Johanna Jainchill
Johanna Jainchill

Is the Alaska cruise industry in trouble?

Earlier this year, Royal Caribbean International said it would pull one of its three ships from the state in 2010, blaming the high cost of doing business there.

Last week, Carnival Corp., which includes big Alaska players Holland America Line and Princess Cruises, claimed it would do the same.

Micky Arison, Carnival’s chairman, said that the company would reduce capacity in Alaska, blaming a $50 head tax approved in a citizens initiative in 2006.

"It should now be evident to everyone that the initiative passed a few years ago is having a very significant impact on tourism to Alaska," Arison said during Carnival's first-quarter earnings conference call. “Growth stopped immediately after the initiative passed. $50 is significant in this price-sensitive consumer environment."

As anyone who has ever been to Alaska’s inside passage knows, cruise ships contribute a huge amount to the Alaskan economy. According to state officials, it is not only the communities that see the ship that will be affected. Alaska’s largest newspaper, the Anchorage Daily News, said that landlocked communities between Anchorage and Fairbanks could see a 25% reduction in cruise visitors.

While Arison, Carnival Corp. and Royal Caribbean may believe that the head tax is more significant in the current economic environment than it might have been a year ago, there is more to the Alaska situation than that.

The economy has hit Alaska cruise prices especially hard. According to a recent report from Wachovia Capital Markets equity analyst Tim Conder, Alaska pricing "is especially weak" this year, with cruise prices is down 20% to 40%.

Alaska cruise prices have traditionally been much higher than Caribbean, Bahamas and Mexico cruises. It would make sense if people decide to put off the idea of an Alaska cruise this year as they ride out the tanking economy searching for the best vacation bargains.

And as Royal Caribbean noted, cruise lines pay a host of taxes and fees, such as corporate and gaming revenue taxes, which it said no other state charges.

At the end of the day, it costs more to do business in Alaska compared with other locations. While in past years the per diems there might have justified those costs, in today’s economy, they simply might not.

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