If customers are getting used to very low cruise prices, they better book soon, according to Carnival Corporation Chairman and CEO Micky Arison, who predicted on the company's Q3 earnings call that with the kind of booking volumes the company is seeing, prices will soon go up.

Howard Frank, vice chairman and COO, commented that Carnival expects each quarter to be sequentially better.

According to Carnival, since June, booking volumes for the remainder of 2009 and the first half of 2010 are running 19 percent ahead of last year, but with ticket prices at lower levels.

Carnival's guidance for the full year 2009 is for earnings in the range of $2.16 to $2.20 per share, compared to its previous guidance of $2.00 to $2.10, and actual earnings last year of $2.90.

Q4 earnings are expected to be in the range of $0.16 to $0.20 versus $0.47 in 2008.

Q3

Carnival reported net income of $1.1 billion, or $1.33 per share, on earnings of $4.1 billion for its third quarter ended Aug. 31, 2009, compared to net income of $1.3 billion, or $1.65 per share, on revenues of $4.8 billion for the same quarter last year.

The revenue decrease was driven by lower cruise ticket prices and onboard spending and unfavorable currency exchange rates, according to Carnival, but the net revenue yield decrease was less than forecast in June. Fuel prices dropped 39 percent compared to the same quarter last year.

According to CFO and Executive Vice President David Bernstein, close-in bookings generated better pricing worldwide and onboard and other revenue also trended upward. In addition, the company benefited from a variety of cost saving measures.

Bernstein said that net ticket revenue was down 14  percent overall - 20 percent in North America and 6percent in Europe.

Cruise capacity was up 5 percent in the quarter: 3.5 percent in North America and 7.5 percent in Europe, while Costa Crociere doubled its year-round capacity in Asia by adding a second ship.

Q4 2009

Capacity will be up 7.7 percent fleetwide, according to Frank, 5.7 percent in North America and 9.6 percent in Europe. Occupancy is at approximately the same level as last year and at lower prices, but with stronger late booking prices, Frank said, he does not expect any further deterioration, adding that there is very little inventory left to sell.

The North American brands will have 45 percent of their capacity in the Caribbean during Q4, up from 42 percent last year; 10 percent in Europe, down from 1 O percent last year; 10 percent on the Mexican Riviera, basically the same as last year; and the rest in various markets, but less than 10 percent in each market.

Pricing is lower for all the North American brands and for all itineraries, Frank said, moderately lower in the Caribbean and Europe and considerably lower in Alaska and on the Mexican Riviera.

Frank said Riviera cruises are also affected by the significant economic slowdown in Southern California.

The European brands will have 78 percent of their capacity in Europe, which is about the same as last year, and the balance is various other markets. Pricing is moderately lower across most itineraries, according to Frank.

Q1 2010

Much of the inventory for QI 2010 has already been sold at lower prices. Frank said that at this point it would be difficult to recover the pricing momentum to catch up, compared to QI 2009. Thus, he expects lower revenue yield for QI. Although, if the strong booking pattern continues, a positive revenue improvement may be expected, he added.

Fleetwide, capacity will be up 9.9 percent in Q1 - 5.3 percent in North America and 15 percent in Europe. At this time, occupancy is moderately lower year-over-year.

The North American brands will have 62 percent of their capacity in the Caribbean, the same as last year; and 11 percent on the Mexican Riviera, down from 13 percent last year; and the balance elsewhere.

Pricing in the Caribbean is moderately down, according to Frank, and significantly down for Mexican Riviera cruises. Pricing for longer and exotic cruises is also down.

As long as bookings continue to be strong, Frank said the company expects to strengthen pricing in some areas.

European brands will have 29 percent of their capacity in the Caribbean, down from 32 percent last year; 27 percent in Europe, up from 25 percent last year; 11 percent in South America, approximately the same as last year; and the balance elsewhere. Pricing is moderately down.

Yield in South America, however, is significantly down due to the economic downturn in Brazil, according to Frank.

Q2 2010

Fleetwide, the passenger capacity will be up 9 percent - 4 percent in North America and 15.2 percent in Europe. Overall, occupancy is moderately down year-over-year both in North America and Europe, Frank said.

The North American brands will have 57 percent of their capacity in the Caribbean, up from 52 percent last year. Pricing is lower than at this time last year, but ahead of where Q2 closed last year, according to Carnival. Frank said he expected the pricing gap to close with strong late bookings.

The European brands will have 57 percent of their capacity in Europe and IO percent in trans-Alan tic crossings. Pricing is lower than last year, but higher than where Q2 closed last year.

Looking Ahead

Looking ahead, Carnival executives said they view the recovery to be slower than after previous downturns. But the market has stabilized, they said, and the brands have found price points that allow them to generate "tremendous" demand.

The company foresees no dramatic uptick, but slow improvement that will take several years. 2010 should get better, Frank said, but noted there are still many unresolved challenges, including high unemployment and housing issues in the North American economy.

New Ships

Next year, Carnival brands will introduce a record total of six ships, boosting passenger capacity by 7.7 percent - 3.6 percent in North America and 12 percent in Europe.

The Costa Deliziosa will be introduced in late January; the AIDAblu in early February, the Azura in late March, the Seabourn Sojourn in late May; the Nieuw Amsterdam in late June and the Queen Elizabeth in late September.

As for ordering more ships, Arison said that newbuilding prices have finally come back to reality and are at the 2003 - 2004 level, when many new ships were ordered. Now, however, the dollar has weakened.

"We would like to build first of all for Princess Cruises," Arison said, "but it is unlikely that a contract will be signed before the end of the year, which will make it difficult, but not impossible, to get a new ship by 2012."

The European brands have ships in the pipeline so there is no urgency to build for them, Arison said. "We can wait a couple of years. Princess is our first priority. We will continue to build more ships in the future."