Carnival Cruises 2008 Annual Report Download - page 30

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stock and real estate market declines and/or volatility, more restrictive credit markets,
higher taxes, and changes in governmental policies could reduce the discretionary income or
consumer confidence in the countries from which we source our guests. Consequently this may
negatively affect demand for vacations, including cruise vacations, which are a
discretionary purchase. Decreases in demand could lead to price discounting which, in turn,
could reduce the profitability of our business. Decreases in discretionary income or
consumer confidence could also result in lower onboard revenues, which could also have a
negative effect on our profitability. In addition, these conditions can also impact our
suppliers, which can result in disruptions in service and financial losses.
• Fluctuations in foreign currency exchange rates could affect our financial
results.
We earn revenues, pay expenses, own assets and incur liabilities in countries using
currencies other than the U.S. dollar, including the euro, sterling, the Australian dollar
and the Canadian dollar. In 2008, we derived approximately 50 percent of our revenues from
passengers sourced from countries outside of the U. S. Because our consolidated financial
statements are presented in U.S. dollars, we must translate revenues and expenses, as well
as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the
end of each reporting period. In addition, we must report currency transactions in the
functional currencies of our reporting units. Therefore, fluctuations in foreign currency
exchange rates, particularly the strengthening of the U.S. dollar against our major
currencies, will adversely affect our U.S. dollar reported financial results.
• The international political climate, armed conflicts, terrorist and pirate attacks
and threats thereof, and other world events affecting the safety and security of
travel could adversely affect the demand for cruises and could harm our future
sales and profitability.
Demand for cruises and other vacation options has been, and is expected to continue to
be, affected by the public's attitude towards the safety and security of travel. Events such
as the terrorist attacks in the U.S. on September 11, 2001 and the threats of additional
attacks in the U.S. and elsewhere, concerns of an outbreak of additional hostilities and
national government travel advisories, together with the resulting political instability and
concerns over safety and security aspects of traveling, have had a significant adverse
impact on demand and pricing in the travel and vacation industry in the past, and may have
an adverse impact in the future. Decreases in demand could lead to price discounting which,
in turn, could reduce the profitability of our business.
• We may lose business to competitors throughout the vacation market.
We face significant competition from other cruise lines, both on the basis of cruise
pricing and also in terms of the types of ships, services and destinations being offered to
cruise guests. We try to differentiate ourselves from our cruise competitors by offering new
itineraries, products and services to our guests, but the acceptance of each offering is not
certain and consumers' preferences are always subject to change. In addition, we may need
to enhance our older ships with current innovative amenities in order for those ships to be
more competitive with other cruise ships. Our principal competitors include the companies
listed in this Form 10-K under Part I, Item 1. Business. B. - "Cruise Operations –
Competition."
In addition, we operate in the vacation market, and cruising is only one of many
alternatives for people choosing a vacation. We therefore risk losing business not only to
other cruise lines, but also to other vacation operators that provide other travel and
leisure options, including, but not limited to, hotels, resorts, theme parks and land-based
casino operators.
In the event that we do not compete effectively with other cruise companies and other
vacation alternatives, our results of operations and financial condition could be adversely
affected.
• Overcapacity in the cruise ship and land-based vacation industries could have a
negative impact on our net revenue yields and increase operating costs, thus
resulting in ship, goodwill and/or trademark asset impairments, all of which
could adversely affect profitability.
Cruising capacity has grown in recent years and we expect it to continue to increase
over the next four years as all of the major cruise vacation companies are expected to
introduce new ships. In order to fill new capacity, the cruise vacation industry will