A turnaround in Alaska

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Timeline: The head tax turmoil

August 2006: The Cruise Ship Initiative, sponsored by Responsible Cruising in Alaska, wins voter approval. It levies a $50 tax on cruise passengers ($46 in head taxes and a $4 fee to finance an ocean ranger program) and a series of new cruise ship environmental rules.

2008: The cruise head tax goes into effect.

Early 2009: Princess Cruises, Holland America Line, Norwegian Cruise Line, Royal Caribbean International and Cruise West each redeploy a ship to other destinations for summer 2010. A second HAL ship is assigned to sail half as many voyages compared with 2009.

June 2009: The Economic Summit on Tourism, Southeast Alaska, is held in Juneau, where state legislators hear from concerned local tour operators, hotel owners and municipal officials about the expected 14% decrease in cruise passengers in 2010.

September 2009: The Alaska Cruise Association, the industry's lobbying arm, files a lawsuit against the state in federal district court in Anchorage, arguing that the tax "blatantly violates" federal laws that prevent states from charging marine passengers fees to pay local expenses.

March 2010: Cruise executives at Seatrade Miami criticize Alaska's cruise tax and environmental regulation policies. Alaska Gov. Sean Parnell proposes to win back cruise industry support by reducing the head tax by 25%. The Alaska Cruise Association pledges to drop its lawsuit if the tax is cut.

June 2010: Parnell signs legislation reducing the cruise tax from $46 per head to $34.50, effective October 2010. On cruises visiting Juneau and Ketchikan, it is further reduced to $19.50.

In some ways, the stars have aligned to create a banner year for the 2011 Alaska cruising season.

First, there was the rollback of a $46-per-passenger head tax that had been among the reasons five cruise lines pulled a ship each out of the destination in 2010. Consumers would balk at the tax, the lines asserted, and as it turned out, the controversial levy went into effect just as the economy began to tank in the fall of 2008.

Alaska Gov. Sean Parnell heard the cruise lines' concerns and vowed to make his state more pro-business; last year, he signed legislation cutting the tax by 25%.

This led to a strengthening of goodwill with cruise lines and frontline sellers, who no longer had to explain to clients why each couple needed to plop down nearly $100 more to satisfy the Last Frontier's local taxes.

Second, as the U.S. economy clawed its way out of the Great Recession, pent-up demand collided with rising discretionary income, and lots of folks decided that they'd travel for vacation in 2011.

And finally, a perfect storm in Europe earlier this year caused many Continent-bound Americans to back away from the sticker-shock airfares that spiked during the political uprisings in the Middle East and North Africa. Let's stay closer to home, many American families decided.

And there sat Alaska, a safe, pristine, domestic adventure destination armed with a $17 million marketing budget, up from $11.7 million the year before, that financed a bevy of enticing magazine ads and TV commercials. And voila! The state has waltzed into recovery mode, big-time.

Ron Peck, president and COO of the Alaska Travel Industry Association, said the 2011 season has been the beginning of a comeback for the state's cruise market following some disappointing years.

"If the lines had more capacity this year, could they fill it? Definitely," Peck said. "Last year we lost 150,000 cruise beds when those ships pulled out, but we're expecting to do better in 2012, when both Holland America Line and Princess will increase capacity."

According to Richard Meadows, HAL's executive vice president of marketing, sales and guest programs, the line will maintain its seven-ship deployment but will boost guest capacity by 6% in 2012, with more departures from both Seattle and Vancouver.

Jan Swartz, Princess Cruises' executive vice president of sales and marketing, said the Star Princess would return to Alaska in 2012 after being removed from the destination in 2010. The line will have seven ships in Alaska next year, when the Star Princess is added to its Voyage of the Glaciers itinerary.

Carnival Spirit in AlaskaPeck said his association was "also super pumped that Disney [Wonder] is coming next year," with roundtrip departures from Seattle. Peck said that early indications for the 2012 cruise season already indicate a strong booking trend.

He noted that when cruise lines cut capacity, it triggered a domino effect for ground suppliers.

"Everybody got hurt: the fishing excursion operators, glacier tours, flightseeing planes," Peck said. "Fifty percent of cruise passengers also take some kind of land tour before or after their cruise, and so any reduction dramatically impacts places like Denali National Park, Anchorage, Fairbanks and other land tour destinations."

The association's marketing budget for the 2012 fiscal year, which began July 1, is about $14.7 million, which is less than 2011, but Peck said he's confident that the momentum will continue.

"It isn't just the cruise [arrivals] that are doing well," he said. "We also believe that independent, noncruise visitors will rise this year by between 5% and 6%, or higher."

Supplier-side economics

Cruise lines typically don't discuss specific booking trends and levels, which makes gauging the popularity of a destination difficult. The same is true of the Alaska Cruise Association, a nonprofit group in Anchorage that tracks cruise line yields and revenue. Its president, John Binkley, declined to reveal specifics, saying, "We don't get into that. We have competitors among our members. It's each individual cruise line's business."

But some executives will talk about the cruise season, in generalities.

Craig Milan, senior vice president of port operations for Royal Caribbean Cruises Ltd. and president of Royal Celebrity Tours, the company's cruise-tour arm, said his company is "having one of its best years ever in Alaska."

