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Carnival COO Buckelew Moving to Shanghai

09/25/2014| 7:07:49 PM|

Carnival Corp. is laser-focused on making the most from the huge emerging vacation market in China. So focused, in fact, that COO Alan Buckelew is moving to Shanghai.

Carnival Corp. CEO Arnold Donald announced Buckelew’s move in a conference call with financial analysts the morning of Sept. 23, shortly after announcing positive third-quarter earnings.

“Reflecting the high importance of China, COO Alan Buckelew will relocate to Shanghai and manage his responsibilities from there,” Donald said. “China continues to be a focus for emerging market development, and we expect double-digit growth over the next few years. We’re already the largest cruise operator in mainland China, since we entered the market with Costa in 2006. It is profitable and will continue to improve as we increase yields and add more capacity.”

Next year, four Carnival Corp. ships — three from Costa and one from Princess — will homeport in mainland China, an increase in capacity of 140 percent over a two-year period. The company also operates 12 marketing offices in the region.

Buckelew, who served as CEO of Princess Cruises until moving up to chief operations officer for Carnival Corp. in late 2013, will lead the company’s initiatives in China, while also continuing to provide oversight of all maritime and port operations around the world and a number of related functions.

Donald said cruise industry growth in China is gaining momentum in recent months because the government views it as a priority now. “The Chinese government has a plan for development of a cruise industry, and that means getting tremendous support and opportunity to participate,” he said. “There are a number of areas that need to be sorted out, and we’d like to have one of our top people there full-time, every day, to position it to where it needs to be in the not-too-distant-future.”

Analyst Robin Farley of UBS asked if Carnival was considering building a partnership with a Chinese travel company. Royal Caribbean Cruises Ltd. is looking at entering a joint venture with Ctrips, which is buying the Celebrity Century.

“It’s safe to presume that we’re exploring all types of opportunities,” Donald said. “That’s one of the reasons for having Alan relocate to Shanghai. We’ll see what makes sense and what works.”

Earlier Tuesday, Carnival announced non-GAAP net income of $1.2 billion, or $1.58 diluted earnings per share, for the third quarter of 2014. That compares to profits of $1.1 billion, or $1.38 EPS, in the same period last year.

“Strong close-in demand and higher onboard spending helped drive significantly better than expected third quarter results and 15 percent year-over-year earnings improvement,” Donald said in a press release. “Our Asia operations performed particularly well during the quarter, driven by a double-digit yield increase in our China program, further solidifying our industry-leading presence in this important emerging cruise market. Our continental European operations also enjoyed strong yield and profit improvement in the quarter, reflecting continued progress for the Costa brand. In addition, our summer Caribbean product successfully attracted nearly 20 percent more guests than the prior year, reinforcing the popularity of the world’s largest cruising region.”

Carnival also is stepping up its installation of new air emissions technology next year, installing “scrubbers” that will allow ships to meet strict new environmental standards and cut fuel costs. The company expects the scrubber technology will be installed on about 70 percent of its fleet by 2016.

Though the installation will cost more in 2015, the investment will be mostly offset by 2017, the company said.

“Our implementation of the air emissions technology is a sound investment in our company’s future and more importantly it will benefit the environment for years to come,” Donald said. “These technology investments are laying a solid foundation towards sustainable earnings improvement. Combined with our other strategic initiatives designed to foster revenue growth and contain costs, we are gaining momentum towards our goal of achieving double digit returns on investment over time.”

Carnival said cumulative advance bookings for the first half of 2015 are ahead of the prior year, and at higher prices. “The sustained improvement in booking trends as we have progressed through the year, combined with yield increases in the second half of 2014, builds confidence that we will see continued yield growth in 2015 and beyond,” Donald said.

He credited the improvement to new product initiatives and marketing campaigns implemented across the brands over the past year. Donald also is seeing improvement in the Caribbean, where fares were a challenge this year due to a big increase in capacity industry-wide. “In the second quarter into the third quarter, it should be very good because there will be a capacity reduction in the Caribbean versus this year,” he said. “Directionally it looks more positive, but I’d have to stop there as it’s a little early to go beyond that.”

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