Ladies and gentlemen, thank you for standing by. And welcome to the Carnival Corporation’s First Quarter 2014 Earnings Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards, we’ll conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded, Tuesday, March 25, 2014. I now have the pleasure to turn the conference over to Arnold Donald. Please go ahead.

Hi. Good morning, everyone. This is Arnold, and with me today is Micky Arison, our Chairman; David Bernstein, our CFO; and Beth Roberts, our Vice President of Investor Relations. Thank you all for joining us. I’ll have a brief prepared statement to share and then, David, will follow me with some comments and then, I’ll be back on to start question-and-answer session. So, first of all, I’m very pleased to be able to share the better than expected performance in the first quarter and I find it affirming and consistent with the guidance that we have given for a year. We have demonstrated progress in areas of challenge for our Carnival and our Costa brands and is very gratifying to see the initiatives that the Carnival brand has implemented begun to payoff. In fact, brand perception is most of the way back, consideration among brand loyalist have previously recovered and now the new to cruise is back, and we are working to complete perception recovery among switchers. Interest is up dramatically and our Carnival brand is evidence by strong web activity and of course, by previously announced record booking volumes in the quarter at Carnival Cruise Lines. Going forward, we are cautiously optimistic, we will see pricing continue to firm and improve. We are confident in our Carnival brand team and have been impressed with the measures taken in marketing and distribution in overall innovation. Our product continues to get even better and what is truly, the best vacation value at sea for that targeted guest segment is now even better. Costa also continues on this role to financial improvement. Costa achieved strong booking volumes during wave season and in fact, we were almost up 50% year-over-year. We have seen a continued improvement in perception within almost doubling of trust and confidence in the core Italian market. We are very pleased with the recovery and yields achieved in Costa’s core European deployment in the first quarter, as well as improved profitability through collaboration across the Continental European brands. Across the Corporation, attractive pricing for our guests during wave season has driven the desired result. Our North American brands have caught up on occupancy compared to prior year, while European brands have pushed out the booking curve tracking ahead on occupancy. These trends build confidence that we are tracking to turn the corner beginning in the second half of 2014. We remain focused on increasing demand on all fronts, increasing advocacy by delivering an even better customer experience, stepping up our public relations effort by raising our profile and relationship building with the media, taking advantage of social media where much of the conversation takes place today and cultivating guests into proactive advocates. We have increased our investment in advertising and expect to spend over $600 million in 2014, that’s a 20% increase over 2012, and we have launched new marketing campaigns in multiple regions. For example, in North America, the Carnival brand was the national cruise line for Sochi Winter Olympics with a new creative targeting the family segment, while Princess lines launched its first television campaign in 10 years. In addition, both Costa in Europe and P&O in the U.K. launched new advertising campaigns. This increased investment and broad-based media buys supporting our efforts to attract the new to cruise, where we have the greatest opportunity to create additional demand. We remain committed to leveraging our scale and we are making meaningful progress toward that end. We held a leadership forum among our top 70 employees globally and in earnest are beginning to align around common objectives to accelerate us down the path of continuous financial improvement. Our global team is truly energized to achieve that success. We have identified opportunity areas to leverage our scale both from a cost efficiency standpoint as well as a revenue generating standpoint. Among our $6 billion of non-fuel, non-people costs, we are prioritizing areas where we believe we will find opportunity. Crew travel and ports are two examples of large areas where we are conducting deeper dives. We are still at early stage in sizing the opportunities in these and other categories, and as we look across further brand collaboration, across brand collaboration on travel costs, for example, primarily for our 90,000 global crew members, as well as port costs for our more than 10 million guests and 100 plus ships. We are encouraged with the progress we're making, but we obviously still have a lot of work to do. We are very excited about the road ahead. We are away from realizing our full true potential, but I'm very confident that we will get there over time. And now, I would like to turn it over to David Bernstein for a few comments. David?

