Update: What's All the Fuss About Alaska?

April 13, 2010
Alaska Head Tax Update, 5:30 p.m. EST -- Cruise line officials on Sunday signed an agreement with Alaska officials, promising to scrap a lawsuit against the state if a bill -- which Governor Parnell introduced to the state legislature nearly two weeks ago -- passes, thereby reducing the controversial head tax. If approved prior to the end of the legislative year on April 18, the bill will go into effect immediately. Travel Weekly reports that the proposed bill has been modified to decrease the tax by 59 percent (rather than the 25 percent that was initially proposed) for passengers on sailings that include both Juneau and Ketchikan. That would mean the tax would drop from the current $46 per person to $19.50 per person.

(March 25, 4 p.m. EST) -- No, you're not imagining it; Alaska has been making more cruise news headlines than usual in the past couple of weeks, due to the upcoming cruise season there, as well as Governor Sean Parnell's offer to decrease the controversial cruise passenger head tax.

These recent developments spawned a flurry of excitement and discussion at last week's Cruise Shipping Miami annual cruise convention. Among the topics discussed were: the state of the Alaska cruise industry; why, exactly, Alaska cruising is declining; and the impact this is all having on cruise fares.

On the surface, Alaska's outlook doesn't seem too bleak. Nearly 30 ships from eight cruise lines are still set to sail the region this year, according to CruiseCal.com. Additionally, Disney and Oceania will offer Alaska sailings for the first time next year, and Crystal also has plans to return in 2011. And, in another interesting development, Princess -- one of Alaska's major players -- has announced that it will be offering 20 new shore excursions, starting this year.

However, in 2010, Alaska is set to welcome its lowest number of cruise passengers since 2005, and major lines like Royal Caribbean, Princess and Holland America have pulled ships from the region in the past couple of years. This means 140,000 fewer passengers will visit the scenic towns featured on Alaska sailings -- a decline that could seriously impact already-suffering small businesses in the region. Juneau alone is expected to lose more than $25 million in revenue in 2010.

Holland America Line President and CEO Stein Kruse told Cruise Critic in an interview last week that proof of Alaska's downsizing "lies in the fact that there are fewer ships this year, so there are fewer choices."

Kruse added that what's sad about Alaska, at this point, is that, "we're reducing capacity in what ought to be a continuous-growth market. Alaska, regrettably, is not as robust as other markets."

Here's what's going on -- and what the big-wigs are saying about it all.

Why the Decline?

Head Tax and Other Restrictions… The controversial head tax, which several cruise lines argue is illegal because it discriminates against larger ships (those carrying 250 passengers or more), is largely blamed for the relocation of several vessels to other regions during the past few years. The tax was voted into place by state residents in 2006 and has been used to generate funding for state projects.

Because Alaska is generally a more expensive destination than the Bahamas, for example, some passengers have expressed resentment at having to pay additional fees just for the right to step off their ships in the region. As Kruse stated at the annual Cruise Shipping Miami convention last week, cruising in Alaska has become burdensome for passengers who are sick of extra charges, including ocean ranger fees and gaming taxes, which are collected in addition to the head tax. According to Kruse, the state has generated $200 million through the implementation of such tariffs.

Kruse says that overzealous fees and over-the-top regulatory requirements are directly responsible for Alaska's cruise woes.

According to the Anchorage Daily News, Parnell met with several cruise line executives at Cruise Shipping Miami and expressed interest in a compromise that would cut the tax by 25 percent -- from $46 to $34.50 per passenger -- in exchange for an end to the lawsuit filed by cruise lines last year, as well as the return of more cruise ships to the region.

The governor is hoping the decrease can be voted upon as part of a tourism marketing bill that's currently in front of the legislature, which is set to end its year by adjourning on April 18, but it is unclear whether the change will be presented in time for a vote. Efforts to reach Parnell's press secretary for comment were unsuccessful.

Lack of Marketing… A lack of proper marketing has also been blamed for waning passenger interest in the region. And, because of fading interest, funding for such a marketing campaign has become scarce -- a seemingly vicious cycle. Alaska is generally thought of as a once-and-done region, and its reputation for all things natural -- glaciers, wildlife, etc. -- means it appeals to a more narrow passenger base than, say, the Caribbean.

Kruse agrees that Alaska does not promote itself as a destination. "We're devoting less marketing dollars to promote Alaska because we're not growing there," he says.

However, officials claim that the region has plenty to offer repeat visitors, and they continue to stress the need for proper promotion. "It is important that we take advantage of marketing opportunities that will bear fruit in the form of economic stability for communities and jobs for Alaskans," Curtis Thayer, who oversees Alaska's Office of Economic Development, says in a press release from the state's Department of Commerce, Community and Economic Development.

Though the tax issue is finally being addressed, and those involved may have reached a compromise, the region's sorely needed marketing campaign is still up in the air. Last year, a series of conventions was held in Alaska by the First Things First Alaska Foundation -- a nonprofit organization that promotes economic development and resource management through public education -- to discuss the topic with state and cruise industry officials, as well as local business owners. At the hours-long summits, those present reinforced the need for such a campaign, but no concrete decisions were reached.

How Are Prices Affected?

Prices Up... Prices for Alaska cruises have gone up this year, according to Cruise Critic Senior Editor Erica Silverstein. However, the increase is due mostly to the rebounding economy, and helped by the 17 percent reduction in capacity in Alaska. And though the deals are not as cheap this year as last, there is still plenty of last-minute availability on shoulder-season cruises in May -- which may be one of the best places to get a deal in 2010.

Bookings Up... For some online booking agencies like Expedia, Alaska sailings have sold well during the first three months of the year, posting double-digit increases in sales, says Koreen McNutt, an Expedia representative. However, this trend mirrors the general pattern in cruise bookings this year, with pent-up demand for vacations causing people to plan their cruise travel -- to all destinations -- earlier in the year.

What's Next?

Perhaps the most important takeaway from Cruise Shipping Miami is that, as Kruse phrased it, "people and ships won't go to Alaska just because it's there." Although Alaska's cruise visitor numbers won't completely rebound in 2011, he is hopeful something can be done to increase numbers in 2012 and 2013. (Itineraries for 2011 have already been solidified, so it's too late to hope for vast improvement next year.)

Carnival Corporation President and CEO Micky Arison is also optimistic: "Clearly, we're encouraged that the governor devoted time to come down here [to Cruise Shipping Miami]," he said during Carnival Corp.'s Q1 earnings call Tuesday. "If the proposal passes, it's a great first step in turning the situation around in Alaska."

--by Ashley Kosciolek, Copy Editor