09 May 2016

Mr Peter Boxall AO Chairman Independent Pricing and Regulatory Tribunal Via Email

Dear Mr Boxall,

AZAMARA CLUB CRUISEs•

Thank you for the opportunity to provide this submission to the Tribunal's inquiry into the maximum fees and charges for cruise ships in Sydney Harbour.

Background: RCCL in Australia

Royal Caribbean Cruise Lines (RCCL) opened its Australian office in Sydney in 2008. The company

operates globally with five cruise brands; two of which, Royal Caribbean International and Celebrity

Cruises, have been operating in Australia for over a decade. Over this past cruise season we

operated the four largest cruise ships sailing from Sydney under two brands - Royal Caribbean's

Voyager of the Seas, Explorer of the Seas and Radiance of the Seas and Celebrity Cruises' Celebrity

Solstice - and together offer the most modern fleet operating from Australia. We home-port in

Sydney from October to Apri l, turning around exclusively at the Overseas Passenger Terminal (OPT)

on 60 occasions. We are the single largest user of the facility.

In the cruise season just completed we also introduced a third cruise line to Sydney: Azamara Club

Cruises. Unlike Royal Caribbean and Celebrity, Azamara operates smaller cruise ships carrying

approximately 700 passengers that are able to use the White Bay Cruise Terminal. In addition we

operated our first season of cruises from Brisbane with Legend of the Seas, ironically the only one of

our Australian based ships that can actually pass under the Harbour Bridge and the Gateway Bridges

in Brisbane, which have similar height restrictions to Sydney.

Royal Caribbean's fleet totals more than forty cruise ships. We also operate the largest cruise ships

in the world, including the three largest classes of ships in the world: Oasis Class (220,000 GRT &

6,000 passengers), Quantum Class (168,000 GRT & 4,900 passengers) and Freedom Class

(155,000GRT & 4,500 passengers). To date none of these ships have cruised in Australia.

Voyager Class (138,000 GRT & 3,900 passengers) is the next class of RCCL ships and has been

represented in Australia since 2012 by Voyager of the Seas and, since 2015, Explorer of the Seas.

These two megaliners are the largest cruise ships to cruise on a seasonal basis in Sydney and whilst

the Queen Mary 2 (149,000 GRT) is larger by tonnage, she carries only 2,600 passengers and only

performs half-exchanges of passengers when making her annual transit call in Sydney. On each

occasion that a Voyager Class ship turns around at the OPT we complete a total exchange involving

up to 7,800 passengers.

LEVEL 1 2 1 57 WALKER STREET NORTH SYDNEY NSW 2060 TELEPHONE: 1- 61 (2) 9937 5400

PO BOX 1237 NORT H SYDNEY NSW 2059 WWW.ROYALCAR I BBEAN.COM.AU

2TA08667 ABN 54 150 263 086 RCL Cruises Ltd.

RCCL has been the market leader in bringing materially larger ships to Australia, a trend that will

continue later this year when we bring Australia's first newly-built ship, Ovation of the Seas

(Quantum Class) to Sydney for a three-month cruise season in December 2016. She wil l be the

largest, newest and most technologically advanced cruise ship ever based in Australia.

The relatively short time frame between our operation of a single ship in the 2007-8 cruise season to

the seasonal home parting of five megaliners from Sydney in 2016-17 illustrates the very dynamic

nature of the cruise industry and the phenomenal growth experienced in Australia and

internationally over the last decade. From a smal l base of under 50,000 passengers in 2007-8, RCCL

ships now carry approximately 250,000 passengers on cruises departing from the OPT.

RCCL's Deployment Patterns in the Asia-Pacific Region

The rapid and continuing deployment of our biggest and most modern ships to international markets

around the world is a unique feature of our business. The deployment of the Voyager Class - and

more recently Quantum Class- to the booming Chinese cruise market has accelerated the arrival of

these more modern and larger cruise ships in Australia.