Thank you, Arnold. Before I begin, please note that some of our remarks on this conference call will be forward-looking. I must refer you to the cautionary statement in today's press release. Also, all of my references to revenue and cost metrics will be in local currency as this is a much more meaningful measure of our business trends. I will start today with a summary of our first quarter results and then get into some more detail on the overall positive booking trends during the current wave season, as well as the booking patterns by deployment for each of our two segments, the North American brands and the European, Australia, and Asia brands, known as our EAA brands. I will finish up with an update on our full-year 2014 March guidance. Our non-GAAP net income for the first quarter was $2 million. I’m pleased to report that our first quarter non-GAAP EPS was $0.09 above the midpoint of our December guidance and this was driven by better than expected net revenue yields at Carnival Cruise Lines and our Continental European brands worth $0.05, as well as lower than expected net cruise costs without fuel worth $0.04. Now turning to our first quarter operating results versus the prior year. Our capacity increased 1.7%. Our total net revenue yields declined just over 2%. Let's look at the two components of total net revenue yields, net ticket yields and net onboard and other. First, net ticket yields, which declined 3%, with decreases on both sides of the Atlantic. Our North American brands were down 3.5% and that was driven by promotional pricing at Carnival Cruise Lines, although I'm very glad to say that the pricing environment for last minute first quarter bookings was clearly better than we had expected. Our EAA brands were down 2.5% with increases at Costa resulting from the continuing brand recovery, which were more than offset by declines in our other major European brands. Net onboard and other yields increased 1%. Our EAA brand performed very well and were up over 4%, but this was tempered by slightly down yields at our North American brands, driven in part by lower occupancy at Carnival Cruise Lines. Net cruise costs per available lower berth day excluding fuel was up 3.5% and that was driven by higher advertising spend as we invested to accelerate the recovery in ticket yields. The increase was less than we had expected in our December guidance and that was due to the timing of advertising and certain other expenses between the quarters In summary, the first quarter non-GAAP EPS was $0.08 lower than the prior year, and that was driven by lower net revenue yields, higher net cruise costs without fuel, which was partially offset by improved fuel consumption and slightly lower fuel prices. Turning to our recent booking trends and yield expectations for the remainder of 2014. As we indicated in the press release, fleet-wide booking volumes during this year's wave season have been running almost 20% ahead of the prior year, significantly outpacing capacity albeit at lower prices. This pattern is the same for both our North American and EAA brand in all three quarters. It's nice to see that some of the largest booking volume increases were at Carnival Cruise Lines and Costa, as these brands continued their recovery. As Arnold indicated, cumulative booking -- fleetwide bookings are ahead and they are at lower prices. This is the first time in a number of years we have indicated that cumulative bookings for the next three quarters were ahead of the prior year as our overall booking curve has started to lengthen. While we are pleased with the new direction and we expect it to continue, we’re currently still towards the lower end of our historical booking curve. Despite these booking trends, we continue to expect yields for the second quarter of 2014 to be down 3% to 4%. While our EAA brands are forecasted term positive, our North American brands are impacted by the more challenging comps in the second quarter of 2013 as the majority of those bookings were taken prior to the voyage disruptions that occurred in February of last year. For the second half of 2014, with better cumulative booking status and ramped-up marketing efforts in the first half of the year which should benefit us in the second half, we are expecting positive yields for both our North American brands and our EAA brands. For the full year, we are expecting net revenue yields to be down slightly, which is the same as our December guidance. While we exceeded our first quarter yield guidance mainly due to better-than-expected last minute Caribbean bookings at Carnival Cruise Lines, our expectations for the Caribbean for the balance of the year remains unchanged. We are being prudent with our full-year expectation given the large cruise industry capacity increase in the Caribbean, as well as the slower than expected demand growth in Japan. As you know, Princess successfully ended the Japan homeporting market in 2013 with one ship for three months. For 2014, Princess increased its capacity in Japan to two ships for about six months each. While demand in Japan has grown considerably, it has been somewhat less than anticipated. While we are experiencing some growing pains in Japan, we are still very bullish on the long-term prospects for this market. Today, Princess’ Japan homeporting represents only about 1% of our annual capacity. Looking at booking patterns by deployment for each of our two segments, first for our North American brands. I will walk you through the Caribbean, Alaska, and their seasonal European program. The Caribbean is behind on both price and occupancy and represents almost 50% of the remainder of the year for the North American brands. Recent booking volumes have been excellent and we are catching up on occupancy albeit at promotional rate. Alaska is behind on price but well ahead on occupancy, which bodes very well for pricing on the remaining inventory. The seasonal European program for our North American brands is strong. We are well ahead on both price and occupancy. For our EAA brands, the year-round European program, which represents 70% of the EAA brands capacity for the remainder of the year is behind on price but well ahead on occupancy. Recent booking volumes have been substantially ahead of last year which again bodes well for pricing on the remaining inventory. Switching to costs, our full-year cost guidance also remains unchanged from December as we continue to expect net cruise costs excluding fuel, to be up only slightly. Putting all these factors together, our 2014 non-GAAP EPS guidance is $1.50 to a $1.70 per share with the midpoint that is the same as our December guidance. Given our higher confidence level, we have simply narrowed the range reflecting our solid booking patterns with softness in Japan offsetting our better-than-expected first-quarter performance. At this point, I’ll turn the call back over to Arnold.

