Carnival Corporation is positioning itself strategically to continue to drive earnings growth - by having ordered more ships that are also larger and more efficient; by spacing out the deliveries for each brand from 14 to 24 months, allowing the capacity to be more easily absorbed; by announcing plans to move older ships into new markets; and by possibly selling off older, less efficient tonnage.

Meanwhile, plans for the Pinnacle Project - believed to be a new mega-ship concept - have been put on hold, according to Carnival Chairman and CEO Micky Arison, who said the ship would be too expensive and not able to generate adequate return.

2005 Results

For its fiscal year ended Nov. 30, 2005, Carnival reported net income of $2.3 billion, or $2.70 per share, on revenues of $11.1 billion, compared to net income of $1.9 billion, or $2.24 per share, on revenues of $9.7 billion for 2004.


Carnival reported net income of $353 million, or $0.43 per share, on revenues of $2.6 billion for its fourth quarter ended Nov. 30, 2005, compared to net income of $2.2 billion, or $0.36 per share, on revenues of $2.2 billion in 2004.

CFO Gary Cahill commented that while ticket prices were a little higher than expected in Q4, onboard revenue was much higher than expected.

The European brands also saw nice increases, but not as much as the North American brands, according to Cahill.

2006 Guidance

"We expect continued revenue yield growth in 2006 in the range of 2 percent to 4 percent," said Arison. As it stands today, he said that booking levels for 2006 are ahead of last year on a capacity adjusted basis, with average pricing higher than last year.

Carnival believes its 2006 earnings per share will be between $3.00 and $3.10.

"We have had two strong years of yield growth,” commented Howard Frank, vice chairman and COO, adding that many factors play in such as the economy, and the hurricanes that hit the Gulf States and Florida, which he said enter into people's thinking.

Yield is also impacted by onboard spending, and Arison cited the loss of piers and infrastructure in Cozumel which means there are fewer tours to sell and thus less tour revenue for the cruise lines.

Q1 06

For Q1 2006, Howard Frank, vice chairman and COO, said that while occupancy is flat for the North American and European brands, there is not much inventory left to sell. And that while ticket prices were up slightly in North America, they are up much higher in Europe and Australia.

"Costa (Crociere) has clearly made a turnaround, adapting new marketing and yield strategies and issuing brochures much earlier than before," Frank explained.

Adapting a North American-style strategy, Frank said he expects a nice yield improvement at Costa in 2006 as well as at AIDA CRUISES and the U.K. brands.

The Carnival brands will have combined capacity increase of 3 .1 percent in Q 1.

Q2 06

For Q2, bookings are up 3 percent in North America and 16 percent in Europe, according to Frank which he said is largely due to Costa being way ahead of where it was last year.

While bookings are ahead for Costa, pricing is behind so far, but by getting the business on the books early, Frank expects less discounting closer in which will help bring up the average price - and above last year.

Arison added that Costa has had a booking curve issue, but said that bookings are now up substantially and that he hopes prices will follow.

Meanwhile, ticket pricing in North America is already ahead of last year.

Capacity will be up 6.2 percent fleetwide during Q2.

Q3 06

For Q3, bookings in North America are flat so far while Europe is running 13 percent ahead of last year, Frank said. But ticket prices in North America are well ahead of last year, however.

Frank said he expects pricing improvements at all the brands in 2006.

Passenger capacity will be up 6 percent in Q3 and 6.8 percent in Q4 for a year total of 5.5 percent.

Market Strategies

Carnival will take delivery of three new ships in 2006 - the Noordam, which will enter service on Feb. 22; the Crown Princess, which starts service on June 14; and the Costa Concordia, which begins sailing on July 2 3, according to Frank.

Holland America Line will have a 9.4 percent capacity increase; Carnival Cruise Lines, 4. 3 percent; and Princess Cruises, 5.6 percent in 2006.

The next Holland America ship will be delivered in 16 months, the next Princess ship in 14 months, and the next Carnival ship in 17 months, Frank explained, noting the "spacing out as quite good."

Similarly the new Costa ship ordered last week will be delivered 24 months after the ships presently under construction.

Arison said he does not foresee any more new orders before 2009 and that "2009 may or may not be completed.

"We are continuing to work on new prototypes, especially for Carnival and Princess," he said.

"We are choosing (to build) ships with the highest possible return that also deliver the best possible product."

Frank also said that the orders were entered into at "very attractive prices," and while there may be a tendency to think of the ships as additive capacity, he said that was not only so because "we are expanding into other markets.

"The new ships are not totally additive in the markets where the brands are," he explained. "We will make announcements in due course during the year. And there will be some sales of ships, if we can get the right prices.

"In the course of the year, we will take ships and move them into new markets," Frank said.

"The strategy is to look at new markets and start developing them.

"By the end of Q1, we will have more specific statements on our Asia strategy," Frank added. "We are not there yet."


In a prepared statement, Arison noted that despite a 50 percent increase in fuel costs and the worst hurricane season in recent history, the company was still able to grow earnings by 20 percent to achieve record results. Yet after the quarterly earnings call on Dec. 16, Carnival's stock dropped 4 percent from $54.84 to $52.58, presumably on the relatively modest yield improvement forecast for 2006. The one-year average price target is still $61.

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