EDITOR’S NOTE: While other destinations will see more ships, more passengers and more economic benefits from cruise tourism in 2010, Alaska is facing a serious downturn which will affect businesses and jobs across the state. Cruise lines are ready to take legal action while Alaskan businesses are looking for their own solutions. Tony Peisley takes the temperature of this land of the glaciers.

By Tony Peisley

Micky Arison has been accused of many things – that goes with the territory of heading up a large, publicly-listed company these days – but making idle threats has not been one of them.

So, when the Carnival Corporation chairman and chief executive starts talking about taking legal action against the state of Alaska, people sit up and take notice.

Unfortunately, when he and other industry leaders warned in 2006 that Alaska would be shooting itself in the foot if it voted in a $50 ($46 excise plus $4 per berth) head tax and 33 percent tax on on-board gambling revenues, no one listened.

Its cruise business has since stagnated, while other destinations have enjoyed significant increases on the back of industry capacity growth and global deployment trends and now, for 2010, it is set to fall 14 percent.

The economic recession is clearly an issue – pricing during the 2009 season was reported as being down 30-40 percent as Alaska suffered the most from the seasonal cruise markets – but the tax and other cruise-unfriendly legislation is clearly playing a major part in the downturn.

State economists have predicted the loss of 300 leisure and hospitality jobs just as a result of a recession, which is affecting the entire Alaska tourism industry. As cruising plays a major role in Alaskan tourism, its particular problems are bound to have a huge impact.

Arison described the $50 tax as “very significant in today’s sensitive consumer environment” and has warned that the state’s economic and job losses would be greater than income from the tax.

He also said: “The saddest thing is that we have been unable to find anybody willing to deal with the unintended consequences of this ill-conceived initiative and its impact on the Alaska economy.”

As a direct result of the new taxes, the cruise lines moved to set up the Alaska Cruise Association (ACA) in 2007 in order to mobilize more effective support for the industry in the community, and more lobbying expertise with local and state government.

Its president, John Binkley told me: “We have tried for several years to get a change but without success. So we are now in court on behalf of both our cruise line members and also our partners in the Alaskan business community.”

A recent Supreme Court ruling against a tax on oil tankers introduced by the city of Valdez was made on the basis that it was effectively a tax just for the privilege of entering a port and therefore unconstitutional under the so-called “Duty of Tonnage” clause. This has given encouragement that the Alaska cruise head tax could be challenged on the same basis.

Binkley said: “We are confident in our legal position. As well as the Supreme Court ruling, there has been another favorable one in the Court of Appeal on the Tonnage Clause. These have been the first rulings since the 1930s so it is precedent-setting law, which we believe supports our case.

In the meantime, there was more welcome good news for the industry when the Alaska Legislature stepped back from its much-criticized wastewater discharge requirements (which were effectively impossible for cruise ships to meet at this time) by passing a bill allowing ships to obtain a waiver for up to three years if they are using the most economically feasible technology now available to treat wastewater.

There will, though, be a report on cruise ship wastewater performance published in 2013 and the industry continues to complain about the policies of the state towards cruising.

Royal Caribbean Cruises Ltd (RCCL) chairman and chief executive Richard Fain said: “A lot of people were misled on the impact of the measures proposed in 2006” but Royal Caribbean International (RCI) president and chief executive Adam Goldstein told me: “We have struggled up until now to engage the Alaska Government about the situation.

“It has seemed to be in denial about the gravity of the situation, although something clearly needs to be done to reverse the downturn in capacity being deployed in Alaska.

“There is no concrete sign yet that the legislature or executive is planning to do anything, but it is certainly true that the head tax is the most controllable part of the whole macro-economic situation, which has certainly reduced people’s propensity to cruise to Alaska.”

Holland America Line (HAL)’s executive vice president of marketing, sales and guest programmes Rick Meadows told me: “The head tax has a big impact on a family of four. It is also a visible surcharge so they can see exactly what it is costing them.

“I think the drop in demand and ship withdrawals would have happened because of its imposition even if the economic situation may have made the impact quicker and more pronounced.”

Celebrity Cruises president and chief executive Dan Hanrahan told me: “The Alaska Travel Industry Association (ATIA) did not do a good enough job in persuading politicians against the head tax, but the fact that the wastewater disposal regulation was finally overturned might suggest a turning of the tide. I think there is a growing sense that they have taken a wrong turning.

“The ACA is working very hard to get the message out about how much benefit cruising brings and how important it is to small businesses in places like Juneau. This may not have been fully understood by politicians in places like Anchorage.

