Carnival Cruises 2006 Annual Report Download - page 6

Our฀annual฀report฀provides฀an฀opportunity฀to฀reflect฀on฀the฀challenges฀
and฀ accomplishments฀ of฀ 2006,฀ while฀ looking฀ forward฀ to฀ the฀ exciting฀
days฀ahead.
Overall,฀2006฀was฀a฀challenging฀year฀for฀us฀but฀in฀many฀ways฀also฀a฀
successful฀ year.฀ We฀ remained฀ the฀ world’s฀ most฀ profitable฀ vacation฀
company,฀ achieving฀ revenues฀ approaching฀ $12฀ billion฀ and฀ record฀ net฀
income฀ of฀ $2.3฀ billion฀ or฀ $2.77฀ per฀ share.฀ Our฀ dedicated฀ employees฀
delivered฀ memorable฀ vacation฀ experiences฀ to฀ more฀ than฀ 7฀ million฀
guests฀ worldwide,฀ and฀ we฀ continued฀ to฀ build฀ a฀ base฀ of฀ loyal฀ repeat฀
guests฀across฀our฀portfolio฀of฀global฀brands.
Revenues฀ grew฀ 6.7฀ percent฀ during฀ 2006,฀ driven฀ by฀ a฀ 4.6฀ percent฀
increase฀in฀capacity฀with฀the฀introduction฀of฀three฀new฀ships—Holland฀
America’s฀Noordam,฀Princess฀Cruises’฀Crown฀Princess฀and฀Costa฀Cruises’ ฀
Costa฀ Concordia—and฀ a฀ rise฀ in฀ revenue฀ yields฀ of฀ 1.5฀ percent฀ from฀ a฀
combination฀of฀higher฀ticket฀prices฀and฀onboard฀guest฀spending.
We฀ benefited฀ from฀ strong฀ consumer฀ demand฀ in฀ Europe฀ in฀ 2006.฀
Our฀ European฀ brands฀ posted฀ record฀ revenues฀ and฀ earnings฀ as฀ we฀
pursued฀ our฀ global฀ strategy.฀ Our฀ North฀ American฀ brands฀ maintained฀
strong฀pricing฀for฀their฀European฀and฀Alaskan฀departures฀but฀Caribbean฀
cruise฀prices฀were฀weakened฀by฀a฀variety฀of฀factors,฀including฀hurricane฀
and฀economic.฀
While฀ the฀ 2006฀ hurricane฀ season฀ fortunately฀ did฀ not฀ fulfill฀ well-
publicized฀ storm฀ predictions,฀ many฀ consumers฀ still฀ were฀ reluctant฀ to฀
book฀a฀Caribbean฀cruise,฀and฀we฀priced฀our฀Caribbean฀product฀aggres-
sively฀to฀stimulate฀demand.฀
We฀ continue฀ to฀ explore฀ destination฀ development฀ opportunities฀ to฀
enhance฀the฀Caribbean’s฀appeal.฀Among฀strategic฀Caribbean฀initiatives฀
recently฀ implemented฀ are฀ the฀ opening฀ of฀ the฀ $42฀ million฀ Grand฀ Turk฀
Cruise฀ Center฀ in฀ the฀ Turks฀ &฀ Caicos฀ Islands฀ and฀ the฀ addition฀ of฀ new฀
facilities฀ and฀ activities฀ at฀ our฀ private฀ Bahamian฀island฀ Half฀ Moon฀ Cay.฀
We฀ also฀ have฀ begun฀ the฀ rebuilding฀ process฀ at฀ Puerta฀ Maya,฀ our฀ port฀฀
in฀Cozumel฀that฀was฀destroyed฀by฀Hurricane฀Wilma฀in฀2005.
An฀Eye฀on฀the฀Bottom฀Line฀
Maintaining฀ disciplined฀ control฀ over฀ manageable฀ costs฀ is฀ ingrained฀ in฀
our฀corporate฀culture.฀While฀other฀operating฀costs฀on฀a฀unit฀basis฀were฀
flat฀this฀year,฀record฀fuel฀prices฀increased฀operating฀expenses฀by฀$210฀
million฀and฀reduced฀earnings฀by฀$0.25฀per฀share.฀
While฀ a฀ 30฀ percent฀ increase฀ in฀ the฀ cost฀ of฀ fuel฀ is฀ difficult฀ to฀
overcome,฀ our฀ fuel฀ conservation฀ working฀ group฀ launched฀ dozens฀ of฀
initiatives฀aimed฀at฀reducing฀consumption.฀Those฀efforts฀reduced฀fuel฀
consumption฀on฀ a฀unit฀basis฀by฀ 2฀percent฀fleetwide,฀thus฀providing฀
significant฀benefits฀to฀our฀bottom฀line.฀
We฀ continue฀to฀ return฀ value฀ to฀ shareholders฀ through฀ our฀ stock฀
repurchase฀program฀and฀increased฀dividends.฀In฀2006,฀we฀repurchased฀
approximately฀ 20฀ million฀ shares,฀ for฀ a฀ total฀repurchase฀ since฀ program฀
inception฀ of฀ approximately฀ 27฀ million฀ shares฀ at฀ a฀ cost฀ of฀ $1.2฀ billion.฀
We฀also฀increased฀ our฀annual฀dividend฀ 10฀percent฀to฀$1.10฀per฀share,฀
which฀represents฀a฀ cumulative฀increase฀ in฀dividends฀ of฀ more฀ than฀ 80฀
percent฀over฀the฀past฀two฀years.
