Good morning, everyone, and welcome to our Second Quarter 2016 Earnings Conference Call. I am Arnold Donald, President and CEO of Carnival Corporation & plc. Thank you all for joining us this morning. Today, I am joined by our Chairman, Micky Arison; David Bernstein, our Chief Financial Officer; and Beth Roberts, Senior Vice President, Investor Relations. Before I begin, as always, please note that some of our remarks on this call will be forward-looking. Therefore, I must refer you to the cautionary statement in today’s press release. We delivered the strongest second quarter in the history of our Company with record adjusted earnings per share nearly double the prior year and well above the high-end of our March guidance range. The second quarter results combined with our strong book position has enabled us to maintain the midpoint of our full year guidance range despite a $0.17 drag from fuel and currency. Essentially, the strengthened underlying demand for our products saw us with greater ticket prices in both the quarter and in the remainder of the year offsetting the rise of fuel prices since the time of our last guidance as well as the very recent significant movement in currency exchange rates following the Brexit vote. Our record results reflect our passionate 120,000-plus employees who in their efforts go above and beyond every day and who together with our hundreds of thousands of travel partners are the foundation of our sustained earnings improvement. This was among the most remarkable quarters in the history of the Company, not only because of our record-breaking financial results but because of a significant number of milestones which will contribute meaningfully to our future success. We introduced three new flagships including Carnival Vista, purposefully designed for our fun-loving Carnival Cruise Line guests with an onboard brewery…

Thank you, Arnold. Before I begin, please note all of my references to revenue, ticket prices, and cost metrics will be in constant currency unless otherwise stated. I’ll start today with a summary of our 2016 second quarter results; then, I’ll provide some insights on booking trends; and finish up with an update on our full year 2016 guidance. Our record adjusted EPS for the second quarter was $0.49; this was $0.13 above the midpoint of our March guidance. The improvement was essentially driven by two things, $0.05 from net revenue yields which benefited from stronger pricing on closing bookings at our North American brands; and $0.06 from lower net cruise costs excluding fuel, as a result of timing of certain expenses between the quarters. Now, let’s look at our second quarter operating results versus the prior year. Our capacity increased 2%. The North American brands were flat while the European, Australia and Asian brands also known as our EAA brands, were up over 5%. Our total net revenue yields were up 3.6%. Now, let’s break apart the two components of net revenue yields. Net ticket yields were up 3.5%. The increase was driven by our North American brands deployment in the Caribbean and Alaska. Net onboard and other yields increased almost 4% with increases on both sides of the Atlantic, mainly related to bar and casino. Net cruise costs per ALBD excluding fuel were down almost 2%, which is about a 3-point improvement versus what was planned in our March guidance, but again, this was due to the timing of expenses between the quarters. In summary, our record second quarter adjusted EPS was almost double the prior year or $0.24 higher, driven by operational improvements worth $0.18, the favorable net impact of lower fuel prices and currency worth $0.04,…

Thank you, David. Operator, please open it up for questions.

Thank you. [Operator Instructions] And the first question is from the line of Robin Farley with UBS. Please go ahead.

I wonder if you could give a little color. You are raising your full-year -- your guidance for the year. Is it China yields coming in line with expectations and Caribbean coming in better? I wonder if you could throw a little bit of color on how the different regions are coming in versus your previous expectations, and also a little bit of Eastern Med since some investors have a concern that Eastern Med may be worse than expected, but clearly, overall, things are coming in better than expected. So just wondering what areas are driving that more than others.

Yes, generally speaking, obviously, as we said, just said that Alaska and the Caribbean are strong. So, those, primarily North American sourced, and the markets definitely are providing a lot of the higher yield expectations. At the same time, we are continuing to show strong improvement in Europe from our EAA brands. The seasonal European business, so, the North America brands going to Europe have experienced more challenge as we previously communicated, but most of the drive is coming from the strength of the North American markets.

And China is still in line with your previous expectations?