“There is, though, a hardcore group of opponents to cruising – mainly, I think, environmentalists – who are not persuaded, but we can only hope that the state sees what is happening with the ships being withdrawn.

“With all the expansion of capacity in the cruise market, Alaska must be the only major cruise destination which is seeing its numbers go down.”

ATIA is forecasting a 14 percent drop in Alaska cruise passengers, falling from about a million in 2009 to 860,000 in 2010.

Princess Cruises is cutting capacity by 16 percent (48,000 berths) by reducing from eight to seven ships and cutting sailings from 130 to 112; HAL will be down just 6 percent (11,000 berths) as it is retaining eight ships but with one doing 14-day instead of seven-day itineraries so reducing cruises from 158 to 149; RCI is cutting back by about a third, with three ships going down to just two; NCL is also down from three to two for a 25 percent capacity cut; and small ship operator Cruise West, which went down from seven ships to five this year, drops to four in 2010.

ATIA president and COO Ron Peck said: “Hundreds of businesses, especially small ones, will feel this where it hurts. The impact will also be felt well beyond what many Alaskans think of as cruise territory, because a substantial number of cruise visitors also take the Alaska Railroad and motor coaches to experience Denali, Fairbanks and other inland places.”

Much of the capacity decrease from market leaders Princess and HAL is in Gulf of Alaska cruises, which are those most often combined with pre or post-cruise land tours.

Peck said: “It could mean a reduction of up to 25 percent for some visitor businesses in Southcentral and Interior Alaska. I would like to say there is a bright spot but I have yet to find it.”

About 60 percent of Alaska’s 1.7 million summer 2008 tourists (1.95 million for the full year) from outside the state arrived on cruises, and the industry injected nearly $1.4 billion into the Alaska economy according to an economic impact study by the McDowell Group. It also directly supported 14,500 jobs, with $465 million wages paid to Alaska workers.

The latest CLIA economic impact study for North America (prepared by Business Research & Economic Advisors/BREA) puts the economic benefit generated by the cruise industry for Alaska in 2008 at $1.24 billion in direct purchases ($584 million from passengers and crew), $1 billion in wages and 25,700 jobs.

ATIA figures for all tourism show $1.6 billion direct expenditure in the summer rising to $1.83 billion for the full year with the average visitor spend of $934. The total economic benefit is $2.75 billion.

Cruise lines do business with 2,175 Alaskan vendors, and the CLIA/BREA study shows that tourism-related organizations such as tour operators, hotels and airlines received $854 million from them during 2008.

Southeast Alaska gets about 30 percent of the spend and 7,000 jobs; Southcentral 28 percent and 3,000 jobs, and the Interior the other 21 percent and 2,500 jobs.

The cruise industry also spends more than $70 million to market the state and gives $2.3 million to more than 220 Alaska non-profit organizations.

There are various figures for the total Alaskan cruise market but the Cruise Line Agencies of Alaska estimate that its previously significant growth has tailed off since 2008. As cruise lines generally schedule two years ahead, this would suggest the downturn is a direct result of the new taxes.

Between 2003 and 2008, numbers increased by a third from 777,000 to 1,033,000 but 2009 will show a small fall to about 1m and 2010 will fall back to 90,000 below the 2005 figure of 949,000.

About 40 percent of passengers cross the Gulf of Alaska at the start or finish of their cruise, and their numbers grew by nearly a quarter (23 perccent) over the five years to 2008. This is significant as most of these will have taken a cruise-tour package with travel inland from Seward or Whittier.

Overall 22 percent of Alaska cruise passengers book a cruise-tour and 90 percent take at least one shore excursion during the cruise. More than three-quarters (77 percent) also go shopping ashore.

So the cruise lines sending a minimum of 142,000 fewer passengers to Alaska regions in 2010 has serious implications.

The 600,000 passengers taking Inside Passage cruises is expected to fall just 20,000 to 580,000 but the 400,000 Gulf of Alaska cruisers will slump by 30 percent to just 280,000, with possibly an even higher fall in cruise-tour sales.

Sitka, Whittier, Haines and Wrangell will suffer the steepest drops.

Warning that Alaska faces intense competition from other destinations, ATIA president Peck said: “The travel trade perception is that Alaska is over-taxing visitors and that it is a long-haul destination when the trend is towards destinations closer to home.”

On taxation, the ATIA estimates that – in addition to $31 million from lodgings and $8.5 million from car rental – the state is paid more than $80 million by the cruise industry, $56.5 million from the 2006-imposed head, ocean ranger and gaming taxes and the remaining $15 million from corporate cruise income tax.

