you asked questions that i'm going to cover in the presentation. putting everything in a framework, i have a few slides that i want to show and talk about with the cruise industry so it gives you an interesting perspective of san francisco. we're going to address the basic questions which goes to how do you compare financially, how do you look at the models and what are the recommendations we're reaching. i want to put it in a market context because at the end of the day you're trying to attract more business so you can have a higher economic return on the community and on the port. the key here is to attract the cruise lines to bring their customers, san francisco is a well known commodity that people want to visit. how do you put them

together. the industry is a growing industry. there's no issue about the industry itself. it's healthy and they're buying new ships, so the question is where are they going to put these ships. this slide shows you the growth over the last 20 years and it started -- >> the industry is growing worldwide as the demand for the product increases and that's 20 years and it -- >> the industry is growing worldwide as the demand for the product increases and that's healthy. as a result which was in the caribbean and the west coast and new england market, went into the mediterranean and it's a world wild industry, in many ways when you compete of

the vessel, you're competes on a worldwide scare. san francisco as a city and as a place. the question is does it work in the eye tien terry. >> it compares the cruise industry against attendance at theme parks. the yellow line is attendance at the theme parks and the blue is the passenger in the cruise parks. the entire cruise in the whole world is the same attendance as the major kingdom. it gives you a perspective of how much room we have to grow in attracting the business. another thing that is really an mega trend that's important and

affects the paert ports -- it's not happening in the cruise industry, so you have in north america three lines, carnival and region. they control 85 percent of the marketplace. very important as you try to diversify attracting a client. so what drives a whole industry is the capacity. the ships are going full and put into different markets and this is how ships have been ordered and delivered on every year and you can see the nature in the economy. number of ships to be built. the yellow was -- i wanted to show. that was the way the chart looked in 2011 that the economy wasn't going good, the world -- everything was in chaos, so the ship order was going down and down. since then this is what happened. already for 2015 and 2016 there's less ships there's more

cabins being built. again, it's the ability to expand rapidly is there, but you have less ships to compete and moving around. so the cruise line without going through all of these things, the cruise line works on a specific model. they want to take the passeners -- passengers where they want to good. they do it by working with the tour operations and they highly rely on great deal of passenger satisfaction which means repeat business. like any other business, they're in the 70 and 80 percent repeat business. the whole experience at the terminal is critical. so the expectation for the industry and this is strong on a

worldwide basis so looking at expanding the passengers. a lot of room for expansion. we think a lot of that will occur in north america and these are our north america projections and there's high lows and usually it's the red one that's the target but it depends on the economy and currency exchange that drives those decisions but we're looking to doubling passengers in north america. where are they going to go? in san francisco -- well, throughout the united states the major home ports are really the four obvious corners, the northwest and northeast and southwest corner. san francisco is one of the few that is in the middle and the reason for that is because the iteneriary. it goes to the west and to the hawaiian market. each one has different

characteristics. what i wanted to show you on this one is that all though this is the last five years, the percentage market captured by each of those markets, the one thing you can see the caribbean is the largest percentage -- it captured 40 of the business and then europe. most of them are stable. the caribbean and the mediterranean, it's stable and there's not tremendous growth and the one that had change is northern europe, upward, asia, you're seeing a bump and you can see west coast mexico going down. this is reflected on these home ports and how they have operated where you see the biggest home ports is miami. each are staying between 300,000,000 passengers and this year you're going to see them

reach almost $5 million because of the economy. you see the others down here. new york, seattle, los angeles, san diego. when you look at the markets that are affected here by san francisco, the alaska, and mexico and the world market, they're stable. it has gone down and that has reflected on each of the ports that reflected that san diego you can see a drop in business over the past -- since 2010. all due to the economy conditions. san francisco is going up and a lot has to do with the new redeployment and the industry discovering this is a metropolitan area where they can really build their business. so i think it's very, very good news for you

all. the one thing that is still in the horizon is the cost of operation and the environmental control areas that are affecting the type of fuel that they'll be burning. anything in the center of the united states where you have longer sailing distance will effect those ports the most and we don't know the full effect of those but it's important. finally just a couple of things because i want to close to this. this is ten years worth of data. the three top ones are miami. i'm going to wipe those out because the scale of these things endorse the others. you're the light blue line at the bottom and the one growing the most is new york at the top. that's the collective new york, new jersey market that has gone to 106 million passengers. they go up and down as the ships deploy and redeploy. so you have to close

your eyes and you begin to see what the trends are. the vast majority, the trends are up with the exception of los angeles and san diego that i talked about but the mast majority are going up. some are exciting than others which create two case studies to think about what can happen in san francisco. the two are new york and seattle. seattle is the read line. it went from almost nothing to 1 million passengers. it created the home port city like you are and create the gateway. people fly to seattle from all over the country and they take advantage of the seattle area and go to alaska. the cruise lines are bringing people from all over the place and they're controlling that destination. the other is new york and you can see a growth in new york and in new york the model is different. in that case the

