Cruise News Daily Newsfile
August 8, 2006

What's Missing

Two weeks from today Alaskans will go to the polls to vote on Ballot Measure 2 which, if approved, will add massive amounts of new taxes and fees on cruise lines and their passengers. As the day draws nearer, voters are hearing more and more from proponents and opponents. Lining up and speaking out against the measure are businesses that deal with incoming tourists, local governmental units and ports (which would stand to lose money), and organizations funded by the cruise lines set up specifically to oppose the measure.

What's missing is hearing directly from the cruise lines as to what they plan to do if the measure is passed.

Several articles published in CND included how we believe the industry would operate in a "post-Measure 2" world, based on our experience of watching the companies over the years, but CND is not widely read in Alaska since our subscribers are primarily frequent cruisers and cruise industry executives. A recent MSNBC article covered what they believe will be the effects, but Alaskan voters have not heard from the cruise lines exactly how they will change the way they do business should the proposed measure be passed.

Much of the coverage the voters have seen has been articles such as a recent one in the Anchorage Daily News which focused on the provision which would add $50 in taxes and fees directly onto each passenger's ticket. Much of the debate, such as detailed in the ADN article has been about if that will deter potential tourists from coming to Alaska or not. Actually, the $50 is incidental, but no one seems to realize that.

Because Alaskan voters aren't hearing from the cruise lines about their plans, they aren't realizing that most of the impact on pricing will be from the taxes imposed on the cruise lines themselves. The measure will make the cruise lines subject to the state's corporate income tax, and it will also impose a new 33% tax on the ships' casino earnings. Most voters are being left with the impression that this is just going to come out of the cruise lines' deep pockets.

It doesn't take much business sense to realize that the cruise lines won't be absorbing those increased costs. When any business experiences an increased cost, what do they do? They raise the price of their product.

Since the cruise lines don't currently provide breakdowns of their financial data by market, all that can be done is estimate how much these extra taxes and fees will cost them. Estimates are at least $100 per passenger, and more likely in the $150 to $200 range. You donít have to be Alan Greenspan to realize that will be added into the price of the ticket.

So that $50 increase that the proponents say won't deter anyone from coming to Alaska for a "once in a lifetime" trip, has suddenly ballooned to $150 to $250.

Maybe $300 to $500 more won't deter a couple from going on a "once in a lifetime" trip, but the fastest growing segment of the Alaska cruise market isn't people going on a "once in a lifetime" trip. The growing market is on the ships that go round trip from Seattle where most of those people are repeat cruisers who simply enjoy the cruise experience, and Alaska happens to be a convenient destination. Perhaps they choose it because the port is an easy drive from home and they can save on air fare, or perhaps they just choose it as something different from among their cruise options. Either way, when you add significantly to the price, for them it will make the Alaska cruise less attractive and put it in the same price range as other options such as the Caribbean or Mexico.

No one seriously believes that if Ballot Measure 2 passes, that the cruise lines will "retaliate" by instantly pulling their ships out of Alaska. On the other hand, they will raise their rates to cover their costs, and if they can't fill their ships at those prices, and continue to make their current yields, that's when you would see capacity in the market reduced to meet the demand.

That's only one issue no one's heard the cruise industry speak to directly.

Another provision of the ballot measure is the bizarre requirement that cruise lines will have to prominently display to passengers the amount of commission they receive on shore excursions they sell. The opponents of the measure have pointed out how no other businesses are required to disclose their markup on goods or services they are selling, and it will also reveal some of what the cruise lines consider their internal and confidential business strategy.

Again, the cruise lines havenít said how they would respond if the measure is passed. There are a variety of things they could do if they really didn't want to disclose that information. Most would result in the local Alaskan tour operators getting fewer sales directly from the cruise lines and having to promote their individual services directly to consumers in one way or another. Most have their complete inventory pre-sold to cruise lines. Whatever way in which the cruise lines choose to deal with the disclosure rule, the lines would probably be selling less inventory for local tour operators, and it would be up to the individual businesses in Alaska to absorb the cost and/or risk of marketing the rest or all of their space directly to consumers.

There are certainly other issues involved, and the cruise lines have spoken out on none of them. Why? That, too, is something that Alaskan voters aren't hearing about.

Why aren't the cruise lines speaking out about Ballot Measure 2? Because they don't really care how the vote turns out. In the end it won't make any difference to them.

If the measure is defeated, the cruise lines will continue business as usual in Alaska.

If it passes, they will think it's great if they can raise prices to cover the new expenses and continue to realize the same yield as they currently do. If they find they can't sell at that price, there are emerging market sources such as Europe and Asia where they can put ships and realize those yields. It doesn't make any difference to them if the ships are in Alaska making money or in Europe making money.

If Ballot Measure 2 passes, no one is suggesting that there will no longer be any market for cruises in Alaska. It's just that with the proposed additional costs, the market could become much, much smaller than it is now - and premium-priced. If that happens, of course, the citizens of Alaska will be the only losers.

It's just too bad that the voters aren't being informed how much of their future is riding on their vote.

 

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