We are very pleased with China. China continues to be accretive to us, as we’ve indicated before, a volume and return story, more than a yield story. Yields are down in China this year. But overall, our earnings are proportionate to our capacity growth. We see continued demand. And again, as we said just a few minutes ago, our capacity changes are -- they sound like big percentage increases, but in terms of the actual volume, we are going to go from 5% of our capacity to 6%, next year, but China is doing well for us and we continue to have great confidence in the business. And overall, the business is accretive, especially for the brands that are there.

And then just lastly, did the Brexit vote -- has that changed your outlook for the remainder of the year; is there any sort of different view factored in from that? I mean obviously the FX impact that you’ve updated today, but...?

Yes. At this point in time, the FX impact which obviously we’ve calculated in. We’ve taken a strong look at our business obviously in the UK and in Europe, and then everywhere else in the world to see what possible ramifications would be. But at this point, we have no reason to adjust anything.

The next question is from the line of Assia Georgieva with Infinity Research. Please go ahead.

Congratulations on a great, great quarter, and I had one question. It seems that European pricing stabilized over the months of May and through the early part of June. Is that what you’re seeing, and does that give you more confidence in terms of the Q3 and the fiscal year outlook?

Thank you for the acknowledgment on the quarter. We see in Europe overall that again the booking curve is getting a little further out; we ended up with less inventory to sell, which allows us obviously to improve closer in pricing, which contributes to the yield growth, and David may have a comment.

Yes. Keep in mind that in our situation, 90% of the guests on our European itineraries are European; and so, this is a very different picture of the North Americans flying over. And I think as we had said a number of times earlier this year, the North Americans, while the pricing was down, we are filling the ships; and recently we have seen some very good demand for the European itineraries from the North Americans.

Thank you so much, David and Arnold. That’s what I was seeing, and just wanted to confirm that. Again, smooth sailing into Q3.

Thank you very much.

The next question is from Felicia Hendrix with Barclays Capital. Please go ahead.

David, thank you for the color on next year; it looks like things are starting to shape up well, although it’s early days. I just wanted to talk for a moment about the yield optimization or the revenue management optimization program that you are undergoing now. And, recognizing that we’ll start to see the impact next year, just wondering if you could help us understand what kind of yield contribution you might be able to get from that, from having those six brands more on that program?

This is Arnold first. First of all, on the new revenue management tools, we are very excited about it. We feel the brands are collaborating exceptionally well on it. It is going to allow us many, many more capabilities in terms of more time and inquiries, smaller movements and price movements to optimize pricing, and therefore maximize on the yield results. And, as we said, we’ll be pretty much booked by the end of the summer. So most of the impact of this initial phase, we’ll see next year. And then into next year, we’ll add some additional features, which will bring in the rest of the brands as well and we’ll be able to max out going into 2018 from the tool itself and the better management skills that our people will develop from being able to utilize this tool and be able to see things in a more timely, and be able to respond in a more rapid fashion. I’ll let David comment beyond that; but go ahead, David.

No, I agree with Arnold; and it’s really a multi-year process as we keep rolling out more of the inventory on the system, and we learn from it. It is a little early to try to give guidance for 2017 or the exact impact in 2017 from the system; we’ll talk more about yields in December. But keep in mind overall, to achieve our double-digit ROIC goal, our expectation is that we will see solid yield improvement in 2017 and beyond to achieve those goals. And, we’ll give you more color in coming December.

And for my next question, I apologize if this sounds like a repeat of something that you’ve already said and answered, but I keep getting investor questions about this. So, I am going to ask or as a point of clarification. As you look at your second half of the year, given where you viewed second half of the year when you provided your guidance previously in the spring versus today, has anything changed?

I guess overall, we took the ticket yield guidance, as I mentioned in my comments, up by $0.05. And so, I think as Arnold alluded to before, we are seeing strength in the North American market; and as a result of that, we took our yield guidance up for the back half of the year.

Yes, what’s changed is obviously we have more clarity on line of sight and we’re ahead on booking; we’ve got less volume to sell; we are at higher prices. And so, we have affirmation for being positive.

So without putting words in your mouth, it sounds like you are more optimistic about the second half because you have better visibility than you were when you last -- when we last met in this forum?

Yes.

