Carnival Cruises 2004 Annual Report Download - page 36

Carnival Corporation & plc 33
to the introduction of seven new ships in fiscal 2004.
In addition, from 2002 through 2004, the cruise industry
was impacted by substantial increases in fuel prices. It
is possible that fuel prices may continue to increase in
2005 and future years.
Throughout this period we generated significant cash
flows and remained in a strong financial position, which
is a high priority and we believe provides us with a
competitive advantage in the capital intensive cruise
industry. However, our operations are subject to many
risks, as briefly noted above and under the caption
“Cautionary Note Concerning Factors That May Affect
Future Results,” which could adversely impact our
future results.
During 2004, we ordered eight new ships for our North
American and European brands, which are expected to
be delivered between 2007 and 2009. These new ships
are expected to continue to help us maintain our leader-
ship position within the cruise industry. The year-over-
year percentage increases in Carnival Corporation &
plc’s ALBD capacity, resulting from new ships entering
service, is 8.7%, 6.1%, 7.5%, 6.6% and 2.4% for fiscal
2005, 2006, 2007, 2008 and 2009, respectively, based
on ships currently on order.
We believe that given a stable geopolitical environ-
ment and the continuing strong demand for travel, our
net revenue yields will increase in 2005.
Outlook for Fiscal 2005 (“2005”)
As of December 16, 2004 we said that we were
comfortable with earnings per share estimates of $2.70
for 2005. We also said that we expected our first quar-
ter 2005 earnings per share to be in the range of $0.38
to $0.40. Our guidance was based on flat fuel pricing
compared to 2004, which was in line with the forward
curve for bunker fuel at that time, and an exchange rate
of $1.30 to the euro and $1.86 to the sterling.
On January 20, 2005, we announced that the 1,870-
passenger ship Aurora, operated by P&O Cruises, expe-
rienced a technical problem with its propulsion system
that forced the cancellation of its 103-day, 2005 world
cruise. We expected that the vessel would be repaired
and would return to service prior to the date it was to
end its world cruise and anticipated scheduling revised
short replacement cruises. The cancellation of the world
cruise, net of estimated earnings from anticipated replace-
ment cruises, was expected to reduce 2005 full year
earnings per share by approximately $0.05, of which
approximately $0.03 per share was expected to impact
the first quarter and the remainder in the second quarter.
We now expect the Aurora to be out of service for a
longer duration and anticipate scheduling fewer replace-
ment cruises. Consequently, we expect the full year
2005 impact to be approximately $0.06 per share, of
which approximately $0.04 per share will effect the first
quarter of 2005.
We also expect that there will be $0.01 per share gain
from the settlement of litigation recorded in the first
quarter of 2005.
Since our December guidance, fuel prices have risen.
Our current forecast uses fuel prices that are 10% higher
than the prior year, which was determined based upon
the current forward curve for bunker fuel, which equates
to approximately $0.06 per share on an annual basis.
Since early January 2005, the cruise industry has
entered the “wave season,” a period of higher booking
levels than during the rest of the year. During the 2005
wave season, company wide booking levels, on an
absolute basis, have been running slightly higher than
during the same period last year. However, pricing during
wave season has been significantly higher than during
the same period last year. As of the end of January 2005,
we have 10% less inventory remaining to sell for 2005
than at the same time last year, even with a 9% capac-
ity increase in 2005. We believe our lower inventory
availability provides us with the opportunity to execute
our pricing strategies to maximize revenue yields in 2005.
Based upon the stronger booking trends experienced
during the month of January, we remain comfortable
with our previous guidance of $2.70 per share for the
full year 2005 and a range of $0.38 to $0.40 per share
for the first quarter of 2005, including the aforemen-
tioned impact of the Aurora, the litigation settlement
and higher fuel prices. Our current guidance is based
upon an exchange rate of $1.31 to the euro and $1.87
to the sterling.
Net revenue yields for 2005 are now forecasted to
increase 4 to 6 percent (3 to 5 percent on a constant
dollar basis), compared to last year. The increase in
expected net revenue yields compared with our previous
guidance is largely due to higher prices achieved during
the initial month of wave season partially offset by the
impact of the cancellation of the Aurora world cruise.
Net cruise costs per ALBD are now forecast to be up
1 to 3 percent (flat to up 2 percent on a constant dollar
basis) compared to last year. This increase from our
prior guidance is primarily because of assumed higher
fuel prices and costs associated with the cancellation
of Aurora’s world cruise.
We continue to expect that first quarter 2005 net rev-
enue yields will increase approximately 5 to 7 percent
(4 to 6 percent on a constant dollar basis), compared
to last year. Our first quarter guidance for net revenue
yields remains the same as our previous guidance given
in December because the approximate 1 percent reduc-
tion in net revenue yields due to the cancellation of
Aurora’s world cruise offset the stronger pricing achieved