Two Carnival ships call in Freeport. Capacity is up in the Caribbean this year.Focusing on the Carnival Cruise Lines and Costa Crociere brands on today’s Q1 earnings call, Arnold Donald, CEO and president of Carnival Corporation, said initiatives to rebuild the brands are beginning to pay off.

Arnold said that the (public) perception of Carnival has recovered and that interest is up dramatically. Carnival saw record booking activity during the Q1. Costa is also continuing on its road to improvement.  

Altogether, he noted that Carnival Corp. is on track to turn the corner in the second half of the year. The full year-earnings guidance is from $1.50 to $1.70, consistent from the midpoint of the guidance given in December, but within a narrower range.

The recovery is partially driven by increased marketing efforts – the company is spending $600 million on advertising across all of its brands in 2014 – and focusing on attracting the so-called “new to cruising.”

For the year, David Bernstein, CFO and executive vice president, noted that fleetwide bookings for the year are head of the prior year, but at lower prices. But for the second half of the year, he said the expectations are for positive yield development for the North American and European, Asian and Australian (EAA) brands. Although for the full year, net revenue yield may be down slightly.

This year’s record capacity in the Caribbean and softer than expected demand growth in Japan (for the Princess brand) is pressuring pricing. For the next QI (2014/2015), Bernstein said that fleetwide capacity may be slightly down in the Caribbean, mainly due the Carnival Legend going to Australia.

He also pointed out that Costa has reduced its capacity in South America, which he described as a high-yield market offset by a higher cost of doing business. So by reducing capacity there, Costa can improve its profitability.

In other developments, Costa has dropped the Ukraine from Black Sea itineraries in May, substituting calls in Romania and Bulgaria.

By dropping its Egypt and Red Sea programs, AIDA has seen a slight reduction in its earnings.

More immediately, Carnival has three ships in Houston and Galveston, where the ship channel is closed due to an oil spill. Expected to be cleared up shortly, the event may cost $0.01 per share.

At this point, the Caribbean, which represents 50 percent of the company’s capacity for the rest of the year, is behind in bookings and price, according to Bernstein. Alaska is behind on price, but ahead in occupancy, and the European seasonal deployment by the North American brands is running well ahead of last year.

The EAA brands, which have 70 percent of their capacity in Europe for the balance of the year, are seeing lower pricing and lower occupancy.

In addition, Arnold said that the company is focusing on cost savings by leveraging its scale. He singled out crew travel and port costs as examples, noting that the brands carry some 10 million guests a year and has more than 90,000 seagoing employees.