Puerto Rico Cruise Update

Almost a year after Puerto Rico’s cruise incentives program was announced to offset a head-tax hike of $2.95 and give cruise lines calling on the island passenger-volume and homeporting incentives (and which was signed into law last August), problems continue to plague the island’s cruise industry. Sources by and large pinned the problems on a host of factors, including tour operators that essentially prohibit the expansion of shore excursion opportunities, a mismanaged port and a head tax, at $13.25 (before rebate), that is the highest in the Caribbean.

“We feel that Puerto Rico is one of the better destinations, and that’s why we’re there, but we’ve had some discussions about expanding the shore product, to use more tour operators, and we seem to have some union issues that we’re at a stalemate on,” said Steve Nielsen, vice president of Caribbean and Atlantic shore operations for Princess Cruises, which homeports in Puerto Rico on a seasonal basis. “It seems to be restricted to two organizations.”

The obvious problem with unionized tours, beyond simply the lack of options for passengers, is the lack of growth potential in terms of excursions, said one anonymous source familiar with the situation. “It stagnates things, inhibits things that are new and exciting and it creates a monopoly,” the source said, who also noted that the port has been known in the past to change policies without notice to the cruise lines. That, compounded with operational challenges, makes it difficult to forge strong working relationships.

“You have a system in place at the port that will give early retirement to, say, 200 people, then turn around and hire 300 at higher salaries while paying retirement costs for the others,” said the source. “You have linesmen at the port (whose job it is to tie up the ships) who make almost $100,000 a year. You have very high taxes, and it translates into tremendous costs for the cruise industry to do business at the port.”

Enter the rebate program, which, at $2.95, was meant to offset the head-tax increase instituted by the port in mid-2004 (though Norwegian Cruises Line stopped calling on the island for a year supposedly as a result of the boost, but is back this year, while Carnival Cruises Lines repositioned four homeported ships in 2004). Irene Rocafort, head of air and sea access for the Puerto Rico Tourism Co. (PRTC), the government agency responsible for crafting the incentives, said the Florida Caribbean Cruises Association (FCCA) – a trade group made up of 13 member lines that call in the region – has reacted well to the program. “Any operational challenges the cruise lines have experienced, cost-wise, are being resolved with the incentives program,” Rocafort said.

But she also said Carnival Corporation and its various brands can’t take advantage of the incentives because of an ongoing lawsuit between it and the port authority. ” I guess Carnival is saying if they accept our incentives, then the port authority knows that it’s OK to raise the tariffs,” Rocafort said.

Carnival, in essence, is not accepting the new agreement – as signed by the FCCA last year – because it already had its own agreement with the port authority, which was supposedly violated with the tax hike. Rocafort said the arbitration is pending, though Carnival has remained tight-lipped about the situation.

Another problem, claimed a source on the island who also wished to remain unnamed, lies with the fact that the cruise lines have to provide detailed information to the PRTC in order to qualify for the incentives – including full schedules and passenger counts for the fiscal year, as well as submit to sporadic onboard inspections of ships while in San Juan. And according to government documents, designated PRTC personnel must also be allowed to travel as unidentified guests – and if negative or counterproductive advertising of Puerto Rico or San Juan is found, termination of the incentives is allowed.

By the Numbers

In spite of the issues, Puerto Rico still gamers passenger numbers of well more than 1 million per year; in FY 2004-2005, the latest figures available, 1.4 million passengers either called on or took cruises from the island and had a $240 million economic impact – a nice increase from the 1.1 million passengers it saw in FY 2003-2004. Rocafort, meanwhile, said homeporting remains a critical economic issue for Puerto Rico – one of the reasons an additional $ 1 per passenger will be rebated to each cruise ship that departs from the island, under the incentives program. According to a 2004 study by Canadian consulting firm Entervistas, each ship that homeports on the island spends about $470,373 before each cruise, while in-transit ships spend about $193,687 per vessel call. In FY 04-05, according to reports, the PRTC said 580 ships called in San Juan, while 235 used it as a homeport.

“We are looking at some increases in FY 2006- 2007 in terms of homeported ships,” Rocafort said, though she noted no further details were available. Shealso said the island is trying to market itself to make it attractive for pre- and post-cruise stays, a strategy Rocafort said has been effective in Europe.

But for all the efforts, Rocafort admits that there’s a lot of work to be done. “Of course we could be doing better,” she said. “I’m just trying to stay in touch with the cruise lines to let them know we want to work with them.”

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