Officials Outline Problems with Alaska Cruise Picture

March 17, 2010 By: Susan Young

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Left to right: Rick Sasso, president, MSC Cruises USA; Dan Hanrahan, president and CEO, Celebrity Cruises; Stein Kruse, president and CEO, Holland America Line; Kevin Sheehan, CEO, Norwegian Cruise Line; Adam Goldstein, president and CEO, Royal Caribbean International; and Gerry Cahill, president and CEO, Carnival Cruise Lines photo by Susan Young

If there was a “red hot discussion topic” at the opening day of the Cruise Shipping Miami conference, it was Alaska cruising. Visitation to America’s 49th state will decline by 140,000 passengers this year as cruise lines have shifted many ships out of Alaska for the upcoming summer season. 

The culprit? Cruise lines point to excessive regulatory and taxation policies deemed both expensive and unrealistic from an operational standpoint. And yesterday, they clearly sent that message and the need for urgent change to the Alaska state legislature, local taxing officials, and even Governor Sean Parnell, seated in the front row during the conference’s opening session.

During that session, Stein Kruse, president and CEO, Holland America Line, outlined— in a frank manner— the regulatory and economic equation the industry needs to keep ships in any particular destination. 

Outlining the Industry’s Issues

“Alaska needs to realize that people and ships will not go to Alaska because Alaska ‘is there,’” said Kruse, who stressed the industry’s flexibility and the ability to move its ships. “They [have to] fix the problem that they have created for the cruise industry. I know those are strong words but that’s the reality.”

Environmentally, Kruse stressed that the industry has invested significant amounts of money in technology and systems, and also has worked to minimize its environmental footprint. Noting that all major lines have environmental stewardship and conservation programs, he said the industry must protect and preserve the pristine environments that ships visit. 

And while the industry has been a good community partner in Alaska, Kruse emphasized that Alaska has the most burdensome regulatory requirements in the world, and the cruise ships are being held to a higher standard than any facility shoreside in Alaska. 

“We cannot even take on water at some ports in Alaska because when we take that water on it has a higher copper content than what Alaska allows us to discharge in Alaska,” Kruse said. “That’s how crazy it’s gotten.” Some regulations are so over-zealous, he said, that technology does not yet even exist to support the proposed regulations.

Cruise lines also must consider cumulative economics, yields, demand, overall operating costs and, to a significant extent, regulations, taxes and fees, when making decisions about ship deployment, Kruse said. In Alaska, cruise companies pay a special targeted income tax, gaming tax, ocean ranger program, ocean ranger fee, the $46 per person cruise ship head tax, plus other local, municipal and city taxes.

“In so much as the diminishing financial returns and a punitive regulatory environment makes a given destination or region less viable, then ships will move,” Kruse said. “Our assets are moveable, they’re designed to be moveable, and we are very good at moving our ships if the conditions necessitate doing so.” 

Pre-2006, he said there were stringent but fair regulations in Alaska, and the industry paid a fair, but substantive, amount of taxes as well. “Then in 2006, a small group of detractors of the cruise industry managed to get a ballot initiative, they put it in front of the voters and they confused the voters to think that this proposal – ostensibly just about a head tax [on cruise passengers] – would not result in any impact, that the cruise ships would just continue to come,” he said. “And the reality is that is not what happened.”

Alaska previously had enjoyed 30 years of cruise industry growth, which will cease this year. “This year Alaska is down 17 percent, a significant decline,” said Kruse, who said it’s had a huge impact and hurts Alaska businesses. 

Kruise added: “And remember, that 17 percent decline in Alaska doesn’t mean the ships aren’t operating full. They are. They’re operating full somewhere else, because the ships can move. 

In addition, Kruse stressed to Alaska officials that the industry is not opposed to paying fees if they’re fair, logical and based on sound scientific research and the availability of technology to meet proposed regulations. He also said lines are not opposed to paying rationale charges used to enhance the cruise ship passenger’s experience.

But given present conditions, “the short term outlook in Alaska is concerning and the longer term growth in Alaska is questionable,” said Kruse. “The next two years will see reductions in Alaska that were not there since 2004. We’re very sad to see this.” 

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