Carnival Corporation (CCL) Q2 2008 Earnings Call June 19, 2008 10:00 AM ET

Operator
Welcome to the Carnival Corporation second quarter earnings conference call. (Operator
Instructions) It is now my pleasure to turn the conference over to Mr. Howard Frank, Vice
Chairman and COO at Carnival Corporation; please go ahead sir.
Howard S. Frank
Good morning everyone. This is Howard Frank and with me here in Miami is David Bernstein,
our Senior VP and CFO and Beth Roberts, our Vice President of Investor Relations. Micky
Arison is also on the call but is not in Miami right now; he is travelling but he will be available
as well on the call. He is listening in right now.
Let me quickly turn it over to David Bernstein, hell take you through some of the color in the
second quarter financial results.
David Bernstein
Thank you, Howard. I will begin the conference call by reading the forward-looking
statements as Ive done in previous calls. 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 $0.49 versus $0.48 for the prior year.
Our EPS in the second quarter came in above the mid point of our March guidance by $0.06
per share. This was driven by essentially three things. First higher then expected cruise
ticket revenues for our North American brands which resulted from stronger last-minute
bookings, but that was partially offset by lower then expected onboard spending at our
contemporary brands and some of our premium brands, worth about $0.02 per share.
Secondly lower then expected SG&A worth $0.250 per share as our brands buckled down
and re-evaluate spending given the difficult economic environment. And lastly lower then
expected fuel consumption worth about $0.01 per share.
Looking more closely at our second quarter operating results, our capacity increased 8.3%
for the second quarter of 2008 with a vast majority of the increase going to our European

brands. The European brands grew 23% while our North American brands grew 2.7%.
Overall net revenue yield in current dollars increased 7.3% in the second quarter versus the
prior year. Now lets take a look at the two components of net revenue yield; cruise
passenger ticket yields and on-board and other yields.
The net cruise passenger ticket yields, we saw a yield improvement of 9.3% in current
dollars and 5.5% in local currency. Our North American brands were up a strong 7.6% driven
by the Caribbean, Europe and other exotic itineraries. Our European brands excluding the
Ibero Cruises joint venture which we began consolidating in the fourth quarter of last year,
and [Swan Helenick] which ceased operations during the second quarter of last year,
achieved a 0.6% increase in local currency passenger ticket yields. Given the very large
increase in capacity for our European brands this year and the increasing competition from
other companies in the European marketplace, we were not expecting to see yield increases
this year and were very pleased with the results.
P&O Cruises Australia with its reconfigured fleet adding Pacific Dawn in November, 2007 and
delivering Pacific Star to [Pullman Tours] in March, 2008 achieved a healthy yield increase for
the second quarter versus the prior year. Im also glad to continue to report that Costas
yield in China improved significantly in the second quarter as they had done in the last three
quarters driven by both price and occupancy which resulted primarily from our decision to
shift our sourcing strategy from Costa Asia.
In onboard and other yields we saw a reported yield improvement of 1% in current dollars
but a yield decline of 1.8% in local currency. However mix accounts for 1% of the decline as
our European brands which have always had a lower onboard spending pattern are growing
faster then our North American brands. The 0.6% of the decline results from inconsistent
brands, Ibero Cruises, Windstar and Swan Helenick. Therefore the real decline in yields yearover-year is only 0.2% in local currency with declines in our contemporary brands and one of
our premium brands being partially offset by increases in other brands.
On the cost cruise costs per available lower berth day for the second quarter were up 10.8%
while in local currency they were up 7.2% and that was driven solely by fuel prices. Fuel
prices this year for the second quarter were 59% higher costing us an additional $158
million or $0.19 per share. Excluding fuel and in local currency cruise costs per available
berth day were actually down 1.1%.
Turning to the 2008 outlook I will skip over net revenue yields as Howard will discuss that in
a few moments. Cruise costs per available lower berth day for the full year in current dollars
is expected to be up 11% to 12% driven by fuel prices and currency impacts. However if you
exclude these two items we expect to be down slightly. Based on current spot prices for fuel,
fuel prices for the full year are projected to be $594.00 per metric ton for 2008 versus
$361.00 per metric ton in 2007 costing us an additional $752 million or $0.92 per share.

You may have noticed that I indicated that our fuel price is based on current spot price
rather then the forward curve. Given the extreme volatility in the price of fuel we feel that
the forward curve is not any better or worse predictor of future fuel prices then spot. While
using spot simplifies our current calculations and its easier to monitor the changes for those
of you who are tracking them. Therefore we have decided to use the current spot price to
develop our guidance. I did want to point out that had we used the forward curve for the
remainder of 2008 our estimates for the EPS would have only been approximately $0.01 per
share lower.
Overall for 2008 we are forecasting controllable expenses to be slightly down exceeding our
long-term target of unit growth between flat to one-half the rate of inflation which is a credit
to our brands given the significant inflationary pressures in food, wages, crew travel, freight
and other areas.
At this point I will turn the conference call over to Howard.
Howard Frank
Thank you David. Before I move into the outlook and discuss [smart] booking patterns, I
wanted to congratulate our operating company executives who did a great job of managing
our business through this second quarter in what I would consider to be a very, very difficult
economic environment on both sides of the Atlantic.
Now let me talk about bookings patterns and pricing in each of our major markets. In North
America bookings although somewhat slower then the strong levels we experienced a year
ago, have held up reasonably well in this soft economy. The bookings have been made a
higher price points so to some degree the slower versus a year ago may also be somewhat
attributable to the result of selling at these higher price levels. And pricing for late bookings
has also held up quite well. But generally speaking despite the slower pattern of bookings
versus the strong pattern a year ago, the absolute volume of bookings is sufficient to
maintain our higher prices. So we have not changed our yield guidance for our North
American brands for the second half of the year from our guidance that we gave last
quarter. In fact we expect ticket prices to be slightly higher then last quarters guidance
partially offset by forecasted lower onboards.
The North American booking pattern does suggest that customers are looking for less
expensive vacations and at good values and the cruise product is perfectly positioned for the
value conscious consumer. Within our own brands generally speaking we are seeing
continued strength in our shorter cruises and a slightly slower booking pattern for our longer
voyages. Looking at specific traits for our North American brands in the third and fourth
quarters, Caribbean pricing continues to be strong and we expect second half Caribbean
yields to be well ahead on a year-on-year basis by the time these quarters close down.