Alaska has priced itself out of the market, with its ports now occupying four of the top five most expensive places for cruise ships to operate in North and Central America and the Caribbean. Prior to the new 2006 taxes, only Skagway (8th) featured in the top ten.

This meant that Sitka, which is a tender-only port, became more expensive for cruise ships to visit than Miami.

Peck predicted a fall in summer tourists from 1.7 million in 2008 to 1.4 million in summer 2010, mostly because of the cruise cutbacks.

“This,” he said, “will lead to a loss of jobs throughout Alaska with a reduction of direct visitor expenditure of $131 million. Some tourism businesses will not survive and the Railbelt corridor will be severely impacted.

“We need to eliminate or dramatically decrease the head tax and we need the tourism marketing tax credit bill to be passed in time to help us promote 2010 as it will give us a $20 million budget to make Alaska competitive.”

One of the major ports of call, Ketchikan, has seen cruise traffic grow from 380,000 (453 calls) in 1994 to 921,000 (562) in 2005 and 942,000 (502) in 2008.

As a result, it has recently invested heavily in expanding its cruise infrastructure but, in 2010 it will lose 71 calls by NCL. HAL, Princess and RCI.

Skagway has seen cruise visitor arrivals drop from a record 821,000 in 2007 to 765,000 in 2008 – with crew numbers falling from 344,000 to 323,000 – and a 7 percent drop (to about 710,000) in cruise visitors was forecast for this year.

What Alaska stands to lose is, though, perhaps most clearly highlighted in another economic impact study (also by McDowell), which shows just how important the cruise industry is to Juneau – the state capital as well as the leading cruise port of call.

In 2008, out of 1.1 million (out of state) tourists to Juneau, 970,000 arrived on 40 different cruise ships making more than 600 calls. At an average of $144 a head, these cruise visitors spent $140 million of the total $189 million tourist spend, with those crew members going ashore spending an average $300 a head to add another $7 million.

The 970,000 total excludes the small percentage of passengers who do not disembark and the double-counting of the small number of passengers of small cruise vessels who embark and disembark their cruises at Juneau.

The full total was 1,032,000 which drops to 1,024,000 when just embarking and transit passengers are counted. This was less than 2 percent up on 2007 but 73 percent ahead of 1999.

The cruise lines paid $8.7 million (out of $14 million paid to both public and privately-owned docks) in moorage, docking and passenger fees to the City and Borough of Juneau. This compares with just $1.3 million room tax revenues, of which only $800,000 came from out-of-state visitors.

Cruise lines and tour operators, providing package cruises with stays, spent $20.1 million with about 250 Juneau vendors.

The total visitor industry in Juneau – of which cruising represents more than 60 percent – supports 2,230 direct and 500 indirect jobs, which represent 13 percent of Juneau’s total jobs.

The wages of these direct/indirect jobs amount to $95 million – 9 percent of the total paid to all Juneau workers.

Of the tourist-supported jobs, 39 percent are in the tours and excursions sector, 20 percent in retail, 13 percent in food and beverage and 7 percent in accommodation.

In the light of the looming downturn, one of the key findings of the 2008 study was that, while air traffic into Juneau had increased just 24 percent since 1994, cruise traffic had tripled.

It was little wonder, then, that a summit was held in Juneau at the end of July to address what its organizers – the First Things First Alaska Foundation (FTFAF) described as “the bleak economic future for southeast Alaska.”

FTFAF is a non-profit group formed two years ago to fight against burdensome regulations on businesses like mining, timber and fishing.

About 230 legislators, civic and private sector representatives attended a meeting which did include some speakers from the cruise sector but which was not organized or run by it. The meeting’s theme was “to see whether there is any serious course of action that can be taken to reverse the trend which has made Alaska uncompetitive”.

Speaker after speaker painted a bleak picture of what awaits the state in 2010.

Lorene Palmer, president and CEO of the Juneau Convention & Visitors Bureau said that cruise visitors had fallen in 2009 to 975,000 but would plummet 16 percent to just 812,000 in 2010.

She said: “This will mean total cruise-related spending (by cruise lines, crew and passengers) will fall by $25 million to $142 million. There will also be about $1 million less sales tax collected.”

It was a similar story from Ketchikan Visitors Bureau executive director Patti Mackay who said: “About 14 percent of employment in Ketchikan is supported by cruise tourism which also generates $146 million out of $163 million visitor spending. “Passenger numbers have fallen this year from 942,000 to 882,000 but will go down much more dramatically in 2010 with 770,500 expected – a 12.5 percent fall – on 14 percent fewer calls.

