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Eager for more passengers, Puerto Rico approves cruise ship incentives law
Travel Markets Insider / September-October 2011

By Larry Luxner

Puerto Rico cruise industry — which generates around $245 million in annual revenues and employs more than 4,000 people directly and indirectly — will get a badly needed boost thanks to the recent approval of a far-reaching incentives package.

The new “Law for the Promotion and Development of the Cruise Ship Industry of Puerto Rico” was proposed by the administration of Gov. Luís Fortuño in late May and passed by the island’s House and Senate a month later. It has received widespread support from organizations representing local travel agents, retailers and tour operators as well as from the cruise lines themselves.

The legislation replaces Puerto Rico’s previous incentives package, which expired June 30, and now offers cruise lines $4.95 for every passenger between 10,000 and 139,999 they bring to Puerto Rico, and a per-passenger incentive of $7.45 starting with the 140,000th passenger. In addition, the sweetened deal offers a homeport incentive ranging from $1 to $4 per passenger depending on ship size and number of visits.

Michele Paige, executive director of the Florida-Caribbean Cruise Association (FCCA), praised the changes.

“For the last 10 years, Puerto Rico has had an aggressive incentives program, and I think this most recent incentives law just legislated is even better than before. It creates more incentives, it’s less cumbersome and it’s easier to access,” said Paige, whose Fort Lauderdale-based organization represents 14 member companies operating 200 vessels in Floridian, Caribbean and Latin American waters. “This law has been very well-received by the industry.”

Indeed it has. Michael Ronan, VP of government relations at Royal Caribbean Cruises Ltd., said in a press release that his company, “which has a 40-year relationship with Puerto Rico, celebrates and applauds Puerto Rico’s efforts in support of the cruise industry … This new incentive law is a positive step in the government’s efforts to strengthen the competitiveness of Puerto Rico in the cruise industry.”

The FCCA projects that only 1.17 million cruise passengers will visit Puerto Rico in 2011, down 9% from the 1.29 million who visited last year. That translates into lower revenues for local retailers, because according to the FCCA, the typical cruise ship carries 2,550 passengers and 480 crew members who spend a total of $285,773 during a single port-of-call visit.

Earlier this year, San Juan’s Caribbean Business newspaper reported that RCCL’s Oasis of the Seas will dock regularly at the ports of Ponce and Mayagüez starting in 2012, while Azamara Cruises will call San Juan home with arrivals scheduled later this year. In addition, the 4,000-passenger Disney Fantasy should begin serving San Juan next year — with each weekly docking pumping around $500,000 into the island’s economy.

“The new arrivals couldn’t have come at a better time,” reported the newspaper, noting the departure of one smaller ship that had long homeported in San Juan, Princess Caribbean, and a cutback by Royal Caribbean’s Serenade of the Seas, which will now homeport only during the busy winter season.

In addition to welcoming a new homeport ship and two new-generation mega-cruiselines, the newspaper said that as many as four cruiseships will be making regular in-transit stops in Puerto Rico starting this year.

New arrivals include the Celebrity Eclipse (2,850 passengers), MS Nieuw Amsterdam (2,106), MSC Magnifica (2,518) and Silversea Spirit (540). The newspaper said “the new cruise activity is greater than the estimated $50 million lost from the Princess and Serenade pullback, when calculating the average per-passenger spending on the island during in-transit visits and home-port stays.”

In 2008-09, the most recent period for which FCCA statistics are available, cruise passengers stopping in San Juan shelled out an average $100.55 during their port call, while crew members spent $138.63. That’s higher than the average Caribbean passenger expenditure of $97.26 and crew expenditure of $89.24, but a lot lower than neighboring St. Thomas, U.S. Virgin Islands, where in 2008-09 passengers happily parted with an average $193.22 each — mostly on duty free shopping — during their stay, and crew members spent $152.58.

In fact, despite the positive aspects of the old law, a consensus emerged during the evaluation process that other key segments of Puerto Rico’s cruise industry had to be incorporated into the incentives including the supply chain, service providers and tour operators. As such, in addition to cash incentives for the cruise-ship companies, the new and improved version now offers a range of incentives such as the sale of travel packages to non-residents that include a cruise and a stay in a Puerto Rican hotel.

It also offers a 10% discount for cruise lines on the purchase of local provisions or the contracting of maintenance and repair services in Puerto Rico. That discount doesn’t cover materials, products or equipment installed as part of the repair service. An additional 5% discount is offered on the purchase of goods manufactured in Puerto Rico.”

“This is an extremely well thought-out and very aggressive incentives law,” she said. “No other island that I know of has such multitiered incentives. Yes, some have incentives for summer traffic and volumes, but I don’t know of any homeport incentives.”

The new legislation applies to all ports in the U.S. Commonwealth — not just the dominant Port of San Juan, one of the busiest in the Caribbean, but also Ponce, Fajardo and the offshore islands of Culebra and Vieques.

José Pérez-Riera, secretary of economic development and commerce, said the law “strengthens the importance of the island as a regional and global home port.

“It will increase cruise-ship traffic to Puerto Rico and will increase the stay of cruise-ship passengers in all regions and municipalities of Puerto Rico, and all the islands in its archipelago,” said Pérez-Riera.

More importantly, the innovative law seeks to simplify the cruise-ship industry’s dealings with the Commonwealth’s bureaucracy — especially when it comes to obtaining the promised incentives. For this reason, the legislation created two funds: one managed by the Puerto Rico Tourism Company, the other run by the Ports Authority.

As Pérez-Riera explained to reporters, “the Tourism Company currently manages a fund and requests information from the cruise ship, which also had to supply the same information to the Ports Authority. Now this process will be more efficient, transparent and simple.”

He added that Puerto Rico will soon witness increased cruise-ship visits and passenger volume while boosting consumption by visitors and crew. Those expenditures include the costs of purchasing goods for the anchored ships while in port.

Paige suggested that the FCCA’s 18th Annual Cruise Conference & Trade Show — set for Oct. 3-7 at San Juan’s new convention center — may partially explain why the Commonwealth may have acted now.

“The government is looking very pro-actively at the cruise industry, and all the options of what they can do to make it an attractive destination,” she told TMI. “Not only do the cruise lines spend a significant amount of money to promote the destination, but they deliver the benefit of having the passengers and crew spend money. If the passengers had a phenomenal time, they’ll want to come back on a land-based vacation.”

But it may take a lot more than incentives to bring more ships to San Juan.

“Ships today are going globally to a whole new set of destinations, and Puerto Rico must create new shore excursions that make the passenger want to to get off the ship and spend money. They have to create a ‘wow’ factor,” Paige noted. “How can people spend money if Old San Juan is closed? That’s one of the things we’re working on: being open when the ships are in port, and having things to do.”

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