Monday, June 7, 2010

Alaska Trying to Rebuild Cruise Business but Still Not Understanding the Issue

* The Picture in Alaska is Still Snowy

Cruise3sixty, CLIA's annual travel agent conference, was held in Vancouver at the end of last week. The conference is held in a port city where agents can visit cruise ships during the dates, and with the Alaska season starting, much of the focus was on Alaska. The conference is also attended by cruise industry executives and tourism officials, and one of those at this year's event was Alaska's Lt. Governor, Craig Campbell.

While his presence and much of his message about how valuable tourism is to Alaska was a positive development, there was a lot of evidence in what he didn't say that indicates that people in Alaska (or at least the government) still haven't grasped the exact situation with respect to the cruise industry. Until they understand the problem, it's going to be hard for them to achieve their goal - to again start growth of the number of cruise berths coming to Alaska.

In both his press release and in his remarks in Vancouver, Campbell acknowledged the economic impact of the cruise industry's presence in the state. According to the state's Department of Commerce, Community and Economic Development, the tourism industry accounted for $3.4 billion in direct and indirect spending in Alaska and more than 40,000 jobs. The industry also paid more than $208 million directly to the state and local governments, with nearly $140 million of that going to the state.

"The tourism sector is a critical component of Alaska's economy. With so many jobs and small businesses at stake, we must aggressively advocate for bringing more tourist dollars to our shores to grow our economy and fuel Alaska family incomes," Campbell said.

They obviously don't want to lose much, if any, of that, because Campbell said that for the first time in years, they are now seeing a decline in cruise visitors/cruise berths. By state's figures the state is losing at least 140,000 cruise passengers this year and $150 million in direct and indirect spending.

So what are they going to do about it? Campbell's message was, "Our hope at Cruise3sixty is that we really start to change the narrative about Alaska going forward - that it's not about high taxes or regulatory problems but what a fine destination we have in Alaska," he said.

That's great. They want to create more demand for Alaska. But that's not going to get them what they want - more berths and therefore more passengers. It might create more demand from consumers to go to Alaska, and that will give the cruise lines some of what they want - higher prices as there is more clamor for the existing number of berths. But it's doubtful that the cruise lines would add more berths, because that would defeat their purpose of getting higher (more normal of years gone by) prices for the berths they already have in the market. To put more berths would simply deflate the prices again to current levels.

Alaska also has to work on the other side of the equation - the cost the cruise lines have to pay for doing business in Alaska. That cost comes not only from fees and taxes, but also meeting extremely stringent environmental regulations. The cruise lines have no philosophical problem with keeping the environment clean; that's in everyone's best interest.

The state did recently help somewhat on the cost by reducing their head tax, but as Micky Arison said, that's a good first step. The cost problem still exists, however, for the cruise lines on the environmental side. To meet these standards, which will continue to become more stringent over the next few years, the cruise lines will have to bear the high expense of constantly updating their ships with the absolute latest technology. Those are standards which Alaska's municipalities don't meet themselves for disposing of their own waste or in putting pollutants in the air. Updating the ships is an expense cruise lines would not have sailing elsewhere.

That brings us to the huge concept that Lt. Governor Campbell is not understanding. Alaska is now in competition with many other areas for those ships. Cruise lines are not temporarily reassigning ships until conditions become more favorable in Alaska. They don't care where their ships sail. They put them where they can make the largest profit with them. When they leave Alaska, they are somewhere else that their owner has found that is going to be more profitable than Alaska. If Alaska wants them back, they are going to have to win them back - by making conditions such that they will then be more profitable in Alaska than wherever they are then sailing.

Once Lt. Governor Campbell and the rest of Alaska understand this, they will have a better chance of again increasing the number of berths sailing in Alaska.

This article appeared in the June 7, 2010, edition of Cruise News Daily.