards the bottom end, was
towards the worse end of your guidance. Third quarter looks a little bit more difficult. For the
fourth quarter it looks like you are forecasting a pretty big rebound and I was just trying to
figure out why that would happen given all the things you just mentioned? Could you also
just talk about what you see sort of day-to-day on the swine flu impact? It seems it goes

through lulls of publicity and then gets a flash of publicity. Does that affect your bookings
almost day-to-day when a ship is being quarantined off of Venezuela today and sort of how
that impacts things?
Micky Arison
First of all remember that the guidance was given before we had the Mexico travel advisory.
So the fact we are able to be within guidance despite the Mexico travel advisory I think is a
pretty good sign that everything else was booking better than we had anticipated. That is
true for the second and to some degree a little bit of the third quarter. As far as the impact it
is interesting. During the time of the advisory clearly there was a huge amount of disruption
caused by that CDC advisory because of the itinerary changes. People didnt know Carnival
Cruise Lines basically changed itineraries through mid-June and people didnt know what
they would do beyond June. Basically for 3-4 weeks everything into those vessels stopped.
So now we are digging ourselves out of that hole. There has been little resistance actually to
going back to Mexico. We didnt see a lot of cancellations during that period. We just saw the
uncertainty of the itineraries caused this disruption. Volumes now are very good, much
higher than last year, but we are digging ourselves out of a hole and are having to do it with
lower pricing.
As far as these isolated occurrences it is tough to explain. We have now been in touch with
23 Caribbean governments. We have gotten confirmation back from 20 of them that they
will not behave in the way they have behaved with [fulman tours]. You would have to ask
[fulman tours] what is going on over there but the reality is that when a ship arrives in a port
with a few flu cases confirmed or unconfirmed, those cases have been isolated and the
passengers have been aboard for a number of days and so symptoms would have come out
and we have isolated the passengers with symptoms. If those passengers had arrived by air
after a four or five hour flight they would not be symptomatic and would be in the
population. So it is clearly much safer, as long as you operate under the protocols that we,
the CDC have put together much safer to accept a ship even if it has some cases.
By the way we are talking about a flu that is no worse, and appears to be symptoms even
milder than seasonal flu. So this over-reaction in some locations has been a problem. We had
a particular problem in Australia, but we are trying to deal with it port-by-port and
government by government and I think over time people are understanding this is not any
different than seasonal flu and shouldnt be treated as such.
We also have to remember that WHO from the very beginning said there should be no
restrictions on travel and yet some governments lower level people have panicked and
done things you just described. So hopefully over time as everybody gets educated and we
work hard to educate people and we work hard with the CDC to educate people this
becomes less and less of an issue and will be treated more and more like seasonal flu.

Howard Frank
I just want to clarify a few things on the yield estimation. I think it is fair to say without the
impact of the flu on the second quarter we would have come in at the mid-point of the yield
forecast range we had given for the second quarter. So it really was more driven by the flu
effect. While the third quarter will be down it is clear that some of these seasonal Alaska
programs took a big hit in the third quarter and some other long and exotics took a big hit. I
think we suffered more in the third quarter. Third quarter typically because it is seasonally
our strongest quarter has the highest price points so I think we felt more of the impact of the
yield erosion in the third quarter.
While I think the fourth quarter will be better than the third quarter I wouldnt say it is going
to be remarkably better but it is certainly going to be improved from the third quarter. Also
we are seeing some evidence and we have been able to pick up some additional yield and
we are seeing some evidence of hopefully coming out of this situation or at least stabilizing
the situation but hopefully coming up with some pricing improvement in some itineraries as
we go forward. I think we are starting to see that for the fourth quarter. Third quarter is
really basically done and not a whole lot left to see.
Steve Kent - Goldman Sachs
Into the first quarter it sounds like things would still be negative. With the amount of supply
coming on does that suggest the negatives will continue throughout 2010? Given what you
are seeing so far fuel is that way and again with the amount of supply coming into 2010.
Howard Frank
Let me take a little bit of risk by providing data for the first quarter. We simply dont have
any information for what the picture is going to look like. It is way too early to know yet.
There are just so many factors that could play. The one thing we do know is our capacity is
up over 9% in the first quarter and at least over the last several weeks we have been
starting to track the same type of booking volumes in the first quarter under capacity
adjusted basis as we did last year. So that is a positive. How long that lasts or if that is
sustainable and what other hits are we going to take in the economy who knows yet. We
really dont have a really good yield forecast and even then Im not sure how good they are
until the end of the year.
Micky Arison
Clearly the big issue is not going to be capacity. The big issue is going to be the economy
and consumer confidence and what is going to happen.
Steve Kent - Goldman Sachs

