Carnival Corporation executives expressed optimism for the balance of 2009 and going into 2010 on the company’s recent quarterly earnings conference call. However, Carnival also revised its earnings guidance for the year from $2.00 to $2.10 per share, down from the previous guidance of $2.10 to $2.30, compared to actual earnings of $2.90 for 2008 and $2.95 for 2007. Commented Micky Arison, chairman and CEO: “Since March everything has been trending upward – volume and pricing. Time will tell whether it is sustainable or not.”

Trends

But pricing is still running significantly behind last year although showing signs of improvement, according to Howard Frank, vice chairman and COO. He added that booking volume for the back half of the year has been running 26 percent ahead of last year, but at a lower price point. The next six months may bear the brunt of the recession since these cruises have been booked since the downturn in the economy.

The company also suffered a setback on the Mexican Riviera, especially when the travel advisory was issued and people did not know what to do, Arison said. As soon as the advisory was lifted, bookings came back stronger than before, driven partially by aggressive pricing. Meanwhile, the company has to recover from the month-long setback to its Riviera traffic.

Carnival also said it is more affected by currency exchange rates than before and expects a negative impact on its 2009 results. According to Frank, a 10 percent change in currency rates will have a $0.16 impact on earnings per share, compared to a $0.14 impact from a IO percent change in fuel prices. In the past, these changes have moved in opposite directions, Frank said, thus canceling each other out.

Q3

The company’s earnings guidance for Q3 is from $1.15 to $1.19 per share, compared to actual earnings of $1.65 in the same quarter in 2008 and $1.67 in 2007. Fleetwide, the capacity will be up 5.6 percent — 3.8 percent in North America and 7.4 percent in Europe.

Toe North American brands will have 28 percent of their capacity in Alaska, 19 percent in Europe and 36 percent in the Caribbean during the third quarter.

Pricing is lower in all areas with the steepest drops in Alaska, according to Frank.

Occupancy is also lower year-over-year in the Caribbean, on the Mexican Riviera and in Alaska, but slightly higher in Europe, Frank said.

Pricing is also lower for the European brands, but not as steep as in North America. The Spanish market has suffered the deepest decline, he said. Overall, pricing is down in the single digit range, compared to last year, and yield is expected to be down in the range from 14 percent to 16 percent.

Q4

For the fourth quarter, capacity will be up 7.6 percent overall – 5.7 percent in North America and 9.4 percent in Europe.

The North American brands will have 45 percent of their capacity in the Caribbean, 17 percent in Alaska and Europe combined, 12 percent in exotic and longer cruises and the balance in various other trades.

Pricing is lower, but bookings are strong, Frank said.

The European brands will have 78 percent of their capacity in Europe and 11 percent on long and exotic itineraries, with better pricing than in North America. While pricing overall is expected to be lower year-over-year, the fourth quarter will be an improvement over the third quarter, according to Frank.

Q1 2010

Providing a glimpse into next year, Frank said that capacity will be up 9.2 percent in QI – 5.2 percent in North America and 13.3 percent in Europe. At this stage, occupancy is lower, but pricing is ahead of where Q 1 ended this year.

The North American capacity will be 62 percent in the Caribbean, 11 percent on the Mexican Riviera and 16 percent on longer and exotic cruises, roughly the same as last year, Frank said.

In Europe, pricing is holding up “quite well” while occupancy is less than a year ago.

Next?

“We have been saying that passenger growth (newbuildings) will slow down, but I do not expect it to stop,” said Arison. “The issues before were the strong dollar and high commodity prices. In the last 12 months, the dollar has strengthened and a lot of prices have come down significantly. We are continuing to talk to yards and looking at opportunities.”

The big issues going forward will be the economy and consumer confidence, according to Arison, and not cruise capacity.

Carnival also continues to work for better fuel efficiencies and has gained 2 percent to 3 percent a year over the past several years, Arison said. “When oil was $13 5 a barrel, we asked our teams to look at everything. Now, when it is $35, we ask them to imagine that it still is $135 and continue to look for gains.”

2010 will also be the first year with itineraries that were planned in a high-cost fuel environment, according to David Bernstein, executive vice president and CFO.

In other developments, the Costa Crociere brand has had a second ship in Asia since April and occupancy was said to be as good as it was last year.

“During the winter season, local demand from China is expected to slow down so we will need to fill up with passengers from Europe and Australia,” said Pier Luigi Foschi, CEO and chairman of Costa.

Foschi has also been tasked with running a more efficient and profitable Iberocurceros in Spain and outlined management initiatives.

Q2

Carnival reported net income of $264 million, or $0.33 per share, on revenues of $2.9 billion in its second quarter ended May 31, 2009, compared to net income of $390 million, or $0.49, on revenues of $3.4 billion last year.

Bernstein said the results were driven partially by cost savings, reduced fuel expenses and the timing of certain other expenses, but also by better than expected pricing on close in bookings.

These gains were partially offset, however, by rising fuel prices, the swine flu impact on Mexican itineraries and a shortfall in onboard revenues.

Capacity was up 5.9 percent in the second quarter – with 8 percent in Europe and 4.2 percent in North America.

Tickets yields were down 14 percent in North America – in Alaska, Europe and Mexico, with the Caribbean holding up better, Bernstein said. European brands suffered a 6 percent decline in ticket yields.

Onboard revenue was down in all categories, from spas to casinos to bars.

On other topics, Arison said that it is up to the board to reinstate the dividend, but he said he would like to see a turn in earnings and cash flow before making such a recommendation.

Carnival also launched the Seabourn Odyssey last week, and Frank said that “at two-and-a-half times larger than the existing Seabourn ships, the new design offers tremendous cost-metrics that should make Seabourn profitable, even in this economy.”