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HomeNewsArchivesCRUISE INDUSTRY UPHEAVAL AFFECTING V.I. - PART 2

CRUISE INDUSTRY UPHEAVAL AFFECTING V.I. – PART 2

Second of two parts
Dec. 21, 2001 – Radical changes in the state of the cruise industry in the Caribbean were evident in the immediate aftermath of Sept. 11, but many of those changes had been in the making well before that.
At the 8th annual conference and trade show of the Florida-Caribbean Cruise Association, held in Aruba in October, Carnival CEO Micky Arison delivered the State of the Industry address. Reflecting on the events of Sept. 11, he told the gathering, "Better times are ahead for all of us, and we look forward to being with you this week and answering any questions you may have to improve the situation for our industry and your tourism sector as well."
R-CCA president Michele Paige said in an interview afterward that the conference did not focus on the aftermath of the terrorist attacks. "The whole purpose was to talk to our partners about their business," she said, "to help them to be pro-active, to be able to work together … to ensure that the cruise lines stay in business and our partners stay in business toward that goal."
Toward that end, cruise lines had already announced plans prior to Sept. 11 to begin repositioning a number of ships cruising the Caribbean so they would depart from mainland ports that are accessible by driving and away from the East Coast. New Orleans, Tampa, Galveston and Houston were cited, all allowing for easy access to established Western Caribbean ports of call — Cancun, the Caymans, Jamaica. The cruise industry's concern was not with people's fear of flying, but with their pinched pocketbooks in an economic downturn. After Sept. 11, the fear factor became an added incentive.
"I don't have a crystal ball," Paige told the Source on Oct. 24, "but I can tell you the U.S. Virgin Islands is deemed a safe destination. What better place to feel like you're safe? Still, this is the only time in my life that I don't know what to do to fill the ships. The [discounted] prices that the cruise industry is charging are unprecedented."
She said that in the month after Sept. 11, R-CCL ships "were sailing at about 90 percent occupied, versus 105 percent a year ago." She explained that occupancy is calculated from the number of lower berths in cabins; when upper berths also are occupied, the figure can be more than 100 percent.
In congressional testimony Oct. 17 before the House Energy and Commerce Committee's Subcommittee on Commerce, Trade and Consumer Protection, J. Michael Frye, president of the International Council of Cruise Lines, pointed out that "the cruise industry is a significant contributor to the U.S. economy, and any negative economic downturn experience has a ripple effect on jobs and other related industries."
Further, he testified, "The cruise industry is the second-largest purchaser of airline tickets, spending over $2.1 billion in airline tickets last year. With the impact that recent events have had on the airline industry, the cruise industry in particular has been disproportionately impacted, since we are so dependent on the airlines for our passengers."
On Sept. 12, he said, "Cruise line reservation offices were overwhelmed by requests for cancellations, and new bookings were nearly nonexistent." But in the five weeks that followed, he continued, "We have experienced a positive trend in passenger bookings, with many lines reporting reservation volume ranging at 70 percent to 80 percent of the pre-attack levels."
One of the most visible steps the industry took to foster consumer confidence, Frye told the committee, was, along with the airline industry, beefing up safety and security procedures. At the same time, he said, "Many cruise lines have also implemented travel agency incentives, such as raising travel agent commissions, to motivate cruise sales and to show support for a distribution system that is suffering terribly in the wake of this national tragedy."
On Nov. 13, Edward Thomas, chief executive of The West Indian Co., told members of the Advertising Club of the Virgin Islands that cruise passenger arrivals dropped 18 percent in September from the same month in 2000, but were down just 3.5 percent in October compared to October 2000. He said total arrivals to date for this year were 12 percent ahead of last year. Through July, they had been up 14 percent.
At the F-CCA conference in Aruba in October, Thomas said, it was evident that the cruise lines' previous process of deliberating for a year before making itinerary changes was out the window. "Now they are making them up in 15 minutes," he said. Personally, he added, "Things are so fluid now that I officially refuse to predict anything anymore."