Strategic฀Growth฀Initiatives
Our฀growth฀strategy฀has฀been฀to฀establish฀a฀presence฀in฀a฀geographic฀
region฀and฀then฀add฀capacity฀to฀stimulate฀cruise฀growth฀in฀the฀region.฀
As฀ the฀ region฀ develops,฀ we฀ may฀ further฀ segment฀ it,฀ using฀ multiple฀
brands฀ targeting฀ different฀ demographic฀ groups฀ to฀ achieve฀ maximum฀
penetration.฀This฀strategy฀has฀worked฀well฀in฀the฀United฀States,฀the฀UK฀
and฀Continental฀Europe.฀
Shipbuilding฀is฀an฀essential฀part฀of฀our฀brand-building฀efforts,฀and฀in฀
2006,฀we฀ordered฀seven฀new฀ships,฀bringing฀our฀order฀book฀to฀20฀new฀
vessels฀valued฀at฀$11฀billion.
We฀are฀building฀four฀ships฀for฀ contemporary฀ brand฀Carnival฀ Cruise฀
Lines,฀which฀attracts฀the฀broadest฀demographic฀offering฀fun฀affordable฀
vacations.฀ Three฀ vessels฀ have฀ been฀ ordered฀ for฀ premium฀ brands฀
Princess฀ and฀ Holland฀ America,฀ which฀ are฀ well฀ positioned฀ to฀ capture฀
affluent฀ baby฀ boomers฀ as฀ they฀ seek฀ longer,฀ more฀ exotic฀ vacation฀
experiences.฀
And฀during฀2006,฀we฀reached฀a฀decision฀to฀expand฀the฀ultra-luxury฀
segment฀ of฀ the฀ North฀ American฀ cruise฀ business฀ by฀ ordering฀ two฀฀
450-passenger฀all-suite฀ships฀for฀Seabourn฀Cruise฀Line—the฀first฀ships฀
built฀ for฀ that฀ brand฀ in฀ 15฀ years.฀ While฀ Seabourn฀ has฀ operated฀ small,฀
200-passenger฀ all-suite฀ ships,฀ the฀ larger฀ vessels฀ will฀ offer฀ better฀
economies฀ of฀ scale฀ and฀ facilities฀ and฀ amenities฀ aimed฀ at฀ Seabourn’s฀
discriminating฀guests—the฀wealthiest฀segment฀of฀the฀population.฀
The฀decision฀to฀more฀than฀double฀Seabourn’s฀capacity฀demonstrates฀
our฀ commitment฀ to฀ the฀ luxury฀ cruise฀ segment฀ and฀ our฀ confidence฀฀
in฀ the฀ growing฀ consumer฀ interest฀ in฀ Seabourn’s฀ unique฀ yacht-like฀
cruise฀experience.
Globalization฀Continues
In฀ 2006,฀ we฀ continued฀ to฀ extend฀ the฀ global฀ reach฀ of฀ our฀ company฀
through฀ expansion฀ in฀ Europe฀ and฀ the฀ launch฀ of฀ a฀ cruise฀ venture฀฀
in฀China.฀
The฀ United฀ Kingdom,฀ Italy฀ and฀ Germany฀ enjoy฀ especially฀ strong฀
cruise฀demand,฀and฀Carnival฀operates฀the฀leading฀cruise฀brands฀in฀the฀
UK฀ and฀ Continental฀ Europe.฀ We฀ believe฀ Europe฀ has฀ tremendous฀
potential฀for฀growth฀and฀have฀ordered฀11฀ships฀for฀our฀European฀brands฀
which฀are฀scheduled฀for฀delivery฀over฀the฀next฀four฀years.฀
Our฀ Costa฀ Cruises฀ brand฀ is฀ the฀ largest฀ cruise฀ line฀ in฀ Europe฀ and฀
serves฀ a฀ broad฀ European฀ clientele.฀ Costa฀ has฀ four฀ ships฀ on฀ order฀ for฀
delivery฀ through฀ 2010,฀ representing฀ a฀ capacity฀ increase฀ of฀ more฀ than฀
50฀percent.฀
P&O฀ Cruises฀ and฀ Cunard,฀ the฀ two฀ leading฀ UK฀ brands,฀ have฀ three฀
ships฀on฀order.฀Building฀on฀the฀success฀of฀Queen฀Mary฀2,฀Cunard฀will฀
TO฀OUR฀STAKEHOLDERS
“We฀benefited฀from฀strong฀consumer฀
demand฀ in฀ Europe฀ in฀ 2006.฀ Our฀
European฀brands฀posted฀record฀rev-
enues฀and฀ earnings฀as฀we฀ pursued฀
our฀global฀strategy.”
page฀2฀|฀Carnival฀Corporation฀&฀plc
—Micky฀Arison