cruise lines said we'll like to be able to sale cruises to those in the northeast of the united states next to california. they're not relying to flying people all over the world, but they're relying people to drive and come to their port and grow. the future of san francisco is some where in between the two because it's not the gateway strategy. you have some gateway capabilities but there's no way to beat seattle because we're reaching the atlantic market faster or going south. there's potential. you have hawaii, but the local sources and that's region. that goes into three or four hundred miles away. it's a great potential for san francisco and the future for growing. you're about to embark on this new terminal. we'll give you that ability to

embark on that growth model and we think that the next year or so as the new ships are coming in place and are beginning to sale on a regular basis rather than passing by. i think if they get good deals you're going to see the growth. what happens is when one line is successful the others will copy and you'll double in size. if that doesn't occur, you're still going to grow. gdp they're success. that question has to be answered over the next year or so. how the terminal is handled and how the business is expanding, you have to ask that question. how are you going to operate the terminal? are you getting the maximum for the port and for

the users and are you using the right model. the questions that were asked, how do we compare and stack up to other ports as to cost and give a break down on how this business evolves and how sensitive is the cost. there's many cost that the cruise pays when they come to a port. the charges which are the loading and off loading of the vessels with baggage and security and line handles and game way operations. you have the port charges. in this case you have a charge which is one time charge per passenger and the port receives that money and then the security charges. there are other cost that the lines pay but we're not involved with that such as tugs and pilots and things like that. that is what total port cost basically exist sochlt what we did is basically the

metholgy was straight forward. there's two sources for this information. number one is the port tours and we can get from all the ports but more importantly we collected rates that are already negotiated between cruise lines and ports because a lot of ports on the united states have private agreement with tariff agreement in terms of volume. what we did was collected that. every port operates differently and how the tariffs are collected but we did do a medium and small and large ship. and came up with a charge and that's how they came up with the money. they charge the customer. we're showing a home port scenario. the customer are counted as they embark. this is just a chart. i'm not going to go through it. you can see how things are charged. bundle

rates, water. just different things. so here's where it stacks up in terms of san francisco in terms of the money that you collect as a port verses other ports. the highest port is new york and brookland which -- there's a discount to go to brooklyn because at that point they were brand new and everyone wanted to go to manhattan. those are the south and those suffering more in traffic are lower than yours. it's a nice slit. there's a $5 difference between you and seattle and a $5 difference between la. you're in the middle, so if the market is going up, you're $5 cheaper. if you're south, you're $5 more expensive. we think that tells you where your market is. now, to give you the port

access as well, do you have any information on europe. these are the similar charges for all your ports and north american ports. the orange are the european ports, green is north america and the dark blue is you all. so you can see that at the top of the list even ahead of new york you have ports like south hamptin. that's $4 or $5 that they charge for services they provide that we don't provide on this side. you can compare the most expensive of the european part is in par with the new york port. the biggest ports in europe are bars lone in a. you can see it's right under $15 and you're $12.50. amsterdam and then you can see the rest of them. you have a

whole range in europe less than $5 per passenger and you're sitting in the middle. you're not competing against these ports but it's information that i think is important in terms of what people could charge and it has nothing to do, i think, because you're going to see with the name of the destination like we're talking about whether bars lone in a, dover, that's not a strong destination, just a port and they can charge more because they have the facilities, they have the demand and therefore supply and demand, they engage that. so in a world like perspective, you're very close to the median. in a competitive spear, you're $5 cheaper one way and more expensive the other. so there's room there for improving your port paris.

then the other charges. we did the similar type of thing. we were able to collect you'll bills from the cruise line pay for these services throughout the country from different sources and in a graphic -- in a non graphic way, i can show you, these are the cost per passenger and you see los angeles at $9, san francisco if you have the late day charge, without the late day and the late day. the late day is the fee that the lines pay to the operator currently between 21 and 22. and then seattle at 17. new york is lower in terms of the cost. when we add the port fees and security fees, it gives you this chart and i'll put that up. you're the second highest in this market. you're right below vancouver in terms of the total port cost and on a

par, more or less brookland, a little bit less expensive than brooklyn. so the north your comfortable and to the south you're more expensive so you're on the border between the two. if you look at it, you're the highest in the united states, vancouver which is 96. obviously that's higher than you are, but your port fees are lower than seattle or vancouver. now, what is the price. there's huge price. the cruise lines are sensitive to the cost because there's that business model. their business method sl how can they sale the cruise at the most affordable cost. in this case, the prices will boil down to one thing. i've shown you

compared with other ports. it's a source market from this region in which case you have a lot room to move up and down because you have a captured market or are they flying people from some place else and you're competing against the others so we think that there is an ability to move up with the port fees and there's an ability to efficients. they're almost exact and it's competition. there is a great example in the west coast years ago, la tried to increase by $20. they're taxed so they can pay for facilities. one of the major customers moved and build their own facilities and many years later la is in a worse

