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Alaska’s Shipshape(d) Economy

by | Apr 8, 2019 | Magazine, Tourism

The financial impact of the cruise industry

Phillips Cruises and Tours vessel the Klondike Express.

Phillips Cruises and Tours

The cruise industry is crucial to Alaska tourism and the state’s financial well-being. The industry includes approximately 2,180 Alaska businesses that provide tours, activities, and services to the cruise lines and their passengers, according to Cruise Lines International Association (CLIA). The businesses range from retail, restaurants, and car-rental companies to air transportation providers, hotels and lodges, day cruises, and shore excursions.

The financial effect of the cruise industry is evident across multiple sectors, including direct visitor spending, cruise line spending and payroll, crew member spending, air and ferry tickets, employment and labor income, and revenue to municipal and state governments.

Alaska, a Top Travel Destination

Alaska is one of the top three cruise destinations in the world, with about 20 percent of its cruise passengers coming from outside the United States, according to CLIA. The state welcomed 2.2 million visitors from October 2016 to September 2017, based on Economic Impact of Alaska’s Visitor Industry 2017. The report, released in November of 2018, was prepared by McDowell Group for the Alaska Department of Commerce, Community, and Economic Development, Division of Economic Development.

The report also indicates that within the transportation industry, 49 percent of Alaska’s visitors traveled by cruise, 47 percent were visitors who entered and exited the state by air, and 4 percent were visitors who entered or exited the state by highway or ferry. And the bulk of all travelers—86 percent, or 1,926,300—visited between May and September, while 14 percent, or 316,600, visited between October and April.

Alaska’s visitor volume has been increasing fairly steadily since the low point of 2009-2010, showing an overall increase of 27 percent since that period, says Heather Haugland, a senior project manager at McDowell Group. Increasingly, more of the state’s visitors are arriving by cruise ship. “For the last decade or so, cruise passengers have made up around half of all Alaska visitors, based on annual counts,” Haugland says. “This proportion has been on the rise recently, as the cruise market has been growing at a faster pace than the air market.”

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The cruise industry, Haugland says, is very significant to the overall economic health of the state. “In addition to nearly $300 million in direct spending by cruise lines on goods, services, and payroll in Alaska, they facilitate a tremendous amount of spending from crew and passengers throughout the state,” she explains. “Cruise passengers account for a sizable portion of the $2.2 billion spent in Alaska on tours, retail, lodging, transportation, and dining.”

Regarding tourism in general, Haugland says, the cruise industry plays a role in the independent market in several ways: Cruise lines contribute to the state’s marketing program, which is aimed at the entire spectrum of visitors; cruise lines provide additional marketing value in that their advertising exposes millions to images of Alaska, whether or not those people convert to cruise passengers; and some cruise passengers return to Alaska as independent travelers.

The state’s appeal as a travel destination is not surprising to Sarah Leonard, president and CEO of the Alaska Travel Industry Association. “Alaska holds an exotic, yet safe image of a destination within the United States, offering amazing wildlife viewing, scenic landscapes and outdoor activities that Alaska is known for, and wonderfully rich cultural experiences in port communities throughout our state,” Leonard says.

In fact, she says, Alaska’s cruises can be the first experiences travelers have in the state. Of all Alaska’s visitors—cruise and non-cruise alike—40 percent say they have visited before. And 26 percent of all cruise visitors are repeat visitors to the state. “This cycle of visitors and the continuing popularity of cruising to Alaska drives visitor numbers, which in turn generate economic activity for individual businesses, for communities, and for the state,” Leonard says. “This economic life cycle contributes to a healthy tourism industry, providing economic returns to Alaska.”

With half of Alaska’s visitors choosing to cruise, Alaska cruise partners help drive the state’s visitor numbers. “The cruise industry is a significant segment of our industry, which is consistently contributing economic benefits in the forms of jobs and revenue to communities and the state,” Leonard says.

“Alaska holds an exotic, yet safe image of a destination within the United States, offering amazing wildlife viewing, scenic landscapes and outdoor activities that Alaska is known for, and wonderfully rich cultural experiences in port communities throughout our state.”