Implications for the planned Crown Bay development
Controversy has been raging for the last two months on St. Thomas over the letter of intent agreed to by the Port Authority board in August that calls for Royal Caribbean International and Carnival Corp. to undertake a $31 million project — extending the Crown Bay dock, and developing and then operating a shopping center on adjacent property. VIPA would lease the land to the cruise lines for 50 years and let them "retain" 75 percent of port tariffs for the first 20 years. It also would give the two companies preferential berthing at the expanded dock.
It is widely believed in the cruise industry that passenger traffic will rebound from the falloff since the terrorist attacks. Firm in that faith, there is near-universal agreement that additional berthing space is needed for St. Thomas, as the WICO dock can accommodate only three mega-ships and Crown Bay at present cannot berth any of them, and thus any overflow on a busy day must anchor in the inner and outer St. Thomas harbor areas and tender the passengers ashore.
But WICO's Thomas and the St. Thomas-St. John Chamber of Commerce have come out strongly against the development of the shopping center — which they view as direct competition with downtown and Havensight shopping — and also to implicit control by the cruise lines of access to the Crown Bay dock. WICO also is concerned about cruise traffic at slow times of the year being diverted from its own dock to the Crown Bay facility.
A chamber of commerce position paper opposing the Crown Bay deal also said "it makes no sense to use government tax revenues to subsidize a retail project at Crown Bay that will result in a loss of V.I. government tax revenues" from downtown and Havensight businesses, as well as from port taxes and fees. Further, Havensight Mall is owned by the Government Employees Retirement System, which already is facing an uncertain financial future.
Although VIPA as a semi-autonomous agency does not require legislative approval for its actions, Sen. Carlton Dowe has pointed out that the Crown Bay construction work will require permitting by the Coastal Zone Management Commission, and the Legislature must approve all CZM permits. Given all these areas of contention, it is impossible to say when or if the project will move forward, despite a timetable in the letter of intent calling for work on the dock to begin within a few months.
Now, as the controversy continues to simmer, the question arises as to what will become of the whole project if Royal Caribbean merges with P&O Princess — or, alternatively, if Carnival does so. Royal Caribbean and Carnival are locked in what promises to be a bitter battle for the hearts and votes of the P&O Princess shareholders, perhaps in January, perhaps not until later next year. No matter which one emerges triumphant, the prospects of the two companies partnering afterward on a $31 million, 50-year Crown Bay development project appear far from certain.
Carnival and Royal Caribbean now account for more than 80 percent of all cruise traffic to St. Thomas and St. Croix, according to the chamber of commerce position paper opposing the Crown Bay deal.
Implications for the Long-Term Operating
Agreement

In August, the V.I. government announced a long-term operating agreement with the F-CCA and its 13 member lines. The pact was the fruit of more than two years of labor by a Cruise Ship Task Force comprising local government, local business, F-CCA and member cruise line representatives. The agreement is, practically speaking, a tradeoff on the part of the cruise companies for the Virgin Islands agreeing not to increase per-passenger port taxes and fees to $10 from the current $7.50 in the next five years.
One thing it calls for is a 15 percent a year increase in passenger arrivals on St. Croix, contingent on the V.I. government creating and implementing a plan to market St. Croix within six months of signing the agreement. Cruise line senior sales and marketing officials were prepared last fall to make site visits coordinated by the Tourism Department and the St. Croix Chamber of Commerce as the first step in developing a list of onshore activities and events for passengers and getting infrastructure improvements made.
The agreement also calls for a 10 percent annual increase in summer traffic to St. Thomas and the targeting of three to four calls per week to St. Croix during the winter season. It specifies penalties to be assessed the F-CCA of $3.75 per passenger shortfall from the agreed-upon increase for St. Croix annually and for St. Thomas in the summer.
Additionally, the agreement provides that the "cruise line or lines" to be selected by the Port Authority "to undertake seaside and land-based projects would commit to the incremental passenger flow" to enable VIPA to finance its Crown Bay project. This was spelled out more than a year ago, before VIPA, Royal Caribbean and Carnival entered into agreement on what is a significantly different approach to developing Crown Bay.