That 9% you just said, you said that was capacity adjusted or not capacity adjusted?
Micky Arison
Capacity adjusted.
Howard Frank
When we are tracking booking volumes this year versus last year that is on a capacity
adjusted basis. So it is really a percentage of capacity. It includes the 9.3% which is positive.
Operator
The next question comes from Robin Farley UBS.
Robin Farley - UBS
You were talking about the swine flu and a lot of different view points out there about how
big of an impact that may have on yields. I think your commentary is a little more up beat
than what some people might have expected. As you look out to Q1 of 2010 at that point are
you still seeing the Mexican itinerary bookings behaving a little worse than the other
itineraries?
Micky Arison
Let me try this one more time. The only time we saw an impact was during the travel
advisory. If you understand the volumes we are talking about over a 3-4 week period we
basically stopped. Now what percentage of that was based on the flu and the fact the
consumer didnt know where we were going to cruise to was very hard to know. It was very
disruptive. As soon as we announced we were going back volumes not only went back to
normal but exceeded normal. So volumes were fine. However, our yield management people
obviously had to react to the hole that was created and so the pricing was lower. But clearly
that pricing will be moved up as that hole gets filled. The volumes were there the moment
we were able to confirm what the itineraries were.
Robin Farley - UBS
In terms of Q1 just overall company wide bookings would you say even though it is still early
that the level of decline in Q1 is going to be at least better than Q3 declines this year? Is it
early enough to at least say that and put kind of a worst case cap on it? Assuming no big
changes from what is going on today in the travel environment.
Howard Frank

To be honest with you I dont know the answer to that question. We havent even tried to
formulate what yields are going to look like in the first quarter. Intuitively I think our sense is
that it wont be as bad but I really dont have an exact answer for you right now.
Micky Arison
What is very encouraging is that since the end of March everything is trending upwards
despite the travel advisory. Right through the travel advisory everything is trending upwards.
Both volumes and yields. We are encouraged by that. Whether that will be sustainable time
will tell.
Howard Frank
We are still running behind in the fourth quarter and first quarter in terms of occupancy and
we have been catching up as I indicated by a considerable amount given the recent surge in
booking volume. When you get to the point where you have caught up you can start to
tweak pricing in various itineraries where there is more demand. We are starting to be able
to do that selectively with different brands doing it in different itineraries and we are starting
to see that happen. There is certainly a positive indicator. My guess is as we get into 2010
comparisons for the first quarter will be the toughest. The second quarter is not as tough.
The third quarter will probably have already fully cycled this downturn in pricing and it will
start to normalize and look better in the third and fourth quarter.
Operator
The next question comes from Assia Georgieva - Infinity Research.
Assia Georgieva - Infinity Research
In terms of a way to think of on-board spend do you expect in Q3 that the European brands
will have a significant mix shift to local sourcing meaning a larger percentage of European
passengers versus a year ago?
Howard Frank
I had difficulty hearing you. Could you say it once more?
Assia Georgieva - Infinity Research
Whether this year in Q3 the percentage of European passengers for European brands will be
significantly larger than it has been in 2008?
Micky Arison

I believe it is about the same. Mr. Foschi says it is about the same. Mr. Foschi is sitting next
to us and no body knows it better than Mr. Foschi.
Assia Georgieva - Infinity Research
Thank you Mr. Foschi. My second question, after significant price declines in May for the
short Caribbean including voyages that werent supposed to go into Mexico, it seems there
is a pick up in pricing for Q3 since the beginning of June. Can that impact the quarter relative
to todays guidance or is there too little inventory left to really move the needle?
Howard Frank
I would have to answer that it is in our guidance. Our guidance is based on the bookings we
see and the pricing we are charging and what we believe. Hopefully it is in our guidance. We
do our best to do that. There isnt a lot of inventory left but clearly there is more in Mexico
only because of that hole that I just described that needs to be dug out of. Yes, because
volumes are high they will tweak prices.
Assia Georgieva - Infinity Research
So you have been seeing the first couple of weeks in June have stayed consistent and
something you can include in your guidance?
Micky Arison
If it is there we have it included in our guidance.
Howard Frank
Booking volumes have been holding up, yes.
Operator
The next question comes from Steve Wieczynski - Stifel Nicolaus.
Steve Wieczynski - Stifel Nicolaus
First on the fuel question, with fuel now trending close to where you said you could put the
fuel supplements back in place any thoughts of putting those back in? Any change in terms
of hedging strategy?
Micky Arison