Thank you, David. Kim, I think we're now ready to open it for questions.

Thank you. (Operator Instructions) And our first question comes from the line of Robin Farley with UBS. Please go ahead.

Thanks. I guess, I was going to ask you about your guidance coming $0.10 off the top and the bottom, and given the better close in Q1, I guess, it sounds like Japan is the reason why that and maybe a little bit of fuel off of the top? I guess, I’ll ask when you look at your bookings for the remainder of the year being higher volume at lower prices, is that mostly due to Q2 because I’m curious that comparisons get easier in Q3 as we get closer we would see higher prices and so you’d hold back on some booking at lower prices year-over-year. I guess, if you could give us a sense as to that sort of higher volume, lower price, how that changes from Q2 into the second half?

Sure.

Yeah. David, go ahead?

Essentially for all three quarters, we are essentially at higher volumes and slightly lower prices, albeit there are different levels of increases and different amounts of lower prices between the quarters, but that's the overall trend at the moment. Keep in mind that while the booking volumes have been very good, we did expect to see booking volumes, good booking volumes in the first quarter. When we -- in December on the conference call, we talked about being behind and we knew we had to catch up, and in order to catch up, you need good booking volumes. So this is pretty much in line with our expectations.

Okay. And then just the other question is, can you quantify a little bit the lower occupancy in the Carnival brand, just a degree?

As we’ve been saying all along on a number of voyages, they are willing to give up a couple of points of occupancy to hold price. So we are seeing some, a couple of points down in the first quarter on Carnival Cruise Lines.

Okay. Great. Thank you.

Our next question comes from the line of Steven Kent with Goldman Sachs. Please go ahead.

Hi. Good morning. Arnold, could you just discuss your cost saves, just talk about them more broadly and will you set a target either in dollars or percentage, and if you don't do that, why wouldn’t you do that? And then David, I think you mentioned that the booking curves have extended and you mentioned something about that, but they were still at the lower end of where you'd like them to be. What is the lower end and what is higher end on the booking curves?

Okay. I’ll start with your cost question first. Obviously, our greatest opportunity is on the revenue side. But the reality is we do spend as I mentioned over $6 billion, not counting fuel and not counting personnel, and not counting payroll. And largely that spend today is uncoordinated. There are portions of it that are to some degree across a few brands, one or two areas that are more broadly, but the majority of it is not coordinated, and that just is a natural result of having run the brands very independently and very successfully, very independently. So any corporation can always be more efficient. And when you have that level of spend that historically has not been aggressively coordinated, by definition there is opportunity there. And so, I just mentioned the one area of airline and hotel for crew where we spend between that and ports, over $1.3 billion a year, and we haven’t set an arbitrary target. We’re doing it from the ground up and we’re doing the work to see where the opportunities lie. But from a reasonableness test, which is a 1%, as reasonable savings, almost certainly right. 5% of $6 billion will be $300 million, 10% will be $600 million, exactly what the number turns out to be across that $6 billion base. We’ll see as we go to these individual areas of opportunity and quantify them more rigorously and look at where the opportunities are. So that work has begun. Once we've done that, we’ll prioritize which ones we attack first. And overtime, we’ll realize the latent opportunity that’s there through collaboration, coordination, and communication across our 10 brands. Hope that answers your question, Steve. Go ahead, David.

Yeah. Steve, historically, we had given some ranges out. For instance, we said in the current quarter we might be like 80% to 90% booked, one quarter out 50% to 70%, two quarters out 30% to 50%. And so I think, previously in the latter part of last year, I said we were at the lower end or slightly below the historical booking ranges. So now, we are a little bit better than we had previously been but still towards the lower end of the booking ranges.

Okay. Thanks

Our next question comes from the line of Felicia Hendrix of Barclays. Please go ahead.

Hi. Good morning. I’m wondering if you could just give us some color on the Carnival brand net yields, what they were in the first quarter and when do you think they get positive, and then similarly, Costa’s net yields in the quarter?

Go ahead, Dave.

Sure. Overall, we had indicated that we expected to see Carnival down in the back half of last year and in the first half of this year in the mid-to-high single digits, and then we had talked about them turning positive in the back half of 2014 after we lapped the shipped incidents, the voyage disruptions. So in the first quarter, Carnival turned out to be a little bit better than we expected, which helped exceed the guidance, but we are still, I guess, are forecasting our guidance for the remaining quarters remains unchanged.

Okay. And on Costa?

