Tuesday, October 20, 2009

How the Alaskans Are Getting Snowed

It's hard to believe - with the first of the cruise schedules already announced for next year showing reduced deployment in the state - there are still editorials being written in Alaska saying how Alaska's tax package on the cruise industry (and its passengers) isn't really deterring people from going to Alaska. Two of the arguments being used are that the ships are still filled, and that when asked, cruise passengers interviewed say the $50 tax didn't stop them from coming and they weren't even aware of it.

This is just nuts. Either the writers of these articles don't understand much about how the cruise industry operates or they don't want to.

The cruise industry's business model is built on the ships operating at or near capacity and doing whatever is necessary to get them booked to that level. The way they accomplish this is to keep reducing prices until they have enough people booking in the market to keep the ships filled. So of course you can look at the ships last summer and say they are filled, but they are also being sold at significantly reduced prices.

The cruise industry argues part of that reduction compensates for the $50 in taxes recently added by Alaska. The proponents of the tax say it is being paid by the passenger, so what's the problem? The problem for the cruise industry is that if the pricing weren't depressed, they could be charging $50 more, so in a way, the $50 is coming off the cruise lines' bottom lines.

It seems that whenever one of these articles is written for consumption in Alaska, they interview cruise passengers in Alaska and ask them if the $50 tax bothered them. Of course it didn't. They are the people who came to Alaska. Who they ought to be interviewing are the people who didn't come to Alaska.

Interview the people on the dock in Mazatlan and ask them if the $50 Alaskan tax influenced their decision to go to Alaska. Chances are you still may not find many people who say they didn't go to Alaska because of a $50 tax on Alaskan cruises, but ask them if they compared cruises to several destinations, and you may start to get a clearer picture.

You'll better understand people choosing other vacations if you ask any travel agent how people compare prices between options on their vacation. They will tell you people compare the total prices, including taxes and fees, because those can be significant. If there's a factor that influences the consumer to choose between the cruise to Mexico or the Caribbean or Alaska, that's where you'll find it - in the total price.

Still, you'll often find no big difference in the total price between cruises to Alaska and other North American destinations. That supports what the cruise industry says about it coming off their bottom line, because the $50 tax is there in the total price of cruises to Alaska.

But the selling price isn't really what concerns the cruise industry; it's their bottom line. That bottom line - how much profit is made selling that cabin - the difference between the amount the consumer pays and all their expenses for operating the ship - is probably the most important factor influencing cruising's future in Alaska. If cruise lines can make more money selling a cruise in the Caribbean, for example, than they can in Alaska, that's where they will put the ships. By reducing the number of ships in Alaska in 2010, that's what they are doing. Indications from the cruise industry say there will be even further reductions in 2011 as other markets develop which can support increased capacity.

The $50 head tax on passengers is only part of the taxation problem in Alaska. With other taxes and fees enacted at the same time as the $50 head tax, it's all just making Alaska a more expensive place for the cruise lines to do business, something Alaska can't afford to do.

To tell Alaskans everything is ok and everything they hear is just big business rhetoric, is just nuts, because there's no denying there are many fewer berths (about 140,000) coming to Alaska next year than this year.