Great. David, just housekeeping; just given the uncertainty, given Brexit, given the volatility in the markets, the fact that everybody is trying to figure out which companies are most exposed to which currencies, I know in the past you haven’t broken this out, but is there any way to give us any understanding or any kind of magnitude to how exposed you are to the British pound?

The British pound represents about 30% of our currency exposure. So, we talk about a full-year impact of $0.27 for a 10% change in all currencies relative to the U.S. dollar. So, for the British pound, you are talking about roughly $0.08 on a full-year basis to net income.

The next question is from the line of Greg Badishkanian with Citi. Please go ahead.

Just the first question; you mentioned that North American passengers going to Europe that that trend recently strengthened. And, I am wondering just with the volatility in Europe, the currency changes, would you expect North American sourced business to become a bigger portion of passengers sailing on European itineraries over the next several quarters? And, I think it’s like 10% sourced goes to -- of the European itineraries, I think 10% are sourced from North America. Would you expect that to increase over the next three quarters?

Really hard to say. You are talking a lot of itineraries, multiple brands. Our brands do a great job, looking at it itinerary by itinerary and sourcing based off of where they can get the maximum amount of yield. And so, there is a lot of factors to consider and a call like that in the short-term would be very difficult for us to opine on at this point.

And then just to even further clarify China, which I think we all know the answer, you’re doing this different ways. But from your vantage point, you are not seeing any material drop off in the last let’s say since you reported in March; you haven’t seen a material drop off in pricing or booking trends either at the travel agent or the charter level or in terms of renegotiating at significantly lower prices with the charter companies that you have deals with for 2016 pricing. Is that the case or not?

For us, as I said, first of all, our occupancy on our sailings is very comparable, which is very strong to prior year; we see no major change in occupancy whatsoever. In terms of yields, of course, the yields are down, but on the other hand, our earnings are up proportionately. So, we are pricing at what we need to price for it to make sense for our business in China. We’re achieving that pricing in our charters and our contracts and with our distributors. And obviously, they have to win as well. And they won’t to be in the business if they’re not winning, but they are in the business. So, I think that overall things again, in a market that is really so sizable and we’re at such an early beginning, we have such low penetration for a market of that scale, I think we are in good shape going forward.

The next question is from the line of Jaime Katz with Morningstar. Please go ahead.

My first question is on the double-digit ROIC goals. And, I know in the past you guys have mentioned that the Carnival brand I think was already yielding double-digit. So, I am curious if most of the other brands are sort of catching up to speed or if the brands tend to be bifurcated someway and maybe it might take a little longer for some of the underperforming brands to catch up.

As we’ve said in the past, we expect to achieve double-digit returns on invested capital. Earlier this year, we said in the next two to three years; at the end of this year, it will be the next one to two years. We are going to approach 9% return on invested capital this year. So, that’s a good sign for what you can expect going forward. So, on balance we’re going to get there. You are right, we did share that the Carnival brand itself was already at double-digit return on invested capital, we have other brands that are. And overall, we will be there across the base of our business in time.

There are differences between the brands, but we generally don’t provide detail by brand.

And then, do you guys want to offer any color on early reads on Fathom and how you guys are thinking about that brand going forward, whether maybe it can be a much more important part of the business down the road, just by the early demand you’ve seen? I know it’s only one ship, but just curious if you have any commentary.

It is only one ship. For the Dominican Republic part of the Fathom story, those that have gone have loved the experience and felt that they were personally transformed et cetera. It’s different targeted segment. It’s a travel segment more than a cruise segment. And, our ability to access that segment is challenging. We remain very optimistic about the brand, but the reality is we have to see the bookings from that segment. With regards to Cuba where we literally made history through the Fathom brand, our fall bookings are very strong for Cuba. We got a late approval; the summer has not been full, although the experience has been phenomenal. We do have opportunities remaining on some of the summer sailings into Cuba. And we will just have to let it play out. And the team’s done a marvelous job with the on the ground product and the ship onboard product for DR. And obviously, we’re honored and privileged and somewhat humbled to be the first going to Cuba.

