Carnival Corporation reported record net income of $1.15 billion, or $1.36 per share, on revenues of $3.6 billion for its third quarter of 2005, ended August 31, compared to net income of $1.0 billion, or $1.22 per share, on revenues of $3.2 billion for the same quarter last year.

Carnival's CFO Gary Cahill attributed the results partially to Q3 bookings which he said "came in much stronger than anticipated, especially for North America." He added that yield was up significantly in Alaska, Caribbean and Europe.

Europe showed mixed results, according to Cahill, who said that the U.K. and Germany were strong, while in Italy, Costa Crociere was seeing some pricing pressure. Cahill said Costa was affected by a combination of increased capacity and a recession in Italy.

By Brand

Commenting more specifically, Carnival COO and Vice Chairman Howard Frank said that Carnival Cruise Lines had an excellent third quarter and that the Liberty's European cruises have been extremely successful. Frank also said that Princess Cruises And Holland America LINE benefited from very strong pricing in Alaska and in Europe. He also said that the U.K. and German markets have seen excellent pricing improvement.

As for Costa, Frank said that pricing was slightly down but only after several years of pricing improvement. And, that despite a 19 percent capacity increase, Costa's profits were still extremely strong. All the brands have seen double-digit booking increases in Q3, Frank added.

Q4 and Q1

Frank said there was little inventory left to sell despite a 9.1 percent capacity increase year-over-year. Bookings are up 8 percent over last year and yields are up as well, according to Frank.

For Q1 06, Frank said that capacity would be up 3.2 percent compared to last year and that bookings were ahead by 4 percent. "I am optimistic that yield will be higher for all of2006," he added.

For Q4, capacity is up 9.1 percent fleetwide, with Carnival seeing a 15 percent capacity increase; Princess, 8.1 percent; and Costa, 9 percent.

2006

For 2006, capacity will be up 5.8 percent - with Carnival increasing its capacity by 4 percent; Holland America, 9.1 percent; Princess, 5.6 percent; and P&O Cruises, 15.8 percent.

Three new ships will be added: the 1,848- passenger Noordam will join Holland America in February; the 3, 1 GO-passenger Crown Princess will join Princess in May; and the 3,000-passenger Costa Concordia will enter service in late June.

"With bigger ships, Costa will be able to leverage their cost load," Frank said, "and the European economies will come back," he said, noting that the new ships are 30-year assets.

According to Frank, occupancy for Q 1 and Q2 is so far is running 4 percent and 8 percent higher that last year, and that pricing is up for all the North American brands, but that pricing in Europe is slightly down year-over-year. However, in time, he expects to gain higher pricing than the brands ended up with last year  Guidance Carnival Chairman and CEO Micky Arison said in a prepared statement that the company is on track to post a 20 percent increase in earnings per share for 2005.

Frank reiterated Carnival's previous earnings guidance of $2.70 per share. He noted that Carnival expected to maintain its guidance despite the Aurora's cancelled world cruise; the terrorism incidents in London that affected the U.K. market; the Pacific Sky's technical problems; payment to the British Merchant Navy Offices Pension Fund (P&O officers); an investment write-down; Hurricane Katrina and fuel prices that continue to rise.

"It is a remarkable accomplishment," Frank said, who also went out of his way to praise and defend Carnival Cruise Lines' charter of three ships to the Maritime Sealift Command on behalf of the Federal Emergency Management Agency, which he said would be earnings neutral. "The charter is a small part of the overall fleet," he said, "and immaterial to the overa11 results. It is a break-even (proposition) for us."

Forward

Frank said that Carnival's current thinking is that it should have something concrete to say about its Asia/Pacific strategy before the end of the year.

Cahill noted that he expects operating costs per berth to go up 1.5 percent, although the brands continue to work at reducing costs and "if we come in lower, it means we have found more opportunities," he said.

Commented Arison: "Our philosophy at least for the time being is that we have been successful in mitigating fuel increases through yield increases and this continues to be our strategy at this stage."

He added when asked if he would consider a fuel surcharge: "It is effectively a price increase by a different name."

Q3 Results

Overall, Cahill attributed the results to a combination of increased capacity, higher ticket prices and larger onboard spending.

While passenger cruise days were up 5.9 percent year-over-year, passenger ticket revenue was up I 0. 1percent and onboard revenue was up 14 percent.

Onboard spending was 18.5 percent of total revenues in Q3 this year, compared to 18.0 percent last year, or $48.83 per passenger cruise day this year, compared to $45.35 last year.

Cahill commented that Carnival has gained onboard revenue increases at a very high rate in the last two years, but he is not seeing consumers cutting back at this point. Long-term, however, he expects onboard revenue to grow at an annual rate of"3 percent or so."

Costs were up 5.5 percent year-over-year, of which 4.1 percent was attributed to higher fuel prices and 1.4 percent to drydock and other ship operating expenses. Meanwhile, advertising costs were down, which Cahill said reflects a stronger business environment. "We did not have the need to do a lot of tactical advertising," he said.

Nine Months

Net income for the nine-month period ended Aug. 31, 2005 was $1.90 billion, or $2.27 per share, on revenues of $8.52 billion, compared to net income of $1.56, or $1.88 per share, on revenues of $7.49 billion for the same nine months last year.

To post net earnings per share of $2.70, Carnival must generate $0.43 per share for Q4 2005, up from $0.36 for Q4 2004 and $2.24 for the full year 2004.