Friday, August 21, 2009

Alaskans Are Starting to Get It - But Not Completely and Way Too Late

This week, Alaskans held another "tourism summit," and it shows they are now recognizing their tourism industry is heading into deep trouble, but from the media reports coming from the summit, they still haven't figured out why, but they are jumping ahead to the step of trying to figure out what to do about the declining numbers, especially of cruise ship passengers.

They know that the cruise lines, which are the biggest player in their tourism industry, are going to reduce their capacity there by 140,000 berths next year, so they can expect at least 140,000 fewer visitors. The first big thing they're missing, is that they are trying to figure out how to get more visitors to come to Alaska next year. The cruise lines will adjust their pricing as they always do to make sure they operate completely filled, so no matter how many more visitors they interest in coming to Alaska, the cruise lines aren't going to be able to bring any more. Instead they should be asking the cruise lines why they keep taking ships out of Alaska, and what they can do to keep from losing more. (The cruise lines have been trying to tell them all along, but no one seems to want to listen.)

That brings us to the next big thing that Alaskans are missing. Alaskans have a product/service they want to sell (Alaska), and the cruise lines are the potential customers. They can't set the price (the taxes and fees the cruise lines pay) so high for their product that they aren't competitive with their competition (ports in other areas of the world). Just as a restaurant would market to consumers and offer incentives (to keep regular customers), Alaska needs to be doing things to make their destination as attractive or more attractive to do business with than the port "down the street."

Rather than putting several million dollars into a consumer marketing campaign, as is being proposed, Alaska would probably get much more bang for their bucks if they put that money into incentives for the cruise lines (to keep ships there) to defray the higher fees and taxes imposed on them in Alaska.

A subpoint the folks in Alaska don't understand because the cruise industry changed in the last decade (while Alaska's attention was on figuring out new fees they could charge and restrictions on operations) is that there is a worldwide competition for ships, not only among ports within an area, but also among regions of the world. There are many new emerging source markets, and they all want ships sailing close to their home. Alaska is no longer competing just for Americans to choose to take a cruise there instead of the Caribbean or Mexico. They now have to compete just to keep that ship in the American-sourced market rather than sending it off to the Mediterranean for Europeans, Central America for South Americans, Asia for the Chinese or the South Pacific for Australians.

The next big thing Alaskans are still missing is it's not the downturn in the global economy that's causing their main problem. Certainly that plays a role in people spending less once they get there, and it is also causing the cruise pricing to be reduced to fill the ships, but each ship that comes is operating at or near capacity. Those rates the cruise lines can charge have fallen but at the same time, the costs to cruise lines of doing business in Alaska have also risen dramatically. Ticket prices have fallen all over the globe, and cruise lines are dealing with that. The issue really isn't the price or the cost alone; the big thing to the cruise lines is the profit margin, which in Alaska has shrunk to much less than in other parts of the world. There's not too much Alaskans can do to increase what consumers are willing to spend for a cruise, but there's a lot they can do to reduce the costs of the cruise lines in Alaska.

The last big thing that Alaskans seem to be missing, at least according to the tone of the coverage of this week's summit, is that this is not temporary. When the economy improves, the ships that have left Alaska aren't on rubber bands, so they won't snap back. Removing them from the market has been a slow process as other markets have grown, and the cruise lines have taken time integrating them into other markets globally. When the economy improves, they aren't about to jerk them out of a then-successful market to increase Alaskan capacity, which would depress pricing. Instead, the cruise lines will be thrilled there is more demand for the existing capacity they have in Alaska so that will drive ticket prices up. So Alaska's focus needs to be on keeping the ships they have, rather than letting them sail away, because once they leave, it will be tough to get them back.

Alaska has some smart people living and working there, so it's hard to understand why they aren't seeing the real situation and what needs to be done. Perhaps they've been in a seller's market so long, they just can't think in terms of having to compete. Now is the time they must change their thinking, however, or they are going to be faced with even further shrinkage of the fleet of ships in 2011.

If you'd like to read more about the tourism summit to better understand the thinking in Alaska, there are three articles which should prove interesting. They point out some of the losses Alaskans realize they are facing, and some of the costs which, at the same time they impose.
From the Anchorage Daily News:
An AP article via the Fairbanks News Miner:
From the NBC affiliate in Anchorage:

This article originally appeared in the August 21 (2009) edition of Cruise News Daily.