Carnival Corporation gave an optimistic outlook for 2010 in its Q4 and year-end earnings call on Dec. 18, 2009. According to Vice Chairman and COO Howard Frank, each quarter is expected to be better as rhe year progresses.

Fieetwide revenue growth is projected at 10 percent with a 7.7 percent increase in capacity.

Carnival will be introducing six new ships next year, four for its European brands and two for North American brands, according to Chairman and CEO Micky Arison.

Net revenue yield on a current dollar basis is expected to increase 2 to 3 percent due to favorable currency exchange rates or be flat or up slightly on a constant dollar basis.

Cruise pricing has been firming up, according to Frank, but fuel prices have been going up as well and will represent a drag on 2010 earnings.

The earnings guidance for 2010 is in the range from $2.10 to $2.30 per share.

Frank also said that the suspended dividend will be discussed at a company board meeting in January.


For its fiscal year ending Nov. 30, 2009, Carnival reported net income of $1.8 billion, or $2 .24 per share, on revenues of $13.2 billion, compared to net income of $2.3 billion, or $2.90 per Share, on events of $14.6 billion for 2008.

"We posted solid earnings in what has been the most challenging year in the company's history," Frank commented. "We were also very pleased with the performance the European brands managed with an 8 percent capacity increase year-over-year."

CFO and Executive Vice President David Bernstein said that the European brands represented 33 percent of Carnival's capacity, but generated 49 percent of its operating income.

Capacity was up 5.4 percent for the full year, according to Bernstein. Net revenue yield was down 10 percent, impacted by travel restrictions to Mexico and by the recession, he said.


Carnival reported net income of $193 million, or $0.24 per share, on revenues of $3.2 billion for its fourth quarter ended Nov. 30, 2009, compared to net income of$371 million, or $0.47 per share, on revenues of $3.3 billion for the same period last year.

While net revenue yields in Q4 were down compared to last year, the decrease was less than expected, and net cruise costs per passenger day were also down, including fuel.

Onboard spending also showed improvement, according to Bernstein, who said the drop in Q4 was less than in Q2 and Q3, and that shops and photography showed an improvement compared to the previous two quarters.

Fleetwide capacity was up 6.7 percent, with a 9.5 percent increase in Europe and 5.7 percent for the North American brands.

Ticket yield was down 12 percent fleetwide compared to Q4 2008, with a 14 percent drop in North America for all itineraries and a 9 percent drop for European brands, Bernstein said.

The immediate market reaction was to send Carnival's shares down some 3 to 4 percent.


Driving revenue growth in 2010, and hopefully earnings, will be six new ships accounting for a 7.7 percent fleetwide capacity increase with a 3.6 percent increase in North America and 11.9 percent in Europe.

Frank commented that bookings going forward were very strong, but that pricing was not up much, although the "U.S. premium brands are showing an increase in pricing," he said. That increase is for all itineraries, but particularly for European and exotic cruises.

Frank attributed the pick-up for the premium brands to the economy settling and the market segment being less affected.

Arison noted that forward bookings were consistent with the company's performance in 2005 and 2006, with 2008 and 2009 being exceptions.

"On a capacity adjusted level, we are booked on the same level as last year," he said, adding that the company is doing better everywhere, with what he called two glaring exceptions: the Mexican Riviera and Brazil.

Bookings for Mexican Riviera cruises are up, but with a softening of the California market and negative perceptions of Mexico, pricing is lower, Frank said. Carnival will have 10 percent of its total capacity on the Mexican Riviera in 20 I 0, but anticipates having less capacity in that market in the future.

In Brazil, pricing is significantly weaker due to the large increase in capacity compared to last year.

Pricing for the European brands is moderately lower than last year, Frank said, despite a 19.4 percent capacity increase for the first nine months.

Bernstein forecasted onboard spending to remain flat for 2010.

New buildings

Carnival placed its first order for a new ship in two years earlier this month when it ordered a third sister ship to the Carnival Dream for spring 2012 delivery. A second sister ship, the Magic, is under construction for 2011 delivery.

Considering further newbuildings, Arison said: "We look at each brand individually in each market. Further growth is based on each brand's belief in its potential and our confirmation."

Looking forward, Arison said there will be significantly less new capacity entering service in 2013 and 2014 not only from Carnival brands, but also from competitors.

Meanwhile, the company 1s investing m infrastructure and recently opened its new terminal facility in Roatan, Honduras, which Arison described as a small investment in the scale of things ( cruise ships) at $30 to $40 million.


Carnival's earnings guidance for Q1 is in the range from $0.08 to $0.12 per share, compared to actual earnings of $0.33 per share in 2009, including $0.04 in nonrecurring gains.

Top-line revenue is expected to show a 10 percent increase, according to Frank.

At the time of the earnings call, there was very little inventory left to sell, Frank said, with occupancy slightly higher in North America and slightly lower for the European brands.

The North American fleet has 62 percent of its capacity in the Caribbean, the same as last year, 11 percent on the Mexican Riviera, compared to 12 percent last year; and the balance elsewhere.

Frank said that Caribbean pricing was moderately lower and that Mexican Riviera pricing was down significantly.

The European brands have 27 percent of their capacity in the Caribbean, compared to 33 percent last year; 27 percent in Europe, compared to 24 percent last year; 17 percent in South America, compared to 11 percent last year; 11 percent in Asia, compared to 12 percent last year; and the balance elsewhere.

Pricing is down slightly in Europe, Frank said, moderately in the Caribbean and significantly down in South America.


In Q2, the North American brands will have 56 percent of their capacity in the Caribbean, compared to 54 percent this year; and 10 percent on the Mexican Riviera, the same as last year. At this point, pricing was slightly lower in the Caribbean and for the Mexican Riviera, but the same as last year for Alaska and Europe, according to Frank, who said that occupancy was ahead of last year.

The European brands will have 57 percent of their capacity in Europe, compared to 59 percent last year; I I percent on trans-Atlantic voyages, the same as last year; and the balance elsewhere, with pricing in Europe running modestly behind last year. However, Carnival expects the pricing gap to narrow, Frank said.


The early indications for Q3 are very encouraging, Frank said, with occupancy running ahead of this past summer.

The North American brands will have 43 percent of their capacity in the Caribbean, up from 36 percent last year; 25 percent in Alaska, down from 28 percent last year; and 17 percent in Europe, down from 19 percent last year.

Frank noted that pricing in the Caribbean is weaker against stronger occupancy. Alaska pricing is lower than a year ago, but is expected to be firming, while pricing for European cruises are lower, but also with stronger occupancy.

The European brands will have 97 percent of their capacity in Europe, slightly higher than last year. Frank said occupancy was even with last year, with pricing running behind.

As for the 2011 Alaska season, Frank noted that two more ships will be withdrawn: the Ryndam will reposition to Europe, and the Royal Princess will be transferred to P&O Cruises. Both are expected to turn in better performances in their new deployments. Arison said that the cost of operating in Alaska is very high and that there are many alternative deployments during the summer and although the yields may be the same, operating costs are much lower elsewhere.

"Alaska has the highest operating cost of any market," he said, "and that is driving itinerary changes."

Carnival has consolidated its Alaska tour operations to take out some costs, Arison noted.