Carnival Corp., the cruise-ship operator that is trying to scuttle a merger of its main rivals, said Thursday its quarterly earnings fell 40 percent as fears of terrorism swamped the industry.

Since the Sept. 11 air attacks on the United States, leisure companies have faced weak demand. Two small U.S. cruise groups have folded, and the remaining operators have cut ticket prices, temporarily increased commissions to travel agents, and slowed expansion of their pleasure fleets.

But Carnival -- whose 43 ships sail as part of such lines as Cunard, Carnival, and Holland America -- said conditions may now be brightening as bookings over the last few weeks perked up while still below year-ago rates. Pricing, too, was improving from deep lows reached as cruise companies scrambled to fill ships in October and November.

"We found the floor four or five weeks ago," Carnival CEO Micky Arison said of berth pricing. "We are tweaking prices up in every category."

Arison, speaking with analysts by telephone from London, where the Miami-based Carnival is pressing a $4.6 billion bid for No. 3 cruise group P&O Princess, said many competitors were also lifting prices after a savage price war.

"The better tone of business we're seeing, they are seeing," Arison said, adding he saw the improvements as vulnerable to possible new attacks or government alerts.


One executive said the cruise industry has just completed "one of the most difficult periods we have lived through."

Carnival said it had net income of $116.3 million, or 20 cents a share, for its fiscal fourth quarter ended Nov. 30. A year earlier, the company earned $193.8 million, or 33 cents a share.

The results were hampered by a $33 million charge, mostly due to a write-down in the value of two ships, while the year-earlier earnings included a one-time tax gain of $27 million. Without the extraordinaries, Carnival would have earned 25 cents a share, or three cents less than a year earlier.

The results were at the top end of forecasts by analysts surveyed by research firm Thomson Financial/First Call.

Tony Nutt, fund manager at Jupiter Asset Management in London said that investors were bracing themselves for a slump in earnings in the wake of the Sept. 11 attacks and the results were not surprising.

Fourth-quarter revenues rose 12.8 percent, to $959.1 million, but comparable net yield, a closely watched measure of revenue available per berth, was down about 7 percent.

On a positive note, James Winchester, analyst at Lazard Freres, said Carnival had cut per-berth operating costs by 10 percent, mostly through bulk purchases.

Based on current trends, Carnival said it expects net revenue yields for the current fiscal first quarter to be off 10 percent to 15 percent from last year. Executives said that drop, while sharp, was less than their expectations for early 2002 just a few weeks ago.

Advance bookings for 2002 have started to recover, the company said, but are still well behind last year's levels. For the current quarter, its fiscal 2002 first, bookings are down about seven percentage points at about 92 percent from the year-earlier period.

"Prices will be lower in the next year than they were last but not as low as they would have been five weeks ago," Arison said.

Bookings were up 45 percent in recent weeks over last year's pace, according to Vice Chairman Howard Frank, reflecting a trend among passengers to book cruises much closer to departure than had been historically true. "Most of this is close-in business," he said.


Carnival, with $2.4 billion on hand as of Nov, 30, is fighting to retain its top spot in the industry by waging a $4.6 billion cash-and-stock bid for third-ranked P&O Princess.

Princess last month agreed to merge with Royal Caribbean , the No. 2 cruise group, in a move that would knock Carnival from its No. 1 position. Directors of London-based Princess have so far rejected the Carnival offer.

Nutt, whose firm owns slightly more than 3 percent of Princess' issued share capital, said he and other shareholders would still want a higher cash element in Carnival's offer. "If Carnival were to raise this bid, we would not expect it to keep its current form," he said.

Carnival's offer of 200 pence, or 2 pounds, cash (US$2.89) and 0.1361 Carnival shares for each P&O Princess share values the company at about 1 billion pounds more than the merger with Royal Caribbean.

Arison said he and other top Carnival executives this week had been meeting with Princess shareholders about the bid but had had no contact with Princess.

Carnival shares were up 26 cents, or about one percent, to $27.63 in New York Stock Exchange trade. The stock has risen more than 61 percent from a low of $16.95 reached just after the attacks.