Carnival Cruise Lines has reported income from continuing operations at $38.7 million on revenues of $305.6 million for its fourth quarter ended November 30, 1991, compared to income from continuing operations of $34.8 million on revenues of $270.4 million for the same quarter the previous year.

Income from continuing operations for the fiscal year ended November 30, 1991, was $253.8 million on revenues of $1.4 billion compared to $234.4 million on revenues of $1.25 billion for the previous year.

Discontinued Operations

Carnival has chosen to report its cruise and land tour business as continuing operations, excluding the Crystal Palace as a discontinued operation by fiscal 1991 year-end.

Carnival is proceeding with plans to sell the Crystal Palace Hotel and Casino and, as a result, took a $135 million write-down on its disposal during the fourth quarter, and a $33.8 million loss from operations in fiscal 1991, which together brought down net earnings.

Net Earnings

With the write-down of the Crystal Palace, Carnival reported a net loss of $112 million for its fourth quarter, compared to net income of $192 million in the same quarter a year earlier.

Net income for the fiscal year ended November 30, 1991, was $85 million compared to $206.2 million the previous year.

Cruise Only

In a Prepared statement, Carnival Chairman Mickey Arison said that the company's decision to sell the Crystal Palace will allow it to direct all of its time and efforts to its successful cruise businesses. He added that the disposal of the Crystal Palace should have a positive impact on 1992 earnings performance.

Arison noted that the company's cruise and tour businesses continued to perform well during the fourth quarter and fiscal year.

1991 also turned out to be the best year Holland America Line has ever had, according to Kirk Lanterman, Chief Executive Officer of Holland-America Westours.

Carnival 's combined fleet of 16 ships carried more than a million passengers in 1991 to achieve a fleet occupancy level of 105.7 percent.

Record Setting Year

In spite of the Gulf War, the recession and industry overcapacity, which caused lighter load factors, industry-wide discounting and increased marketing and sales costs, Carnival was able to post record earnings for continuing operations in its fiscal 1991. Some of the earnings, however, can be attributed to postponement of debt payments.

Earnings per share from continuing operations were $1.85 for the fiscal year compared to 'street' estimates ranging from $1.63 to $1.90.

Earnings per share from continuing operations were $0.28 for Carnival's fourth fiscal quarter compared to 'street' projections ranging from $0.20 to $0.30.

Carnival reported the average load factor to be 101 percent in its fourth quarter compared to 101.8 percent for the same quarter the previous year.


If the Carnival group of companies were to continue as before, Carnival would have to work harder in 1992 to maintain its earnings performance. In light of the lingering recession and introduction of more new tonnage, Carnival would face another year of overcapacity which would make raising ticket prices unlikely. Moreover, Carnival will only see the introduction of a new ship into its Holland America Line fleet towards the end of the year.

But since losses from the Crystal Palace Hotel and Casino will no longer be detracting from Carnival's earnings, it is expected that Carnival's cruise businesses will at least do as well in 1992 as in 1991.

Carnival has in fact streamlined its operations to weather the onslaught from Royal Caribbean Cruise Line's Monarch of the Seas and Majesty of the Seas and Princess Cruises' increased presence in the Caribbean.

In Miami, Carnival is relatively well-positioned with new and modern ships, but November and December load factors were off for the Festivale out of San Juan, and the Carnivale and Mardis Gras out of Port Canaveral.

This means that Carnival's newer ships were much stronger performers than the older Part of the fleet, fueling reports that Carnival may divest itself of its older ships in the next two or three years.

If this turns out to be the case, Carnival can be expected to put its two newbuildings into Port Canaveral and San Juan respectively.

So, while Carnival is expected to benefit from the disposition of the Bahamas hotel complex in 1992, its earnings will receive further boosts by new ship introductions during 1993 and 1994. The new ships are also expected to be higher profit margin vessels. They will also be introduced as industry capacity growth decelerates which again is expected to lead to higher capacity utilization, even rising prices. The bottom line could mean a dramatic earnings development for Carnival starting in late 1992 through 1994/95.