“As a result, cruise passenger spending (which averages $159 per head) will drop by nearly $18 million, the local government will receive $1.9 million less revenue and hotels will lose more than 300 bed nights. This is bound to reduce the amount of jobs, too.”

One immediate impact of the downturn has been the cancellation (writing off $3 million in the process) by the Alaska Native Corporation Goldbelt of its planned $200 million development of Hobart Bay as a wilderness cruise port of call 60 miles south of Juneau. This would effectively have been Alaska’s first Caribbean-style private island.

Goldbelt is also forecasting a 10 percent fall in revenue for its Mount Roberts Tramway excursion in 2010.

But it was the founder of the Skagway Street Car Company Steve Hites who made the strongest appeal at the summit.

He said: “When the Cruise Ship Initiative had just become law a Haines businesswoman worried that cruise lines might look at sailing on the Eastern seaboard instead of in Alaska and (cruise tax proponent) Gershon Cohen said that was `ludicrous – people are not going to visit Baltimore instead of coming to Alaska on a cruise.’

“Cohen was wrong – they ARE sailing out of Baltimore. He also said that adding $50 to the cost of a cruise ticket was not going to keep anyone from buying a cruise to Alaska – he was wrong again.

“We fooled ourselves into thinking that people will always come to Alaska because where else would they go?

“I blame myself for letting the Northwest Cruise Ship Association and the cruise lines take the ball during the ballot initiative and by doing that I allowed the tax proponents to paint our industry as just a bunch of wealthy outside foreign interests trying to outspend and out-advertise â??the people’.

“Well we – the people – would fight the tax very differently if we had to do it over again … arguing that the fatal fallacy of regressive taxes, duplicate regulations and burdensome restrictions will always drive any customer somewhere else.

“The three biggest lines are pulling an unprecedented amount of tonnage out of Alaska and it will require a huge commitment of time, energy and political will on the part of both the public and private sector to get those lines to consider coming back.”

Alaska ports and businesses are not, of course, the only losers in the current downturn.

Having overtaken Vancouver as the leading homeport for Alaska cruises, Seattle is also being affected by the â?¨downturn. With the cruise sector generating $274 million annually for the city, it will be as concerned as its counterparts in Alaska and Canada.

Tourism Vancouver estimates that 62 fewer Alaska sailings from the Canadian port in 2010 will mean 260,000 revenue passengers lost and a C$120 million reduction in the C$312 million economic benefit the sector usually brings the city.

The prospect of a significant reduction in benefits led to CEO’s from Vancouver’s airport, port and tourist agencies meeting at Canada Place in June to strategize about the fact that “the bottom is dropping out of Alaska cruise market”.

Other emerging British Columbia ports such as Victoria, Prince Rupert, Nanaimo and Campbell River have all either invested in new cruise infrastructure or have plans to do so. In other words, a sustained Alaskan downturn will impact their communities, too.

So what are the real prospects for a turnaround in Alaska cruise tourism?

ACA’s John Binkley told me: “We are definitely seeing a change here. It is coming from the business sector – in other words the voting public, so the politicians have to take notice.

“We need to do something to make Alaska a less expensive place in which to operate, whether this is by lowering taxes, dropping fees or getting rid of expensive regulation.

“There is no doubt that Alaska got complacent and took the cruise lines for granted. It now needs to be proactive and reach out to the lines and see how it can make it more attractive for them.

“I can remember how hard it was to make a living in the visitor business in Alaska before the cruise lines came. They have made many lives here so much better and Alaska needs them.”

Steve Hites is clear about what needs to be done. He said: “The head tax must be repealed and businesses in Alaska must reduce our costs to remain competitive or we will not survive.

“Also, the highest possible ranking member of the administration must also be sent out with representatives of the industry to call on the cruise lines, ask for their recommendations on how we can become a better destination, apologize for past mistakes, explain the changes the State is making now and plans to make in the future, offer our hand to them in a renewed partnership and ask for them to bring their business back to Alaska.”

A survey taken after the Juneau summit confirmed a general acceptance that the Cruise Ship Initiative was a major cause of the downturn and needed changing. It was accepted, too, that popular support was needed to effect that change.

There was also a demand to exert greater influence on State tourism policy and also to stimulate increased tourism marketing through joint state and private interests.

FTFAF executive director PeggyAnn McConochie said: “Although there was a lot of negative information being put out there, it was not a negative meeting.

“People were determined to do something to put things right and there are a variety of different routes – legislative, legal, lobbying, marketing and PR – to achieve this.

“Above all, it is vital that it is explained to the people of Alaska that tourism affects all of them, it is one of the legs on which the state stands or falls.”

Source: Dream World Cruise Vacations

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