—Sarah Leonard, President/CEO, Alaska Travel Industry Association

ATIA

Alaska’s Cruise Operators

There are currently about twenty cruise lines operating in Alaska, representing everything from large ships to smaller vessels, all of which offer an assortment of services. These operators call on a variety of ports in communities along the Inside Passage in Southeast Alaska and in places like Homer in the central region of the state.

For example, Princess Cruises operates a fleet of seventeen cruise ships that carry 2 million guests each year to more than 360 destinations worldwide. In Alaska, Princess primarily calls on Ketchikan, Juneau, Skagway, Icy Strait Point, and Sitka, and it features glacier-viewing experiences at Glacier Bay National Park, Tracy Arm Fjord, Hubbard Glacier, and College Fjord, according to Lisa Syme, vice president of Alaska product management. “Princess has an array of award-winning Alaska shore excursion options for every interest from wildlife watching to gold rush history, cultural education, and outdoor adventures,” Syme says. “We’re proud to offer excursions that are recommended by two of the most trusted names in world travel—Discovery and Animal Planet—including excursions that are exclusive to Princess that can’t be booked independently.”

Windstar Cruises has a small fleet of six luxury ships that visit 300 ports in eighty countries worldwide. Carrying about 150 to 310 passengers at a time, Windstar calls on hidden harbors, off-the-beaten path places, and popular ports. In Alaska, it offers sailings that deliver authentic local experiences like letting active travelers kayak in Kenai Fjords.

Whittier-based Phillips Cruises and Tours offers a 26 Glacier Cruise and Glacier Quest Cruise from May to October. The day cruise operator has several boats that can accommodate 149,285, or 328 guests per trip. “We have been cruising for over sixty years in Alaska, so many residents have grown up with us and first traveled on our glacier cruises when they were kids,” says Sales and Marketing Director Lisa Kruse. “Now they are parents bringing their children and grandparents bringing their grandchildren to relive their memories from years ago. Our tours allow guests to check items off their bucket list, with all of the stunning scenery of mountains, glaciers, and wildlife that they can see in one day.”

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Impact of Visitor Spending

Spending by out-of-state visitors to Alaska is highly impactful to the state’s economy. Direct visitor industry spending, incidentally, includes spending by out-of-state visitors on their Alaska trip, cruise line spending, cruise ship crew member spending, and spending by visitors on their air and ferry tickets traveling to and from Alaska.

According to Economic Impact of Alaska’s Visitor Industry 2017, total direct spending by visitors, cruise lines, crew members, and spending on air and ferry tickets equaled $2.8 billion in 2017. Nearly 0 percent of that direct spending can be attributed to visitor out-of-pocket spending; 12 percent to spending on air and ferry tickets; 11 percent to cruise line spending; and 1 percent to crew member spending.

This visitor spending occurred in various economic sectors, with several categories receiving about one-fifth each: lodging (21 percent), gifts (20 percent), food and beverage (20 percent), tours (18 percent), and “other,” which is largely made up of overnight packages that affect several sectors. And nearly half (44 percent) of visitor spending occurred in Southcentral, with one-third (32 percent) in Southeast, 18 percent in the Interior, 5 percent in Southwest, and 1 percent in the Far North.

Incidentally, shore excursion participation in Alaska is extremely high compared to other cruise destinations, with an estimated 80 percent to 90 percent of passengers purchasing at least one excursion, according to CLIA. Wildlife viewing, sightseeing tours, and riding the Alaska Railroad are extremely popular with cruisers. Some 22 percent of passengers who cross the Gulf of Alaska participate in an extended land tour, generally consisting of a rail segment and overnight stays in Fairbanks, Denali, and Anchorage.

Cruise line spending and payroll are also significant economic drivers in Alaska. Spending in this category includes payments to hotels, motor coach companies, the Alaska Railroad Corporation, and other components of land tours that are included in the cruise package price. Cruise lines and their subsidiaries spent an estimated $297 million on goods and services provided by Alaska businesses, employee payroll, and tax payments during the report’s 2017 study period. This estimate resulted from detailed 2017 purchasing and wage information provided by five major cruise lines: Princess Cruises, Holland America Line, Royal Caribbean International (which operates both Royal Caribbean Cruises and Celebrity Cruises), Norwegian Cruise Lines, and Carnival Cruise Lines. Together, these cruise lines represented 91 percent of 2017 cruise passenger traffic.

