Carnival Corporation has reported net income of $160.6 million, or $0.27 per share, on revenues of $661.4 million for its second quarter ended May 31, 1998, compared to net income of $127.4 million, or $0.21 per share, on revenues of $596.6 million for the same period last year.

All per share data has been adjusted to reflect a two-for-one stock split effective June 12, 1998.

The Carnival fleet achieved a load factor of 105.4 percent and carried 497,000 passengers for 3,104,000 passenger cruise days in the second quarter of this year, compared to a load factor of 108.0 percent, 495,000 passengers and 3,062,000 passenger cruise days last year.

Carnival attributed the decline in occupancy to fewer third and fourth passengers and said that the target was higher pricing rather than occupancy.

According to Carnival, affiliated companies contributed a net loss of $2.4 million in the second quarter. This was identified as a net loss of $3.2 million from Airtours, attributed to its seasonal earnings' cycle, a soft Scandinavian market, and a one-time charge; and a $3.3 million profit from Costa Crociere. That would also seem to indicate a $2.3 million loss from Seabourn Cruise Line, although that could not be confirmed.

Airtours' and Costa's contributions are reported with a two-month lag.

Six Months

For the six months ended May 31, 1998, Carnival reported net income of $270.5 million, or $0.45 per share, on revenues of $1.2 billion, compared to net income of $212.8 million, or $0.36 per share, on revenues of $1.1 billion for the same period last year.

For the six-month period, Carnival reported a load factor of 105.2 percent, 923,000 passengers, and 5,931,000 passenger days this year, compared to a load factor of 107.2 percent, 950,000 passengers, and 5,880,000 passenger days last year.

The third quarter also looks extremely well, according to Carnival executives who said that pricing continues to be strong and that bookings for the third and fourth quarters are well ahead of last year.

In addition, the company will see a capacity increase of nine percent for the second half of the year.

As of May 31, Carnival had $490 million of advance bookings which is 25 percent more than it had at the same time last year.

Thus, Carnival executives suggested that 1998 is the "company's best year ever," and that 1999 is shaping up to be a "very strong year."

Carnival's first quarter of 1999 will see continued capacity expansion at a rate of 17 percent year-over­ year. For the full year, the company estimated a 13 percent increase in capacity over 1998.

In the year 2000, Carnival estimates that its passenger capacity will grow by another 14.5 percent.

Carnival's second-quarter results and upbeat predictions brought an immediate market reaction with Carnival stocks rising on The New York Stock Exchange to $40 and settling at $39 9/16 at press time.

Cunard Line

Cunard Line will be in Carnival Corp. accounting for the second half of the year and the company expects Cunard to be "modestly accretive" in 1998 and "more accretive" in 1999.

Why? In the short term, mainly because Cunard's margins are so bad that Carnival executives see "huge opportunities to reduce costs."

The new management team at Cunard has already taken steps to reduce costs, including management changes and pay cuts. In addition, it is expected that a "number of additional steps will be taken to reduce costs."

Among the areas targeted for cost reductions is Cunard's marketing, which Carnival executives described as having no "cost-conscious culture" and spending money too freely.

But ship operating and labor costs are also targeted to be brought down along with purchasing costs and consulting services. The question is how much and how fast without disturbing the product.

The combined annual revenues of Cunard and Seabourn are estimated at approximately $500 million.


• Fleetwide, Carnival Corp. companies book about four percent of their passengers directly (that is, bypassing travel agents) today and expects that number to remain in that range over the next several years.

• Due to construction delays at Fincantieri's Marghera yards, the delivery date for Holland America Line's Volendam has been pushed back.

• Discounts are in the industry for good. They have become a tool enabling Carnival to manipulate prices to achieve the net yield it wants in the first place.

In fact, discounts are created so that they can be reduced in order to generate price improvements...

• Despite two-for-one advertising for HAL's Alaska cruises, Carnival said HAL's summer pricing is up nicely year-over-the-year, while some of the competition has had problems.

But Carnival conceded that HAL has had some problems in its spring shoulder season and may see some softness in the fall too.

Also, while the Alaskan tour business is not stronger than last year, prices are up, but so are also costs.

• Building series of ships benefits the owner in that the public does not differentiate between these ships in terms of being older or newer.

The performance of each ship is more itinerary­ driven than determined by a ship's age.

Besides, in this strong market, all Carnival family ships are doing well - except the Carnival Destiny which is said to be doing unbelievably well.

• Lower occupancy has not affected on-board spending since the reductions mostly represent children who are to a lesser extent than before occupying third and fourth berths. Instead, on-board spending is said to be up "nicely."

• As airline prices are going up and more planes are flying full, more people are booking air/sea packages again although it is too early to tell if the trend has turned.

• The challenge for the luxury market is to fill the ships in the shoulder seasons. These passengers are willing to spend more to travel when they want to.

• The economic difficulties in Asia have no impact on Carnival since only a miniscule portion of its passengers originate in that part of the world.

But will the ships in the Asian markets return to North America and cause increased competition? Unlikely, as the Asian ships are mostly older and their owners have spent considerable amounts of money converting them to Asian operations with increased emphasis on gaming.

That of course leaves the Star Cruises's new ships out of the equation.

• In summary, according to Carnival Corp., "Business is good and there are no foreseeable problems on the horizon."