Click on image for a larger view of the chart."There will be a strong consideration to look at additional capacity in Alaska," he predicted in a late-June interview. "All the lines follow where the profits are. We all chase the money. But in [RCCL's] case, I don't see us adding capacity for next year. Our deployments already are set through spring 2013." (Click on the image at right for a larger view of a chart of Alaska cruise passenger revenue.)

RCCL is the parent company of Royal Caribbean International and Celebrity Cruises. The lines have two and three ships, respectively, deployed in Alaska this summer.

Other lines are reporting robust business in the destination.

Micky Arison, chairman and CEO of Carnival Corp., told earnings analysts in June that the Carnival brands were experiencing a "very strong" Alaska season.

"Capacity was reduced after the [tax] referendum," he said, and as Europe weakened, Alaska became a positive alternative.

He added that "Alaska benefits from the negative [Europe news] and higher air costs to Europe."

Three Carnival Corp. brands -- Holland America Line, Princess Cruises and Carnival Cruise Lines -- have a combined 15 ships in Alaska this summer.

But it isn't just the major cruise lines being buoyed by their Alaska bookings this summer.

Tim Jacox, executive vice president of sales and marketing at InnerSea Discoveries, which operates sister brands American Safari Cruises and InnerSea Discoveries, said the small-ship adventure lines are experiencing high demand.

The Mount Roberts Tramway in Juneau"This is the best season we've had with American Safari in the 14 years since we created the company," Jacox said. "InnerSea was launched this year, and it is sold out."

He added that InnerSea already is 20% booked for the 2012 season. The brand operates two expedition ships -- one accommodating 68, the other 60 passengers -- and sails one- and two-week Inside Passage cruises.

American Safari has three ships accommodating 12 to 36 passengers.

Beyond outside influences, such as tensions in other destinations, Alaska's attributes are compelling.

"There's value here," Jacox said. "Not only in terms of money. Alaska is a destination high on life's bucket list. When you're measuring your choices for travel, it ranks. It's also a green experience. Our ships get you so close to the wilderness that it's a life-changing experience for a lot of our clients."

Frontline reasoning

Looking back, Ross Spalding, president of Princeton, N.J.-based Crown Cruise Vacations, said he now believes that reducing capacity in Alaska during the head-tax brouhaha was probably a good thing.

"Pricing has bounced back, and it has created more demand," he said.

A review of availability data in late June, Spalding said, found that while balcony cabins were tough to get, most lines still had some open inventory.

"For example, a Celebrity ship in late July has every category available," he said. "It's not as though in June two out of every three sailings are sold out. I don't know that the cruise lines could've done all that much more with capacity. Every additional ship means 25,000 more passengers per ship [during the course of] the whole season."

Compared with 2009 and 2010, Spalding said this year's season is "absolutely better."

Joe Ewart, marketing vice president of WMPH Vacations, the parent company of AlaskaCruises.com, was skeptical of the theory that political uprisings and high airfares to Europe are a big contributor to Alaska's success this year.

"I don't think the two destinations go on the same page," he said. "Alaska and Europe don't show up on the same wish list like, say, Hawaii and Tahiti. But if Europe was Plan A and Alaska was Plan B, consumers are certainly finding [better air costs] to Alaska, except on open-jaw trips."

Ewart said that while Alaska cruising is doing well this year, it's "too early to call it."

"We're optimistic the season will be good," he said. "We're not seeing any last-minute scurrying around by the cruise lines to fill ships, but people are booking closer in than we anticipated."

Consumers often think that Alaska cruises are sold out by early June, he noted, but that wasn't the case this year.

Totem poles in KetchikanVicky Garcia, senior vice president of sales and marketing for Cruise Planners/American Express, agreed that there might have been too much tonnage in Alaska before the five lines reduced capacity for the 2010 season.

"Alaska is definitely stronger this year, hands down," Garcia said, adding that with less tonnage, "yields now are better than they've been."

"Sometimes low prices make the lines look desperate," he said. "I'm not saying high prices are good for consumers, but if you create a sense of urgency it's better than creating a fire-sale mentality."

Some retailers said they find that capacity and costs take a back seat when clients have their hearts set on sailing along the coast of the Last Frontier.

Agent Karen Peiffer, owner of Denver-based Ocean View Cruises since 1998, said Alaska is typically popular with her clients, and this year is no exception.

"My past clients call me as soon as summer hits, asking which itinerary they should do this year," Peiffer said. "Should they do the Inside Passage again? ... Is it worth it to go all the way up to Anchorage? And now, with the unrest in Europe and the dollar not going as far, Alaska is an excellent choice." She added that many of her clients this year are "feeling more secure visiting a domestic destination."

And Colorado residents, she noted, "already are mountain lovers" and are thus drawn to Alaska's topography.

"They want to see eagles and ride the rapids," she said. "Colorado is a very hand-in-hand destination with Alaska."

Peiffer said the Alaska head-tax issue didn't resonate so much with her clients. "I never really got complaints about it," she said. "People accepted it as par for the course -- being nickeled-and-dimed by the travel industry -- but they were wiling to pay it. It's like the fuel surcharge notice that all the lines have. They can add on a [surcharge] at any time, even after the cruise fare is paid in full."

Peiffer said her clients appreciate a unique destination like Alaska.

"I tell them about a cruise I took several years back, and how when you enter Glacier Bay it's like looking at blue diamonds in the water," she recalled. "It's just stunning."
 

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