Carnival Cruises 2003 Annual Report Download - page 33

30 Carnival Corporation & plc
possible that some of these increasing cost trends will
continue in the future. However, as we have done in
the past, we expect to be able to partially offset these
increases through the continuing benefits of scale, as
well as cost containment measures.
The factors mentioned above have put pressure on our
earnings over this period, especially since most of our
costs are largely fixed once we put a ship into service.
Although it is impossible to quantify the financial impact
on us of each of the foregoing factors, these events
adversely impacted the entire leisure and travel industry
in general, and the cruise industry and us in particular.
During 2003, we were able to complete the largest
acquisition in our history, the DLC transaction with P&O
Princess. We have made significant progress in inte-
grating our two organizations, including announcing the
expected redeployment in late 2004 of CCL’s Jubilee
to the P&O Cruises Australia fleet, the transfer of a
Holland America newbuild shipyard slot to Princess for
a new ship deployment in 2006, the consolidation of
our German and London office operations and the sale
of our German river boat business, global procurement
savings and the implementation of many best practices
among our brands. As a result, we are well on our way
to realizing the $100 million of annual DLC transaction
synergies we initially targeted.
In addition, during the second half of 2003, we saw
a strong rebound in our booking volumes, which com-
menced shortly after the conclusion of the Iraqi war,
although our cruise ticket prices were still somewhat
lower than last year.
As mentioned above, the entire cruise industry had a
large increase in capacity during this three year period,
including our introduction of seven new ships into serv-
ice during 2003. Even with our 17.5% pro forma capac-
ity increase in fiscal 2003, we were able to maintain our
occupancy level at over 103%. As a large part of our
operating costs are fixed in nature, we strategically
manage our prices to enable us to fill our ships at the
highest possible prices, since incremental passengers
contribute to our fixed costs. Our ability to maintain
these high occupancy levels helped us to achieve an
increasing level of onboard and other revenues, which
partially offset the impact of lower cruise ticket prices.
Throughout this period, despite the adverse external
travel and leisure environment and the significant
increase in cruise industry capacity, we generated sig-
nificant cash flows. These results provide an indication
of the strength of our business. However, our opera-
tions are subject to many risks, as briefly noted above
and under the caption “Cautionary Note Concerning
Factors That May Affect Future Results,” which could
significantly impact our future results.
The year over year percentage increases in Carnival
Corporation & plc’s available lower berth day (“ALBD”)
capacity for fiscal 2004 (versus fiscal 2003 pro forma
ALBD, assuming that the DLC transaction was com-
pleted and Carnival plc was consolidated for the full
period in 2003), 2005 and 2006, resulting primarily from
new ships entering service, is currently expected to be
17.5%, 9.2% and 5.3%, respectively.
We believe that given a more stable geopolitical envi-
ronment, our net revenue yields will increase in 2004,
despite the expected significant increase in our 2004
passenger capacity.
Outlook For Fiscal 2004 (“2004”)
As of December 18, 2003, we said that we expected
our first quarter 2004 earnings per share to be in the
range of $0.17 to $0.20 versus 2003 pro forma first
quarter earnings per share of $0.16 ($0.18 less a $0.02
per share non-recurring gain from insurance settle-
ments). We also said that we were comfortable with
consensus earnings estimates for the 2004 year, which
at that time was $1.98 per share, assuming no signifi-
cant geopolitical or economic shocks.
Since early January, the cruise industry has entered
the “wave season” (a period of higher booking levels
than during the rest of the year). As we had expected,
bookings during this year’s wave season have been
significantly higher than during the comparable period
last year, which was adversely impacted by the build
up to the war in Iraq. Since the beginning of January,
company wide booking levels have been running 59%
higher than during the same period last year, which is
significantly above the company’s 17.5% pro forma
capacity increase for 2004.
We now expect that first quarter 2004 net revenue
yields will increase 3% to 4% (versus an increase of
1% to 2% in our previous guidance) and net cruise
costs per ALBD, will be at the low end of our previous
guidance of an increase of 1% to 3%. The increase in
expected net revenue yields is largely due to the weak-
ening of the U.S. dollar, and to a lesser extent, higher
than expected pricing on close to sailing bookings. The
weak dollar also had the effect of increasing net cruise
costs per ALBD, however that is expected to be more
than offset by lower than anticipated advertising costs,
which is partially timing and is expected to be expended
later in the year, and lower than forecasted fuel costs.
We now expect first quarter 2004 earnings per share to
be in the range of $0.21 to $0.22.
Net revenue yields for the year 2004 are now fore-
cast to increase 5% to 7%, versus our previous forecast
of an increase of 2% to 4%. The increase in expected
net revenue yields is largely due to weakness in the
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (continued)