For Costa? Yeah, Costa was up a couple of points in the first quarter and part of that was due to occupancy. But they did get some pricing as Arnold indicated, particularly in their core European markets. Keep in mind that one of the things for the first quarter, Costa has less ships in South America, which while it's a very high-yielding market, it's not nearly as profitable. So we gave up something on the yield for Costa to improve the profitability overall because of the high cost of doing business in South America.

That makes sense. And then just on Carnival, I probably understand that the strategy that you have and trying to get the bookings levels up given the levels that you are in? But I’m just wondering as you kind of look forward, do you only look for the consumer gets used to certain pricing or promotions on the brand? And specifically when you look past this year, do you envision the Carnival brand having more pricing power?

I think as we look down through the year, obviously the comparisons are going to get easier right off the bat because the second half of last year was post the voyage disruptions that occurred. And in terms of just the building momentum, the Caribbean had a lot of capacity expansion, 10% for Carnival and even more than over 19% for the industry. So there will probably be some continued pressure from that, but overall we do see significant strengthening in the Carnival.

Yeah. But I don't worry about the consumer getting used to the lower prices. I mean, this has happened before we saw lower prices in 2009 and the prices came back up in ‘10 and ‘11. So as the economy improves and as the demand is there, we should be able to get the pricing back without any problem. This has happened a number of times in our history.

Our next question comes from the line of James Hardiman with Longbow Research. Please go ahead.

Hi. Good morning. Thanks for taking my call. Maybe just little piggyback on Felicia’s question, you talked about you saw a price dip in ’09 and that came back in ’11. Maybe you could talk a little bit about relative pricing compared to the competitive set -- Caribbean line I’m talking about specifically here. It seems like last year, there was a bigger gap versus a lot of your competition. I’m assuming that’s worked its way back now, but how should I think about that going forward and have we gotten back to the historical gap versus the ships that Carnival would ultimate compete with?

Are you talking specifically about Carnival Cruise Lines?

Cruise Lines.

Yeah, exactly.

Yeah. It’s very hard for us. There is no direct competitors. It’s very hard for us -- the competitors like Royal Caribbean, its multiple brands in multiple markets. So whereas Carnival Cruise Lines focuses primarily on the Caribbean, so very hard to do a direct comparison the way you're describing.

It really is difficult. The brands are different. They cater to different psychographic segments. They have different comparisons for what ships were where in the previous year, et cetera and so you are often comparing apples and oranges. And so we tend to not look at it that way but we do look at how we are doing relative to how we’ve done in the past and how we anticipate we should be doing given our deployments and what equipment we have where.

I can give you a little color on us in total versus our competition that might be helpful, because if you go back, we lost about 10% to yield in 2009 and we got back in ‘10 and ‘11 about half of that. And we had hope to regain the second half in the following years ‘12 and ’13. But unfortunately with the ship incidents today, we are about 11% behind 2008 yields. In comparison, our competition with their 2014 guidance should be close to their 2008 yields. And hopefully as our brands recover, both Carnival Cruise Lines and Costa, we can recoup getting back to the 2008 yields as well. Hotel RevPARs are also back to those levels. We have every reason to believe we can get back there as well.

That’s really helpful actually. And maybe, Arnold you talked about at the beginning of the call sort of those three major segments of cruisers, the Loyalist, the new to cruise, the Switchers, maybe expand on that a little bit? Is that brand consideration independent of the cheaper price that those people are receiving and ultimately is that sustainable as prices inevitably come up, maybe talk a little bit more about that?

Yeah. I think first of all, understanding the guest psychographics increasingly is clearly an immediate task that we have across the 10 brands. So, we continue to do deep dives and that is an area where we are collaborating across the brands and as opposed to doing 10 different segmentation studies. We will be able to do a much more rigorous market research effort at probably less cost frankly than doing 10 independent ones and get much better insight. But generally speaking, sure, each segment has his own price elasticity curve. A Loyalist, now they make, take an extra cruise or two if pricing is lower. The Switchers might be more compelled to switch to a brand with a better price offerings and so on. And the new to cruise, that's where all the heavy-duty action has been across all the brands, ours and other cruise company brands is to get to new to cruise onboard. And that's always been more of a price sensitive market for the majority of psychographic targets, not so much to ultra-luxury but short of that has been somewhat prices. So measuring that and that changes with time. Geopolitical influences it. Economy influences it. Just general mood influences it. So these are all conceptual things, but we are going from concept to rigor and modeling in our price models and our psychology of pricing through the work we have underway.