place than they started. there was a lot of movement. we were able to double and you saw the rates for new york. the question is, how is san francisco going to be treated? but what you charge is also an important relationship, but at the end of this, what falls to the bottom line and that's where the operating model comes into play. the port access to look at all the models that exist, look at what you're doing and say does that make any sense? first just a little bit of -- the terminal operators is a building manager. they maintain the building. they provide house keeping, they provide traffic control and help you market the facility, they schedule and sometimes in some sports they operate the ports or do the line handling. on the day the

cruise ship arrives, they give check and they're the people you see around. in all of those functions, those move to the cruise lines and the ground handles. there are two basic directions. you have in the united states, by a large the vast number used to be that the port authority itself operated the terminal. there was no third party in the middle. you can see here a little just diagram showing you the folks that are doing that. miami, san diego, so you can see the east coast ports and san diego. they're operating on term inal. on the west coast, it was provided to companies like new york that went with that model because it doesn't have a port authority. it's the city of new york that'sity owner of the facility. you basically have two frameworks. you

operate it yourself or do the concession. once you do the concession, there are a number of things that we look at in terms of how you portion what is a terminal operator. the vast majority of the operating driver is who makes the investment and in many places they tried to bring the operators and the operator makes the entire investment and that doesn't work. you want to get the economic benefit. that begins to drive the operating model that the terminal operator can take. what the operators then want is a predictable call structure to operate so they know what it's going to cost them. some are manageable except for the heavy

maintenance thing. everything else the operator can manage. when third party comes in, an operator, there's four options, you can sale it. nobody has done that except long beach. you can lease the asset and that's rare and if you lease it, the operator makes the investment and that's rare. you have the management model like seattle and vancouver where they pay the operator to operate the facility. like a hotel pays a flag. then you have a hybrid which is what your proposal is here today. once you do that, you have five different ways of really mixing who does what. so if you look at the whole functions of being the owner of the ground hound and of the cruise lines, you basically operate the terminal and then you have independence stevadore and you have one

where the operate -- some are independent. you have one in which the operator then becomes stevadore and one company and the others are independent. different ways of integrates. the terminal operate provides everything in the terminal including ground handles. and then you have an out source model which the port is going to out source like house keeping and so forth. this model is the one you wanted to study. one of the things we did was look at the different cost structure that terminals have today -- existing today based on the operational model and this chart tells you how much dollars per passenger these terminals are costing to operate. the first one here is san francisco which is your

current basic model more or less and how you're operating and looks like your lay day fee that it cost to operate and you have san diego. and san diego is terminated operated. then you see miami which is operated by the port authority and with without security and with security and you can see it's more expensive. you have miami all in which means the entire port authority goes in. then you have la, there was two models. the previous one, the ptcs had which was metro and the new one is much more expensive to la than the previous one that ptcs has. then you have singapore and new york and seattle. what basically -- the model you have today is the least expensive model to operate a terminal. you have efficient operation and a cost -- the way that

they're being operated is efficient compared to everybody else. you have a good business model. as a result when you take that revenue that you can charge and you add or subtract charge and that's to pay your rent, san francisco is the best performing terminal to the port terminal in the united states or anyone we've looked at. i can assure you the model is the best that says i can charge so much and then this flows and i can reinvest into the facility. we felt that the conclusion is the model that you're going to propose to use and it has been proposed to you is the best financial results. the operators has offered to share with the revenue. we haven't found that anywhere else that that has been the case.

however, obviously the key will be as moving forward is in negotiating the details with the operators. you want to be able to align your interest so we start at the beginning. so the customer will receive inpeckable results and you'll get the highest yield, that the community will get the highest yield and you get the best bang as possible, so a careful, thoughtful process in negotiations and structuring the agreement that it works for all parties. it seems like you have a great framework to move forward with the facility. so i leave this one because now i turn the pie the other way around because when you need to do is create a structure that moving forward is that payment by the cruise line is a potential revenue that's going to be did divided by all the

parties. that division becomes a fair division between the parsley these and it reflects the risk and rewards that each one has. you want to minimize the potential charges to the line so you maximize your potential volume of passengers here, but on the other hand you want to maximize your revenue so the structure, i think we think is the correct one. we think that you are -- although your cost are higher, we think that it's obviously supportive by the market you have here. we think there's some room to move up on the tariff to get more revenue and you have a good structure to be able to throw it to the bottom line as much as possible. that was my report and i'm happy to answer any questions. >> thank you very much. comments. we do have dave hill. after dave, renae decrue

and then mike falonte. >> >> madam chair, commissioners good afternoon. my name is david hill. i'm the vice president of iodw ships local 34. our office is in san francisco. i like to speak to you today on the manning clause that was part of the business plan presented to this commission on september 5th. there's a couple of items concerning manning which are incorrect. based on their commitment to the union in our past meetings. we believe that our statement about hiring a full-time mechanic was meant to say a full-time local 34 clerk

supervisor. and the highering of a local mechanic. there's also a statement in there about about hiring of a local for man. there was several attempts to contact metro but our phone calls went unreturned. local 34 has and will remain -- we thought we received the same commitment in return. thank you. >> thank you. >> renae. >> good afternoon, commissioners. my name is