RCCL is a truly international cruise company and, unlike our Australian based competitors, the Royal

Caribbean and Celebrity brands base their ships in two different markets throughout the year. As

such we are said to follow the sun, in recognition that our guests prefer to holiday in warmer

climates. In regard to our Australian deployment, this is complementary to two northern hemisphere

cruise regions : Alaska and Asia. Initially our Australian ships were shared with Alaska but, more

recently, we have seen an increase of southern summer deployments of ships from Asia as Royal

Caribbean increases its deployments ex China.

The Chinese cruise market demands the newest and biggest cruise ships and Royal Caribbean has led

the response to that demand over the last 6 years. Australian cruise guests are now the

beneficiaries of this deployment strategy, with both Voyager of the Seas and Ovation of the Seas

now being shared seasonally between China and Australia. These megaliners are the largest cruise

ships to operate seasonally ex Sydney.

lt is sometimes said, particularly among our competitors, that whilst Royal Caribbean builds the

biggest ships in the world, these ships do not necessarily come to Australia . We believe that actions

speak louder than words in this regard : Ovation of the Seas' will mark the arrival of t he world's

newest and fourth-largest cruise ship in Sydney.

lnbound Passenger Numbers

Another feature unique to our brands is their international appeal to guests from all over the world.

All of our cruises are open for sale to international passengers and we are the only brands among

the seasonal and year-round cruise companies operating in Australia that market our vacations

globally.

As a consequence we carry more international guests on our Sydney based cruises, contributing

approximately 55,000 inbound tourists to the visitor economy each cru ise season. International

guests who must travel long distances to cruise do so to experience the best amenities and

passenger experiences that are more likely to be available on more modern and larger cruise ships.

Therefore disincentives to deploying larger ships such as a blanket head tax, which places a greater

burden on large ships with no reference to the cost of servicing them, fails to acknowledge the

contribution to the visitor economy made by inbound cruise passengers.

OPT Upgrades

The need to accommodate larger, modern cruise ships in Australia was one of the key reasons for

the recent refurbishment of the OPT. This initially involved the construction of an additional

"dolphin" to enable longer vessels to safely moor at the berth so that ships like Voyager of the Seas and Queen Mary 2 can utilise the OPT. The terminal modifications, including the creation of a

mezzanine level and larger baggage and storage spaces, recognised the challenges of turning around

ever larger cruise ships with much larger passenger movement requirements and baggage and

provedoring tasks.

The physical characteristics of the OPT site limit its potential to expand to cater for the largest cruise

ships in the world and we are in no way critical of the PANSW for the renovation of the OPT, which

has certainly improved passenger experience and made turnarounds of our current vessels more

efficient. But it is worth noting that the terminal renovation was designed to enable the handling of

ships up to a passenger capacity equivalent to Voyager Class ships (3,900 guests) and yet within 18

months of its completion, the terminal will need to cater for a class of ships two generations beyond

that capacity (Quantum Class at 4,900 passengers).

RCCL has developed its own cruise terminal facilities around the globe and in particular in the United

States where we have a number of dedicated RCCL Terminals. For example our Oasis Class Terminal

in Port Everglades (Fort Lauderdale, Florida) was purpose-built for turning around the world's largest

cruise ships, Oasis of the Seas and Allure of the Seas, and enables us to provide a curb-to-cabin

embarkation process for 6,000 passengers in under 15 minutes. We are now replicating this

terminal further north in Port Canaveral (Orlando, Florida) which opens later this year.

Future Deployment Planning

Notwithstanding the physical limitations of the OPT referred to above, this future proofing of

terminals is not an academic issue. Far-sighted ports around the world no longer design termina ls

for ships that are already coming but look to what could possibly come in the future. In China and

throughout Asia, when designing and constructing terminals almost all are built to be Oasis Class

capable, ensuring that when the world's largest cruise ship visits the region they will be able to

accommodate her 6,000 passengers. Sydney competes with these ports for deployments.