The next question is from the line of Harry Curtis with Nomura. Please go ahead.

I wanted to drill a little bit further into your bookings for the third and the fourth quarter in Europe, just to get a sense of the visibility but also the risk. How booked are you for the European brands in the third and the fourth quarters?

Generally speaking, we don’t give all the details by brand. But for the third quarter, we’re generally 80% to 90% booked, has been the historic range. And for the quarter, the fourth quarter, which would be one quarter out, it’d be 50% to 70% booked. Now, I think on the last call, I said we were sort of at the middle of those ranges -- or maybe that was the December call. I don’t remember exactly. And the booking curve has continued to move out. So, we’re a little bit higher than the midpoint of those ranges. Every brand has a slightly different booking curve, and that has to do with the nationalities and the people. So, there are differences between the brands all around the world. But it’s more cultural than economic generally speaking. So, hopefully that gives you enough color to make some judgments.

And then recently, have you seen any deviations from those trends? Do you expect kind of the slope of the line to continue to trend in the same pattern that it’s done recently?

No significant deviations; I mean, generally speaking, the booking curve all around the globe has been moving out somewhat, and we feel very good about that situation for all the brands.

And, moving over to China for my second question, there seems to be a fair amount of debate over the relationships with the charter operators. Do you have any -- you mentioned that your earnings have grown in line with your capacity growth. Do you expect that to continue as you look into the capacity that you’re introducing in 2017? And the reason that I ask the question is that there seems to be some pushback on from some investors in China that with another year of such large supply growth that there is going to be -- you are going to hit a demand wall.

Again, just to put things in perspective again, while the percentages sound so large, it’s equivalent of moving one additional ship in, to a market that in time is going to be far larger than the North American market and could be as large proportionately as the entire global cruise market is, right now. So, while there may be some bumps in and temporary discontinuities as distributors ramp up with their own personnel to move the volume of cruise because a lot of those distributors sell other type of travel products obviously, and there might be some bumps along those ways -- along those lines. Overall, China remains a robust opportunity. We are still at the very, very beginning of it. So, I don’t see that -- you are going to have some negotiations going on; everybody wants a better price; it is a B2B business almost now. And of course, there will be negotiations trying to get lower prices, if they can get better returns and what have you. But overall, things are very good; the cruise product that we offer is well-received and excellent. We are going to have our first purpose-built ship, the Majestic Princess going in next year. She is being met with very, very positive response by the distributors already. And we have our first ship, AIDA as I mentioned going in next year, and then we have our base for Costa and the rest of the Princess. But on balance, it’s the equivalent of adding one ship. And so, we’ll be going from 5% of our capacity to 6% of our capacity, which is not very large at all. Even with the industry moving in a few additional ships, it is stuff that can be managed and may be a bump here in road here or there. But over time, it’s going to be great. And we do expect to see continued earnings improvement, directionally to capacity expansion.

And keep in mind, we’re also expanding the number of offices we have in China. We’re now up to 12 offices and there are more to be opened. We’re working with more and more travel agents and expanding that base, plus we continue to educate the travel agents on -- more about cruising and how to better sell cruises. So, we continue to expand the opportunity in marketplace as well as really as Arnold indicated, it’s really just one additional four -- the equivalent of one additional 4,000-passenger ship, entering a huge market with tremendous opportunity.

The next question is from the line of Tim Conder with Wells Fargo Securities. Please go ahead.

Again, congratulations on the quarter and thank you for the color so far. A couple of just clarification follow-on items, David, on the British pound, that 30% just to make sure that was on annual net income exposure basis?

Correct.

Any additional color you could give; I know you’ve got borrowings and everything in euro, but any -- where does the pound, I guess euro, and maybe a couple other currencies rank annually on that net income exposure basis, maybe highest to lowest of the top three, four, five, whatever you want to feel comfortable in providing; and if so, the percentages?

The Aussie dollar is probably about 35%. I think, historically I have told everybody that the British pound and the Aussie dollar represented two thirds of our currency exposure. The remaining exposure is you ‘e got the Canadian dollar, the euro, and the Chinese renminbi. And those three are probably about 10% apiece. And this is of course all from a net income bottom-line exposure. We have a lot more than 10% of our business in euros but we also have a lot of expenses in euros, which net out the exposure when you get to the bottom line.