There is no change in hedging strategies. We did put out a statement on fuel. Beth do you
have that statement?
David Bernstein
We have got it here. We had put out a statement that said at the time we suspended the fuel
supplement for our six North American brands we reserved the right to reinstate them if the
price of light sweet crude oil according to NYMEX should increase above $70 a barrel. Then
we went on to say that while we have now exceeded that threshold and in light of the
economic crisis and resulting consumer weakness we presently have no plans to institute a
fuel supplement and we will continue to monitor the situation in the markets and review our
position as the situation warrants.
Micky Arison
I would prefer just to leave it at that statement.
Steve Wieczynski - Stifel Nicolaus
It looks like in terms of the on-board yield they are trending closer to the actual ticket yields
at this point. Have you seen on-board spending not really stabilize yet? Is that still getting
worse?
David Bernstein
I think overall the on-board spend has overall not been as add as the ticket prices. It has
bounced around quarter-to-quarter a bit but it has been somewhat stable most through the
months of 2009 to date. Im not sure which numbers you are looking at but it is overall for
the year within our guidance and the actual we have seen some improvement.
Howard Frank
On-board spending in the European brands in local currency has held up reasonably well
year-over-year. I think that is a positive.
Micky Arison
Also remember in this quarters numbers there is some disruption from the travel advisory
which created some problems with shore excursions to ports we traditionally go to.
Operator
The next question comes from Tim Conder Wells Fargo.

Tim Conder Wells Fargo

Just a clarification on the residual effects of the flu. You expected $0.05 in the second
quarter. You only took $0.03 but in your commentary on the full-year EPS it sounds like you
are still expecting that full $0.10 that you outlined in the original press release. Can you kind
of reconcile what appears to be the difference?
Micky Arison
You may have misunderstood the press release. The press release said there was a nickel for
the cruises we changed. They sell primarily in the second but also in the third quarter so the
nickel fell over two quarters.
Tim Conder Wells Fargo
So you are still anticipating in that nickel to $0.10 total impact for the year for the whole
mess?
Micky Arison
The other piece of it is exactly what I described before. It is leading ourselves out of the hole
that was created by the disruption. David do you have anything to add to that?
David Bernstein
That is exactly it. The $0.10 was essentially $0.03 in the second and we are anticipating the
other $0.07 to be in the third. Two of the existing cruises and vie for the rest of the impact.
Tim Conder Wells Fargo
In your opening commentary you talked about the good history you have in getting ongoing
fuel efficiency. How do you see that playing as you look in 2010? What type of pace do you
think is sustainable from that perspective?
David Bernstein
It is very difficult to estimate the exact pace but what I can say is we are working on an
awful lot of initiatives. The brands have really come together. We have an internal intranet
site where we share ideas, test things, prove things out and implement them which is really
improving our overall fuel consumption. The other that is also key is 2010 to a great extent
is really the first year where the itineraries will have been planned in a high fuel
environment. It wasnt that long ago when we planned 2009 itineraries they werent planned
in the extremely high fuel environment we saw in 2008 because we locked those in advance.
We should get some benefit from that as well.

Micky Arison
I think the key point is when we hit $147 fuel we took the attitude that we were going to do
whatever we can to save obviously. When fuel went down to $35 we encouraged our brands
to think of fuel as though it were $147 fuel and not to behave like it is $35 and to maintain
the momentum we had gotten on saving fuel. You can see in the second quarter they have
taken that to heart and continue to work very hard at it.
Howard Frank
A good deal of work has been done. New equipment has been installed. New technology.
Power saving technology and so on. As ships go through their dry-dock period with
technology we are doing a lot of retrofitting with new equipment to improve and reduce the
usage of power. Silicon painting of the hulls and so forth. By the fall we will have a better
sense from our operating guys what they think they can do for next year and we will go
through the budgeting period but we are continuing to focus on saving on fuel.
Micky Arison
We are continuing to make the investments necessary to save.
Operator
The next question comes from Janet Brashear Sanford Bernstein.
Janet Brashear Sanford Bernstein
You have another Costa ship now in China. Could you give us an early read on the Asian
market receptivity to that?
Micky Arison
Im going to give you to Mr. Foschi who is responsible for Costa Asias operations. Good
question.
Pier Luigi Foschi
We just put in a second ship in Asia in April. The ship will operate now cruises for the
Chinese market together with the other ship that was there. We see this summer season
although we are more than double the capacity. In terms of occupancy it is as good as it was
last year so the ship will operate full capacity where they are serving the Chinese market.
This is encouraging. We are encouraged. Looking ahead it is very difficult to say because
again there is a little bit of concern about the flu also there and more importantly in the
winter season the demand for the local market will slow down so we have excess supply for

