Sunday, March 21, 2010

Back in Business!

Signs of recovery for cruise industry, and debate on Alaska
In Miami Beach, Alaska Gov. Sean Parnell hears that cruise ships seek out business environments more favorable than his state's. Industry execs say 2010's outlook is bright.

Alaska Gov. Sean Parnell came to the Seatrade Cruise Shipping convention in Miami Beach Tuesday to deliver a message that Alaska is open for business to the cruise industry.

But the governor and a contingent of Alaskan tourism officials got a strong message back from the cruise lines: Faced with stiff environmental regulation and taxes in Alaska, cruise ships will sail off to more friendly waters, industry executives on a panel at Seatrade agreed.

The cruise industry has slashed the number of berths devoted to cruising in Alaska in 2010 by 17 percent from 2009. That means 140,000 fewer tourists.

Panelist Stein Kruse, president and chief executive of Holland America Line, said cruise ships ``faced with overzealous regulations'' will use their flexibility to move to favorable business environments.

In a punitive regulatory environment, ``we can and will redeploy our ships,'' Kruse said.

Disappointing ticket prices for Alaskan cruises last year also contributed to the pull-back in ships in Alaska, as recession-battered consumers looked for bargain trips, often with little or no airfare costs.

The debate over Alaska came as top cruise industry executives told a standing-room-only crowd at Seatrade that the industry is making a comeback from the darkest days of 2009.

So far in 2010, demand for Alaska cruises has improved, as has demand more broadly.

``We're seeing solid signs of recovery, albeit one that will play out over the next couple of years,'' Kevin Sheehan, chief executive officer of Norwegian Cruise Line, told the crowd.

The cruise industry, which is based in South Florida, was forced to resort to deep discounting to fill ships during the economic downturn, sometimes offering two-for-one specials and free airfare as come-ons. That cut deeply into revenue and profits.

But in recent months, cruise bookings have picked up and prices are slowly strengthening. Perhaps the most definite sign of a brighter outlook is that some lines are starting to order ships again after a 20-month hiatus during the downturn.

``Last year was a year we were saying, `Oh my God, How are we going to fill our ships?''' Gerald R. Cahill, chief executive officer of the Carnival line, told the crowd. ``If the consumer thinks the pricing is going to go down if they wait longer, they've got the wrong story.''

He added: ``Personally, I think we're going to see a lot of growth in North America.''

The cruise industry is set to introduce 26 new ships through 2012. That marks an investment of almost $15 billion and an 18 percent net increase in capacity.

But Carnival's Cahill predicted more moderate growth in new ships ahead, with more emphasis on refurbishing older ships to keep them fresh.

``The growth [in new cruise ships] to 2013 is going to sustain a healthy industry for a very long time,'' added Adam M. Goldstein, president and chief executive officer of Royal Caribbean International, concurring with Cahill's prediction of more moderate growth in cruise fleets.

After the panelists' update, several executives met with the Alaskan governor to discuss Alaska's tax and regulatory issues.

In an interview, Gov. Parnell told The Miami Herald, ``I heard clearly the need for some change to the head tax and the need to have environmental regulation based on good science.'' The governor added: ``I'm going to try to work to reduce costs for the [cruise] industry,'' in a bid to spur the state's economy.

Tourism is Alaska's second-largest industry. The state adopted a $46 per passenger head tax in 2006 following a ballot initiative. A group of cruise lines have filed a lawsuit challenging that tax.

Meanwhile, the ballot initiative also made the state's wastewater discharge standards among the strictest anywhere.

At the Seatrade conference, Holland America's Kruse complained that other industries aren't required to meet the same wastewater treatment standards.

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