Crew member spending also contributes considerably to the state’s economy. Economic Impact of Alaska’s Visitor Industry 2017 indicates that about 27,000 crew members visited Alaska in 2017, spending an estimated $22 million in the state. Each crew member generally sails on ten to twenty individual voyages, visiting multiple communities on each voyage, and making purchases at retail stores, restaurants, bars, and other establishments.

In terms of visitor spending on air and ferry travel, an estimated $315 million in airplane ticket spending took place in Alaska in 2017, the report revealed. Spending in this area impacts the state’s economy in the form of landing fees, fuel purchases, airline employee wages, and other expenditures in support of airline operations. In addition, visitors to Alaska spent an estimated $11 million on ferry tickets—all attributed to Southeast—to enter and exit the state in 2017.

“Cruise passengers account for a sizable portion of the $2.2 billion spent in Alaska on tours, retail, lodging, transportation, and dining.”

—Heather Haugland, Senior Project Manager, McDowell Group

McDowell Group

Effect on Employment and Labor Income

Direct spending by visitors in Alaska—including those involved in cruise-related travel—translates into jobs, labor income, and economic output. That’s because visitor spending creates jobs and payroll with tour companies, hotels and lodges, retail establishments, transportation providers, and a range of other businesses. In turn, visitor industry businesses and their employees re-spend a portion of that money with other businesses within and outside of Alaska.

Overall spending by the Alaska visitor industry—including direct, indirect, and induced effects—resulted in 43,300 jobs in 2017, $1.5 billion in labor income, and $4.5 billion in economic output, according to Economic Impact of Alaska’s Visitor Industry 2017. Regionally, Southcentral accounted for the largest portion of employment at 20,700 jobs (48 percent), followed by Southeast at 11,925 jobs (28 percent), Interior at 8,500 jobs (20 percent), Southwest at 1,800 jobs (4 percent), and Far North at 375 jobs (1 percent).

These visitor industry jobs are concentrated in five sectors of Alaska’s economy: eating and drinking establishments (6,900 jobs), accommodations (6,200 jobs), retail businesses (5,300 jobs), tours and activities providers (5,000 jobs), and transportation providers (4,100 jobs). In terms of labor income, three categories generated close to the same amount of direct income at $173 million: transportation, food and drink, and tours and activities. In addition, accommodations income totaled $163 million, and retail income totaled $108 million. There was also another category of direct jobs created by additional “industry” spending—cruise lines, crew members, and air and ferry tickets—which accounted for 4,100 jobs and $133 million in labor income in 2017.

Tourism-related jobs tend to be lower-paying compared to some other industries, but they help drive Alaska’s economic engine. These jobs are significant, Leonard says, in that for some smaller communities, the number of jobs created by one tourism-related business can have positive ripple effects for many additional indirect businesses supporting visitors, from accommodations to coffee shops, restaurants, and more. “While some employment is entry-level, the visitor industry more than other sectors, perhaps, offers a first step into a workforce that can project someone further in hospitality or other employment,” she says. “The skills learned in the visitor industry, like customer service, communications, marketing, accounting, management, etc., can overlap into other employment opportunities. The tourism industry also offers opportunities in long-term and year-round careers, representing 1 in 10 jobs in Alaska and at a peak, over 50,000 jobs.”

Revenue to the Government

Alaska’s state and municipal governments benefit tremendously from revenue generated by the visitor industry. User fees, sales taxes, lodging taxes, income taxes, and other payments all flow to state and local governments in Alaska directly or indirectly from the visitor industry. Economic Impact of Alaska’s Visitor Industry 2017 credited $125.6 million of the state’s revenue to out-of-state visitors. Of that number, $33.3 million was attributed to several forms of direct payments from cruise lines: the Commercial Passenger Vessel Tax, the Large Passenger Vessel Gambling Tax, and the Commercial Passenger Vessel Environmental Compliance Program.

Other examples of income attributed in 2017 to out-of-state visitors, including cruise-related visitors, came from Alaska Railroad Corporation revenue from passengers and contracts to tow private rail cars ($31.9 million), Fish and Game revenue from licenses and tags ($25.5 million), and corporate income taxes in the “tourism” category ($11.2 million), which includes payments by cruise lines and other visitor industry businesses.