worldwide customers mainly from Europe and Australia to fill out the ship. So far, we are
very encouraged by the demand for the second ship.
Janet Brashear Sanford Bernstein
Can you tell us a little bit about your itineraries for the Chinese ship? Where they are going
and how long they are on average?
Pier Luigi Foschi
On average is about five days, from 4-6 day itineraries. They sail out of Shanghai and Tianjin
to serve the Beijing market. Shanghai also to serve the large Shanghai area. They typically
go to Japan and South Korea. They are typically a 4-6 day cruise out of Shanghai and Tianjin
to South Korea and Japan. Japan normally has two ports, with one port in South Korea.
Janet Brashear Sanford Bernstein
In the hotel industry the rev par decline has been more significant in Europe than in the U.S.
and they seem to be lagging behind meaning they are trending down further and abating
slower. If you are not seeing those same trends with your bookings patterns in Europe why
do you suppose not?
Pier Luigi Foschi
We believe if you compare the demand for cruises in Europe versus North America you can
see the same pattern as 10 years ago. Cruises interest development in Europe and so it is a
very attractive proposition and is actually particularly this year and last year although of
course this economic crisis is affecting everybody but cruising is in the front page of every
single paper in Europe as attractive proposition for holidays than it has ever been before.
That is the reason why. It is a demanded product within the holiday market, higher than it
has ever been.
Operator
The next question comes from Mark Giambrone Barrow Hanley.
Mark Giambrone Barrow Hanley
I just wanted to ask when you eliminated what you spend on your dividend you had
mentioned liquidity clearly as one of the important factors in that. It sounds as those
liquidity is improving substantially. I am curious where you are currently on thinking about
reinstating the dividend and what other factors may play into that?
Micky Arison

I think we said at the time it is an issue that is a Board issue that we will take up quarterly
with our board. I dont want to preempt the board in any way. I would say that clearly we
would like to see a turn in earnings and cash flow before we would recommend to the board
a change in policy. Again, I dont want to preempt the board. I would rather leave it to say
the board will look at it every quarter and we will gauge it based on the circumstances at
that time.
Howard Frank
I also think that the rating agencies view of the dividend will play a role in doing our analysis
because we like our strong investment grade credit rating and want to maintain it. It has
really helped us considerably during this very difficult period. We will have to work with the
credit rating agencies as well to make sure that whatever we decide to do, if and when we
do reintroduce the dividend they are going to be comfortable with it and not take us down.
Operator
The next question comes from David Leibowitz Horizon Asset Management.
David Leibowitz Horizon Asset Management
Are all your ships okay for the next go around or do you have to invest some money?
Micky Arison
No. They are all fine.
David Leibowitz Horizon Asset Management
Can you update us on your lawsuit about the acid problems on the QE2?
Howard Frank
No. We are in the middle of it. I dont think it is appropriate to comment on it.
Micky Arison
We are in the middle of discovery right now. So it is not really appropriate to comment.
David Leibowitz Horizon Asset Management
The close down of Ocean Village, what happened to that segment of the market that you
were so optimistic about a few years ago? Is this something you are going to service through
P&O or is it just going to go away?