In August, after the schedule of 2001-02 calls to V.I. ports was released, the F-CCA's Paige said the fact that calls to St. Croix not only didn't increase but in fact were cut by a third did not violate the spirit of the agreement. For one thing, she pointed out, the schedule was finalized well before the agreement was. But additionally, she said, "One of the key ingredients we had required was a very substantial marketing of St. Croix by the V.I. that has never taken place … Our executives were ready to do it."
Royal Caribbean and Carnival officials have implied that the Crown Bay dock expansion and retail development project is a condition of their continuing to send their ships to St. Thomas. This veiled threat to take their business elsewhere should the project not move forward prompted John de Jongh Jr., St. Thomas-St. John Chamber of Commerce president, to comment on Nov. 21, "This tells me that they have no intention of honoring the long-term operating agreement."
De Jongh, who co-chaired the task force that drafted the agreement, also said he had yet to receive a copy of the executed version, although "we understand it has been signed by all parties," the last of whom, by protocol, is Gov. Charles W. Turnbull.
Paige said Turnbull attended the conference in Aruba and signed the agreement there on Oct. 3 — something never announced in the Virgin Islands.
According to an August Government House release, the agreement was "finalized" in September 2000. It was approved by the 23rd Legislature in its closing hours in December 2000 as part of the 2001 Omnibus Act and sent to the governor. Some disagreements between WICO and VIPA emerged earlier this year but were then resolved. The agreement's final form, Paige said, is little changed from the version approved by the Legislature a year ago, except that references to cruise line commitments to contribute to V.I. scholarship and charitable programs were separated out into another document.
On Friday, members of the VIPA, WICO and St. Thomas-St. John Chamber of Commerce boards were to submit their respective position papers to the governor on the Crown Bay development proposal. How Turnbull will assess the information and arguments presented therein and what action he will take as a result remains to be seen.
Turnbull requested the position papers at a meeting with the boards' representatives Monday at Government House on St. Thomas. His attorney general, Iver Stridiron, a VIPA board member, noted afterward, "We are dealing with government property, and ultimately the governor would have to give his blessing."

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Second of two parts
Dec. 21, 2001 - Radical changes in the state of the cruise industry in the Caribbean were evident in the immediate aftermath of Sept. 11, but many of those changes had been in the making well before that.
At the 8th annual conference and trade show of the Florida-Caribbean Cruise Association, held in Aruba in October, Carnival CEO Micky Arison delivered the State of the Industry address. Reflecting on the events of Sept. 11, he told the gathering, "Better times are ahead for all of us, and we look forward to being with you this week and answering any questions you may have to improve the situation for our industry and your tourism sector as well."
R-CCA president Michele Paige said in an interview afterward that the conference did not focus on the aftermath of the terrorist attacks. "The whole purpose was to talk to our partners about their business," she said, "to help them to be pro-active, to be able to work together ... to ensure that the cruise lines stay in business and our partners stay in business toward that goal."
Toward that end, cruise lines had already announced plans prior to Sept. 11 to begin repositioning a number of ships cruising the Caribbean so they would depart from mainland ports that are accessible by driving and away from the East Coast. New Orleans, Tampa, Galveston and Houston were cited, all allowing for easy access to established Western Caribbean ports of call -- Cancun, the Caymans, Jamaica. The cruise industry's concern was not with people's fear of flying, but with their pinched pocketbooks in an economic downturn. After Sept. 11, the fear factor became an added incentive.
"I don't have a crystal ball," Paige told the Source on Oct. 24, "but I can tell you the U.S. Virgin Islands is deemed a safe destination. What better place to feel like you're safe? Still, this is the only time in my life that I don't know what to do to fill the ships. The [discounted] prices that the cruise industry is charging are unprecedented."
She said that in the month after Sept. 11, R-CCL ships "were sailing at about 90 percent occupied, versus 105 percent a year ago." She explained that occupancy is calculated from the number of lower berths in cabins; when upper berths also are occupied, the figure can be more than 100 percent.