But basically it sounds like it’s the Switchers that are the last of the three to sort of get back to where we were pre-last year?

Yeah. And the comments I made was around brand perceptions. And so a Switcher by definition is probably going to be last because they have a brand they are with and you are trying to get them to switch. And so you need to have perhaps more cause, more rationale for them to switch from a brand they are all in to go to another brand. And so any kind of negative noise makes them more difficult obviously.

Very helpful.

Very small population.

And it is the smaller segment of the population. Beth just pointed out. That is in most cruisers or either new to cruise or they would fall into the category of Loyalist.

Good stuff. Thanks, guys.

Thank you.

Our next question comes from the line of Tim Conder with Wells Fargo. Please go ahead.

Thank you, and good morning. And two things. If you can just maybe give us a little bit of an update. On the last call, you mentioned that Carnival was a little bit of ahead of your period of recovery for the brand, and it sounds like the brand perception has continued along that vein. But if you frame that from the perspective of pricing, has much changed from your statement on the prior call that the Carnival brand is tracking a little quicker than what you expected and Costa still lagging, just an update there? And then the second question would be related, looking at over the next couple years here, Arnold you continued to outline that there is a lot of cost savings opportunities, but you also in your preamble talked about elevated spending on advertising and marketing. How do you see those two netting out over the next several years for net cruise costs ex-fuel?

Yes. First of all, let’s go to your pricing question, we feel and brand recover, we are very enthused by what we see in the Carnival brand in terms of the pace of recovery and in terms of how we shot up. Obviously, we had a better than expected first quarter with Carnival, and that’s extremely encouraging and affirming to us. And as I mentioned in my opening comments, I’m very proud of the Carnival brand team through their innovations and hard work they put in place to accelerate that brand recovery. So we are very encouraged on the Carnival brand. That will be the first comment. In terms of more broadly looking down the road, we will continue to invest to build demand because that’s what the industry needs and that’s what we need. Our ships sail pretty much full, if not full, so do the competitor. And the issue is not about that, the issue is at what price. And so the greater demand, obviously the more we’re able to capture the great value that we offer to guests and we do believe this is the greatest vacation value there is. And so obviously, we want to drive demand, and we will do that through promotion period. So that’s advertising through social media, or whatever, and we will continue to invest in that. Having said that, do I think those -- that investment in the future will offset any potential savings that we have across the large base of spend we have? No, I don’t expect that. Will we reallocate some of those savings to additional promotional investment, if we see a return on those investments? Absolutely, yes. But the reality here is, I think there is more opportunity collectively over time to show improved overall cost performance, even given continued investment and promotional spend.

Okay. So just to clarify, you’re saying that the Carnival brand continues to track ahead of that expected recovery in the Costa brand, is it still -- is it picked up a little bit of that pace? I just want to make sure I am clear on the Costa side of the equation.

Yes. Costa has picked up as well. Costa had the double whammy of disruption and then obviously the European economy. And the European economy is still choppy, but it’s obviously strengthened. And we do see accelerated progress in the Costa brand. And I’ve given huge plaudits to our Carnival brand team, but our Costa team deserves huge plaudits well. And they have done a great job in managing the brand and all the dynamics around the brand recovery. So they obviously had a very different level incident than Carnival brand did. So they had a much more serious incident. They were in a much tougher economic environment. And so those -- both of those things weighing heavily to affect the pace of recovery, but they are doing well. Now, we’re very confident and excited looking ahead for Costa as well.

And I apologize, on the cost side just to clarify, are you saying that cost should be flat, down, or slightly up over the long term netting the savings on the incremental spending?

We haven’t quantified the cost savings opportunities yet preciously, and I want to hold on that until I’ve given the teams the opportunity to really drill down. We like giving you guys numbers that we have high degree of confidence in, and so we’re going to do that the right way. Some of that will be revealed by the time we get to talk to you again. Some of it may be somewhat obvious. And as appropriate, we will lay out targets if we feel it’s of any real value to all. But the bottom line is, we are still working all of that. Directionally, I certainly see overall opportunities for efficiencies on the cost side. But again I want to point out, our opportunity is scale. We have 78 million passenger cruise days a year. We have 10 million guests a year. And on the revenue side, small moves on the revenue side produce substantial cash flow and operating earnings opportunity for us. And so we are going to do both, we are going to walk and chew gum, but the big opportunity is clearly on the revenue side.

Okay, great. Thank you.

Our next question comes from the line of Ian Rennardson with Jefferies. Please go ahead.