Pricing for North American brand at Europe and Alaska itineraries in the second half of the
year is expected to be somewhat lower year-over-year. Lower Alaska pricing may partially be
the result of the $50.00 head tax in Alaska but its really difficult to know precisely. European
itinerary pricing for North American albeit somewhat lower then a year ago, has held up
reasonably well especially considering the significant increase in Europe capacity not just for
our own brands, but for competitor brands as well.
Turning to our European brands where capacity is up 21% in the second half of the year, we
have had to modestly reduce forecasted revenue yields for ticket and onboard revenues. In
some measure this may reflect a significant capacity increase in Europe including that of our
competitors and also a slowdown in certain of Europes economies particularly in Southern
Europe. Despite this our European businesses are performing extremely well and we
continue to be encouraged with their ability to expand their markets and maintain relatively
high price points for their cruise products.
Taking North America and Europe together we now estimate that full year revenue yields for
2008 will still be up in the 2% to 3% range but at a slightly lower level within that range.
Turning to fuel, as David indicated for the full year 2008 based on the latest spot price for
fuel our fuel cost is expected to increase by $752 million or $0.92 per share over 2007.
Because of these higher fuel costs in North America we recently increased our fuel
supplement charge to $9.00 per day for the first and second passenger in the cabin and
$4.00 per day for the third and fourth passenger for cruise voyages up to 14 days. The new
supplement applies to future bookings made after June 12, theyll be only a slight benefit to
the increased supplement in the third quarter, a greater a benefit in the fourth quarter and
of course an increasing benefit as we get into the 2009 year.
We are looking at every possible opportunity to reduce our fuel consumption from an
itinerary planning standpoint to conserving energy usage on the ships. And in fact we have
had some good reductions in fuel consumption as a result of these initiatives. Although fuel
costs will continue to rise and well be able to partly mitigate the effects of the increase with
the fuel supplement there will be a lag as I indicated before until the full benefit of the
supplements are realized. For the second half of the year fuel costs are forecasted to be
$438 million or $0.54 per share higher then in the second half of 2007 and since our
previous guidance last March, our fuel cost forecast for the second half of the year has
increased by $224 million or $0.27 per share.
Taking the slightly lower revenue forecast together with the higher fuel forecast for the
second half of the year and a small inflationary increase in operating costs we are now
guiding 2008 earnings per share in the range of $2.70 to $2.80. The mid point of our March
guidance was $3.10 per share so we have lowered guidance by $0.35. Of this amount $0.27
relates to fuel, about $0.04 relates to changes in onboard revenue yields and $0.04 is
forecasted increase in our operating costs.

Turning to the individual quarters and looking now just at the third quarter where our
capacity has increased 8%, 2% of that capacity increase comes from North America and
24% of our capacity comes from our European brands. On a fleet-wide basis for the third
quarter the occupancies are running slightly behind year-over-year with pricing running
nicely higher on both the current dollar and local currency basis at this point in time.
Breaking that down by our two major markets, North American brands and Caribbean
represent 34% of our third quarter capacity versus 40% a year ago; Alaska 29% which is
about the same as a year ago; Europe is 22% which is a 4% increase from the 18% a year
ago with the remaining capacity in various other itineraries.
At this time our North American brands are running nicely ahead in pricing and slightly
behind in occupancy which very little left to sell. The Caribbean pricing is well ahead of last
year with lower occupancy however pricing for late business has been strong and we expect
to close out the quarter with solid yield improvement in the Caribbean [inaudible]. As I
previously mentioned Alaska pricing is slightly lower year-over-year with occupancies at
about the same year-over-year levels. For Europe itineraries occupancy and pricing are
slightly behind last year with a more then 20% increase in North American brand Europe
itinerary capacity in the third quarter.
Overall for the North American fleet this is now for the third quarter we expect revenue
yields to be up nicely from a year ago. I will turn to our European brands. Our European
brand fleet itineraries are virtually all in Europe for the summer quarter. Its at this time
Europe brand pricing on a current dollar basis is higher year-over-year and our local currency
basis is slightly lower. The Europe brand occupancies are also slightly lower. By the time the
third quarter closes out we expect European revenue yields on a current dollar basis to be
higher and on a local currency basis to be slightly lower. We think this is an excellent result
given the 24% increase in our third quarter European capacity. As I commented before
European brand overall performance at the operating line has been very strong.
Overall as indicated in the press release we expect that revenue yields for the third quarter
will increase by 4%, 1% on a local currency basis. However given what is now a $241 million
or $0.30 per share increase in fuel costs for the third quarter we are not forecasting third
quarter earnings per share will be in the range of $1.56 to $1.58 versus the $1.67 of a year
ago. Now Im turning to the fourth quarter where our fleet-wide capacity is up by 8.8%, 5%
for our North American brands and 18% for our European brands. On an overall fleet-wide
basis occupancies are approximately even year-over-year with pricing on a current dollar
and local currency basis running nicely higher.
Now just looking at our North American brands at this time the Caribbean represents 42% of
North American fourth quarter capacity versus 46% a year ago, the Mexican Riviera is 12%
of our capacity in the fourth quarter, which is about the same as last year, Europe is 12%, up
from 10%. The European itinerary is 12% versus 10% from last year and all the other
itineraries are each under 10%. North American brand pricing is well ahead of last year with

