Alaska: Is the Gold Rush Over?
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(6-04-2009)

Alaska: Is the Gold Rush Over?

Recent news has not been good for the Port of Vancouver as three more ships, all operated by lines owned by Carnival Corp & PLC, plan to move their base of operations to Seattle in 2010.
Even more important, from Alaska's point of view, is the news that, due to lower yields, cruise lines are planning to withdraw ships from the Alaska trade completely. Going back a bit, in 2006, Alaska introduced a $50 head tax and three years later, in the midst of recession, this tax is hurting the business. And as a measure of the state of the Alaska trade, even small ship operator Cruise West is leaving three ships in lay up this summer.


Seattle Gains at Vancouver's Expense

NCL's faster 25-knot ships first allowed Seattle to be a base for 7-day Alaska cruises despite the additional distance from Vancouver. More recently, as more fast ships have joined the trade, it has become apparent that about 80% of passengers going to Alaska are Americans, who can get better air service to Seattle, especially on budget airlines, and without having to be processed by customs and immigration as they do at Vancouver or having to be coached from Seattle to Vancouver.

Add to that the growth in the drive-up market and we have three big reasons for Seattle's recent success, where last year, for the first time, it did more cruise business than Vancouver. Despite a downturn in the Alaska trade, the latest news will only have clinched Seattle's position.

Furthermore, Seattle's latest new cruise terminal has attracted ten-year commitments from Carnival Corp & PLC lines, undertakings that will have an obviously negative affect on Vancouver. In fact, Tourism Vancouver now expects that there will be 62 fewer Alaska sailings from Vancouver in 2010 compared to 2009, with a consequent loss of 260,000 passengers and $120 million in economic impact. These are large figures in anyone's books.

This move to Seattle in 2010 began with the news that Carnival Cruise Lines would withdraw from Vancouver, moving its one-ship nine-cruise operation by the Carnival Spirit to Seattle.
Carnival ships still sail regularly from New York to New Brunswick and Nova Scotia on Canada's East Coast but their only presence on the West Coast will now be a wayport call at Victoria, necessary to comply to US coasting regulations.

Another Carnival line, Holland America, will move its Volendam from Vancouver in Seattle in 2010. She will take over the Amsterdam's 7-day spot while the Amsterdam moves to 14-day cruises. Holland America will thereby replace twenty seven-day sailings between Vancouver and Seward, Alaska, with ten 14-day sailings between Seattle and Anchorage.

Yet a third Carnival line, Princess Cruises, will pull another ship from Alaska in 2010 when the Star Princess from Vancouver is replaced by the Sapphire Princess from Seattle, and then move its 14-day trips from Vancouver to Seattle with the boutique-sized Pacific Princess, an ex-Renaissance ship. All told, Princess will offer 16% fewer berths to Alaska in 2010.

On top of these changes at Carnival Corp, Royal Caribbean will move the Serenade of the Seas from Alaska to the Caribbean in 2010, with a further loss to Vancouver of nineteen sailings, and Norwegian Cruise Line will change ten round-trip voyages by the Norwegian Sun to one-way trips, effectively cutting her Vancouver departures in half.
To add to this gloom, Cruise West's business has been so badly affected by the recession, that, combined with an increase in the value of the US dollar that is keeping foreign customers away, it will leave three ships in lay up this summer in Seattle.
And Micky Arison has further indicated that this may not be all, as there could be further Carnival Corp withdrawals from Alaska in 2011 if yields do not improve. And why are Alaska yields down?


The $50 Alaska Head Tax

Despite strong protests from cruise lines and associations, Alaska imposed a $50 head tax on cruise passengers in 2006, when the economy was booming, but things have now changed. In addition to the head tax, it imposed a 33% tax on gambling income and stricter environmental regulations that also have an impact on cruise line yields.

In the end, Holland America and Princess Cruises will be cutting back their Alaska program by more than 10% in 2010. Blaming the Alaska head tax, they have even said that if they can't negotiate they are willing to sue the state to get rid of it. And to show how serious they are, in his late March earnings call with investors, no less a spokesman than Micky Arison, Carnival Corp & PLC CEO, said "I would venture to guess that the economic losses, including job losses, in Alaska will be greater than the revenue generated from the taxes imposed."

Still, as noted above, the biggest loser will not be Alaska, but the Port of Vancouver, which will be losing a significant chunk of its business to Seattle in 2010. Vancouver also poetntially stands to gain, however, if something can be done about the head tax.


The Glow has Gone off Alaska

The present world recession, which is hitting Americans worse than many other countries, has had a definite affect on Alaska bookings for this summer and cruise lines are having to offer large discounts, with reductions of between 20% and 40% in high season, just to attract the business.
The extent of these discounts is such that where Alaska used to be one of their most profitable destinations, cruise lines can now make better yields in other markets.
As just an example, Holland America is offering fares as low as $349 for 7-day cruises from Vancouver in May, and prices for June with all of Celebrity, Holland America and Princess are down to $399, levels that are unheard of for Alaska.

While some claim that the average cruiser to Alaska is not even aware of the head tax, it is obvious that a $50 impact on a $399 fare is pretty major and will have more than a significant impact on yields.
Some have accused cruise lines of using the head tax as an "excuse" to remove ships from the trade but quite frankly, the lines are free to place their ships wherever they will make the most money and if they have a $50 per person impact on their yields that now makes other destinations, including the Caribbean, look more attractive, then Alaska will lose.

In his earnings call, Micky Arison went on to say "The saddest thing is that we've been unable to find anybody willing to deal with the unintended consequences of this ill-conceived initiative and the impact on the Alaska economy."
Perhaps Governor Palin should be taking a closer look at this problem.

(Source: By Mark Tré - Cybercruises.com)


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