Carnival Cruises 2007 Annual Report Download - page 35

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
32 | CARNIVAL CORPORATION & PLC
฀ •฀฀lack฀of฀continued฀availability฀of฀attractive฀port฀destinations;
฀ •฀฀risks฀associated฀with฀the฀DLC฀structure,฀including฀the฀
uncertainty of its tax status;
฀ •฀฀the฀impact฀of฀pending฀or฀threatened฀litigation;฀and
฀ •฀฀our฀ability฀to฀successfully฀implement฀cost฀reduction฀plans.
Forward-looking statements should not be relied upon as
a prediction of actual results. Subject to any continuing obli-
gations under applicable law or any relevant listing rules, we
expressly disclaim any obligation to disseminate, after the
date of this 2007 Annual Report, any updates or revisions to
any such forward-looking statements to reflect any change in
expectations or events, conditions or circumstances on which
any such statements are based.
EXECUTIVE OVERVIEW
During most of 2007, the cruise industry continued to
experience solid growth for non-Caribbean product offerings.
However, there were a number of factors, such as a weaker
U.S. economy, including the impact on consumers of higher
fuel costs and tighter credit markets and higher U.S. interest
rates, which we believe had adverse effects on vacationers’
discretionary income and their confidence in the U.S. econ-
omy. Some of these factors, as well as the lingering effects
of the 2005 hurricane season, contributed to a reduction in
North American-sourced demand for Caribbean cruises and,
accordingly, resulted in lower pricing for most of our Caribbean
cruise itineraries during the first half of 2007. During the sec-
ond half of fiscal 2007 we experienced a modest increase in
most of our North American brands’ net revenue yields, while
most of our European brands’ net revenue yields decreased
slightly on a constant dollar basis.
From 2003 through 2007, the cruise industry has been
adversely impacted by substantial increases in fuel prices,
which reduced earnings per share for the 2007 fiscal year by
$0.10 compared to fiscal 2006. In 2003 our per metric ton of
fuel cost was $179, whereas in 2007, our per metric ton cost
of fuel was $361, an increase of 102%. Partially offsetting
this has been the weakening of the U.S. dollar relative to the
Euro and Sterling, which benefited us in higher dollar profits
from our European operations. It is possible that fuel prices
will remain at high levels throughout fiscal 2008 and there-
after. We have recently implemented a new fuel supplement
fee across substantially all of our brands, which should help
to reduce a portion of the impact of the higher fuel costs.
However, we cannot be certain of the ultimate impact of
the fuel supplement on our net revenue yields because this
increase may be partially offset by a reduction in ticket prices.
Throughout this five year period we generated significant
cash flows and remained in a strong financial position, which
is a high priority for us and we believe provides us with a
competitive advantage in the capital intensive cruise industry.
We continued to distribute excess cash to shareholders through
increased dividends and opportunistic share repurchases.
However, our operations are subject to many risks, as briefly
noted under the caption “Cautionary Note Concerning Factors
That May Affect Future Results” which could adversely
impact our future results.
As of January 29, 2008, we had signed agreements with
three shipyards providing for the construction of 22 additional
cruise ships, the majority of which have been designated for
our European brands (see Note 6 in the accompanying finan-
cial statements). These new ships are expected to continue to
help us maintain our leadership position within the world-wide
cruise industry. The year-over-year percentage increase in our
ALBD capacity for fiscal 2008, 2009, 2010, 2011, and 2012,
resulting primarily from new ships entering service is currently
expected to be 9.0%, 5.6%, 7.8%, 5.4% and 4.0%, respec-
tively. The above percentages exclude any other future ship
orders, acquisitions, retirements or sales, however they do
include the withdrawal from service of the Pacific Star in March
2008 and the Queen Elizabeth 2 (“QE2”) in November 2008.
OUTLOOK FOR FISCAL 2008 (“2008”)
As of December 20, 2007, we said that we expected our
2008 full year earnings per share will be in the range of $3.10
to $3.30. We also said that we expected our first quarter 2008
earnings per share to be in the range of $0.29 to $0.31. Our
guidance was based on the then current forward fuel price
for full year 2008 and the 2008 first quarter of $486 and $484
per metric ton, respectively. In addition, this guidance was
also based on currency exchange rates of $1.44 to the Euro
and $2.02 to Sterling.
Our 2008 full year earnings per share guidance remains
unchanged based on our most recent internal forecast, as
adjusted by our January 22, 2008 full year forward fuel price
estimate of $484 per metric ton and foreign currency exchange
rates of $1.46 to the Euro and $1.95 to Sterling.