Micky Arison
Well I think to some degree I wish I had David here now. To some degree the larger ships
that P&O are bringing in, Ventura and Azura, will service our younger clientele. Some of that
clientele can be picked up by the larger, more contemporary new P&O ships. The rest will
probably go to Thompson which is operating basically similar itineraries and other
international operators. Clearly while we were able to fill those ships we werent able to fill
them at reasonable returns and so we didnt feel we could grow the brand and if you cant
grow the brand there is no point in endlessly maintaining it. We felt that Australia was doing
extremely well. We had a great, enthusiastic management team in Australia and we feel like
that is an area we can grow and grow more aggressively and that is why we made the
decision.
David Leibowitz Horizon Asset Management
Also, you mentioned briefly you are in Italy to take possession of the new Odyssey. Can you
talk to us about Seabourn? Obviously this is a huge step with two more vessels to follow. Are
you going to keep the three that you already have? What does this spell out for the luxury
market as you perceive it?
Micky Arison
At the time we signed the contract the luxury market was booming as you know. Since
September the luxury market isnt quite as strong to say the least. So the timing may not
have been the best but the reality is the asset is a 30-year asset and if you believe longterm the demographics work well for the luxury market down the road these will be very
good investments. The ship is absolutely magnificent, very much fitting within the Seabourn
brand and the Seabourn style and I think she will be very, very well received by the
marketplace and do very, very well. Time will tell whether this segment can absorb this and
other competitive capacity that is coming in. It may take some time especially with the
present economic situation. Long-term we are very, very comfortable. We think these are
great ships and so we will bring us very good returns.
Howard Frank
I should add I think the size of these ships which are 2.5 times the size of the existing ship
give you tremendous cost metrics that we didnt have on the small ships. It really should
enhance the profitability of Seabourn even during these tough periods. We are happy we are
doing this and we will see how it goes over time. The ship is absolutely stunning. We are
very excited about it. I think the reaction to our Seabourn customers will be very positive.
She is very well booked despite the slow economy.
David Leibowitz Horizon Asset Management

Lastly, Ibero now that you own 100% can you share with us some of the changes you hope
to make there and whether you might be adding capacity, etc.?
Micky Arison
Let me just say this. I just want to correct you. We have an agreement to acquire the other
25% but we do have to go through Spanish antitrust regulations which we are doing right
now. We havent closed on that transaction. I will let Pier react to what we are doing
structurally to change that operation.
Pier Luigi Foschi
Currently we have now presented the buy to the antitrust authority in Spain where we are
waiting for the comments and decision. Ibero was part of the development that we had as a
consequence of the Costa position in Spain. The Costa position in Spain was and still is
regarded as a premium brand with high yields. We thought that to exploit that to the market
we would have needed ever to lower the price of Costa but we came to do so or to start a
new brand. So the opportunity was in the market to acquire an existing two ships company.
We [repaired] ships last year. Unfortunately Spain is the most hit country in this economic
downturn. They have high unemployment rate in Spain. It went up very quickly; faster than
anybody anticipated. So we are now working in different market conditions while building a
new company and a new brand. Capacity is up this year versus last year because we
introduced the former Carnival Celebration ship in June last year but in spite of that our
occupancy rates are the same versus last year.
So in a difficult economic circumstance the brand is now positioned well in the market. In
terms of what we have introduced since last November we have taken full control basically
of the company, managing it in a different way as opposed to how it was managed in the
past. We have sent a very senior, talented person from Italy to restructure the company
which is now completed. There were a number of cost actions taken. For instance, now the
office of Costa and the office of Iberocruceros are in the same place. We merged the call
center of Iberocruceros with the call center of Costa in Barcelona. So there are a number of
synergies that have already been introduced in order to reduce costs and waiting for better
opportunities in the market place if given the economy we expect before or later to develop
again.
Howard Frank
As you know the Holiday will be transferred to Iberocruceros and she will then be refitted
and put into the fleet at some future date.
Operator

The next question comes from Jamie Rollo Morgan Stanley.

Jamie Rollo Morgan Stanley
How much of the fourth quarter and the first quarter have you sold now?
David Bernstein
I dont think we provide that information. I know you always ask those kinds of questions but
I dont think we actually give the precise numbers. We are well advanced in the fourth
quarter and we have got quite a bit of inventory sold for the first quarter but still
considerable amounts to go for the first quarter. That is about all Im going to say.
Micky Arison
It is very early for the first quarter.
Jamie Rollo Morgan Stanley
Just thinking about the strong comps that you mentioned in Q1 next year, how much of Q1
2009 was therefore sold before the September economic meltdown you referred to? How
much of that was subsequently re-fared? Im just trying to get a feeling for how much of your
bookings were done at that sort of artificially high pricing?
Micky Arison
Remember you are dealing with two different booking curves now. The problem was that
until September we were dealing with a much longer booking curve. So we were pretty well
along for the first quarter by September of last year. If we are in the same position this year
in September we will be in very good shape. I would not expect that would be the case
because of the movement in the bookings. The reality is by September of last year we were
very well booked for the first quarter.
Howard Frank
We still have this close booking pattern that although we have been driving a lot of volume it
has tended to fill in closer in occupancies. If we can get the last years level in terms of level
of occupancy versus a year ago that is when you start to see pricing going up a little bit. We
have the ability to move pricing and also the curve will start to move out a little bit.
Micky Arison
Based on what Howard said earlier we have been booking since March at a rate of around
26% for the rest of the year. We have been booking at about the same pace capacity

