Unless you work or own a business in the visitor industry, you probably have the impression that our tourism industry has bounced backed and is thriving once again. With cruise ships in port, restaurants and hotels busy and sightseeing excursions in operation, the visitor segment of our economy appears to be fine. Well, it's not. The loss of three large cruise ships from Alaska has resulted in 142,000 fewer visitors spending money here to help our economy.
There are positive indicators. More Americans are traveling this year and those who do travel, are spending more money. Bookings in Alaska appear to be stronger than last year; however, that was expected with our significantly reduced capacity. As a comparison, other destinations around the world are not only seeing higher booking rates, they are seeing significant growth in capacity.
Carnival Corporation, which owns Princess Cruises, Holland America, and Carnival Cruise Line in Alaska, reported a capacity growth the second quarter of 2010 of 8%. European brands saw a growth rate of 13% during the same period. With Alaska's capacity down by 15%, it is clear; the economy alone cannot turn around our decline in passengers.
Thankfully, the Governor recognized these facts and provided the leadership in reaching out to the cruise industry to discuss how the State can help return Alaska to a growing market. The Governor's and the Legislature's efforts to reduce the tax rate and increase destination marketing dollars should be recognized as a significant step forward to help the thousands of Alaska businesses that depend on visitor spending to survive.
Unfortunately, the media seems determined to confuse the public. We have seen recent reports about small increases in independent travelers and world cruise profits that perpetuate the myth that our businesses are doing fine without the tax rate adjustment or marketing increase. The harsh reality is that many of our businesses are down 15% to 40% over the last two years. While sales may be better than expected, we need more ships if we hope to return to the growth we saw for nearly thirty years.
Let's examine some recent news articles.
On Monday, July 26, 2010, one Alaska publication wrote:
Royal Caribbean is the world's second largest cruise company behind Carnival, and is the first company to report profits for a significant portion of the 2010 Alaska cruise season.
For the year's second quarter, Royal Caribbean reported net income of $61 million, up from a loss of $35 million in the same quarter of 2009.
By referencing the Alaska cruise season and second quarter net income, the publication is clearly giving the impression that the $61 million is profit from Alaska operations. This type of reporting is simply misleading and is a disservice to Alaskans and our communities whose economy depends so heavily on the visitor industry.
The fact is, Royal Caribbean Cruises, Ltd. is a global cruise company with 39 ships in operation. Only 5 of the 39 ships operate in Alaska and even those ships operate here for a portion of the year (4 to 5 months).
On July 6, a publication in Alaska wrote under the front page caption "Cruise ship comeback":
Alaska has seen "significantly higher year-over-year pricing," said David Bernstein, chief financial officer of Carnival Corp., adding that the company wasn't having to do what it did last year: Drop prices to fill cabins.
Two months earlier, Royal Caribbean Lines gave a similarly upbeat assessment of the Alaska market.
Are prices up this year? Yes, and that is good news. However, the same press conference reported that Alaska is also seeing "lower booking volumes" and that "bookings for Alaska cruises, however, ran behind the last six week period."
In addition, it is important to recognize how significant the discounts were last year to fill the capacity. In 2009, the New York Times Sunday Travel Section listed a 7-day Alaska cruise for $399. Any increase from those prices would be significant.
However to suggest that discounts are no longer being used is flat wrong. Carnival Corporation did not say it and neither did Royal Caribbean, as the Juneau Empire suggested. Online fares for 2010 were listed as low as $449, quoted as a 73% discount by an online travel agency.
On July 17, 2010, another story reported:
This year, the state Legislature relented to cruise-industry pressure and slashed the $46-per passenger tax by $11.50 per passenger to a rate of $34.50.
Even the most anti-private sector extremists would have a hard time denying that words such as "relented" and "slashed" should appear only on the editorial page -- not in news stories.
It is unfortunate we deal with these types of biases but it is reality. We must remain engaged and work hard to promote the dissemination of accurate information to Alaskans. To be effective advocates for statutory and regulatory changes that allow our businesses to thrive, Alaskans must understand how those laws hamper economic development and job creation. One of most effective things we can all do is get up to speed on the facts and share those with fellow Alaskans -- especially those outside of the visitor industry. Armed with the facts, it is much easier to communicate through opinion articles, letters to the editor, emails to friends and family, or simply just talking to co-workers and neighbors.
To help refute unsubstantiated claims against our industry, we have developed a few bullet points that you may find useful:
- With the new tax changes, there is reason to be optimistic about Alaska's future, but we are a long way from the healthy industry we had just two years ago.
- Alaska lost 142,000 cruise passengers this year. That equates to 15% less consumers spending money to help our economy. In Southcentral Alaska, the passenger reduction along the rail belt is closer to 30%.
- The passengers that do come may be spending a little more to get here this year, but that does not replace the significant decline in volume.
- The media characterizing Alaska business profits as "down less than expected" is not telling the whole story. While a business might be down 5 to 10 percent in 2010, this does not factor-in the 20 to 30 percent many were down in 2009. Cumulatively, they are taking a big hit over two years.
- With 65% of our visitors arriving via cruise ship, we cannot sustain and grow our businesses on Alaska Highway and Marine Highway visitors alone.
- Increased cruise prices improve profitability which is a key component of gaining back cruise ships to the Alaska market. However, if other geographic areas see capacity increases and pricing increases over Alaska, we are not improving Alaska's competitive position.
- Our problems were not just a bad economy. Alaska was continuing to lose market share. In 2007, Alaska saw over 1 million of the 15 plus million global cruise passengers. This year, Alaska will see only 850,000 of the nearly 16 million passengers worldwide.
- The Governor and the Legislature showed great leadership in reducing Alaska's cruise ship taxes. The decrease will help make Alaska more attractive a place to invest and still raise a significant amount of revenue for local and state infrastructure.
- While we have made significant progress, we must continue to work hard. Growing our industry will require addressing not only the tax rates but two other key components. Alaska's regulatory environment must be reasonable and we need to drive up demand through a long-term sustainable marketing program. More on these two items in later editions.