When I started marketing our new narrow gauge tourist railroad on the island of St. Kitts in the Eastern Caribbean in 2001, calling on the cruise lines in South Florida and asking for their business, everyone was glad to see me. The second time I called, asking for additional ships to St. Kitts to take advantage of the train, everyone said “great: next time, bring the government with you, or don’t come.”

The government needed to walk in and talk about the destination. I was a vendor. I passed on this request to the Minister of Tourism.

In spring 2003, St. Kitts and Nevis Prime Minister Dr. Denzil Douglas asked me how his
government could attract more cruise ships. We told him “go to Miami.” Prime Minister
Douglas flew to Florida, called on Micky Arision, Chairman of Carnival Corporation, and told him that St. Kitts wanted more cruise ships.

St. Kitts is the smallest independent nation in the Western Hemisphere, 78 square miles on two islands, with 43,000 citizens. For 350 years the economy was based on sugar, but now it had to embrace tourism. The Prime Minister believed the cruise industry could create new jobs and opportunities for his people.

Micky listened. He recommended St. Kitts to the Florida-Caribbean Cruise Association (FCCA). St. Kitts successfully bid for the 2005 FCAA Annual Convention drawing 1,200 delegates. The most important people in the industry were exposed to St. Kitts.

Every year since then the Minister of Tourism has personally gone on an annual trade mission to call on every cruise line in South Florida, updating them on tourism in the country, thanking the lines for doing business in St. Kitts, and asking what the country could do to help the cruise lines improve the product.

Since the Prime Minister went to Miami, deployment to St. Kitts has grown threefold. The government continues to actively market the destination through attendance at industry conferences and events.

When was the last time that the State of Alaska had an official destination presence or a booth at Seatrade in Miami?

St. Kitts is a tiny country. There are 30 other islands in the Caribbean region where the cruise lines can go, and a dozen other regions where ships can be deployed around the world other then the Caribbean.

The overall concept is “how can we make our destination more competitive with other destinations in the region in the itinerary planning process, and how can our region be more competitive with other regions around the world in the deployment process?”

The competition is fierce if you want the cruise business to stay, or to grow. Complacency is not part of the program. If you have traffic, someone out there wants what you have, and they are willing to try just about anything to take it away from you.

Alaska must understand this fundamental truth.

During my first Seatrade conference in Italy in 2003, I was standing in line to register, and introduced myself to the woman in front of me. I said, “I’m Steve, from Skagway, Alaska.” She gave me a big smile. “I’m Cathy from Nova Scotia, Canada, and we’re going to take that business away from Alaska, Steve.”

I’ll never forget that, because my first thought was “Nova Scotia? Beat Alaska? No way.” But today, Canadian cruise ports expect to double the number of cruise ship visits between 2008 and 2011. I was wrong: Nova Scotia got our ships.

Then there was the 2007 article which quoted cruise tax proponent Gershon Cohen’s disdain of Alaska business concerns about the future of the cruise industry. The Cruise Ship Initiative had just become law, and when a Haines businesswoman worried that cruise lines might look seriously at sailing on the Eastern seaboard instead of in Alaska, Cohen said, “That’s ludicrous. People are not going to visit Baltimore instead of coming to Alaska on a cruise.”

Well, it takes two years to redeploy a ship to a new region. Two years later, in 2009, Baltimore got its first year-around cruise ship, and the port will get a second ship in 2010.

Cohen was wrong. They are sailing out of Baltimore.

Tax proponents have been quoted in the press saying the $50 does not have any negative effect on the number of people coming to Alaska, that after the tax became law in 2007, the number of cruise passengers to the state in the summers of 2007 and 2008 did not drop. The media did not ask why, or try to learn anything about how the industry works.

For the record, cruise lines plan ship deployments two years out, creating advance itineraries that go where people indicate they are willing to pay acceptable yields to go. Marketing begins two years ahead of time. People then vote with their pocketbooks, buying or not buying what’s been put out there. Cruise visitation to Alaska was only able to remain level in each of these two years because the cruise lines began deeply discounting their berths below the deployment price point as demand dropped. Low pricing filled those berths, not people’s
insatiable desire to visit Alaska.