Thank you. Good morning. A couple of questions. Slightly if you could help us a little bit with your yield guidance for Q2, because if I look last year’s yield, it was down 1.9% in constant dollars in Q2 followed by minus 3.8% in Q3. Now you’re looking for minus 3% to minus 4% in Q2, but then a relatively big positive in Q3. How big can that be in Q3, please? And then the second question would be yields in Q1 ex-Costa, so if we strip Costa, big improvement in Costa, what was the yield for the rest of the company? Thank you.

David?

Yes. Well, first of all, the guidance for the second quarter, part of that is impacted by the 19% capacity increase in the Caribbean that we’re expecting and the promotional rates that are out in the market as a result of that. Each quarter has its unique set of circumstances. The third quarter, we had indicated or I should say the back half, I had indicated that yields would be positive in the back half. And of course, the third quarter will be impacted to some degree by Japan and so that taking into account. But all we said was positive in the third quarter and slightly down for the full year.

Okay. Thank you. And the other one was…

And as far as Costa is concerned, I mean, I had indicated earlier in the call, Costa was up a couple of points in the first quarter. So Costa, remember, is 15% of our overall capacity and the yields in the first quarter were down 2.1%. So it probably would have been down slightly more than that without Costa, but you can do the math.

Yes. Okay. Thank you.

(Operator Instructions) Our next question comes from the line of Jamie Rollo with Morgan Stanley. Please go ahead.

Yes, hi. Thanks. The balance sheet customer deposits at the end of the quarter would not much change year-on-year, despite you say a very significant booking volume increase in the wave period. And I am wondering, it could suggest your pricing on those volumes is very weak, but it may also suggest you’re selling more through agents. I’m just wondering as a mix direct, indirect or if we should be perhaps more worried on pricing given that year-on-year change? Thank you.

Yeah. Well, there were so many factors, Jamie, that go into customer deposits on year-over-year basis. I mean, this pro-rated voyages they show excursions, there is charter deposits and a whole bunch of other things, including currency movements on a year-over-year basis. So it is very difficult for you to read in. The other thing to keep in mind is that ticket prices are down on a year-over-year basis, so that does also affect the customer deposit and Carnival Cruise Lines, I think, also had a program with a lower deposit for a number of voyages which generated a lot of volume. Now, typically, we don’t see any difference in the overall cancellation experience with those lower deposits. So that was something that stimulates a lot of bookings as well. So there are a lot of factors that make it difficult for you to read into the trends in bookings versus customer deposits.

Okay. And then, thanks, the other question was on the cost guidance. So for the second quarter, the guidance is quite high, given Q2 last year and [NCC’s] (ph) were up 8% given all the Triumph cost. So, I think, if we strip out the litigation proceeds from the quarter the year before that’s still about 6% Q2 last year and then, small, but that seems to be the timing you mentioned from the first quarter? And given your sort of your full year guidance for cost, you are expecting the second half looks to be roughly flat? And I'm just wondering whether -- what's causing that significant improvement and whether any of the savings you've mentioned to be built into your guidance? Thank you.

Yeah. I think the most significant thing that you have to think about is fourth quarter we do expect costs to be down and the reason is, if you remember last year in the fourth quarter, we had talked about Carnival Cruise Lines new advertising campaign and how we had increased advertising. So, there is a difference seasonalization of the advertising this year and therefore, we would expect cost to be down in the fourth quarter and that's probably the missing piece that puts it together for you.

So that's adjusted into Q1, Q2 this year, actually cutting your advertising, aren’t you?

Well, we increased the whole overall advertising, but the big increase in Q1 and Q2 was on the advertising side, yes. There were other increases in insurance and crew travel and few other things, but the thing that drove the majority of the increase was advertising.

Okay. Thank you very much.

Our next question comes from the line of Patrick Scholes with SunTrust. Please go ahead.

Hi. Good morning. I have two questions for you. You briefly talked about expectations for the third quarter revenue yields and sort of indicated just back half will be up. What would you expect to be a stronger quarter, the third or the fourth as far as that revenue yield growth?

Yeah. We will give you that guidance when we get to next quarter, I mean, at this point, it built into our full year, there is a lot of bookings left to go for the third quarter, we are probably about halfway there and the fourth quarter is probably a third of the way there. So, there is a lot left to go. Typically, of course, the third quarter is the strongest summer season for us. So that bodes well for the yields in that particular timeframe. But it’s a little early for us to give detail guidance.

