The first of the capacity reductions in Alaska are set to begin this summer, with further reductions in 2010. Last week, as we reported, Carnival brands Holland America and Princess announced even further reductions for 2011. From the coverage in Alaska, it seems that some people are beginning to understand that tough times are ahead for state's economy, especially that portion of the population which is directly dependent on the tourism industry. Everyone else, however, seems caught up in debating one issue or another. Is the $50 tax on cruise passengers hurting the market? Is the tax really legal? Do the cruise lines really pollute?
Guess what. None of these issues themselves are important to the situation. None of them.
What is important is a very basic business principle that no one in the state seems to remember.
Here it is: Alaska has a product to sell: Alaska. The cruise lines are the customers. If the cruise lines don't want to buy the product - for whatever reason - they can simply take their business elsewhere and buy someone else's product.
In this case, the cruise lines feel the price they are being charged by the merchant is too high, so they are buying less of the product from Alaska and more of it elsewhere. That high cost is a result of several things directly in the control of Alaskans.
They don't want to debate it with the state. They've been expressing their opinion to "the management" for several years, and their "complaints" have not been responded to.
Think of it like a restaurant. If you keep increasing and increasing your prices, well past your competitors' prices, eventually customers are going to begin to come less frequently. If they take the trouble to tell you why they aren't coming as often anymore, you don't argue with them about it.
To stay in business, the restaurateur has to take a hard look at his operation, figure out exactly what the customers don't like, and then change what is necessary to entice them back.
That's what Alaska needs to be doing.
Alaska also needs to realize that what they do at this point probably isn't going to bring ships back to the market. Success will need to be seen in terms of just keeping more ships from leaving.
In the last decade, while Alaska has been developing new ways to extract money from the cruise industry, they seem to have been totally unaware that the cruise industry was changing. It's no longer a seller's market for them. Alaska is now in a very competitive market with other ports around the world for cruise ship calls.
The American companies Alaskans are dealing with are no longer selling primarily to Americans. With the expansion of the industry, Americans will soon be the minority of those buying cruises, and cruise lines want to position their ships where those new customers (and generally higher-paying customers) live. Europe is experiencing rapid growth. South America and Australia are exploding, and while the Asian market is in its infancy, that market is vast. As it is, cruise lines don't have enough capacity to move into all the markets they would like to. A couple at a time, the entire Alaskan fleet can easily be absorbed elsewhere.
Alaskans need to stop debating the issues, and do like the restaurateur. They need to figure out what's wrong with their product, and make changes to please their customers - if they want to keep them.