adjusted for the first quarter which is 9%. That immediately shows you the booking window
that you have got this huge increase of bookings within the year and basically it is
encouraging at this point that it is capacity adjusted equal at this point for the first quarter
at 9%.
Jamie Rollo Morgan Stanley
On that point you have clearly found the pricing level to stimulate volumes pretty
significantly. Would you go so far as to say you think cruise prices might have bottomed right
now?
Micky Arison
I think we said earlier on the call we have started tweaking prices on a variety of brands and
a variety of positions. Pricing is being taken up. Yes. As I also said earlier in the call, since
March we have seen both volumes increasing and yields starting to turn and start to
improve. That is the direct result of tweaking prices up.
Operator
The next question comes from Scott Barry Credit Suisse.
Scott Barry Credit Suisse
Maybe you can comment, other than the magnitude of the yield degradation are the
revenue management folks at the brand level seeing any major differences with respect to
this cycle versus prior cycles returning?
Howard Frank
I think it is fair to say that they probably never experienced a cycle like this before. We have
never experienced this slackening of demand in the market place that caused the
degradation of the yields in our history. To be down 12-16% we have never had that before.
The worst I can recall is in the 3% range or something like that. I think when that happened I
think the reaction by the revenue management people typically is to get the business first.
Even if they leave something on the table they want to be able to fill up the ships. That has
been the model. If you leave something on the table you get it the following year so they
want to fill up the ships. I think there is a tendency to try to play the price as hard as they
can until they are comfortable they can fill the ship up. I think once you have full cycled this
thing, as we get into lets say a year from now, I think we should start to come out of it even
if the economy doesnt strengthen a whole lot from where it is, if it is a stable economy. We
may start to see some growth and that would be positive but even if it is a stable economy

we should run full cycle on the pricing I would hope by the end of the second quarter of 2010
for pricing. That is my guess right now. It is really still early to say.
Scott Barry Credit Suisse
Following up on that, I know it is maybe a bit hypothetical but if you assumed the same
trajectory of volume growth that you have seen off the March lows when would you expect
that book load factor would be positive year-over-year for 2010?
Micky Arison
It wouldnt take long.
Howard Frank
It wouldnt take long. Remember, a lot of the volume we are seeing is close-in volume. We
are basically pacing. We are behind in the first quarter of 2010 just to be clear. We are
behind and the last three to four weeks we have been able to sustain booking volumes for
the first quarter that are pacing now at year-ago levels for the first quarter. We are not
gaining on it. We are still behind. We are not gaining on it. This is with the 9+% capacity
increase we have in the first quarter so it is a positive. What we are seeing is a positive trend
but it is still not enough to get us to the same levels of occupancy. We will have to further
increase and then as we get out of the third quarter towards the fourth quarter we will start
to pick up the volumes again for the first quarter.
Micky Arison
Understand that 26% is not sustainable because at some point we run out of space. The net
result is we sail full. At the point that they are comfortable they are filling the ship they start
increasing prices up which is what we are doing.
Howard Frank
And the volumes will come down.
Micky Arison
But that is already in what we have basically forecasted.
Operator
The next question comes from Rosie Edwards MF Global.
Rosie Edwards MF Global