Cruise companies look for security when deciding on their forward deployments. The cruise industry

operates on the basis that itineraries go on sale two years in advance and berthing windows need to

be locked in up to three years ahead. lt is very rare for companies to divert from forward itineraries

and this usually only occurs deliberately when a ship is sold. The cruise industry re lies on a very high

level of schedule certainty. Therefore berth availability and suitability are very important to the

cruise industry in determining where cruises ships will be deployed and the pattern of those

deployments.

In this regard consideration of introducing cancellation fees for berth slots does not seem based on

the experience and reality of cruise industry practises.

Capacity at the OPT

We have been strong advocates for the development of an additional, non-height restricted berth in

Sydney for many years. lt is not necessary to go into the various options that have been the subject

of a number of Government inqui ries and reports or to argue our point of view as to the best option.

What should be borne in mind in this inquiry into fees & charges in Sydney Harbour is that the OPT is

today at full capacity, at least throughout the summer cruise season from October/November

through to April.

The discussion paper suggests that the OPT is full in February and March. This is an incomplete

description of the level of congestion. lt does not reflect the peak period throughout December and

in particular around the Christmas I New Year I January school holidays period, which are the peak

cruise opportunities in this market.

lt also does not recognise the impact that the congestion at the terminal has on scheduling

itineraries, where the unavailability of call slots that coincide with the regular duration of Sydney

based cru ises leads to suboptimal itineraries that impact on the commercial success of deployments.

To continue our overall growth in Sydney when the Terminal is at capacity we have resorted to

exchanging our smaller ships (which are nonetheless only able to berth at the OPT) for larger ships in

our fleet. For example in the 2015-16 cruise season, Explorer of the Seas (3,900 guests) replaced the

smaller Vision Class ship Rhapsody of the Seas (2,500 guests) which was redeployed to Europe.

Furthermore, in the coming 2016-17 cruise season we are working with the PANSW to find

alternative berthing arrangements for Radiance of the Seas (2,500 guests) for two calls in January

and February that we will now be allocating to Ovation of the Seas (4,900 guests) for which we have

been able to secure a longer southern summer deployment.

Without new capacity at a second cruise ship berth, Sydney's berthing capacity for modern cruise

ships is effectively full. This has been the case for at least the last two cruise seasons, effectively

since the introduction of Carnival Cruise Lines' second ship Carnival Legend. Although there may be

some spare berthing days remaining over the cruise season at the OPT, it has effectively reached

capacity because of the constraints placed on scheduling a commercially viable, full deployment for

the season.

Sub-optimal itineraries

Unlike airlines which operate on fixed duration flights and require corresponding access to gates and

runways at airports, cruise ship itineraries vary in duration and are dependent upon their ability to

secure the corresponding berthing slots throughout their voyage - including most critically the

turnaround slots at the start and finish of each cruise.

Cruising from Sydney involves a two night sailing window to reach destinations in New Zealand or

the South Pacific nations (usually New Caledonia or Vanuatu). First port of calls on coastal cruising to

Melbourne, Tasmania and Queensland can be achieved in a shorter time but most regular cruises

require at least two to three port calls to be successful in the Australian market. This means that

Sydney most commonly hosts 10-12 night cruises. The ability to meet these schedules from the OPT

in Sydney is today very marginal.

At certain times throughout the summer cruise season - mainly December to February, which are

dominated by the seasonal and year-round cruise companies- compromises are often made to f it in

with sporadic berth availability at the OPT. This is particularly challenging in February and early

March when visiting " Round the World" cruise ships make their annual transit calls to Sydney. RCCL

is operating increasingly sub-optimal itinerary durations as a result.

Additionally, to cope with the lack of regular berths during this period we have been forced to

develop different itineraries which take the ships away from Sydney, for example long "Around

Australia" itineraries (30 days) with a mid-way turnaround in Fremantle (Perth). However as our

ships get larger these itineraries become impractical since many of the regional ports around the

Australian coast are inaccessible to this size of vessel.