Picture a grocery store selling eggs. The boxes that say “Alaska” on them cost $10, and they cost this much because of a tax added on all Alaska eggs. On every side of these are boxes of eggs from other countries. These eggs are priced at $5, $4, even $1. If you specifically come into the store wanting“Alaska” eggs, you have to pay the high price. But if you are just coming to shop for any eggs that day, with all eggs (and vacation destinations) being equal to you, you will choose between eggs with lower prices.

With the Alaska eggs not selling, and with the short shelf life of eggs being what it is (only so many days in which to sell a cruise ship berth because the ship sails), the store reduces its retail price, taking a loss on the margin it needs to make any money selling the expensive Alaska eggs. They eventually get to a lower price where they start to sell. But when they are finally gone, the store has made the business decision not to take any more truckloads of Alaska eggs, and they turn away the poultry farmers arriving at the freight door. “Sorry, we’ll only take a dozen or two, to have them on hand for the people who are willing to pay the price we have to charge for them. We can’t subsidize Alaska’s high tax with the money we make on the rest of what we sell.”

As a final business decision, the store takes down the really big signs they had been using to advertise Alaska eggs (the TV ads the cruise lines run showing ships sailing in Alaska), and the store just hangs a small sign up in the cooler. They put up bigger signs promoting the dozens of other eggs that sell well in the store, promoting eggs that make them money, eggs that don’t have the rigid hand of government in the middle of their market pricing, a government hand that adds the same high tax on to the price of every Alaska egg, no matter what it could be sold for without the tax, and thereby making Alaska non-competitive.

What is there about this people don’t understand? We fooled ourselves into thinking that tourists will always come to Alaska, because, well, where else would they go?

Taxes, in any economic model, are regressive and discourage growth. Taxes like this one, imposed on products in a competitive world marketplace, wreck businesses and economies. You can’t control the end price of your product when there’s a giant $50 fishing weight tied to it, sinking it to the bottom. You’re stuck with the weight, and your product sinks with it, while other products that are not burdened with the artificially imposed tax weight float right on top where they can be easily chosen by shoppers.

The cruise lines have carried the extra weight, subsidizing the people who came here on their ships this season, on a fleet that is the same size as it was last year, and the year before. But because of the poor sales, and low yields, the rest of the world has been paying for the ships to be full sailing to Alaska this summer. But it won’t ever happen again. The three biggest lines are pulling an unprecedented amount of tonnage out of Alaska, and it will require a huge commitment of time, energy, and political will on the part of both the public and private sector to get these lines to consider coming back.

What needs to be done?

• The Governor should instruct the Commissioner of Commerce and Economic Development to create a Cruise Crisis Task Force to come up with fact-based answers
  about why the lines are re-deploying, with the Task Force mandated to bring back
  recommendations on reversing this trend as quickly as possible.
• Restore Alaska’s competitiveness by repealing the $50 head tax. Businesses in Alaska must reduce costs to remain competitive or they will not survive. But businesses can’t do anything about the $50. The tax is a bone stuck in our throat; it’s choking us. This requires courage on the part of the legislature, the kind of courage that won’t win friends from the special interest groups that sold the citizens of Alaska the bill of goods in the cruise ship initiative.
• Send the highest possible ranking representative of the Administration out with representatives of the industry to call on the cruise lines, ask for their recommendations on how Alaska can become a better destination, explain the changes the State is making now and plans to make in the future, offer our hand to them in a renewed partnership, and ask for them to bring their business back to Alaska.

Alaska’s business people can’t do that, as I learned in St. Kitts. A word from Governor
Parnell and his administration will make this Task Force a priority. With a word from the Governor, the tax would be put on the table for legislative discussion and review. This action would be pro-business, prodevelopment, and it would make Alaska more competitive, saving and creating Alaska jobs when we need them the most.

Business people can’t do the next part, either. Only the Legislature can take this on, take the heat from the ballot proponents, and repeal this destructive and discriminatory tax.

The State has the only voice that matters with the cruise lines. Tell the cruise lines that
Alaska WANTS their business. They will listen. They are not unreasonable. They’re just business people, like us, trying to survive these economically challenging times.

To everyone in the trenches, stand up! We can do this, if we all do it together.

Steve Hites is the president and owner of Skagway Street Car Company.

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