occupancy slightly behind similar to the third quarter, Caribbean pricing is nicely higher
year-over-year with occupancy somewhat lower and Mexican Riviera pricing is higher also
with lower occupancy.
Pricing for Europe itinerary cruises are lower then last year with occupancy running higher
on a year-over-year basis. Generally speaking all other itineraries are performing reasonably
well at this time and based on current booking patterns we expect fourth quarter yields for
our North American brands to be nicely up year-over-year.
Now turning to our European brands in the fourth quarter 77% of the European brand
capacity is in European itineraries which are down slightly from 81% the year ago with a
balance in various other itineraries. European brand pricing on a current dollar basis is
running well ahead of last year and our local current basis is running slightly ahead.
Occupancies are also running slightly ahead. We are forecasting by the time the fourth
quarter closes out revenue yield in Europe will come in higher on a current dollar basis and
flattish on a local currency basis. Again an excellent forecasted result given the 18%
capacity increase in our fourth quarter in Europe.
We have commented in the past that given our significant capacity increase in our European
businesses we would be very pleased if our European brands were able to maintain their
revenue yield at the same year-over-year levels. So we are quite pleased with our European
brands performance in 2008.
Now looking at the first quarter of 2009 our capacity actually in the first quarter, our fleetwide capacity which is still doing a little bit of work on that but we think overall its up about
2%, 1% for our North American brands and 8% for our European brands. And that excludes
Ibero; we dont have Ibero Cruises in those numbers just yet because we dont have certain
information from them. I caution that booking data for first quarter 2009 is still in its early
stages and I wouldnt read too much into the information at this point. For the first quarter of
2009 overall fleet-wide occupancies are running ahead year-over-year with pricing slightly
higher on a current dollar basis and flat on a local currency basis. And I should add
anecdotally and still of course even earlier in the stages, the 2009 second quarter has a
generally overall similar pattern to the first quarter 2009.
In the first quarter 2009 for our North American brands capacity is 61% in the Caribbean
which is about the same as 2008, Mexican Riviera is 12% which is down from the 15% last
year and the balance is in various other itineraries including long and exotic cruises in
Canada and New England, all individually less then 10%. At the present time North American
brand occupancies are presently running ahead year-over-year with pricing nicely higher.
Caribbean itinerary occupancy and pricing are running nicely ahead, Mexican Riviera pricing
is higher on lower occupancies and broadly speaking pricing on most other itineraries is
higher year-over-year with occupancies [lower].

Looking at our European brand itineraries which break down as follows: the Caribbean
represents 32% of their business in Q1 of 2009 versus 37% a year ago in 2008; Europe is
24% which is about the same as last year; The Orient Pacific 12% versus 8% a year ago;
South America 11% which is about the same and world cruises 12% which is also about the
same as last year. At this time Europe brand occupancy are running nicely ahead year-overyear with pricing on a local currency basis lower for most brands. Certain of the European
brands however with significant capacity increases the lower pricing is part of the yield
management strategy to get ahead of the booking curve in order to avoid discounts on the
late sale of cabins. Again I remind you its still early in the booking patterns for the Q1 2009
quarter.
Although we are only half way through the year let me put some perspective on the 2008
year at least as we see it so far. When we provided earnings guidance for 2008 last
December it was the range of $3.10 to $3.30 for a mid point of $3.20 per share. Our latest
guidance is now $2.75 mid point or a $0.45 reduction. Of this amount $0.43 is being caused
by increases in fuel prices since the beginning of the year with the balance of $0.02 relating
to a variety of all other revenue and cost issues. Apart from fuel, given all the other
challenges that weve had to deal with including the softening global economy and
inflationary pressures on costs, we are very pleased with the operating performance of our
business. And if not for the dramatic increases in fuel prices, 2008 would have been a year
of solid earnings growth.
Our fuel costs have risen by $752 million, thats $0.92 per share over 2007 which is a 65%
increase and yet our earnings are forecasted to be lower by $0.20 a share or 7% over 2007.
We think thats a pretty good result. We also dont believe that fuel prices will continue to
rise at these levels in the future; its simply not sustainable.
And with those comments we will turn it over for questions. Thank you.
Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Felicia Hendrix - Lehman
Brothers
Felicia Hendrix - Lehman Brothers
Your outlook actually is more optimistic then what were hearing from the field, Im
wondering first of all what has changed the most since you gave us your last update. Im
really trying to reconcile some of your comments, which actually seem pretty optimistic with
your outlook for the low end of your prior yield guidance.