And then, the other question, and we are getting it more frequently, is given some Asian based competitors adding, buying, and then therefore adding apparent capacity long-term, it would appear that if we go out ‘18, ‘19, you could see some years of 6% capacity growth on a gross basis for the industry. Arnold, any color on that, maybe how that would shake out net or it would appear that the majority of that capacity also would be in China; just any additional thoughts or color on that looking out ‘18 and beyond?

Our commitment is definitely to measure capacity growth, not just supply growth. And, as we are delivering double-digit return and as the ships we have do that, we will retain those ships in the fleet; as they don’t do that, then obviously we would not. But we are totally committed to measured capacity growth. And, given the large number of ships we have in the base we represent, that influences overall the global capacity for the industry. So, yes, a lot of the capacity growth you’re going to see as you have already identified, is targeted in China, which means the rest of the market -- the rest of the world, the other 95% of today’s capacity is not seeing very much growth. And things change for whatever reasons, which we don’t anticipate. But if they were to change, we can easily modify and adapt, and change our replenishment strategy. We will always want the new ships because they’re more efficient, more cost effective. So, you would always want the new ships you would look at the timing of moving out the ships that are less efficient and not generating returns.

Would you anticipate that number for the industry to maybe come down or would you anticipate some higher scrappage rates going forward as the global… [Multiple speakers]

Right now, it depends on the demand in the market, right? So, for us, things are robust. Keep in mind that the industry overall is underpenetrated. In our case, with 10 brands, we have a huge base of people who have experienced cruise and love it. Cruise is still the best vacation value there is; there is a tremendous vacation experience. Onboard revenues have grown every year in the cruise industry except -- and for us, our onboard revenues have grown every year except one year in the whole history of the time we have been in business; and so that we can look back to and find, and that is in all kinds of environments, recessionary environments, crises environments, everything. So, underpenetrated, big base of people who already want to cruise, great dynamics; it’s hard to say, but I don’t anticipate acceleration of retirements of ships. But, the point is, we have mobile assets; we have a number of triggers we can pull; and we can do what we need to do because we are committed to double-digit return on invested capital and sustaining that.

[Operator Instructions] The next question is from the line of Jared Shojaian with Wolfe Research.

Arnold, you talked about a 5% reduction in European capacity and 5% increase in the Caribbean. So, my question is, what are you seeing from competitors on global redeployment and what gives you confidence that we won’t have a repeat of 2014 when the Caribbean became oversupplied?

Well, in the near-term, it’s not going to happen because the deployments are mostly transparent at this point. So, the best indication is that we can see a lot of where the ships are going already. So, you won’t see a 2014 explosion of Caribbean capacity; in 2017, you won’t see that. So having said that there could still be additional capacity in the Caribbean because they’re strong now for us and I’m sure it is for others too and similarly to the extent possible up in Alaska as well. But we are anticipating that. Every year there is overcapacity somewhere and so on and so forth. And again, we have lots of different ways to manage our business to ensure that we deliver the results we are committed to delivering, which is a double-digit return on invested capital. But, we don’t anticipate an explosion in the Caribbean, like you saw in 2014.

Keep in mind that when we planned the 2014 deployments, our brands were not coordinating their own -- the deployment within our own Company. So, a number of individual brands each made what they thought were really good decisions. Now the deployment is well-coordinated within our Company and there’s more visibility across the whole corporation, which is how we wound up with the 5%.

Right, the 5% for us compares to a 20% growth we had in 2014; so, it is considerably different.

And then, I just want to follow up on some of that capacity commentary because it still -- I mean it feels like a lot of investors are still pretty concerned about the amount of industry growth over the next several years. So, what levers do you have to pull, if you need to? I mean, you talked about the retirements, but I mean why wouldn’t reducing utilization work; I mean is that one opportunity; are there other areas that you see? I would just love to hear about any flexibility you think you have there.