Multiple turnarounds per day is not the solution

Currently Sydney's terminals are hired for a 24-hour period. This is consistent w ith practice

worldwide and reflects the operational practicalities of the cruise industry. lt has been suggested by

the Port Authority that one way to increase capacity at the Terminals - and particularly at the

capacity-constrained OPT - would be to perform more than one turnaround in a 24-hour period.

Whilst the Cruise Shipping Industry is both inventive and innovative when dealing with logistical

challenges, it should be remembered that unlike cargo ships- be they containers, bulk, break bulk or

automobile carriers - cruise ships carry passengers. Furthermore, they take those passengers on

vacations and "double turnarounds" with early-morning and late-evening passenger movements are

inconvenient to holidaymakers.

As a company we consider ourselves the equal to any in the industry in shoreside operations. We do

not "double turn" in any port in the world and would only do so in the most exceptional

circumstances. In fact when faced with double bookings at the OPT in the past, we performed a

turnaround whilst anchored in the harbour at Athol Buoy: a one-off experience which was

prohibitively expensive, logistically challenging and inconvenient for passengers and crew al ike.

At no time have we ever contemplated asking our passengers to board throughout the night in order

to double turn. Such a suggestion ignores t he additional tasks that must be performed on a

turnaround day: reprovisioning, refuelling and a complete clean and linen change of all cabins. lt is

for this reason that there is usually a break between t he last passenger disembarking and the fi rst

new passenger embarking on each turnaround. The hotel needs to be made ready but in this case

every room must be made up in a finite time period. There are no late check outs on a cruise ship.

On occasions, often outside the control of PANSW, storing of provisions and refuelling (at least in

part} can be deferred to other ports of call on a cruise. This is not necessarily possible on all cruises

and is dependent on t he itinerary allowing this to occur. In all of these cases in our local experience

operating in Australia this is the exception rather than the norm.

Cost & Charges: Sydney is uncompetitive

We have explained to the Port Authority of New South Wales and successive Governments since

commencing our Australian based operations, that Sydney is uncompetitive in terms of port costs

and charges.

Our initial analysis shared with the Corporation in 2010 related to our Vision Class of ships, from

which our first ship was deployed to Australia from 2007 to 2015. Rhapsody of the Seas (78,000 GRT

I 2,500 passengers I 280m LOA) was a ground-breaking deployment for our company in the region

and she was too large to pass under the Sydney Harbour Bridge, therefore docking at OPT.

In this analysis we demonstrated that Sydney was by far the most expensive of any of the 22 ports in

the world where we turned around Vision Class ships on an aggregated costs basis- even before the

introduction of the passenger head tax in 2014. We attach a copy of the comparison analysis

prepared at the time (on a commercial in confidence basis) outlining the relatively uncompetitive

cost regime in Sydney. We are currently producing a similar cost comparison for 12 Voyager Class

turnaround ports globally. Notably Sydney is one of five ports in the Asia-Pacific region that are

recent additions to this list and it is significantly more expensive on almost all metrics than the other

four. We will forward the Tribunal a copy of the summary once completed.

The opportunity for growth in the Australian cruise market from the rapid expansion of cruising in

Asia could increasingly be placed at risk if our cost base continues to rise with no correlation to

reality, simply because it is thought that we will be able to continue to charge what we like.

Using inflated asset valuations for our terminals, which do not adequately take into account full

depreciation over the long life of the asset, particularly the heritage and physically constrained

Overseas Passenger Termina l, in order to justify higher charges will not stand up to scrutiny or

international comparison, particularly among those ports with which Sydney competes for cruise

deployments.

lt would be ironic that having accepted the need to upgrade the OPT to make it serviceable for

modern large cruise ships, to the exclusion of other income producing uses such as waterfront

restaurants, that the Authority were able to value this asset on a basis other than it being a cruise

terminal by referring to the site's highest and best use. This would be even greater folly if in doing so

the Authority's charges became so uncompetitive as to preclude the future deployment of the exact

modern, large cruise ships the renovations were designed to accommodate in the future.

