By Cruise Week

No official word yet, but well-placed sources tell Cruise Week that the government has reached a resolution in determining how they will interpret the foreign-flag cruise ship rule. “They’ve decided to limit enforcement of the Passenger Vessel Services Act (PVSA) to markets where there are large U.S.-flagged ships currently operating – and there’s only one: Hawaii,” one insider said. “So Alaska, Key West, Maine, etc. don’t have to worry about changes.”

All this follows a Senate Appropriations sub-committee hearing in which Sen. Ted Stevens (R-Alaska) chastised Homeland Security Secretary Michael Chertoff for taking so long to reach a decision. “There is no economy left in Southeast Alaska except tourism, and they all come in on these cruise ships,” said Stevens, explaining his frustration with the slow-moving process to essentially exempt Alaska from the PVSA.

Stevens and Sen. Daniel Inouye (D-Hawaii) conferred and essentially agreed to a compromise limiting enforcement of the PVSA to Hawaii waters. Their influence was deemed critical to a decision being reached. NCL’s Colin Veitch touched briefly on the issue during a press conference in Miami Beach this past week: “It makes no sense to [restrict foreign flag vessels] where there’s no U.S. flag fleet to protect.”

If all goes as expected, it would appear NCL is the big winner in this resolution. Requiring foreign-flagged ships to spend 50 percent of their time in foreign ports if doing Hawaii itineraries from Southern California could essentially wipe out that business. Meanwhile, NCL’s Alaska business remains unaltered.

Impact on Foreign-Flag Companies

How big of a hit will such a decision have on those lines operating in the California-Hawaii market? A look at the numbers would indicate minimal impact. Carnival Corp. carried 7.6 million passengers in 2007. Of those, two lines, Princess and Holland America, basically account for all the regularly scheduled service to Hawaii. “We count it by season, as there are none from May-September,” reports Carnival Corp.’s Tim Gallagher. “Holland America plus Princess passenger counts, based on two lower berths, for the current season (07/08) CA-HI roundtrip is 57,354. The current season ends in mid-April.” A small decrease is scheduled for the next year. “Next year, from October ’08 through April ’09,our combined HAL/PCL total passengers is 54,988,” reports Gallagher.

Add RCL/Celebrity to the mix, and the overall number increases to about 73 thousand total out of more than 11 million passengers [Royal Caribbean carried 3,905,384 passengers in ’07]; so California/Hawaii accounts for well under 1% of the total passengers carried by the companies.

While the major cruise lines would appear to be relatively unscathed, the same cannot be said of Southern California ports trying to build cruise business. Obviously, the percent of cruise business from the port of San Diego involving cruises to Hawaii is far higher than 1% of their total embarkations. The same goes for Los Angeles.

That’s why in their earlier arguments opposing implementation of the 122-year-old law, port officials such as Port of Los Angeles Executive Director Geraldine Knatz took pains to emphasize the market differential. “Cruises out of California ports appeal to Americans who prefer a longer at-sea cruise experience, as opposed to internal, multi-island cruise itineraries in the Hawaiian islands,” stated Knatz in a press release.

For the most part, agents we talk to agree with that assessment, though acknowledging some market overlap with those combining an NCL America cruise with a land stay, hence increasing the vacation to two weeks.

However, it’s widely agreed that the family market plays a bigger role in NCL America than it does with a Holland America cruise from San Diego to Hawaii. Looking ahead, these market distinctions are critical when it comes to potential rebookings. What’s not clear yet is when the ruling will take effect. Also far from clear is what percentage of the business already on the books for California-Hawaii cruises will actually rebook their vacation on Pride of America.

Source: Lehman Publishing Co

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