Howard Frank
From a yield standpoint I think weve hadin North America and Ive David and Beth here,
weve increased actually weve increased ticket prices, not by a huge amount but by some in
terms of the forecast for the rest of the year. Weve taken down onboard revenues and in
Europe weve taken down ticket prices which more or less offset each other between North
American ticket prices maybe a minor difference. Weve also taken down onboard revenue
so the principal difference has been a reduction in onboard revenues Id say. Thats more of
a forecast then it is actual. Theres a little bit of estimation going on here on onboard
revenues but thats what it is, thats what our operating guides give us and thats what we
go with.
Felicia Hendrix - Lehman Brothers
Are you trying to do anything to stimulate higher onboard revenues in this tough
environment?
Howard Frank
Oh yes, were doing all kinds of things onboard the ships. All of our brands are working on
this and to some degree I think they may have mitigated some of it but I think its an
ongoing process.
Felicia Hendrix - Lehman Brothers
And is the weakness still mainly coming from art auctions or is it bleeding into other areas?
David Bernstein
There is weakness in art auctions thats probably the biggest drop of all but there is
weakness in other areas. We are seeing it as we said last quarter in bar, casino and other
areas as well.
Micky Arison
I think its clear that our guests to some degree are tightening their belt and so our people
are forecasting that but fortunately they continue to cruise and they continue to book at
very acceptable levels.
Felicia Hendrix - Lehman Brothers
About two quarters ago you were able to give us some good metrics to think about how the
fuel supplement might benefit your yields and given that youve been increasing them I was
wondering if you could refresh us with that.

Micky Arison
I could tell you what would happen if we got every penny of it but as you see the yields are
basically under a little bit of pressure but thats from onboards and obviously the surcharges
and the ticket revenue.
David Bernstein
We had originally had indicated that if we collected every dollar of the fuel supplement it
would improve our yields for 2008 by about 1.5% and that number really hasnt changed
and the number would be just slightly higher for 2009 looking forward.
Felicia Hendrix - Lehman Brothers
Okay but still under 2%?
David Bernstein
Yes still under 2% year-over-year.
Operator
Your next question comes from the line of Robin Farley - UBS
Robin Farley UBS
I wanted to clarify one thing in the release, when you talk about four 12-month pricing on
the books being ahead year-over-year is that in aggregate true in constant currency as well
as current dollars?
David Bernstein
The comment was made in constant dollars.
Robin Farley UBS
I wonder if you can talk about youve made some itinerary changes recently, I guess the
Carnival Freedom being brought back to the Caribbean instead of Europe in 2009 and I think
a Costa ship also that had been in the Mediterranean coming to the Caribbean next year,
and Im wondering if you could talk a little bit about obviously it sounds like the Caribbean
pricing is doing better maybe then the European pricing is it an airlift issue? Is it that airline
costs to Europe are getting so much higher or whats driving those itinerary changes and
also how much is airlift an issue for you as the airlines cut back capacity and it drives prices
higher?

Micky Arison
I think you have to be a little bit careful about overstating the Carnival move. Understand
that they went from basically one and a half ships because Splendor begins service in
middle of July to one next year. I dont know what the actual reduction in capacity is for
Carnival Cruise Line in the Med.
Beth Roberts
Its down about 20% but its a very small number, very small base.
Micky Arison
Yes its 20% on a small base, its not 50% two ships to one. Thats point one. Costa historically
has always had two ships in South Florida and that has been their normal pattern. This year
actually was an anomaly. So I wouldnt read too much into those two announcements. Other
then that theres no question that whats happening to the airline industry because of these
high fuel prices is a concern for everybody in leisure. Fortunately we do have the ability to
move; fortunately we do have a number of ships that do operate from close to home cruising
whether its close to home in Baltimore for a Carnival ship or close to home to South
Hampton for a P&O ship or close to home to Palermo for people in Sicily. So that mitigates a
little bit what other people will have to go through with this issue but it is a problematic
issue and its something that well have to work our way through with the airlines as time
goes on.
Operator
Your next question comes from the line of Timothy Conder Wachovia Capital Markets
Timothy Conder Wachovia Capital Markets
Whats your updated guidance given that you did a little bit better in the second quarter,
your updated guidance for annual fuel usage here in 2008?
Beth Roberts
For the full year were looking for 3,240,000 billion metric tons.
Timothy Conder Wachovia Capital Markets
And then it sounds like that the fuel surcharges so far are sticking, are you seeing any
evidence, any push back or tipping point so to speak that theyre not and youre getting any
type of pricing demand destruction anywhere?

Micky Arison
We can only anecdotallywe havent gotten a lot of issue on it. We have today such a great
variety of getting customer feedback especially with websites and blogs and all sorts of stuff
and it barely comes up so I think there is just a level of understanding because its on the
news everyday that we have an issue and that we have to pass it on and I think the level of
acceptance has been quite high.
Timothy Conder Wachovia Capital Markets
Could you elaborate a little bit more when you said that youre seeing a little weakness in
Southern Europe, can you elaborate on that a little bit more, are we talking Spain, or what
areas and then regarding your sourcing if you may, your direct business, call center and
online bookings, whats that now trending for this year as a percent of your bookings versus
through the traditional travel agent channels?
Micky Arison
I was going to say, [inaudible] to some degree is under performing our expectation and I
would say that of the European economies, Spain seems to have been the one most
impacted by the housing issue and the economic situation so it does appear that Spain, Italy
somewhat as well, but Spain has been hit the worst thus far by the housing crisis and other
things and we have felt it in business in Spain. Because the capacity levels are soincreases
have been so high, every other country is up significantly in booking levels but as Howard
said, theyre performing very well but the yields are not what we had anticipated a quarter
ago but we had never anticipated yield growth when we strategically started growing at
these kinds of levels.
Howard Frank
And while weve taken down yields in Europe its really by a small amount, these are not
significant swings in yield. Its really on the margin.
Micky Arison
Were really getting fine here because last quarter we estimated 2% to 3% and this quarter
were estimating 2% to 3%. So were really talking rounding errors in overall yield
adjustment.
Howard Frank
Most of the yield change has been in onboards.
Timothy Conder Wachovia Capital Markets

