Analysis by Joe Holbert
For the Journal

The ripple effects of skyrocketing energy costs have veteran tourism hands in Alaska's Panhandle worried if they can stay in business.

They largely agree that Southeast Alaska tourism is basically healthy and will continue to be profitable this summer. But they hedge their predictions past that, forecasting changes industry tourism, including higher prices, surcharges, consolidated services, and the disappearance of competitors.

Consolidation, they say, is inevitable. Three or four companies offering the same services or products will become one or two as competitors are absorbed or the plug is pulled.

Southeast business owners and investors said mergers make good business sense for helicopter tours, fishing boat charters and the various retail shops.

The Southeast tourism industry also recognizes that the high cost of energy has many ripple effects far beyond the cost of a gallon of gasoline, diesel or aviation gas. It also affects the price for parts, supplies and labor.

Prices are getting so high, some shop owners are beginning to wonder when it's time to sell out or close up all together.

The Bear's Lair is a Juneau gift shop in business year-round for 12 years.

“I've seen lots of ups and downs over the years and I've seen a lot of people go out of business in retail, especially over the past year,” said Kathy VanderJack, the South Franklin Street shop owner. “Seven locally owned store-fronts have left South Franklin, forced out basically by the high rent. I can't say I haven't considered it (pulling the plug) in the past year. But if I can cut back on some expenses I can stay in for the long run.”

VanderJack says 75 percent of her sales revenue comes from cruise ship and independent visitors to the area. She says the cruise lines insist they are running at or near capacity in Southeast Alaska, “although a lot of the boats seem to have fewer passengers and some days it seems like a lot of passengers don't get off the boats.”

How has skyrocketing fuel prices impacted a gift shop's bottom line?

“Last winter was tough,” VanderJack says. “Fuel prices have more than doubled. I tried not to raise prices but eventually I had to. Our stock comes by barge, priority mail and Federal Express, and all those costs have gone up a lot.”

The shop owner said a fuel surcharge added by her barge line had roughly doubled over a year ago.

Because she purchases goods from sources in Canada, VanderJack said the weakening exchange rate between Canadian dollars and weaker U.S. dollars adds another hit on profits.

Eric McDowell and Susan Bell, of the McDowell Group, a market research firm headquartered in Juneau, said the energy crunch isn't unique to Southeast.

“Most visitors travel to places besides Southeast,” said McDowell. “When I look at the cruise segment, a portion of them are going to Anchorage or taking a tour up there as well.”

Both noted that ship schedules, as well as Alaska Marine Highway ferries, can have major positive and negative impacts on local economies.

Wrangell is one example. Merchants say they saw visitor revenues evaporate this summer when a cruise line based in the Pacific Northwest cancelled the Wrangell port schedule for one of its smaller cruise ships designed to resemble a paddle-wheel riverboat.

Months earlier, a Norwegian company had cancelled Wrangell port calls for its large cruise ship. Combined, on-shore passenger volume crashed, from 40,000 to nothing.

Temsco Helicopters is a tour operator that in the high season operates more than 40 helicopters in Skagway, Ketchikan, Juneau, Wrangell and Petersburg. In the off-season, the company focuses on timber, utility and service contracts.

“In Southeast in season, we operate 40 to 45 helicopters fueled with av gas,” said Tim McDonnell, Temsco's tours and marketing vice president. “That cost Temsco about $3.20 a gallon a year ago. It was probably another dollar lower two years ago, and the price is hovering today between $4 and $5 a gallon. That's just for fuel. A part that cost $28,000 last year is $37,000 this year. It's hard to quote a (tour) price even just 30 days out when you have to honor the price you gave them 30 days back.”

Northstar Trekking customizes Alaska glacier trekking tours. Craig Jennison, Northstar's operations director, said in late June the company was paying $4.08 a gallon for helicopter fuel. Northstar operates five helicopters in Southeast Alaska. Each aircraft burns fuel at 50 gallons per hour.

Asked at what point when he may wonder whether he can stay in business any longer, Jennison said, “The tipping point is quite a bit higher for helicopters. Operation is very expensive. We're at a point now - with a dollar a gallon over a full season - that (fuel cost) is going to be a significant amount.”

Orca Enterprises, which offers whale-watching excursions from Auke Bay, north of Juneau, books tours independent of the cruise ships. Orca founder Carol Pitts said people seem to be wondering if they can take a vacation and survive, while companies wonder if they can afford not to raise prices.

“A lot of companies are tacking on things they're calling fuel surcharges and things like that. We don't do that. I've raised our rates a total of $29 in 12 years,” said Pitts. “Normally, we sealed a price on a whale-watching tour a year ago. Diesel a year ago was about half what it is today, about $2 and something. They called me from the pumps yesterday when my buses were fueling because we have both boats and buses that are fully diesel and some gas and they told me I was paying almost $5 a gallon.

“Our profit margin is less and less,” Pitts said. “If the fuel costs double there are a lot of small businesses, some including myself, who wouldn't be able to operate.”