lt might be argued that there has not been any flight of ships from Sydney in spite of the cruise

industry's protestations at the time the passenger head tax was announced. To take that view

would be to deny that economic conditions change and fails to recognise that alternative markets do

develop, which is exactly what is occurring in other Australian ports and in Asia. Lest it be thought

that Sydney has no competition in the Australian market, the most recent CLIA economic impact

statement demonstrates that whilst remaining the dominant port in Australia, Sydney's share of

cruise growth is declining relative to Melbourne and Brisbane; in the industry's opinion due to

constraints on capacity and uncompetitive port charges and costs.

Furthermore, reliance on the fact that no ships have been withdrawn from Sydney fails to recognise

that deployment decisions are usually made two to three years in advance and does not take into

account the intangible non-arrival of the ship that never came; as cruise companies rarely announce

what they aren't doing re deployment.

Competition for ships between Australia and Asia is intensifying

lt is potentially more concerning to Sydney however that as the Chinese cruise market develops and

matures- and Chinese home ports are upgraded- then (northern) winter deployments ex China will

become a more genuine alternative to moving ships to Australia for the (southern) summer. The

ongoing development of new transit ports in warmer, more southern locations reachable from ports

such as Hong Kong provides more alternatives for a maturing Chinese cruise market and compounds

this risk.

In this competitive context, increasing port charges in the false belief that the market will bear the

increase based on artificial and unachievable valuations could tip the scales towards these ships

remaining in Asia year-round.

As the industry pointed out to the Government at the time the head tax was introduced we are all

used to dealing with competition pressures and external cost rises such as fuel and fluctuations in

the value of the Australia dollar. lt must be remembered that as the Chinese example above shows

we operate in a truly global business, with assets that are totally portable.

Although we have long lead times of two to three years for deployments it is exactly this semblance

of permanency that can lead to a false sense that what is happening will just continue. The

imposition of very significant additional port costs already makes Sydney stand out as one of the

most expensive destinations in the world. We believe that further increases threaten the future

growth of the industry; they will undermine the Government's stated intention to double overnight

visitor expenditure to NSW by 2020; and put at risk the considerable economic benefits the state

derives from Sydney's leading position in the Australian cruise market.

Lest it be thought that increasing port charges have not lead to the withdrawa l from cruise markets,

Brazil is an example that should be borne in mind. As the Vision Class analysis referred to above

demonstrates, Brazil has been for some t ime a very high-cost operational environment for cruise

ships. Following the imposition of further imposts through the cruise head tax in Brazilian ports,

Royal Caribbean has recently pulled out all three of its ships from Brazil: we simply do not cruise

there anymore. Whilst this may be attributed to a combination of factors, uncompetitive port

charges and a heavy head tax regime were the key motivators in reaching our decision - and is

reflected in reductions of capacity and deployment across the industry including by Costa Cruises,

Pullmantur Cruises and MSC.

Issues raised: some comments and responses

In considering the task before the Tribunal and the terms of reference issued by the Premier it is

important that we bear in mind the advice received by the industry explaining the purpose of the

introduction of the cruise passenger levy in the first place. Advice received at the commencement of

the charge from the Sydney Ports Corporation stated "the objective of the passenger fee is to allow

for Sydney Ports as a State Owned Corporation to make a commercial return on its assets."

Furthermore the then Premier in writing to the Minister for Ports regarding the temporary discount

to the application of the levy on 11 October 2012, described the imposition of the levy as being

made "to ensure the Sydney Ports Corporation received a reasonable return on its investments in

providing terminals and other facilities for the passenger cruise industry."

What is of most concern to us, is the definition of the investment rather than the reasonable level of

return upon it. The methodology adopted to determine the value of the Terminals and the other

relevant parts of the PANSW business needs to be realistic and transparent. We are concerned

regarding the potential cross-subsidisation by the cruise industry of the Authority's other activities

and whether the Authority is utilising all of its assets efficiently. We have a strong preference for any

valuation of assets to be based on its actual use rather than any notion of highest and best use.