And nothinghousing in Ireland, and the rest of the UK kind of the issues there also but
youre not seeing anything out of those markets?
Micky Arison
I would say that theres a general sense that the European economies are weakening but
were feeling it more in Spain then anywhere else. As far as direct business what I can say is
that since Bob Dickinson retired two of Carnivals senior sales and marketing executives who
were clearly the most aggressive in growing Carnival Cruise Lines [pvp] and direct business
left the company as Im sure you know. One went to Royal Caribbean and one went to [NCO].
Since that time Jerry and his team, Ben and Lynn have really reevaluated that program and
the fact is that they have significantly reduced the business from that program. The result is
and will be at least for the time being, less direct business. So far it appears that the result
of that change in strategy has improved yields and at the same time reduced G&A costs so
were very pleased with that kind of mid course correction.
I think its very important to state that the travel agency distribution system has been an
effective and efficient distribution system for this company for 35 years and it got us to
where we are. We clearly believe that we need to continue to support them, they have
shown this year that they can give us the yield improvements we need to overcome at least
partially these higher fuel costs so despite the fact that I would expect that we would have a
little bit less direct business next year, particularly at Carnival Cruise Lines that the effect of
that will be higher yield.
Timothy Conder Wachovia Capital Markets
Any type of percentage shift year-over-year Mickey?
Micky Arison
No weve never given out those percentages.
Operator
Your next question comes from the line of Steve Kent Goldman Sachs
Steve Kent Goldman Sachs
Have you changed your marketing programs to target that value orientation or are you
turning that up a little bit more and could we see more of that over the next six to 12
months? And then also any change in cancellation rates? I know they are remarkably low but
I just was wondering if youre seeing any pick-up given the economic environment.
Howard Frank

Each of the brands of course iswhen it comes to the value theyre all out there tactically
with their own mailings and so on so there is a lot of that going on in the marketplace. I
dont know that its a whole lot different but I do think theres been a little bit of a step-up in
some of the marketing to get the value equation out there for the consumer and I think its
been successful and it varies brand by brand depending on how much demand theyre
feeling and whether they need to stimulate demand and so on.
David Bernstein
As far as the cancellation rates are concerned we have taken a good hard look at that since
its been a question that everybody has been asking and theyre really just up ever so
slightly so theres really no significant change there either.
Operator
Your next question comes from the line of Assia Georgieva - Infinity Research
Assia Georgieva - Infinity Research
My question goes to your assumptions on onboard spend, should we think that for the
second half that number could actually come down a little bit? It seems that coupled with
the good ticket yields that would be the only assumption to make at this point.
Howard Frank
We did take it down actually in the second half of the year in terms of our forecast and of
course it varies brand by brand. When we talk about onboard some brands seem to be
performing okay and so its really hard to read from our perspective to read the tea leaves.
So in large measures we rely on the operating company executives to give us their best
sense of whats going to happen to onboards in the third and fourth quarter. We believe
and they did take them down and we believe theyre very comfortable with that.
David Bernstein
Overall if you looked at our actual results in the first quarterthe first half of the year our
forecast for onboards are down ever so slightly more in the back half then they were actually
down in the first half so we are trying to take all of the various factors into consideration.
Assia Georgieva - Infinity Research
I think that you mentioned one of the premium brands showed a bigger increase in onboard
spend, could that have been temporary or should we expect that trend to continue?
Howard Frank

I dont recall saying that but I think-David Bernstein

One of them had a decrease and really a lot of that decrease had to do with art auctions.
Howard Frank
One of them is holding up quite well, one had a bit of a decrease, yes.
Assia Georgieva - Infinity Research
It seems that given the current guidance you expect some of the inflationary pressure on I
would assume food and payroll particularly to decrease as we get into the fourth quarter,
what is that expectation based on since that in Q2 and especially for Q3 well continue to
see some increases in those areas?
David Bernstein
Were not necessarily expecting the inflation to decrease; its just that our brands have
found ways to offset inflationary pressures. In some cases the subsidy is the mother of
invention. Our brands have looked at their menus. Now when one particular brand, now
when on lobster night instead of getting two lobster tails you get one and shrimp. Theres
lots of different ways and easyand we also have easy comps versus the prior year fourth
quarter as well.
Howard Frank
A lot of the cost increases are in fact coming from payroll and food and travel, particularly
airline travel. Our people travel, our crews travel and so thats the major, major piece of it.
Operator
Your next question comes from the line of Steve Wieczynski - Stifel Nicolaus
Steve Wieczynski - Stifel Nicolaus
Can you kind of comment on, your largest competitor basically went through and changed
their commission structure about a week, week and a half ago, doesnt sound like youll do
the same. So do you think this somewhat presents an opportunity for you to take some of
their business from certain agents?
Micky Arison

