Did Alaskans sink a profitable tourism industry?

By Tim Bradner

The recent decisions by cruise companies to redeploy ships from Alaska voyages in 2010 will have broad ripple effects in the state’s economy, particularly in Southcentral-Interior Alaska regions.

The visitor loss is estimated at 140,000 in 2010, which translates to 1,800 tourism-related jobs lost statewide, and a loss of $72 million per year in annual payroll.

In Southcentral Alaska, there will be 300 cruise-related jobs lost in 2010 of 3,000 employed in a typical year. In the Interior there will be 309 jobs lost of 2,500 usually employed due to cruise ship tourists.

Ralph Samuels, Holland-American Lines’ vice president for Alaska, presented the dismal projections on lost passengers and jobs May 30 in a presentation to the Resource Development Council in Anchorage.

The redeployment in 2010 is a one-two punch for the state’s tour industry, however, because 2009 is likely be a down year as well. The ships and passengers may come north but tourists are likely to tighten their wallets, Samuels told the RDC.

Cruise ships will operate because schedules have been committed and the companies will fill them through heavy discounting, he said. One company is now offering a seven-day cruise to Alaska for $299.

“The passengers will be there but will they spend any money once they get here? That’s what has people worried,” Samuels said.

Land tours to Denali National Park and Fairbanks from cruise ship ports in Seward and Whittier are likely to suffer in 2009.

Many people hope a rush of late reservations may improve things but it has been slow so far, Samuels said. For example, reservations were down 40 percent from last year for the locally owned Riverboat Discovery tour in Fairbanks, and the family-owned company will probably hire a third fewer people to staff the operation this year, he said.

As for 2010, Alaskans helped encourage the departure of the ships by approving a voter initiative implementing a $50-per-passenger tax on cruise tourists. It’s still sitting in the state treasury, Samuels told the RDC.

The consequences of the redeployments are even worse than the numbers would indicate, however, because those ships, and the marketing dollars that go with them, will be competing with Alaska, luring vacationers to the Caribbean or Mediterranean instead of Alaska.

The cruise companies’ profit margins in Alaska are taking a beating for a lot of reasons, the long sailing distances across the Gulf of Alaska being one, but the $50 passenger tax is high on the list. The redeployed ships won’t return until margins improve and the effects of the 2010 redeployment will likely extend through 2011 and 2012, Samuels said.

The national recession set the stage for this, but the $50-per-passenger head tax on cruise visitors has made matters worse, Samuels said, along with the threat of applying unrealistic high, and costly, environmental requirements on the ships.

This year the state Legislature gave the Alaska Department of Environmental Conservation authority until 2015 to waive application of the most stringent standards, but cruise ships in Alaska have met some of the initial requirements of the 2006 citizen initiative.

The $50 tax is added to the passenger’s ticket, but the cruise companies eat the cost in the end because they have to keep the overall price low enough to compete with cruises to other destinations.

“This isn’t about taking a stand (on the tax). It’s about the economics. It’s simply a business decision,” the cruise companies have to make, Samuels said.

Much of the money collected from the head tax is still sitting in the state treasury because of legal uncertainties as to what the money can be spent on. The tax income has to be spent on things that benefit the cruise ships or its passengers, or it runs the risk of being unconstitutional under the commerce clause of the U.S. Constitution, which bars states from imposing taxes on trade with other states except under certain circumstances.

Legislators have struggled to find appropriate cruise-related projects to spend the money on, and some of the $70 million actually appropriated to date may be on projects that may not pass muster if there is a lawsuit. If that happens, the state will have to refund the taxes to the cruise passengers.

In his presentation, Samuels cited independent and influential travel publications like Cruise News Daily, Cruiseblogger and Travel News.

On April 9, Cruise Daily headlined an article with, “What’s wrong with Alaska’s thinking?” and went on to say “wrong thinking in Alaska is threatening to destroy the entire tourism industry as they know it.”

Cruiseblogger wrote, “Prices are down and the state has added tremendously to the cost side of the equation in the Alaska market. As a result there are other markets where it’s more profitable to operate cruises than Alaska, and there are more opening all the time.”

Similarly, Johanna Jainchill, a writer for Travel News, wrote, “Recent decisions by cruise lines to redeploy ships from Alaska because of high costs imposed by a 2006 citizen referendum reflect the confluence of the recession, which has cut into Alaska cruise prices, and the provisions of the measure, which add to the cruise companies’ costs of operating in Alaska.”

Source: Alaska Journal of Commerce