Carnival Corporation has reported net income of $126.9 million, or $0.22 per share, on revenues of $1.03 billion for its first quarter ended February 28, 2003, compared to net income of $129.6 million, or $0.22 per share, on revenues of $906.5 million for its first quarter of 2002.

Earnings for Q1 03 were boosted by non­ operating income of $14.7 million, including insurance proceeds of $19 million from the loss of the Wind Song, less certain non-operating expenses. Earnings for Q1 02 included $5 million in non-operating income. Excluding non-operating income, net income for Q1 03 would have been $112.2 million, compared to $124.6 million for Q1 02 - a 10 percent decline.

Revenues were up 14 percent in Q1 03 compared to the same period the previous year, due to a 14.7 percent increase in capacity, according to Carnival, partially offset by fewer passengers purchasing air transportation from the company.

Costs were up due to higher fuel prices, the front­ loading of advertising expenses into the first half of 2003 and increased insurance, environmental and security expenses.

Added Carnival Chairman Micky Arison: "Our first quarter 2003 results were impacted by concerns about the war with Iraq, an uncertain worldwide economy and historically high fuel costs."

These factors are also impacting the balance of the year, particularly Q2, according to Carnival.

Bookings for Q2 were said to have slowed as concerns over the war with Iraq heightened, causing an even closer-in booking curve and more discounting.

Carnival said that under the circumstances it is not able to give specific guidance for Q2 net revenue yields, except that they are expected to be lower than last year. Costs per available berth are expected to rise approximately 10 to 12 percent in Q2, compared to last year's levels.

Booking volumes for the second half of 03 remain slightly ahead of last year's levels, but are not commensurate with the increased capacity expected for the second half of the year, while pricing remains below last year's levels, according to Carnival.

Q1 EPS of $0.22, while flat YOY, was above the consensus of $0.18, and was attributed mainly to better cost control.

Carnival also revealed that Q2 was booked at 86 percent this year compared to 92 percent last year and that pricing was running five percent below last year. Q3 occupancy was 54.2 percent this year, compared to 58.8 percent last year. But pricing for Q3 was said to be only one to two percent behind last year.

Meanwhile, the achieved per-passenger, per-day net income of $21.26, according to Cruise Industry News' estimate, is the lowest Carnival bas reported for its first quarter in the past 10 years. The highest per­ passenger, per-day net income for the first quarter was $47.67 in 2000.

Merger Update

Carnival shareholders will vote on the merger on April 14 and P&O Princess Cruises shareholders will vote on April 16. If both are approved, the closing of the DLC is expected on April 17. From that point, the financials of both companies will be combined, reporting on Carnival's fiscal year.

Perspective

While the new, combined Carnival group will command a 44 percent share of the worldwide market in 2003, many of the brands have such small market shares that they would seem to defy the benefits of economies of scale, apart from back-office and purchasing.

In the new constellation, Carnival Cruise Lines will continue to dominate with a 20.4 percent share of the worldwide cruise market, and will represent more than 46 percent of the Carnival's group's total capacity.

The second largest brand will no longer be Holland America Line (HAL), but Princess Cruises, with a market share of 7.5 percent, followed by HAL with 5.8 percent, and Costa Crociere with 5.0 percent.

The other brands are hardly on the radar in terms of overall market share, but are strong in their respective markets: Windstar Cruises bas half of the luxury sailing market while Seabourn Cruise Line bas a 6.8 percent share of the luxury market.

Once the merger is completed, Carnival will also have an estimated 34.6 percent of the European market capacity, expanding to 42 percent in 2006, dominating the British, German and Italian markets.

By 2006, Carnival's most profitable brand, Carnival Cruise Lines, will see its share of the group's capacity reduced to 42 percent. Princess will have 18 percent of the group's capacity, followed by HAL with 14 percent, and Costa, 12 percent.

By introducing more new ships and merging with POC, the Carnival group will grow its passenger capacity by 48 percent in 2003, and continue to grow with new ships in 2004, at a rate of 18 percent, six percent in 2005, and four percent in 2006, when the group will command nearly 50 percent of the worldwide cruise capacity.