Any incorporation of opportunity cost of having assets tied up in cruise terminals must be based on

the reality of the location of the OPT in the heart of a heritage area with planning restrictions and

the proximity to transport and cultural zones - and the restrictions that would be placed on any

alternative development.

The Tribunal is to be commended for the open-minded way it has approached the cruise industry

environment. As our comments have demonstrated the cruise industry has many unique operational

characteristics which we hope can be appreciated and incorporated in the Tribunal's consideration

of its recommendations. We provide the following comments to assist the Tribunal.

As the largest single customer of the OPT we will concentrate our comments regarding terminal

operations on the OPT, other than to say that we believe the retention of White Bay Terminal in the

long term is important to the cruise industry as there will always be a demand for berths from

smaller cruise ships, in particular in the 300 to 1,200 passenger categories, which include some of

the most exclusive cruise brands in the market place. lt is important that Sydney remains a viable

option to these companies and White Bay provides that option at present.

lt is also likely that the larger cruise ships currently using White Bay will be retired and replaced with

larger ships in the space of a decade - or perhaps even sooner. In this regard the availability of a

second terminal east of the Sydney Harbour Bridge will play a role in the longevity of this use.

We have already commented on our firm belief that the OPT has reached its useful capacity and

Government and industry focus should turn to identifying and securing a second eastern option.

Question 4

Question 4 deals with the allocation of supplementary income. In so far as this question relates to

the Overseas Passenger Terminal it is largely a moot point following the substantial renovation of

the terminal. Supplementary revenue from cruise terminals is ordinarily derived from letting the

terminal out for non-cruise purposes either on a temporary basis or on a more permanent basis with

restaurants and other entertainment purposes taking up part of the overall facility.

To their credit, to faci litate more efficient cruise ship operation, the renovations conducted by the

PANSW have substantially reduced the opportunity for raising supplementary income at the OPT.

Whatever the policy adopted regarding accounting for supplementary income derived by the

PANSW, RCCL seeks only to ensure that the port charges we must pay are reasonable and all income

derived from the terminal assets are allocated towards achieving the requisite return on assets

required by the Government.

At 4.1 it is suggested that if the Port Authority services could be provided directly by a third party at

a lower cost in a short time frame then it could reduce costs, improve effectiveness and reduce

turnaround times for operators and passengers.

Whilst not disputing this statement it does seem to over-simplify the situation with turnaround

times at the OPT. We turn around ships in many ports around the world - including at terminals

which we ourselves operate - and it is true that where we have a completely free hand in the

operation of terminals, which we are able to design and build to our own specifications, we can

reduce turnaround times thus improving passenger experience. But it is equally true that we also

operate in terminals like the OPT where there are many legacy issues related to the physical and

geographical constraints inherent in the very character of the terminal itself.

Notwithstanding these significant constraints on efficiency it should also be noted that a significant

role in the turning around of a cruise ship is played by the staff and crew of the cruise line

concerned. In so far as shore side services are concerned we have an open mind as to who should be

providing these. In our experience, improved efficiency at the OPT has been the result of the

collective efforts of the PANSW, outside contractors and our own direct and contract staff. What is

most certainly true is it is an expensive operation all-round.

Slot Auction Option

RCCL does not have a view regarding the Tribunal's option of berthing slot auctions. We would

however point out that the cruise sector is significantly different from the example given by the

Tribunal relating to grain shipping auctions.

We would oppose any allocation system that encourages gaming of slots and believe such systems

should be prohibited as they are inconsistent with the current berthing allocation policy which we

support. Any secondary trade in slots should only exist to facilitate the best and most efficient use

of the terminal and not enable speculation which will only add to the unaffordability of Sydney as a

cruise destination.