Again, you want that new ships because they are more efficient; and inherently, they can give you a better return. So the new ships will come. The question is what do you do with the other ships? And as long as they are returning, you’ll keep them. If the demand is there, there is growth in China; Cuba opens up; there is renewed interest in the Caribbean and so on, and growth prospects for the Caribbean, all those things are drivers that can help give you yields and returns on some of the existing fleet. So, the lever is pretty straightforward. You will be able to tell what ships are performing and which ones aren’t. And if you don’t have a good redeployment plan, then it would make sense to exit.

The next question is from the line of Steven Kent with Goldman Sachs. Please go ahead.

Hi, a couple questions, one, you had some realized gains on fuel derivatives for 2016. I think you said it was $330 million in March. Can you tell us what it’s running at now? And then, your marketing programs that were being shifted, what specifically was shifted and what was the rationale? And then, finally on the Queen Mary retrofit, are we going to see more Cunard and Queen ships follow up over the next couple of years?

I’ll take the first question, Steve. In terms of realized losses on fuel derivatives, it’s $285 million that was built into our June guidance, as a result of the change in Brent, which moved up, the losses came down just a little bit. In terms of advertising built into the guidance, I mean it was -- these are small movements that the brands planned well-ahead and make decisions over time, based off of what they see happening in booking trends and other things, and they will reseasonalize. Keep in mind, every good plan has got to change, as you see movements. It’s no different when we see strength in bookings, we raise prices; we make changes over time. So that’s really essentially, it is not a big deal and it’s just some seasonalization between the quarters.

We manage to yield; we don’t manage to a timeframe. So, costs can move in and out quarters, but we are managing to yield and return.

Queen Mary.

What was the question on Queen Mary 2?

The Cunard, the Queens, and are we going to see more Cunard ships?

Are we going to see more ships in Cunard?

Whether you’re going to retrofit some more of them?

I am sorry?

I asked whether you’re going to retrofit more of the Queens.

Oh, retrofit. Basically, Queen Mary 2 went into a dry dock as the ships periodically do three to five years, depending on the class of ship. And the others are practically new, have gone through a dry dock recently. So, it’s just part of dry dock. On the other hand, Queen Mary 2, there was a re-mastering. I mean, she is the only ocean liner out there, and we’re very, very proud of her. And wherever she goes, she is still iconic. People gather by the thousands and tens of thousands to see her sail in and sail out. And so, we take great pride in her, and also we can generate the yields from the additional investment. So, we did do a re-mastering of the Queen Mary 2 versus just a traditional kind of dry dock where you refresh.

The next question is from the line of Jamie Rollo with Morgan Stanley. Please go ahead.

Just a few questions on China Festival please. Could you give us a feeling for roughly how much your yields are down by year-on-year, just sort of directionally, and what the yield premium is to the rest of the Group now, please?

We’ve said all along, the yields are down. We had previously indicated that the ticket prices were higher than the fleet average. And at this point in time, the ticket prices are in line with the overall fleet average, but it’s really an apples and oranges comparison, because in China you’ve got a much higher percentage of the fleet is in the contemporary brands. And so, you’re comparing apples and oranges when you’re taking the average China ticket yield to the overall fleet average ticket yield. So, keep that in mind as you evaluate the numbers.

Okay. So, it’s fair to say, it’s not yield accretive to move ships to China, if they match the existing brand type?

They’re yield accretive to the brands within the brand.

Within the brand, it’s definitely yield accretive.

Understood; and you also mentioned some negotiations with charterers for next year. Is that a bit more aggressive than usual because you’ve got several new brands entering the market, Norwegian, MSC, Dream, or is that in line with what you saw last year?

I would say the negotiations are in line. I mean, there is always a negotiation. And, I don’t want to overstate that. I mean, they are our partners; they need to win too, but of course they are going to try to get as great a return as they can possibly get. There are sub agents involved with distributors and so on and so forth. So, I don’t see any greater intensity in the negotiations when you bake fundamental change in the tone or nature or anything like that. But there’s always ongoing negotiation, as you look out into future years with the charters.

