GALVESTON — The Port of Galveston’s governing board unanimously approved a new contract Monday with Carnival Cruise Lines, which means a big bump in revenue for the docks and includes plans to heavily advertise the historic seaport city.
The new contract, which reflects the homeporting of a third Carnival vessel, also extends the cruise line’s commitment to the island by five years to December 2022 with an option for one six-year renewal period. Carnival’s current contract was set to expire in September 2017.
Under the contract approved by the seven-member Wharves Board of Trustees, the port will receive minimum revenue of about $2.1 million from Carnival operations in the first year — beginning June 1 — and about $3.6 million for each subsequent operating year. The current operating agreement, which dates back to 2002 and has been amended twice, called for a $575,000 yearly minimum.
Carnival last week announced it would operate a third ship year-round from Galveston, marking the first time a cruise line has based three passenger liners at a Texas port.
The third ship is expected to lure about 190,000 more passengers to the island yearly. In all, about 600,000 passengers will sail yearly from Galveston on Carnival vessels.
Carnival Freedom in 2015 will join the 3,690-passenger Magic and the 2,758-passenger Triumph at the Galveston port.
Freedom is expected to generate $1.4 million yearly in passenger fees and an additional $1.4 million in fees the port charges cruise passengers to park in its lots.
Under the new agreement, the port will increase its passenger wharfage fee to $11 a person from $7.40.
The new contract also calls for the port to pay Carnival a yearly market incentive fee based on passengers moving through the port on Carnival ships. The fee would cover Carnival’s costs in marketing the Port of Galveston as a tourist destination. The Carnival name carries strong brand identity that would benefit the city, Port Director Michael Mierzwa said. Carnival would use the money specifically to promote voyages from Galveston in advertising campaigns, Mierzwa said.
The market incentive payment could be as high as $1.95 million, depending on how many Carnival passengers move through the port.
But the port and the city would greatly benefit from the exposure, Mierzwa said.
While it once was widely believed cruise passengers drove to the city, parked and embarked on ships without doing much lodging, shopping or eating here, city officials are learning otherwise.
Last year, the Galveston Island Park Board of Trustees, which oversees the city’s tourism efforts, released results of a study showing cruise passengers spent $42.3 million in Galveston in 2012. And, although the island isn’t a port of call, passengers spent $13.5 million in 2012 on hotels and accommodations.
But cruise business also is increasingly vital to the port, which this year projected operating revenues of $26.9 million, with a little more than $10 million of that coming from cruise-related operations.
Although Carnival has extended its contract to 2022, its agreement with the port does not guarantee ship calls, only revenues. That’s the trend in cruise ship contract terms.
Earlier this year, the port approved a five-year agreement with Royal Caribbean Cruises that would generate a minimum of $1.86 million in annual operating revenues for the public docks.
The deal was predicated on the port making about $10 million in improvements to Cruise Terminal No. 2.
While the agreement guarantees revenues for the port, it doesn’t guarantee the ship calls that benefit the larger island economy.
Still, Royal Caribbean said the agreement would mean more island sailings this year and next. The company also committed to bringing a larger vessel to Galveston if the port made the terminal improvements to accommodate more passengers.
The port plans to double the size of the terminal, expanding it to 150,000 square feet with the capacity to seat about 1,000 passengers.
The new Carnival contract has been expanded to include operations from Cruise Terminal No. 2. The port also operates Texas Cruise Ship Terminal at Pier 25.