Okay. We'll catch-up on that in the future. And then, gentleman, second question here, you've talk today a bit about getting back to prior pricing levels and mentioned that hotels have gotten there? Certainly, one difference between the cruise industry and the hotel industry is the difference supply characteristics? That been said, what -- for next year, what would you -- what do you see capacity in the Caribbean shaping up and that's really maybe very important because its this year has been high and held impacted prices. So what are your expectations for next year for the Caribbean both for yourselves and the industry?

Yeah. Well, the -- we don’t have all the detailed itineraries for our competitors and everybody. But I took a look at the first quarter and for our North American brands for the first quarter, we are expecting a small decrease in the capacity in the Caribbean, primarily driven by the fact that Carnival Legend was announced is moving down to Australia, which will reduce our capacity in the Caribbean. So, that should be helpful, I have seen other announcements, but we will be putting all that data together on a consolidated basis and hope to have that before the next call.

Historically, when there has been a big change in capacity in the destination market and then there has been some pricing impact from that, ships tend to move out. So, I guess, I won’t say, ships are moving out, but it’s highly unlikely we'll see the level of capacity increase next year that we see in this year.

Okay. Got it. I appreciate the color. Thank you.

Thank you.

Our next question comes from the line of Brian Dobson with Nomura. Please go ahead.

Oh! Hey, guys. Two quick questions for you. So you talked a lot about strong cost in bookings? I suppose how much of the 2Q and 3Q are left to sale at this point? You mentioned that, you are just shy about a normalized forward booking curve, but I guess where are you more particularly?

Yeah. Well, what I had said on the previous and answering the previous question is that for the current quarter we're in 80% to 90% and then the next question we are out 50% to 70%, and I've said we were towards the lower end of those rang. So, it gives you a good indication of where we are for Q2 and 3.

Right. And then, I guess, thinking about your recent ship renovations? Can you give any color on the type of premium pricing that you are seeing or the returns on those Fun Ship 2.0 renovation?

Yeah. I think on Fun Ship 2.0 is certainly one of the reasons why we've seen accelerated recovery in the brand. I don’t think there is any doubt about that. And so even though we've got tough comparisons given all the moving parts and all the various variables, there is no question in our minds that Fun Ship 2.0 has lifted our yields relative to where they would have been and probably lifted our occupancy as well. So we are absolutely declaring success on that one. And we continue to innovate as you know we have the 60 concerts that are planned for the Carnival brand this year. We're seeing some lift across the number of those as well both in terms of booking trends and pricing.

You know on the Carnival Sunshine which was a major refurbishments, we had plan that out with extra revenue on the additional cabin that we put in, extra onboard revenue relating as Arnold indicated to all the Fun Ship 2.0 improvement. So one thing that turned out to be very favorable that we hadn’t anticipated or we didn’t put into our forecast, I should say, was the extra ticket pricing in the premium we were getting there as a result of the refurbishments. So we were very pleased with that. And it’s virtually like a new build. We renamed the ship and add a lot of great features with the water park and the ropes course and all. So we were -- we're pleased with that. We are seeing that the refurbishments have a positive halo effect across the fleet. We bring out the new features on the new ships and then we try to retrofit them across the fleet to maintain a consistent brand standard. And that's very powerful and very helpful and we've been doing that for while and we’ll continue to do that as we move forward.

Okay, thanks.

Our next question comes from the line of Wyn Ellis with Numis. Please go ahead.

Hi. Good morning. Just got three questions, if I can please. First of all on Japan, you said it’s only 1% of your capacity for this year. Could you clarify for us, what it will cost you, you think in EPS terms? And then secondly on they Ukraine, have you seen any impact of the unrest there and the political maneuvers? And have you built that into your guidance for this year, any additional caution? And then finally, just a question on advertising, I think Arnold in your opening remarks, you said it would be up about 14% this year. Is that something you’d expect to continue in following years?

Okay, so first of all with regards to the Ukraine, the geopolitical issues have been periodically almost every year somewhere. And it’s clearly the Ukraine has impacted some itineraries in terms of demand and attitude and orientation for guests to seek a particular itinerary. It's had a bit of a halo effect for a period of time on the European bookings period. On the other hand, European bookings continue to be strong and we're seeing a good yield and good occupancy trends there. So yes, it's had an impact, but there is a lot of variables and it all comes out in the wash, so to say. So it only represents about 0.7% of our capacity. So there is some halo effect going across. Go ahead, David, you wanted to make …

