Earlier this week, passengers from a Princess Cruises ship in Hawai'i returned to the Mainland after their tour was cut short following an outbreak of the Norwalk virus.

The pace of bookings in North America, the biggest cruise market, has not been "at the rate normally experienced," Chief Executive Peter Ratcliffe said in a conference call today after the company posted a fourth-quarter loss on costs for breaking a takeover agreement to merge with a rival.

P&O Princess gets more than two-thirds of sales from North American vacationers and generates about 80 percent of its profit in the second and third quarters. The United Kingdom company has recommended shareholders accept a takeover bid worth about $7.3 billion from Carnival as its U.S. rival seeks to retain dominance of the $15 billion-a-year industry.

The outlook "largely reflects Princess's greater exposure to Europe," said Morgan Stanley analyst Jamie Rollo, who rates the stock "overweight."

Shares of P&O Princess have declined 9.9 percent so far this year.

P&O Princess posted a net loss of $85.8 million, or 12.4 cents a share, compared with net income of $16.3 million, or 2.4 cents a share, in the year-earlier period. Sales rose 18 percent to $570.6 million.

The company paid a one-time fee of $62.5 million to end an agreement to combine with Royal Caribbean Cruises Ltd. after P&O Princess's board decided to accept the Carnival offer. It spent a further $54.5 million, including advisers' fees. The Carnival bid is worth about $7.2 billion in stock and assumed debt.

"The Carnival transaction is proceeding on track" and P&O Princess shareholders will be asked to vote on the offer in early April, Ratcliffe said.

On bookings, Ratcliffe said the most significant impact has been on second-quarter sailings, with first-quarter berths almost fully booked.

"There's a significant downturn in Americans' desire to go to Europe, particularly earlier in the season," Ratcliffe told journalists. "People are more reluctant to travel, particularly to the Mediterranean in that April, May period."

Should war break out in Iraq, P&O Princess will be able to move its ships to areas as demand changes as a result of the conflict, Ratcliffe said. P&O Princess has two ships in the Mediterranean which are "the weakest at the moment."

Bookings for sailings scheduled for the third quarter have been less affected because Alaska cruises are performing well, the company said.

"While clearly the wider economic and political environment makes us somewhat cautious, we continue to be impressed by the resilience of our business," said Ratcliffe.

P&O Princess expects "modest dilution" in yield, or the proportion of a passengers' tour costs that the cruise line receives, at its U.K. business because capacity has increased faster than demand. Expansion in Germany is also "putting pressure on yields," the company said.

"The U.K. travel market's not doing particularly well at the moment," Ratcliffe said. "The worst travel market today out of the three that we deal with is Germany. It's the market where we are growing the fastest at the moment. The fastest yield dilution will be in Germany."

P&O Princess expects first-quarter yields to rise 1 percent to 2 percent, boosted to as much as 7 percent with favorable exchange rates.

For all of 2002, capacity expanded 13 percent, while yields were 4 percent lower, in line with P&O Princess's earlier forecast of a drop of 4 percent to 5 percent.

Costs fell 8 percent from 2001 levels after P&O Princess used newer ships with smaller crews, froze pay in the U.S. and reassigned vessels after demand in some regions plunged following the Sept. 11 U.S. attacks.

Full-year net income fell to $208.8 million, or 30 cents a share, from $383.1 million, or 55.1 cents, in 2001. Sales rose 3.1 percent to $2.53 billion for 2002.

The company maintained the fourth-quarter dividend at 3 cents a share.

Carnival first offered to buy P&O Princess in December 2001, a month after P&O Princess and Royal Caribbean announced plans to combine. P&O Princess initially rejected the Carnival offer because of concerns about the transaction winning regulatory approval and deliverability. The board last month recommended the Carnival deal to shareholders.