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.”
Alaska’s Crisis Response
“We recognize that the Alaska cruise industry needs to be more competitive,” said Governor Parnell, who was the first Alaska governor in a decade to attend Cruise Shipping Miami. “The state and the industry also have to drive demand to Alaska through increased marketing.”
Prior to attending the opening day session of Cruise Shipping Miami, Governor Parnell had breakfast with more than 30 Alaskans attending the conference. These business owners, many from small businesses, fear losing their businesses. They also face potential job cuts and a loss of community benefits as a result of declining cruise visitation.
Governor Parnell listened respectfully during Kruse’s presentation and subsequently met with high ranking cruise executives in a closed door meeting. Both Micky Arison, Carnival Corp.’s chairman, and Richard Fain, chairman and CEO, Royal Caribbean Cruises Ltd., apparently participated, as did Kruse and myriad other executives representing lines that cruise in Alaska.
Alaska Governor Sean Parnell (left) talks about Alaska cruising issues with Bob Sivertsen (center), a city council member from Ketchikan, and Bob Berto, President of the Alaska Alliance for Cruise Travel (ACT).
photo by Susan Young
After that meeting, Travel Agent spoke with Parnell at the Alaska booth on the Cruise Shipping Miami trade floor. “Tourism is a vital, important piece of Alaska’s economy,” said Parnell. “I think Alaska has a lot to offer as a destination, and so I’ve come here to meet [cruise lines] and talk with them about how to better improve Alaska’s economy and create a better climate for investment.”
Parnell said he understood how competitive the tourism/cruise environment is and, in fact, being here on the trade floor, and seeing how aggressively other areas or destinations market, helped put things in perspective. “Alaska is an incredible destination and I am committed to raising the level of tourism and opportunities obviously for Alaskans,” he said. “That’s my job.”
When asked specifically what his “next step” would be, Parnell noted that he would work to create a positive fiscal environment for more tourists to come to Alaska. And that can take a number of different shapes, so I’m not prepared to tell you specifics at this point.”
Instead, he explained that “we value what [the cruise lines] do for our economy, noting that “I’m sending a strong symbol while I’m here that we’d like to grow the tourism industry in Alaska. And I am willing to help them do that – whether from the tax or regulatory side, I’m open to that.”
Arison, as well as Kruse, told Travel Agent their meeting with Parnell was “positive.” Arison said he’s been concerned about preserving jobs in Alaska and in getting officials to recognize the issues, so he was pleased at the Governor’s initiative in attending the conference and getting good dialogue started.
“The governor’s attendance made huge strides in restoring Alaska’s relationship with the cruise industry,” said Bob Berto, president of the Alaska Alliance for Cruise Travel (ACT), which represents about 800 individuals and businesses within Alaska that are involved with tourism and cruising.
Travel Agent also spoke to Bob Sivertsen, a City Council member born and raised in Ketchikan, a major cruise port for most lines sailing to Alaska. He stressed the importance of nurturing and caring for tourism, which has replaced timber as Ketchikan’s biggest industry. He cited the difficulty that his destination would have of creating manufacturing jobs given its geographical locale.
While Sivertsen supports environmental protection, he also recognizes the socio-economic impact that tourism and cruising has on the entire community. Fewer ships will likely mean less revenue and fewer jobs. “We talk about our youth and the [loss of some] jobs -- summer activities for them to come back home and earn money to go back to school,” Sivertsen said.
When asked about the head tax issue and why it passed in the first place, Sivertsen responded: “I think the [state’s] media more or less said that ‘Because it’s Alaska, they’re going to continue to come.’”
But listening to Kruse’s blunt comments, Sivertsen says he now believes the cruise industry’s message came through clearly. “I think it’s a really great step forward to have our Governor here to hear first hand … and he’s in meetings with them,” Sivertsen said.
Arison said of Parnell: “He gets it.” Still, he and other officials acknowledged the governor’s difficult task ahead in fostering positive change and, at the same time, satisfying legislative officials and constituents on various sides in his state
So, for now, it’s a waiting game. But industry sources say Alaska must act quickly to control its destiny – to avoid a third year of lesser ship calls and economic input. Those 2012 schedules, while not finalized, are already on the drawing board.