It could have been ugly, but cost cutting efforts, lower fuel prices, selling and administrative costs, and financial transactions allowed Carnival Corporation to post an earnings increase for its first quarter, ended Feb. 28, 2009, while revenues dropped year-over-year, and the rest of the leisure industry is struggling to post any returns.

Carnival reported net income of $260 million, or $0.33 per share, on revenues of $2.9 billion, compared to net income of $236 million, or $0.30 per share, on revenues of $3.1 billion for its first quarter last year.

Outlook

Bookings are up 10 percent for the rest of the year, according to Howard Frank, vice chairman and COO, but at significantly lower prices.

He said that the company is using pricing to stimulate demand and that bookings are up 10 percent year-over-year in both North America and Europe.

For the North American brands, Frank said prices are 10 to 15 percent lower for Caribbean cruises compared to last year, and 30 to 40 percent lower for Alaska and Europe sailings.

For the European brands, pricing for European cruises is about 10 percent lower than last year. Frank called the current business climate the most difficult environment he has ever seen, but despite that, be said, lower prices are filling the ships.

Speaking on the company's third quarter conference call on March 24, Frank said that at this point "we are two-thirds booked for the remainder of 2009."

Carnival also revised its previous earnings forecast for the year downward by $0.30 from the midpoint to $2.20 with the range from $2.10 to $2.20.

The big question mark is the third quarter, which has traditionally been the industry's strongest quarter with the highest prices and occupancy levels. Now, pricing and occupancy is running significantly behind last year's, according to Carnival, but with the European brands performing relatively better than their North American sister brands.

Some of the business for the first half of the year was also booked before the consumer was battered last fall.

Carnival Chairman and CEO Micky Arison singled out the $50 Alaska head tax as a detriment to bookings and said it was "a significant price to pay in a very sensitive consumer environment."

"We intend to reduce our Alaska capacity in 2010," Arison said, adding that the resulting economic impact and job losses will exceed the tax gains, and that the cutback will also impact Western Canada and Vancouver.

"If yields do not come back in Alaska in 2010, we will have to reduce capacity again in 2011," he said. "Capacity will continue to come down until we reach equilibrium."

Another issue in Alaska is the environment, with more stringent (and costly, some say unreasonable) requirements than elsewhere, which Arison did not address.

However, Arison called the Alaska head tax unconstitutional and illegal. He said "we will try to find a political solution, if not, we expect to litigate. If all else fails, you will see more ships in the Caribbean."

If Carnival brands reduce their capacity in Alaska, it may also affect their infrastructure in terms of employment for their resorts, busses and tour operations.

Q2

For the second quarter, Carnival reported a capacity increase of 5.6 percent - 4.3 percent for its North American brands and 7 percent in Europe, and that there is not much inventory left to sell.

The North American brands will have 54 percent of their capacity in the Caribbean, compared to 56 percent last year; 20 percent will be in long and exotic cruises, roughly the same as last year; 10 percent will be on the Mexican Riviera, compared to 13 percent last year; and the balance will be in a various trades.

Frank noted that while Caribbean and Mexican Riviera pricing are less than last year, they are relatively stronger than other areas, especially the so-called exotic programs where pricing is substantially lower, he said.

The European brands will have 60 percent of their capacity in Europe, compared to 69 percent in 2008; 30 percent on longer, exotic cruises, up 5 percent from last year; and 10 percent in the Caribbean, down from 16 percent last year. Frank said occupancy and pricing are slightly lower from last year.

The earnings guidance is from $0.30 to $0.32 compared to actual earnings of $0.49 for the same quarter in 2008.

Q3

For the third quarter, fleetwide capacity will be up 5.6 percent - 3.8 percent in North America and 7.4 percent in Europe.

The North American brands will have 36 percent of their capacity in the Caribbean, approximately the same as last year; 28 percent in Alaska versus 29 percent last year; and 19 percent in Europe compared to 22 percent last year.

Frank said that occupancy is running significantly behind last year - double digits in the Caribbean; substantially in double digits in Alaska and in the single digit range for Europe. He added that the third quarter will be extra difficult for the North American brands.

The European brands are- mainly in the Mediterranean and Northern Europe and while occupancy and pricing are lower than in 2008, the brands are performing better than their North American counterparts, Frank said.

Q4

Passenger capacity will be up 7.6 percent in the fourth quarter - 5.7 percent in North America and 9.5 percent in Europe. Frank cautioned that it is too early to read much into the booking information available at this point.

The North American brands will have 45 percent of their capacity in the Caribbean, up from 42 percent last year; 17 percent in Alaska and Europe, down from 20 percent last year; and 23 percent in longer and exotic cruises, compared to 21 percent last year. Occupancy is running behind last year and pricing is similar to the third quarter, according to Frank.

The European brands will have 78 percent of their capacity in Europe and 17 percent on longer, exotic cruises, approximately the same as last year.

Frank said that occupancy is lower than a year ago and that pricing is lower, but higher than for the North American brands.

Q1

Carnival attributed lower revenues to 5 percent declines in both ticket and onboard spending yields during the quarter. Only spa and bar revenues were up.The North American brands experienced a 3.9 percent decline and the European brands 7.8 percent. The declines affected all itineraries, according to the company.

Cost savings contributed $0.06 per share and lower fuel costs and various other efforts added $0.04 per share, according to David Bernstein, executive vice president and CFO.

Carnival saw a 2.3 percent capacity increase during the quarter - 6.2 percent for its European brands and 1.9 percent in North America.

"Most leisure companies will not have a return this year at all," Arison said in response to an analyst's question whether the board was satisfied with the company's rate of return.

Frank added that the UK market is holding up well for the Carnival brands and that Costa Crociere and AIDA Cruises are performing well. Spain, meanwhile, continues to be a challenge, seemingly suffering more than any of the other European countries. But the company has relatively little capacity in the Spanish market.

The consumer today is very price sensitive, Arison said, and every leisure product is discounted. Both he and Frank underlined that discounting is filling the ships and when demand comes back, pricing will go up.

On the cost saving side, Bernstein noted that the company has been re-negotiating prices with vendors, and Frank said there 20 to 30 areas they are looking at for cost benefits - "across the supply chain and in (corporate) centralized procurement."