In congressional testimony Oct. 17 before the House Energy and Commerce Committee's Subcommittee on Commerce, Trade and Consumer Protection, J. Michael Frye, president of the International Council of Cruise Lines, pointed out that "the cruise industry is a significant contributor to the U.S. economy, and any negative economic downturn experience has a ripple effect on jobs and other related industries."
Further, he testified, "The cruise industry is the second-largest purchaser of airline tickets, spending over $2.1 billion in airline tickets last year. With the impact that recent events have had on the airline industry, the cruise industry in particular has been disproportionately impacted, since we are so dependent on the airlines for our passengers."
On Sept. 12, he said, "Cruise line reservation offices were overwhelmed by requests for cancellations, and new bookings were nearly nonexistent." But in the five weeks that followed, he continued, "We have experienced a positive trend in passenger bookings, with many lines reporting reservation volume ranging at 70 percent to 80 percent of the pre-attack levels."
One of the most visible steps the industry took to foster consumer confidence, Frye told the committee, was, along with the airline industry, beefing up safety and security procedures. At the same time, he said, "Many cruise lines have also implemented travel agency incentives, such as raising travel agent commissions, to motivate cruise sales and to show support for a distribution system that is suffering terribly in the wake of this national tragedy."
On Nov. 13, Edward Thomas, chief executive of The West Indian Co., told members of the Advertising Club of the Virgin Islands that cruise passenger arrivals dropped 18 percent in September from the same month in 2000, but were down just 3.5 percent in October compared to October 2000. He said total arrivals to date for this year were 12 percent ahead of last year. Through July, they had been up 14 percent.
At the F-CCA conference in Aruba in October, Thomas said, it was evident that the cruise lines' previous process of deliberating for a year before making itinerary changes was out the window. "Now they are making them up in 15 minutes," he said. Personally, he added, "Things are so fluid now that I officially refuse to predict anything anymore."

Implications for the planned Crown Bay development
Controversy has been raging for the last two months on St. Thomas over the letter of intent agreed to by the Port Authority board in August that calls for Royal Caribbean International and Carnival Corp. to undertake a $31 million project -- extending the Crown Bay dock, and developing and then operating a shopping center on adjacent property. VIPA would lease the land to the cruise lines for 50 years and let them "retain" 75 percent of port tariffs for the first 20 years. It also would give the two companies preferential berthing at the expanded dock.
It is widely believed in the cruise industry that passenger traffic will rebound from the falloff since the terrorist attacks. Firm in that faith, there is near-universal agreement that additional berthing space is needed for St. Thomas, as the WICO dock can accommodate only three mega-ships and Crown Bay at present cannot berth any of them, and thus any overflow on a busy day must anchor in the inner and outer St. Thomas harbor areas and tender the passengers ashore.
But WICO's Thomas and the St. Thomas-St. John Chamber of Commerce have come out strongly against the development of the shopping center -- which they view as direct competition with downtown and Havensight shopping -- and also to implicit control by the cruise lines of access to the Crown Bay dock. WICO also is concerned about cruise traffic at slow times of the year being diverted from its own dock to the Crown Bay facility.
A chamber of commerce position paper opposing the Crown Bay deal also said "it makes no sense to use government tax revenues to subsidize a retail project at Crown Bay that will result in a loss of V.I. government tax revenues" from downtown and Havensight businesses, as well as from port taxes and fees. Further, Havensight Mall is owned by the Government Employees Retirement System, which already is facing an uncertain financial future.
Although VIPA as a semi-autonomous agency does not require legislative approval for its actions, Sen. Carlton Dowe has pointed out that the Crown Bay construction work will require permitting by the Coastal Zone Management Commission, and the Legislature must approve all CZM permits. Given all these areas of contention, it is impossible to say when or if the project will move forward, despite a timetable in the letter of intent calling for work on the dock to begin within a few months.
