Carnival Cruises 2011 Annual Report Download - page 3

To Our Shareholders:
Looking back on 2011, we provided exceptional vacation experiences and lasting memories to a record 9.6 million guests, achieved the highest
revenues in our history, at $16 billion, and delivered a resilient financial performance in the face of a number of adverse factors, chief among
which was a nearly one-third increase in our fuel costs.
Then, on January 13, optimism was abruptly replaced with grief, as we learned of the fatal and tragic accident involving one of our corporation’s
ships, Costa Concordia.
Costa Concordia
A few hours after leaving the Italian port of Civitavecchia, Costa Concordia, owned by Costa Cruises, a subsidiary of Carnival Corporation &
plc, struck rock off the coast of the Island of Giglio and sustained significant damage. As the vessel started listing severely, the order was given
to abandon ship and deploy the lifeboats. Despite the tremendous efforts of Concordia’s crew, along with the Italian Coast Guard and other
authorities, to evacuate over 4,000 people under highly challenging conditions, 17 guests and crewmembers tragically lost their lives in the
accident and 15 remain missing at the time of this writing.
The global cruise line industry is one of the world’s safest, and all of Carnival Corporation & plc’s cruise lines have always maintained an
outstanding safety record. We immediately ordered a thorough review of the Concordia accident, to be conducted with the help of industry-
leading experts, as well as an extensive audit of all safety and emergency responses across all of our cruise lines.
We also made all of the corporation’s resources available to Costa Cruises. Though the exact causes of the accident remain to be determined at
this time, I want to reiterate the commitment we made as soon as we were apprised of its gravity, to deal fully with all of its consequences –
human, environmental, social, material and financial.
While the book value of the ship, approximately $500 million at 2011 year end, should be substantially covered by insurance, our performance
in 2012 will clearly be impacted by the direct and indirect financial consequences of the Costa Concordia accident, many of which cannot be
estimated precisely at this time. We plan to adjust our full-year guidance in March, at the time of the announcement of our first quarter results.
Our business is to offer safe and enjoyable vacation experiences. All of us at Carnival Corporation & plc are deeply saddened by this tragic
event that occurred despite robust safety and emergency response policies and regulations. Every one of us is deeply committed to the well
being of our guests and crew and we will work tirelessly to understand what went wrong, and make sure it never happens again.
2011 – A Year in Review
Despite the challenging world events, 2011 was a solid year for our global portfolio of cruise brands. Revenues increased nine percent, with the
delivery of four new cruise ships – including our 100th vessel – which drove an over five percent increase in our capacity, and we achieved a four
percent improvement in revenue yields (two percent in constant dollars). Carnival Corporation & plc remained among the world’s most profitable
leisure travel companies in 2011, posting net income of $1.9 billion or $2.42 per share.
Our North American brands performed well, achieving an almost four percent revenue yield increase, continuing to benefit from a gradual
economic recovery. Yields for our Europe, Australia and Asia brands remained steady despite disruptions from geo-political events in the Middle
East and North Africa and from natural disasters in Japan.
Higher revenue yields partially offset the sharp increase in fuel prices, which reduced earnings by $535 million or $0.68 per share for the year. As
always, we worked diligently throughout 2011 to improve our cost structure, particularly through our ongoing efforts to reduce fuel consumption.
Our fuel usage declined another three percent in 2011, representing a 15 percent savings in fuel utilization since 2005. In addition, we recently
implemented a fuel derivatives program to mitigate a portion of our risk attributable to potentially significant increases in fuel price.
Cash from operations of $3.8 billion provided more than ample funding for our $2.7 billion capital investment program and enabled us to return
excess cash to our shareholders. Early in the year, our quarterly dividend was increased from $0.10 to $0.25 per share resulting in $670 million of
dividend distributions in 2011. In addition, we repurchased 14.8 million shares in the open market at a cost of $455 million. Combined, our
dividend distributions and share repurchases returned all of our 2011 free cash flow to shareholders.
Looking Forward – Continued Growth
2012 marks the 40th anniversary of our flagship brand Carnival Cruise Lines as well as the 25th anniversary of our $400 million initial public
offering, which launched us on a fast-paced trajectory of growth and acquisitions. During the year, we expect to welcome nearly 10 million guests
on our ships, about half of all guests in the global cruise industry.
We continue to focus on our global expansion, with each of our 10 worldwide cruise brands serving a broad cross-section of markets in North
America, Europe, and Australia. In addition, we are building upon our existing market share by exploring new, largely untapped cruise regions
with ventures in Asia designed to capitalize on the tremendous growth potential in this region.
An active shipbuilding program is a key driver to our growth, and we will continue to selectively build new, innovative ships for those brands that
demonstrate attractive returns on invested capital. Currently, the 10 cruise ships we have on order are slated to be delivered between now and
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