Carnival Corporation has reported net income of $2.28 billion, or $2.77 per share, on revenues of $11.8 billion for its fiscal year ended Nov. 30, 2006, compared to net income of $2.25 billion, or $2.70 per share, on revenues of $11.1 billion for 2005.

Carnival Chairman Micky Arison commented in a prepared statement that “after two strong years of earnings in 2004 and 2005, the company ended 2006 with a modest increase as a result of significant increases in fuel prices, which reduced earnings per share by $0.25”.

Carnival also reported net income of $416.0 million, or $0.51 per share, on revenues of $2.8 billion for its fourth quarter ended Nov. 30, 2006, compared to net income of $336 million, or $0.41 per share, on revenues of $2.6 billion for the fourth quarter of last year.

2007

Carnival’s earnings guidance for 2007 is in the range of $2.90 to $3.10 per share, according to Vice Chairman and COO Howard Frank, speaking at the company’s Q4 earnings call.

Frank said that fleet-wide capacity will be up 7.56 percent in Q1, noting that overall occupancy was slightly down with pricing moderately down year-over-year.

Broken down by market, he said that occupancy in North America is slightly down and that pricing is lower due to the softness in the Caribbean. In Europe, occupancy and pricing are up year-over-year. At this point, there is very little inventory left to sell.

The brands will have 58 percent of their total capacity in the Caribbean in Q1, according to Frank, who forecasted earnings per share in the range of $0.33 to $0.35, compared to $0.31 last year.

With a 9.8 percent increase in capacity in Q2, occupancy is flat fleetwide with pricing slightly up year-over-year, Frank said.

Again, North American occupancy and pricing are slightly behind. Alaska is doing well, Frank said, while European bookings are behind, and pricing in the Caribbean continues to be down, especially in the short cruise market. The European shoulder season also has some weakness. The European brands, however, continue to be strong.

In Q2, 43 percent of the combined capacity will be in the Caribbean.

For Q3, Frank said that capacity will be up 10 percent year-over-year and that “early indications are positive” (for occupancy and pricing). He said that the Wave Season will be key to driving business for Q3, but that so far, bookings are ahead from last year with pricing being flat.

For North America, occupancy and pricing are up year-over-year with only 28 percent of the combined capacity in the Caribbean.

In Europe, occupancy is nicely ahead, according to Frank, with pricing slightly behind. Overall, Carnival brands will see an 8.4 percent capacity increase in its fiscal year 2007, with 7.5 percent in North America and 10.6 percent in Europe.

Caribbean

The soft pricing in the Caribbean will cause the overall yield to be down in the first half of the year, according to Frank, who nevertheless expects earnings growth in both Q1 and Q2 driven by capacity increases and tight cost controls.

The Caribbean strategy is to go into the market with lower pricing to get the business on the books, Frank explained, to fill up early to reduce the discounting at the end. That pricing is down now is part of the strategy, he said, adding: ‘We are going in with more aggressive pricing.”

Added Arison in the Q4 call: “During the winter, our longer cruises of 10- and 11-days outperformed the short cruises, but in the summer we have nothing longer than eight days and mostly seven days and shorter.”

To mitigate for pricing pressure in the Caribbean, Carnival Cruise Lines, which is most affected, is moving one ship for year-round cruises out of San Diego.

However, deployments are also determined by that brand’s customer profile. Explained Arison: “Carnival is basically a fun and sun, middle market product and needs to offer affordable cruises. There are some seasonal opportunities, but otherwise the market is defined by per diems, length of cruises and the cost of travel to the ship.

“We have seen ups and downs in booking patterns before,” Arison continued. “And we believe the Caribbean will turn again – for the better.”

In addition, the Gulf Coast has also been a challenge, according to Arison. “We have retuned to New Orleans, but we are clearly struggling there now,” he said. “I do not think it will be back in 2007 – could be 2008 or 2009.”

Carnival is also continuing to look for new Caribbean destinations to drive demand, including places where it can develop its own facilities similar to Grand Turk.

Frank attributed the Caribbean weakness to economic factors affecting middle America, noting that other business in the market segments are also affected. But with lower pricing, there is a snowball effect, with disgruntled travel agents who make less money selling shorter cruises.

China

“We are still finding China to be a difficult market,” Frank said, noting that the effort there is under-performing more than expected and running bigger losses than anticipated.

“The feeling is that we have gotten the product right. The issue is market penetration and getting into the distribution system and gaining its support. “We are looking at modifying itineraries for 2007 and looking at other markets to support the ship.”

Added Arison: “We always knew this was an investment. So far, the investment is becoming larger than we anticipated. We are committed to go through the learning curve and then see where we are.”

Europe

Of the 19 ships under construction for Carnival, 10 are going to Europe and nine to North America over the next four years, according to Frank.

A pending option for Holland America Line would be delivered late in 2010 for service starting in 2011.

Capacity-wise, the European brands will grow their capacity by some 12.6 percent over the four-year period, while the North American brands will grow by 5.1 percent, Frank noted.

“We are focused on strengthening our position in Europe,” he added.

Commenting on Carnival’s partnership with TUI, Frank said that TUI focuses on a much broader market than Carnival’s AIDA Cruises brand, thus allowing Carnival to cover more of what Frank called the “wealthiest country in Europe with twice the population of the U.K., but with only one mass market cruise brand compared to five in the U.K.”

The new venture, to be called TUI Cruises, will get new ships. “We studied the possibility of using older tonnage,” said Arison. “But that would mean discounting, which we did not want to do. New ships allow premium pricing. By 2012 to 2015 we expect huge numbers and huge returns from this brand.”