Now, as the controversy continues to simmer, the question arises as to what will become of the whole project if Royal Caribbean merges with P&O Princess -- or, alternatively, if Carnival does so. Royal Caribbean and Carnival are locked in what promises to be a bitter battle for the hearts and votes of the P&O Princess shareholders, perhaps in January, perhaps not until later next year. No matter which one emerges triumphant, the prospects of the two companies partnering afterward on a $31 million, 50-year Crown Bay development project appear far from certain.
Carnival and Royal Caribbean now account for more than 80 percent of all cruise traffic to St. Thomas and St. Croix, according to the chamber of commerce position paper opposing the Crown Bay deal.
Implications for the Long-Term Operating Agreement
In August, the V.I. government announced a long-term operating agreement with the F-CCA and its 13 member lines. The pact was the fruit of more than two years of labor by a Cruise Ship Task Force comprising local government, local business, F-CCA and member cruise line representatives. The agreement is, practically speaking, a tradeoff on the part of the cruise companies for the Virgin Islands agreeing not to increase per-passenger port taxes and fees to $10 from the current $7.50 in the next five years.
One thing it calls for is a 15 percent a year increase in passenger arrivals on St. Croix, contingent on the V.I. government creating and implementing a plan to market St. Croix within six months of signing the agreement. Cruise line senior sales and marketing officials were prepared last fall to make site visits coordinated by the Tourism Department and the St. Croix Chamber of Commerce as the first step in developing a list of onshore activities and events for passengers and getting infrastructure improvements made.
The agreement also calls for a 10 percent annual increase in summer traffic to St. Thomas and the targeting of three to four calls per week to St. Croix during the winter season. It specifies penalties to be assessed the F-CCA of $3.75 per passenger shortfall from the agreed-upon increase for St. Croix annually and for St. Thomas in the summer.
Additionally, the agreement provides that the "cruise line or lines" to be selected by the Port Authority "to undertake seaside and land-based projects would commit to the incremental passenger flow" to enable VIPA to finance its Crown Bay project. This was spelled out more than a year ago, before VIPA, Royal Caribbean and Carnival entered into agreement on what is a significantly different approach to developing Crown Bay.
In August, after the schedule of 2001-02 calls to V.I. ports was released, the F-CCA's Paige said the fact that calls to St. Croix not only didn't increase but in fact were cut by a third did not violate the spirit of the agreement. For one thing, she pointed out, the schedule was finalized well before the agreement was. But additionally, she said, "One of the key ingredients we had required was a very substantial marketing of St. Croix by the V.I. that has never taken place ... Our executives were ready to do it."
Royal Caribbean and Carnival officials have implied that the Crown Bay dock expansion and retail development project is a condition of their continuing to send their ships to St. Thomas. This veiled threat to take their business elsewhere should the project not move forward prompted John de Jongh Jr., St. Thomas-St. John Chamber of Commerce president, to comment on Nov. 21, "This tells me that they have no intention of honoring the long-term operating agreement."
De Jongh, who co-chaired the task force that drafted the agreement, also said he had yet to receive a copy of the executed version, although "we understand it has been signed by all parties," the last of whom, by protocol, is Gov. Charles W. Turnbull.
Paige said Turnbull attended the conference in Aruba and signed the agreement there on Oct. 3 -- something never announced in the Virgin Islands.
According to an August Government House release, the agreement was "finalized" in September 2000. It was approved by the 23rd Legislature in its closing hours in December 2000 as part of the 2001 Omnibus Act and sent to the governor. Some disagreements between WICO and VIPA emerged earlier this year but were then resolved. The agreement's final form, Paige said, is little changed from the version approved by the Legislature a year ago, except that references to cruise line commitments to contribute to V.I. scholarship and charitable programs were separated out into another document.
On Friday, members of the VIPA, WICO and St. Thomas-St. John Chamber of Commerce boards were to submit their respective position papers to the governor on the Crown Bay development proposal. How Turnbull will assess the information and arguments presented therein and what action he will take as a result remains to be seen.
Turnbull requested the position papers at a meeting with the boards' representatives Monday at Government House on St. Thomas. His attorney general, Iver Stridiron, a VIPA board member, noted afterward, "We are dealing with government property, and ultimately the governor would have to give his blessing."