Municipalities in Alaska collected an estimated $88.5 million in revenue from the out-of-state visitor industry in 2017, including $17.8 million in dockage and moorage fees primarily from Juneau and Ketchikan. (The docks in Skagway, Whittier, Sitka, and Icy Strait Point are privately owned. Seward’s dock is owned by the Alaska Railroad Corporation. Juneau has both private and public docks.) Local governments in Alaska also earned $37.6 million in sales tax revenue and $33.1 million in lodging tax revenue in 2017 from out-of-state visitors.

Industry Trends

From a trend perspective, Haugland has noticed that governmental revenue from the cruise industry has increased significantly in the last several years, due to a variety of factors, including cruise traffic growth and an increase in fishing license fees.

She’s also seen a marked change in visitor traffic. One big shift in the summer of 2018 was a 23 percent increase in “cross-gulf” passengers—those that begin or end their cruise in Seward or Whittier, rather than sailing round-trip to and from Southeast. “This allows many more passengers to experience Southcentral and the Interior on their Alaska trip,” Haugland says.

And although small cruise ships represent a fraction of total traffic, they have been growing in recent years. These passengers have a bigger impact on the economy as they tend to be higher-income and stay overnight before and/or after their cruise. Haugland says, “I’ve also noticed an increase in the mid-sized ‘luxury’ market, which, likewise, brings higher-spending visitors to Alaska.”

As another key trend, several cruise lines are enhancing their offerings in Alaska. Phillips Cruises and Tours—with sixty years of operation in Prince William Sound—is offering new routes, more vessels, and more services. Phillips completed a refit on its M/V Klondike Express in 2017 and recently purchased a new high-speed catamaran, the M/V Bravest. The vessel, which can carry 285 passengers, will be used on the 26 Glacier Cruise starting this spring. “We are also running a new departure across Prince William Sound on Saturdays and have space for groups on the Valdez to Whittier segment,” Kruse says. “We are entering the luxury market with our 80-foot yacht offering full day expeditions for a limited number of guests.”

Phillips Cruises and Tours has also boosted its cruise and coach package with expanded transportation services. This year, the company will be working with Greatland Adventures and Premier Alaska Tours to provide coach service for its guests. “Our investment to expand infrastructure is due to the continued growth we have seen since 2009,” Kruse says. “Whittier is close to Anchorage, and daily coach service makes the connection smooth and enjoyable for our guests.”

Princess Cruises is celebrating fifty years of cruising to Alaska this year with its largest deployment ever, including seven ships and more than twenty-three cruisetours. “The 2019 season will also feature the Alaskan debut of Royal Princess—Princess’ largest and newest ship offering the Princess MedallionClass Experience,” Syme says.

Princess is also augmenting its Alaska cruisetour offerings with the grand opening of Fannie Q’s Saloon at the Denali Princess Wilderness Lodge. It has also added an exclusive treehouse experience at the Mt. McKinley Princess Wilderness Lodge. And in honor of this anniversary year, Princess created specially-themed offerings that bring unique Alaska experiences to life through local seafood and by inviting real Alaskans aboard to share their stories.

And recently, Windstar Cruises announced a “Beyond Ordinary” Savings Event and Star Perks bonus on hundreds of cruise departures through 2020. Windstar also embarked on a $250 million initiative to enhance its Star-class ships and its onboard guest accommodations and experiences.

With all the enhancements being made by cruise operators, Leonard expects the financial impact of the cruise industry to continue to grow right alongside the tourism industry. “As Alaska’s cruise visitors make up half of all Alaska visitors and as the volume of visitors increase due to new and larger vessels providing itineraries to Alaska, this tourism segment continues to expand,” she says. “If we continue to see this popular trend in Alaska as a cruise destination, a positive outcome is the growing economic benefits.”

CLIA also has positive expectations for Alaska’s tourism and cruise industries. The association anticipates that tourism will be even brighter in 2019 than it was in 2018—which was a record year for the industry. Its projections for 2019 include 37 CLIA Alaska ships, 567 voyages, and 1.3 million passengers.

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