Two questions on pricing again. Can you give us an idea of different pricing achieved in your
European and North American brands? I know Q1 the range was down 10-40% and also if
you are starting to push the prices up I was just wondering why this has not led to an
improvement in your guidance for the full year being that revenue yield?
Howard Frank
Actually to answer the second part of your question I think we have increased guidance on
yield for the second half. We have two factors that have played into it or are playing here.
One is we took a hit on the swine flu which amounted to some $0.10 per share or $80
million. On the other side we have been able to recapture that when I said we will be up
$0.14 as a result of increases in yields from our previous guidance. That is something like
$110 million. So we actually have tweaked up pricing.
Micky Arison
It is still within the range.
Howard Frank
The numbers we are talking about it is hard to move the percentages, as Micky said it is still
within the range. We have seen some of that. Im not quite sure I understood the first part of
your question.
Rosie Edwards MF Global
In Q1, for example, you are saying your North American brands itinerary to Alaska and
Europe were down 30-40% whereas your Caribbean trips were down somewhere near 10%
and Europe and prices were down 10%.
Micky Arison
Anecdotally Europe bounced back pretty good and Alaska did not. We talked on the last call
there is no question the referendum had a significant impact on what is going on in Alaska
although the referendum supporters say it hasnt. The reality is now every brand, both ours
and our competitors, are withdrawing capacity for 2010. So capacity will be down
significantly in 2010 while capacity in the Caribbean and Europe will be up in 2010 across
the board. The only explanation for me is the referendum. While we have tried everything
we can to get leadership in Alaska to address the issue to the best interest of our industry
and tourism in general to Alaska we have been unsuccessful and in the end we may have to
litigate. We believe this referendum was illegal and there was a recent Exxon case that kind
of reinforced that it was illegal. So the Supreme Court found in favor of Exxon on a similar
situation. We didnt want to litigate. We wanted to hopefully find some leadership that

agreed with us and do what is in the best interest of the industry and tourism to Alaska and
employment in Alaska but we have not been successful in doing that yet.
Europe bounced back pretty well. I would say though that the North American brands are
carrying more non-North Americans in Europe than before. One of our competitors I think
openly said that 75% of their capacity in their North American brand was non-American.
That is the case. While there hasnt been a change in nationality for our European brands
there has been some for our North American brands.
Operator
The next question comes from Robin Farley UBS.
Robin Farley - UBS
I just wanted to clarify you made comments earlier about commodity prices regarding new
ship orders. Prices are getting down to where they were when you last ordered ships. Over
the last couple of years or going back a couple of years your new ship orders were primarily
for European brands. Currency wasnt such a factor. Are your comments maybe sort of
warming up to the idea of new ship orders? Would that apply to North American brands as
well?
Micky Arison
I should have been more specific because when I made that comment I should have said it
was on a Euro to Euro basis pricing similar to when we ordered. Not necessarily dollar to
dollar basis. Obviously the yards quote on Euros and when I look at new building prices we
look at Euros. Pricing right now at the yards are quoting quite similar to the Euro pricing that
we ordered for both European and North American brands. Whether we would or would not
would depend on returns and whether we could reach agreement with the yard at dollar
prices that make sense for the U.S. brands, U.K. brands or European brands. I wouldnt take
anything off the table at this stage. We continue to talk. As I said, I think capacity growth will
be slower in the 2012, 2013 and 2014 area but it wont be zero. And it wont be zero for the
North American brands.
Robin Farley - UBS
It will not be zero for North American?
Micky Arison
No.
Operator

The next question comes from Tim Conder Wells Fargo.

Tim Conder Wells Fargo
If you look at the booking curve when you went into Europe you said the Europeans
generally booked in much closer than the North Americans and your goal was to push that
out and you were having some success in doing that. Since last September can you kind of
compare and contrast the shrinkage in the booking window for EU passengers versus North
American passengers?
Howard Frank
Generally speaking our European occupancy run a little bit slightly stronger than our U.S.
occupancy.
Micky Arison
It is very brand specific. For example, our U.K. brands tend to book longer out than our
Italian brands or the German brand tends to book a little further out than the Italian brand. It
is very, very brand specific. Overall, when you look at it I would say if you took the U.K. out it
is quite similar to North America. The U.K. kind of moves it a little bit further out.
Howard Frank
There is not a significant difference between both today.
Micky Arison
Once we got into similar kinds of yield management, similar kinds of mentality about filling
ships for all these brands the booking curve started to be very, very, very similar.
Tim Conder Wells Fargo
So would you say that post September you have seen based on the occupancy and the
pricing commentary it is fair to say that booking curve is not condensed as much on your
European sourced passengers versus the North American?
Micky Arison
Maybe not as much but it has condensed so that it is still not significant.
Operator

Gentlemen this was our last question. I would like to thank you gentlemen for having taken
all those questions. I will turn it back to the main moderator, Mr. Frank for your concluding
words.
Howard Frank
Thank you everyone for some very good questions this morning. We look forward to seeing
you at various events in the future. Follow up questions, Beth is available in Miami to talk to
you if there are any specific details you need. Have a good day everyone.
Operator
Ladies and gentlemen that does conclude the conference call for today. We thank you all for
your participation.

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