No, the problem with the comparison is the way weour business model and their business
model is just different and sometimes everybody wants to put them together but reality
what they announced was a commission program that was on the corporate level. And all
our pricing and commission programs are done on the brand level. And so when you start
comparing to some degree youre comparing apples and oranges. That doesnt mean that
our brands wont take a very strong look at what was done and see if there is opportunities
or not and what is appropriate for their particular brand. Our philosophy has been that the
needs of each brand are different and you cant do these things from our perspective on a
corporate basis. Youve got to do it brand by brand. And so are there opportunities? Probably.
Will it differ by brand? Definitely. But its very hard to tell because again youre comparing
what a brand like Holland America may decide versus Celebrity which is tied in with
[Azamara] and tied in with Royal Caribbean at one package. So its apples and oranges but
its something our brands are studying and they will over time react. Also our programs have
tended to be adjusted year-on-year. While it appears based on the quotes that I saw coming
out of there they hadnt made any adjustments for many, many years. So there was kind of
a catch-up going on.
Steve Wieczynski - Stifel Nicolaus
In terms of the overall booking window have you seen that basically started tohas that
started to shrink a little bit or has it kind of held up?
Micky Arison
Its hard to say, it doesnt appear to be because as Howard said anecdotally our first and
second quarter occupancies are ahead year-over-year and remember theyre ahead against
a very, very strong booking pattern this time last year for the first half of the following year.
So while were watching it carefully and obviously were all reading the same newspapers
and hearing the same things, to some degree its even surprising to us how well its held up.
Howard Frank
I think its people are still taking their vacations. Everybody you talk to regardless of what
part of the economy theyre at, are still taking their vacations and I think you have to
remember that a large segment of our consumer of our guests, are not effected by the
changes in the economy. It comes from the people, the wealthier section of the economy,
the retirees or people well set in their positions, their jobs and so on and so I think in part is
the reasons why I think we are performing as well as we are.
Operator
Your next question comes from the line of Nick Thomas ABN Amro

Nick Thomas ABN Amro

I wonder whether you can just expand a little bit on one of the comments in the statement,
you talked about how youre finding consumers showing a great degree of price sensitivity
and the statement certainly focused on that being a benefit for the cruise industry, I wonder
in terms of compared to other holiday options, I wonder whether you can just talk a little bit
more about how its altering the mix of demand within your business in terms of different
brands, shorter cruises, longer cruisers, different customer types, etc. and then on the fuel
side of the business could you just expand a little bit on the magnitude of the efficiency
opportunities that you might have in 2009 versus 2008 and just to confirm would it be right
given this $670 that youre talking about for the third quarter is effectively now a spot price
rather then based on the forward curve for people that just want to make a basic
assumption about price remains unchanged going forward. Should we basically assume
$670 for each future quarter or are there some geographic differences between each quarter
to [inaudible] maybe a misleading assumption?
David Bernstein
The $670 is a fairly good assumption across all future quarters. There are minor geographic
differences but they round and get you real close back to $670 as you go forward.
Howard Frank
On the issue of the mix of business and the demand in various different cruise products that
we have and whether theyre short duration or long duration cruises, some of what Im going
to say is information you can readily see but some of it is anecdotal in just in talking to our
operating executives in terms of what theyre saying about the business and most of what
Im referring to is really later on in the late fall early winter up through the end of winter in
terms of what theyre seeing in the pattern. And what I said was that and you can just see it
in terms of when I talk about pricing, that pricing for Caribbean overall has been quite good
and it looks like its sustaining itself through the first quarter. And thats mostly seven day
and shorter cruises for the Caribbean. So thats holding up quite well and we think were
going to have aassuming nothing changes between now and then it should perform quite
well from a yield improvement standpoint.
As you look at longer voyages especially world voyages and 50 day voyages and so on,
there is a little bit of a challenge there and so that we may have to bring at some point in
time in terms of yield managing that business, there may be some more tactical things
were doing. I did talk about increased mailing, direct mail business to our existing customer
bases for those types of cruises. It will all get done but clearly I think people it appears, that
people are maybe foregoing a more expensive vacation and trading down to a less
expensive vacation. Nonetheless theyre taking their vacation which is good news.

Theres just so much in there that I can talk about but generally speaking itd all be
anecdotal but thats generally the trend that we seem to be seeing right now.
Nick Thomas ABN Amro
On the fuel efficiencies? The magnitude of the fuel efficiencies in 2009 versus 2008.
Howard Frank
To some degree it looks like weve gotthis year if we can get 1% or 2% fuel efficiency yearover-year in terms of consumption, that thats a pretty good result for us because if our fuel
bill this year is range is about $1.9 billion in total, so if we can get somewhere between $20
million and $40 millionand next year, if these spot prices are sustained through all of next
year the fuel bill will probably go up another $250 million to may $21 billion, $22 billion. So if
you talk $20 million, $40 million in fuel efficiencies thats a large number for us. We dont
target it, we do it operating company by operating company but theyre all looking at ways
to improve their efficiencies whether its on board the ships, whether its their itineraries, but
a variety of different things that theyre doing whether theyre repainting the ships with
silicon-based paints that they come into dry dock. All of those things though seem to be
paying off but its always difficult to tell because each year your mix of itineraries are so
different. So youve got to weigh that in terms of the revenue you can get from the itinerary
versus your fuel usage and sometimes you may not get a fuel benefit but youre getting a
revenue benefit, its a balance between the two.
Micky Arison
Exactly. Sometimes its very hard to tell because at $80 fuel you may not sail an hour earlier
from a port so you can pick up a tour that will give you better revenue then the savings by
sailing an hour early. But at $130 fuel you may not pick up enough, so it becomes a moving
target and as fuel prices increase our itinerary people have to re-evaluate all their itinerary
decisions based on the current price. The savings theoretically of consumption will become
greater as the price becomes higher because the trade-off makes more sense.
Operator
Your next question comes from the line of Tim Ramskill Dresdner Kleinwort
Tim Ramskill Dresdner Kleinwort
With regards to the fuel surcharge given we generate a net yield of approximately $180 and
the surcharge starts at five and is now at nine, can you explain to me why its sort of still one
and a half percentage points of--