And then, the other question is just on your yield guidance for the rest of the year. I think if my math is right, you need something like 3.5% to 4% in Q4. Is that sequential improvement just the mix of deployment; you’ve got obviously more Caribbean and more Europe or is that a genuine underlying improvement for Q3?

You do also have to remember you’ve got slightly easier comparison in the prior year to Q4 versus Q3; that’s part of it as well as mix of the ships and the deployments and a number of other things.

But fundamentally, it is improvement.

And each quarter is still roughly 100 basis points all accounting benefit to revenue yield still?

Correct.

Directionally, yes.

Directionally?

Yes.

The next question is from the line of Stuart Gordon with Berenberg Bank. Please go ahead.

Just a quick question just to break down a little bit on the $0.17 of headwind that you have now got. My back of the envelope suggests that that would be about $0.07 or $0.08 of fuel and around about $0.10 of currency; I was just hoping you could confirm that. And on the currency, just interested how you’ve dealt with sterling, as we move into the third quarter, because obviously before the big move, most people will have paid for their holiday. So, have you already swept that into dollars, so the third quarter is not going to be such a big hit or was that sitting in sterling and therefore the repatriation cost still exists?

As far as the split is concerned, the fuel price was roughly, including derivatives, $0.10 and currency was $0.07, which made up the $0.17 compared to our March guidance. In terms of the third quarter, the way it works from an accounting perspective is the exchange rate gets locked in for accounting when the people pay for their cruise. From an actual exchange of physical currencies from one to another, we do that, generally speaking, on a daily or a weekly basis, depending on what currencies we need. We do have bills in British pound; we retain those currencies; and the extra we do exchange into U.S. dollars or euros or whatever currency we’re short.

So, just to be clear, people will have paid for their holiday before the drop in sterling, so that will have been locked in at the better sterling rate for the third quarter?

That is correct. And, in the 10% impact, we take those locked in rates into account when we get a currency impact on our P&L. So, I said that 10% movement would be $0.09 for the third quarter. I took into account that a big chunk of that revenue has been paid for and locked in.

The next question is from the line of Dan McKenzie with Buckingham Research Group. Please go ahead.

I am wondering if you can help us size the distribution opportunity in China in Carnival’s presentation today. So, when you say China’s a volume story, how big a lever is the distribution lever there?

What do you mean when you say how big a lever is the distribution?

So, when you think about the number of travel -- you have 12 offices there; I appreciate the perspective. But, when you think about the volume of travel agencies, how many total travel agencies are licensed for outbound travel and how many relationships does Carnival have today with those travel agencies and the growth trajectory of those agencies?

Yes. So today, we are beginning to expand the number of distributors. Historically, we’ve worked with principally a group of 10; we are starting to expand beyond that. We are starting of course in the -- near Shanghai, near Tianjin where the ships were, and we are starting to expand throughout the country. That’s why we expanded the offices. Some of those distributors obviously have sub agents, sub distributors that they’ve worked with in the past. So, our reach is a little bit more than what a lot of -- quite a bit more than the 10 we work with directly through that. But we are expanding the -- as we expand capacity, we are expanding the reach of distributors and going into not only further through the country but also more density where the ships are. So, it’s a nascent market and we are building it as we go.

Keep in mind, there is 26,000 travel agents in China; about 2,600 of them have outbound licenses. And so, what we’re seeing happening is while there is a small group that tends to charter let’s say the full ship, we’re probably dealing with 250 to 300 agents who are doing large groups and chartering part of a ship at this point in time. But, those 250 or 300 travel agents are also selling through the other 24,000 travel agents around the country; that is what Arnold called sub agents, and they are selling into these groups and charters. So, it’s a tremendous distribution system and it can be leveraged. And it’s part of the reason why we are so optimistic about the growth in China, tremendous opportunity.

That will do it for me. Thanks so much, guys.

Operator, I guess, at this point we probably have time for one more question.

There are no other questions on the line.

Okay, everyone, thank you so much. I really appreciate it and look forward to seeing you guys during the quarter and to sharing with you next quarter’s results. Thank you very much. Thank you.