We would observe that if such an auction approach meant those with the deepest pockets wou ld

ordinarily win the most sought after berths, in our case regardless of the depth of our pockets with

ships that carry up to 1/3 more passengers than our competitor's largest ships, t he costs we are

already paying through a per passenger charge are at least a third more than those competitors,

therefore placing us in an advantageous position entering into any slot auction.

lt is essential that any allocation systems prevent a ship that can physically access White Bay from

paying for a slot at the OPT, which in turn displaces ships that cannot use any other terminal than

the OPT. This is the current allocation system practice and we fully support it. Removing the

preference afforded to those ships that cannot pass under the Harbour Bridge would send a very

dangerous message to the world cruise industry regarding Sydney's attractiveness for the most

modern market leading ships. it would also place at risk, for a short-term benefit, visits by the very

ships that provide the greatest economic contribution to the visitor economy and the local tou rism

sector through their superior passenger numbers.

This issue raises the question referred to in the terms of reference regarding the relative value to the

economy of different classes and sizes of ships. Whilst we predominantly offer local and

international passengers seasonal cruises across the summer cruise season on the biggest and most

modern cruise liners in Australia, we also provide short seasons with the smaller Azamara Club

Cruises brand, which combines semi transit calls with up to three locally based cruises in our region

ex Sydney. We are therefore well placed to comment on the relative economic contributions of

seasonal and semi transit cruise calls. RCCL supports the provision of berthing options for all types of

cruising experiences: both turnarounds and transits, for both large and small ships. Doing so ensures

that Sydney will remain a destination for the entire cruise industry which in its sea-going sectors

represents a variety of holiday choices and provides options at all levels of the market.

Ensuring that Sydney can accommodate smaller ultra-luxury cruise ships as well as the largest, most

modern super liners will ensure that Sydney and the New South Wales economies can benefit from

all levels of cruising and the contributions that they make. Whether this is from the provisioning of

ships or passenger and crew spending during cruises and or pre and post cruise, all contribute to the

prosperity of Sydney and the state. We believe that port pricing should reflect the relative cost of

berthing and that there should be recognition of the marginal savings derived from larger ships. We

do not believe that the current head tax reflects the marginal cost of operating a turnaround at the

OPT for larger vessels. lt seems that the current head tax charge is directed more at convenience

than equity.

Cross Subsidies

7.14 proposes criteria for assessing options including reference to removing cross subsidies between

different modes of shipping, yet no reference is made to cross subsidies between different types of

cruise ships. In calculating the port charges on the basis of the number of passengers, there seems

to be no recognition of the lower cost per passenger obtained from the larger ships. Just as Royal

Caribbean's largest ships have been developed to take advantage of the marginal cost savings

achieved with a bigger ship, the PANSW charges should reflect the actual cost base required to

service each ship.

Benefits of the cruise industry to the NSW economy

We understand that CLIA has submitted a submission to the Tribunal which deals at length with the

findings of their annual economic impact study for the cruise industry in New South Wales and

Australia. As a founding member of CLIA we fully endorse this submission.

We are disappointed that the Tribunal has dismissed much of the economic benefits arising from the

presence of cruising as "private benefits" which are economic transfers between businesses and

individual workers. We believe this undervalues the industry's contribution to the economy and

particularly the visitor economy.

Whilst it is understandable that a body such as IPART would take the view it has on subsidies to the

cruise industry, it is essential that the realities of the global cruise industry- particu larly in the Asia­

Pacific region- are considered by policy makers, if not by I PART, in determining the level of fees and

charges to be imposed in Sydney Harbour. The reality is that Sydney's competitor ports, particularly

in China, do subsidize port costs in recognition of the economic benefits derived by the port cities

and surrounding areas and economies from the cruise industry.

Thank you for the opportunity to provide our views. We look forward to participating in the

Tribunal 's further processes and remain available to the Tribunal at your convenience. Should there

be any issues arising from our comments or from other submissions or the Tribunal's considerations

that we can assist with we would be pleased to offer all possible cooperation.

Yours sincerely

Adam Armstrong

Managing Director Australia and New Zealand