Beth Roberts
Its an incremental change so youre thinking of it on a cumulative basis so we picked up half
of the fuel supplement in 2008 and the other half well pick up in 2009.
Micky Arison
None of it is retroactive so were getting just small bits of it going forward into this year.
Howard Frank
If we implement it today, or on June 12, whatever the date, we dont really see the full
impact of that until really the second half almost into 2009. We get some of it but weve
already booked a lot of business through the first quarter of 2009.
David Bernstein
If you compared 2009 back to 2007 where you had no fuel supplement youd be looking at a
total of double the 1.5 or 3% 2009 versus 2007.
Tim Ramskill Dresdner Kleinwort
Just regarding the dividend, how we should think about that going forward if you continue
paying a $0.40 quarterly dividend and then your dividend [cover] will be out 1.7x for this
year. Are you comfortable with that and at that level going forwards and should we expect
any change?
David Bernstein
Well at this point in time the dividend is not an issue for us but of course we look at it
carefully and we areour A minus credit rating is very important to us and so well always
keep the dividend in mind in context of the credit rating but at this point its not a concern.
Micky Arison
Right now we dont see it as a concern in the near future.
Operator
Your next question comes from the line of Mark Reid - Land Bank
Mark Reid - Land Bank

Q3 guidance is for net yield at constant dollars of plus 1% which compares with the last two
quarters of over 3% is that really reflecting the fact that the comps get harder from Q3 and
should we view a 1% going forward as the decent indicator for a future run rate?
Howard Frank
I think there are a couple of things at work here, I think the first comment you made that its
tougher comps, I think thats true. We started to see some good demand beginning in the
third quarter of 2007 so the comps in the third quarter, and I said this in my previous
guidance would be tougher for us then they were in the first and second quarter. The other
thing I think thats working here is that price points in the seasonally strong third quarter are
much higher so it stands to reason that it would be more and more difficult to get the yield
improvement in the Q3 then we had in the first and second quarter. If thats sufficient to
explain whats happening. I dont know and I wouldnt comment I think about yield guidance
but I think it will be higher. Our thinking right now is it will be higher in Q4 but I dont know
that I would take that beyond Q4 in 2008; thats all Im prepared to say right now.
Mark Reid - Land Bank
We seem to spend our lives hoping that the recent fuel upuptick is a temporary spike and
that its going to reverse, and does becoming a ticking point like there was with surcharges
where we actually revisit the idea of hedging to some degree fuel and if so are we there or
thereabouts?
Howard Frank
We constantly look at the hedging scenario and whether its a program that we should do. It
isessentially we view it as a temporary fix not a permanent fix for anyand that whether
we should do it or not do it and at these levels its kind of difficult to kind of justify a hedge
because with our fingers crossed, were hoping that maybe weve hit the top of it and it
wont go a whole lot higher. However weve said that before and it has gone higher. From a
management standpoint we constantly look at it but we just havent made a decision to go
ahead and hedge.
Micky Arison
If you have a real rolling hedging program youre just delaying. If you have very tight
margins like in the airline industry, thats one thing. When you have our kind of margins, if
we have hedges in place and we made $0.10 or $0.15 more this year and have to pay the
piper in 2009 would it really make that much difference? And it would have cost of tens of
millions of dollars to do it. Youre just postponing it; youre pushing it out a year. So yes,
maybe we would have made $0.10 or $0.15 or $0.20 more in 2008 but we would have paid

that in spades in 2009 as the rolling hedges went on to higher prices. So it justobviously
we continue to make the decision not to hedge.
Mark Reid - Land Bank
On cruise ship returns, with the fuel price as it stands at the moment, could you give us a bit
of an indication some of your older ships, does it make them uneconomic in terms of returns
at the tail and equally could you give any indication on what the returns are on top of the
newer ships at current levels of fuel price?
Micky Arison
Actually in many cases the older ships have higher returns because the capital cost is so low.
So its a mixed bag. But theres no question at todays new building costs and at todays
operating and fuel costs returns are tough on new buildings and thats why you havent
heard about a new building deal from us recently and while we continue to talk to yards all
the time, we think that our conservative approach and disciplined approach to new
buildings, our disciplined approach to our cost structure and our wide margin and our
disciplined approach to our balance sheet really pays dividends in times like this. And so we
will continue to work on that basis.
David Bernstein
I looked at a couple of the ships that we took delivery of this year and their forecast for their
first full year, particularly like the Ventura and we redid the models and the ships still
achieve returns that are above our hurdle rates even at todays fuel prices. So were very
pleased by that although I will point out that the ships were ordered a number of years ago
and do benefit from the lower costs per berth.
Micky Arison
And two of the ships we take delivery ofthe one we just took, the Eurodam and Ruby were
dollar contracted ships at very, very, very attractive prices.
Mark Reid - Land Bank
Are there new ships in the portfolio at the moment that arent hitting the return target which
you may look at exiting?
Micky Arison
Very often the reason for a particular ship return being low is very often more itinerarydriven and so you have to tweak those but no, there is, right now we have no plans of selling
ships.