Yeah. I think as far as the overall forecast is concerned, what we did is we assumed that things remained the same, that things didn't get deteriorate, and we built support cast on that premise. We have -- Costa has announced some changes in their itinerary because they had some ships going to the Ukraine in May. They're replacing the Ukraine with Bulgaria, and in overnight in Istanbul, that's been announced. There are some other Costa and AIDA, and if I remember correctly, Seabourn go there in the third quarter. And we're monitoring that carefully and I would expect that those itineraries would change as well. As far as Japan is concerned, I guess it's safe to say that like many new markets when you enter, you do have to invest a little bit. I've used that term before. It's a nice way of saying we're losing some money in the market, but we are very bullish on the overall prospects for Japan. And we believe it's worth the investment as we continue to develop the market. As far as advertising…

Yes, the advertising, the increase, as I referenced was over 2012. We were back a couple of years because of the increases that we did put in place in 2013 year at the end. But directionally, we'll make an ongoing judgment. I'm always looking to see impact for dollars invested. We had not advertised, for example, in the Princess Line for almost 10 years, that's for ad campaign. And so we'll examine it. I'm a personal believer and pulsing that you advertise for a period of time, then you take a little break and you advertise. We have 10 brands. We can manage that over but we’ll see how it works out and I don't have any preconceived notions. I want to hear from the brands in terms of what they think is having the greatest impact and evidence they can provide to that. Fundamentally, we're going to promote our brands. And from an overall direction, I don't have a big prediction for you. But I don't see us do anything dramatically in terms of dramatic increases absent a clear return prospect.

Yeah. Of the 20% that Arnold mentioned versus 12%, a little bit more than half of that was last year and the rest of it was in 2014. I had indicated in December, part of the increase was due to higher advertising.

Okay. Thank you very much.

Our next question comes from the line of Edward Stanford with Lazarus Partnership. Please go ahead.

Good morning. Just one question if I may. Could you give us an update on where you are with fitting the scrubber technology to your vessels, and to extent to which is the percentage of the fleet will be embodied by the end of the year, please?

Sure.

Go ahead, David here on the percentage.

Yes. Today, we had put it previously on the Queen Victoria. I think we had said that on previous calls that we were testing it and it was working well. We were completely pleased with the results. We’ve put it on six additional ships. Probably have 20 plus ships with scrubbers before the end of the year. Between that and the exemptions that we got for 2015, we had indicated in the 10-K that we didn't expect to see the ECA have a significant impact on our cost structure for 2015. The numbers previously in prior 10-Ks were a few hundred million dollar impact as a result of the low-sulfur fuel. We're progressing, we're pleased with the progress we're making, and we will continue to roll the scrubbers out over time both in ‘15 and ‘16.

Thank you.

Our next question is a follow-up question from the line of Steven Kent with Goldman Sachs. Please go ahead.

Just a quick question on the impact of the Galveston oil spill, should we be thinking about that as having any EPS impact in the next quarter and what’s your current thoughts on that and where those ships stand?

Okay. Well, there are three ships that are currently in port, two Carnival ships and one Princess ship. Unfortunately, we don’t know exactly when the channel will open up. I guess, at the moment if the channel opened up this week and the future cruises were to occur as normal, it might cost us a penny in the second quarter. But this is a fluid situation and I do hope they can get it cleaned up and the channel opened this week. And yeah, we do it -- by the way, under the current law we do expect recovery of the lost revenue in the incremental costs under the OPA regulations and insurance. So we would expect to see a recovery at some point later this year, the additional costs.

Yeah, for the full year, though unless something really prolongs this, we don’t see a material impact on our guidance.

Great. Thank you.

Our next question is a follow-up question from the line of Robin Farley with UBS. Please go ahead.

Thanks. I wonder if you could give a little bit of color on, you mentioned the other European brands excluding Costa being down in Q1, just sort of a little bit of color on those factors?

Sure. At AIDA, unfortunately because of the loss of the Red Sea program and the very popular Egypt itineraries, we had to make some changes. Those didn't occur this year. And as a result, the yields were down just a little bit in the first quarter. In the U.K., the U.K. has done some changes to their pricing programs in their commission structures. So, while their first quarter was impacted, we do expect an improving trend in the U.K. overall. So, hopefully that gives you a look a little bit more color on what’s going on.

And I will say in general, in Europe, we do as I mentioned earlier on the call, with the booking curves being moved out we see strength in Europe. And again, it’s reflected in our guidance, but we actually see a strong performance collectively in Europe this year.

Okay. Great. Thank you.

And we have one last question from the line of Tim Conder with Wells Fargo. Please go ahead.

That’s fine. My previous question was just answered. Thank you.

Thank you very much

And there is no further questions at this time. I will now turn the call back over to you Mr. Donald.

Hey. Thank you all very much. We look forward to visiting with you next quarter and in between. And I thank you for your time.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day, everyone.