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Carnival docking costs to rise in 2015 yet over time scrubbers will cut fuel expense

Donald - Carnival gaining momentum toward goal of double-digit returns on investment over time
Carnival Corp. & plc's net cruise costs excluding fuel per available lower berth day are expected to increase approximately 3% in 2015 due primarily to a significantly higher level of drydock days scheduled to install new air emissions technology and other systems aimed at improving fuel efficiency.

The company expects exhaust gas cleaning systems or scrubbers will be installed on approximately 70% of its fleet by 2016, enabling Carnival to meet the stricter Emissions Control Area standards in 2015 while also mitigating higher fuel costs that will result from the new requirements.

Carnival anticipates the new regulations will result in higher fuel costs in 2015 of approximately 10 cents per share—down from 35 cents without mitigation efforts—with that increase expected to be reduced by half in 2016 and mostly offset in 2017 based on the system roll-out.

Also, in 2016, Carnival said it will revert to a more normalized drydock schedule, which will offset approximately half of the increase in 2015 net cruise costs excluding fuel.

It is not necessary to retrofit the entire fleet now, Donald said, since not all ships operate in ECAs, which are currently in effect in the US and portions of Canada, the US Caribbean, the Baltic and the North Sea.

However, in 2020 when the global sulfur limited drops to 0.5%, all ships will need to have scrubbers or use costly distillate.

'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,' Carnival Corp. & plc president and ceo Arnold Donald said. 'These technology investments are laying a solid foundation towards sustainable earnings improvement.'

Combined with other strategic initiatives designed to foster revenue growth and contain costs, Carnival is gaining momentum toward its goal of achieving double-digit returns on investment over three to five years, Donald told analysts during Tuesday's earnings call.

2014's ROIC is projected to be approximately 5%.