Howard Frank
When youre developing new markets you may put a ship in the market, it doesnt get the
returns you want but youre developing a new market, [so] you do that.
Micky Arison
The perfect example was the two smaller Carnival ships, the Celebration was just transferred
to Ibero [Kuseros] now unfortunately Spain is having a tough year but long-term strategically
I think that ship will give us better returns long-term in Spain then they were giving us as a
smaller ship in the Carnival Cruise Line fleet.
Operator
Your next question comes from the line of David Leibowitz - Burnham Securities
David Leibowitz - Burnham Securities
What price should a one-week cruise in the Caribbean be for you to be satisfied saying we
are earning or the industry rather then just limiting it to your brands, that the industry is
now back in control of pricing and were getting the type of return we are entitled to?
Howard Frank
Thats a tough question. Its never enough. Clearly we think werethe value equation
continues to be very strong here. Were under selling our product and but in a tough
economy like this its a challenge to move pricing up beyond to levels that we think are
justified but our pricing today is probably no different then our pricing was 10 or 15 years for
a lot of our Caribbean product a lot of our Caribbean cruises so we think theres a huge
opportunity. Were probably 30% 40% below comparable land-based vacations so thats the
range from where we are today though I think thats where the opportunity lies. If thats
what youre driving at.
David Leibowitz - Burnham Securities
No actually Im trying to figure out, we keep seeing specials, we keep seeing blended rates
whatever, but if one were to say in this imperfect world of ours what should a one-week
Caribbean cruise out of Florida cost should that price be $1500, $1200, blended rate again
and industry-wide?
Micky Arison
Its clearly different by brand. A Seaborn seven day cruise in the Caribbean should be four or
five times more then a Princess cruise in the Caribbean or a Carnival cruise in the Caribbean.

Theres no real answer to your question but one thing I can assure you is that the
promotional fares you often see more often then not are very few number of passengers on
the ship.
Howard Frank
Very tactical business.
David Leibowitz - Burnham Securities
In terms of the difficulties in filling the ships, I forget your exact terminology, are you saying
to us then that instead of lets say 105% capacity as you report on your 10-K, it might be
102% capacity?
Howard Frank
I dont think I said were having difficulty filling the ships and if this is what youre referring
to, this is what I said, is that occupancies in some markets are running marginally behind
occupancies a year ago but that doesnt mean we wont fill the ships and what I went on to
say is that the demand last year we had very strong demand, this year from a comparable
standpoint its not as strong but the price points are higher because were trying to achieve
higher prices, demand will slow a little bit. But we think theres enough demand to fill up the
ships.
Micky Arison
The end result will be the same or similar occupancy level when we report.
David Leibowitz - Burnham Securities
Now what I had said was 102% down from 105%-Micky Arison
No it might be 104.5% versus 105% but its not going to be 102% versus 105%.
Howard Frank
I think our occupancies actually in the second quarter were higher then they were a year
ago so I dont think that that number is relevant really.
Micky Arison

We operate full, the question is how many third and fourths are on the ships that play that
little one or two points. But we operate full.
Howard Frank
And most of the variation in occupancy results from the mix of different brands as we add
more ships to the fleet. Some ships will sailthey all sail at close to 100% cabin occupancy,
some will sail at 110%, 115%, 120% of total occupancy, others will only sail at 102%
depending on the brand.
David Leibowitz - Burnham Securities
From Carnival perspective youve made several deals to create or establish joint ventures
rather then plowing into a market on your own or what have you, is that a trend we should
expect to continue or have the current economics changed to the virtue of a joint venture
versus going it on your own.
Micky Arison
In every case we bought out the joint venture partner with the exception of the one we just
did with Ibero [Kuseros] where we have learned that you need to have a fully controlling
interest; we have 75% to make a joint venture work. Were not comfortable with 50-50 joint
ventures where that has been a little tenuous but the net result was that weve made it work
and we bought out the joint venture partners and moved on. Who knows what will happen in
the future but right now theres no joint ventures or acquisitions in the pipeline.
Howard Frank
Each opportunity is unique and the circumstances are unique and that will dictate what
structure we have for a transaction but having said that, Mickey is right, there is nothing
being discussed right now.
Operator
Your final question comes from the line of Unidentified Analyst
Unidentified Analyst
Can you give us more detail in terms of how you achieved the savings in SG&A you were
talking about and whether we can expect this to be sustainable perhaps into next year so
that your cost guidance of half the inflation rate could perhaps be a bit lower next year?
David Bernstein

The achieving comes in the form of cutting back on headcount increases, travel restrictions,
special projects and other things. It does flow through the year and of course it is included in
whatever guidance that we gave for the year. We havent given guidance or really looked in
detail for 2009 yet so overall I dont want to make any comments or projections on 2009.
Unidentified Analyst
But for 2009 presumably then your guidance of half the inflation rate still remains?
David Bernstein
I said flat to half of the rate of inflation is our target.
Micky Arison
That has been a target that weve kind of used for years. Weve fortunately been able to
beat that target in many, many years but you never know. Obviously theres more inflation
pressure now then there has been in a long time.
Operator
I will now turn it back to you to continue and for your concluding remarks.
Howard Frank
Thank you everyone and questions were good and we thank you for listening in and we wish
everybody a great day. Thank you. Bye.

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