Foreign-flagged cruise ship giants struggle to stay afloat during pandemic

The executives of cruise ship industry deemed it a victory in late 2017 when a Republican proposal to put an effective federal tax of about 2 percent on their operations failed in the U.S. Senate. The decision allowed the companies to continue to pay nothing or almost nothing in federal taxes.

“At the request of Alaskans in the visitor industry, Alaska Sen. Dan Sullivan successfully offered an amendment to the Senate tax cut bill to eliminate a provision that would have had severe, negative impacts on Alaska,” the Alaska chapter of the cruise line lobby group said at the time.

John Binkley, then the Alaska leader of the group, said the tax would have been devastating for the Alaska economy and would have led the companies to go elsewhere with their biggest ships. Binkley said Sullivan was “relentless” in letting others know “how it negatively targeted jobs in Alaska.”

“It would have been a job killer for Alaskans because the cruise lines will move their ships to places where they are most profitable,” Binkley said at the time.

It appears now that Sullivan’s move to kill the tax comes at a high price for the foreign companies that control the cruise business.

A federal bailout of the industry, though favored by President Trump, is unlikely for a simple political reason—the companies have managed for decades to avoid nearly all U.S. federal taxes by sailing under foreign flags.

At a minimum, the effective 2 percent tax debated in late 2017, which would have totaled about $70 million a year, would have put the companies in a better position to lobby for a bailout.

The three largest cruise companies—Carnival Corp, Norwegian Cruise Lines and Royal Caribbean—are based in Miami, but their official homes are in Panama, Bermuda and Liberia, respectively. The companies avoid most U.S. taxes because of a loophole in federal law.

Carnival, which owns Princess and Holland America, is the dominant company in Alaska tourism. Princess and Holland America have cancelled most of their Alaska operations this summer, which will have far-reaching impacts in Alaska communities from Ketchikan to Fairbanks. Thousands of seasonal jobs have been eliminated and many small businesses will be damaged or destroyed.

Carnival pays U.S. taxes on its land-based transportation services and its Alaska hotels—the Princess and Westmark brands—as the federal largesse applies to ships at sea.

“Carnival paid $71 million in taxes on $20.8 billion in revenue last year to Panama, where it’s technically incorporated,” Bloomberg reported.

The Senate version of the recent $2.2 trillion bailout package would have allowed the cruise ships to get financial assistance, but opposition from House Democrats led to language limiting help to U.S. companies.

“Still, the industry won small concessions that could open the door to federal help in the future,” the Wall Street Journal reported March 27.

“A spokesman for Sen. Dan Sullivan (R., Alaska) said the senator supported the cruise-ship industry because of its contributions to small business in the state. ‘He'll continue to work to educate his colleagues on the importance of the cruise-ship industry for tourism in Alaska as well as other states,’’’ the spokesman told the newspaper.

The news coverage of the industry, featuring tales of sick passengers and crew members trapped aboard ships, continues to be all bad.

The stock prices of Carnival, Norwegian and Royal Caribbean are down by 75 percent to 80 percent because of the pandemic. The prospects for recovery and the timing of recovery are uncertain.

One of the major industry-related projects taking place in Alaska is the proposed $50 million Ward Cove dock promoted by Dave and Andrew Spokely of Ketchikan and the Binkley family of Fairbanks. The Binkleys own two major tourist operations in Fairbanks—the Riverboat Discovery and Gold Dredge No. 8—and the Anchorage Daily News.

The cruise industry trade group says the Ward Cove project at the former home of the Ketchikan Pulp Mill, an EPA Superfund site, is “yet another example of the dedication cruise lines have to Alaska.”

“We want to incorporate the history of what the pulp mill meant to the region and redevelop it as a new economic center that’s focusing on the major growing industry in southern Southeast, which is tourism,” Ryan Binkley, said in an August press release.

In November, Norwegian said it had signed a 30-year deal to dock two 4,000-passenger ships at a time at the Ward Cove site. Before the pandemic, the company referred to Alaska as a “popular and profitable” market.

This proposed Memorandum of Understanding would shift environmental oversight responsibility for the contaminated site from the federal Environmental Protection Agency to the state Department of Environmental Conservation.

Under this proposal, the state would “serve as the lead agency in the oversight of redevelopment activities” for the site, an agreement the proponents would love to see as the Dunleavy administration has been a strong supporter of the project and the state DEC would be easier to work with than EPA. Both the Spokelys and the Binkleys are Dunleavy supporters.

David Spokely led a group that called Dunleavy and Lt. Gov. Kevin Meyer the “Alaska Dream Team,” while John Binkley has announced plans for a group to opposing Dunleavy’s recall.

The proposal for the DEC transfer says that EPA would “provide support and historical context to the state” in overseeing cleanup at the site.

The economic uncertainty that afflicts cruise ship travel is likely to remain for some time, but industry backers are tellings news organizations that 2021 may tell a different story.

Michelle Fee, CEO of Cruise Planners, told USA TODAY that bookings for next year are picking up, with Europe, the Caribbean and Alaska as the top destinations. But a lot has to change about the entire business to build the confidence of passengers and communities that ships are safe.

While Princess cancelled its Gulf of Alaska sailings, the company hopes to have two ships sailing from Seattle to Alaska in late summer—the Emerald and Ruby Princess.

Sen. Lisa Murkowski said she would like to suspend, for one year, the federal law that prevents a foreign-made vessel from making the trip from Seattle without a stop in Canada.

One change that has already taken place is that the industry will have to become vigilant in checking the health of passengers before boarding and after they are on the ships.

For instance, Princess announced this week that it will not carry passengers with “underlying severe chronic” medical conditions and that it is developing new protocols. Much more will need to be done, according to this Centers for Disease Control order.

On April 9, the CDC said that about 100 cruise ships remained at sea off the East Coast, West Coast, and Gulf Coast, with nearly 80,000 crew onboard.

“Additionally, CDC is aware of 20 cruise ships at port or anchorage in the United States with known or suspected COVID-19 infection among the crew who remain onboard.

The CDC said the companies must “develop a comprehensive, detailed operational plan approved by CDC and the USCG to address the COVID-19 pandemic through maritime focused solutions, including a fully implementable response plan with limited reliance on state, local, and federal government support.”

The CDC said “cruise ship travel markedly increases the risk and impact of the COVID-19 outbreak within the United States” and it called on the foreign-flagged companies to “not further tax limited U.S. resources during a public health emergency.”