Carnival's fourth fiscal quarter 1992 can be expected to be boosted by the arrival of HAL's Statendam. The following first, second and third quarters of 1993 can be expected to generate a steady increase in earnings due to the introduction of the Statendam and improved industry capacity utilization as fewer new ships are introduced, and a revival of the American economy.

A further earnings boost will occur in the fall of 1993 with the introduction of two new ships, Carnival's Sensation and HAL's Maasdam. Thus, earnings will likely reach a new level in the following quarters, until the fall of 1994, when two more new ships, Carnival's Fascination and HAL's Ryndam, can be expected to boost earnings to new records.

In addition, extraordinary earnings from the disposition of Carnival's older ships are also expected.

Barring Unforseen Circumstances

The above evolution of Carnival is based on the absence of so-called unforseen circumstances which have plagued the cruise industry with some regularity over the last few years.

These circumstances include airline strikes, hurricanes, and terrorist activities. Carnival's main operations are largely confined to Southern Florida and the Caribbean, thus making the company vulnerable in this geographic area.

HAL could also be affected by such factors as a major pollution incident in Alaska or terrorist activities in Europe where some of the new ships are expected to sail seasonally.

Other factors that could affect Carnival negatively include sharply increased fuel and airlift costs. In addition, there are a number of legislative proposals pending in Washington that, if passed, could contribute to impact earnings negatively.

Moreover, the recession is still lingering and shows few signs of tapering off. Historically, the economy has recovered sharply in election year. This recession may haunt Washington, however. It is producing such deep structural changes in the American economy, that general prosperity is unlikely to return anytime soon.

Finally, overcapacity is also affecting Carnival, but less than most of other operators in the industry. What has happened is that the recession and overcapacity are not affecting the cruise lines the same way. The strong cruise lines seem to maintain their market share and relative earnings, while some of the weaker and smaller lines are suffering and are on the brink of sinking.

Some executives have said that (large) size is not important, but that net earnings are. The last couple of years, however, have shown that size and earnings tend to go together. Large size affords economies of scale, marketing muscle and resources to work with travel agents, all of which are key ingredients in successful cruise line operations and all of which Carnival possesses.

Unknown Variables

In addition to the so-called unforeseen circumstances that could affect Carnival, along with the rest of the industry, are some variables that are particular to Carnival.

First of all, much of Carnival's success is attributed to its management. If key executives should leave, it is uncertain whether Carnival would be able to continue its present level of success.

Secondly, Carnival is mainly targeting a first­ time market of blue collar Americans. While industry projections of an untapped cruise market range from 10 million upwards to 60 and 80 million potential American cruise passengers, the fact remains that nobody knows how large the market really is.

Carnival is also seeing a low rate of repeat passengers which means it will be increasingly dependent on generating more first-time passengers in order to fill its ships.

Thirdly, close study of Carnival's financial statements have shown that economies of scale sometimes can be an elusive benefit. It can also be expected that the introduction of new ships will require signficantly increased sales and marketing costs.

Fourth, HAL's market potential is also 'unknown' at this point.

HAL will see its fleet grow from four to seven ships within a three year period. In the past, HAL has been able to benefit from full capacity utilization during the Alaska seasons. With the introduction of the first of its new ships, however, it has been announced that HAL will be returning to cruising in European waters. This turn of events makes HAL vulnerable to international travel fluctuations, the strength of the dollar, and terrorist activities.

During the winter season, HAL will also have a seven-ship fleet to deploy. The question becomes: where? While the Rotterdam traditionally has sailed longer cruises, there may not be a market for six HAL ships in the Caribbean during the winter months.

Fiflh, Windstar Sail Cruises and Seabourn Cruise Line are also largely unknown economic factors in the Carnival group. So far, it is believed that Windstar has at best operated at break-even. Neither is expected to be able to contribute significantly to Carnival's earnings.

Finally, while the size and efficiency of the combined Carnival fleet of ships can be expected to generate record earnings, it is also the size that makes the company appear more vulnerable to external events.


Barring unforeseen events and that the so­ called unknown variables will not affect Carnival's growth potential negatively, the natural conclusion is that Carnival seems well positioned for continued growth at least through 1994/95.