Competing views on cruise commissions

By Charlie Funk
Charlie FunkTravel Weekly's CruiseWorld 2011 in Fort Lauderdale earlier this month was a resounding success. One of the topics generating substantial buzz was the sale of third-party and ancillary products and services as a way for cruise sellers to restore profitability lost over the years.

At least two sessions, including the one my wife, Sherrie, and I did, were devoted to the topic. Third-party sales were discussed, often at length, in a number of other sessions, including the cruise line supplier panel on Nov. 3 just before lunch.

In that session, we discussed the significant drop in agent commissions, comparing a cruise sold in 1995 with the exact same cruise sold in 2011. The latter produced 70% less commission due to the far higher percentage of noncommissionable items in the total cost.

We offered several examples to demonstrate the impact on the effective commission rate (the amount the agency kept, divided by all the money taken in on the cruise booking) as a prelude to showing how an agency could increase profits on a booking by selling third-party excursions; consolidator air; third-party insurance; and third-party pre- and postcruise hotels, among other items.

For one Alaska booking we cited, selling third-party insurance and only three excursions increased our agency commission a whopping 87.8%.

In conversations with a number of agency owners and based on input from members of the Travel Agency Best Practices Group on Facebook (subscribe at travelagencybestpractices@groups.facebook.com), I found that many of them already sell the third-party products and services mentioned, but they charge concierge fees for restaurant reservations and other activity planning while their clients are traveling.

It is noteworthy that several indicated they would prefer to sell a seamless package through the cruise line but would not do so without compensation sufficient to justify the effort.

It is clear that agency owners who truly add value to the vacation-planning process for their clients and who have a plan to be successful understand that the days of selling the cruise and moving on are long since past.

This philosophy is in stark contrast to advice from the cruise line executive panel, which suggested that agents should concentrate on upselling clients to higher-category staterooms and longer-length cruises.

These were suggested as alternatives to wrapping a cruise with an air-inclusive tour that pays commission on all elements of the additional trip, selling third-party excursions, etc.

Responding to questions about decreasing agent commissions, the cruise executives noted that cruise line commission payouts are higher than ever today, and indeed, in terms of absolute dollars, that is true. However, it is also likely that the commission payout on a per-cabin-day basis is lower today than it was 15 years ago, so that today, agency earnings on each booking are indeed lower, often substantially so.

It can be argued that the increase in berth capacity more than compensates for the lower commission on each booking, but technology and productivity improvements can only eliminate so much time from the selling process.

The alternative to acting as a retail travel professional is to turn the cruise product into a commodity that is all about "get 'em on the phone, get the money, get 'em off the phone."

The flaw in that approach is that the cruise industry has done an excellent job of selling not just the cruise but the dream and romance of the whole cruise experience. Treating the process as if it were as simple as buying a light bulb, when the prospects thought they were getting a chandelier, creates after-sale issues more often than we'd like to admit.

Retailers who A) want to avoid those unpleasant situations and/or B) still think they're a professional part of the vacation-planning process (rather than just a transaction-processing toll booth or speed bump on the way to a vacation) do their job by matching each prospect to just the right cruise experience, one that fits their likes, dislikes, budget and lifestyle.

The problem is that they have to make a sufficient profit on the booking in the process.

Conversations on the topic with several senior cruise executives revealed that they have been noticing the increase in retailer third-party sales, and as one put it, "We don't like that."

My suggestion for correcting this situation was to resume paying agent commissions, which prompted an explanation of the delicate economic balance that would be upset if they did. Maybe, but that argument ignores the fact that third-party suppliers provide comparable excursions at a price equal to or lower than the cruise line's and still pay 10% to 15% commission to the agent.

Some cruise lines have consistently and proactively championed retail travel sellers. Others, through actions and policy changes over the last few years, have created the perception that the retail channel is not as central to their success as it once might have been.

It is noteworthy that recent conversations between cruise executives and large agency owners suggest that while the cruise lines are not happy that retailers are redirecting revenue from the cruise line's products to third-party, ancillary products and services and land packages, they realize that retailers have had to do so to make enough profit to stay in business.

The reality is that unless and until cruise lines can find a way to reduce retailer-sourced sales to a third of their business or less, the retailer has to be a part of their business model.

And they need to face another reality, as well: Retailers need the cruise lines. Somewhere in between lies a middle ground, a detente that strikes a balance that enables both sides of the equation to thrive.

If you would like a copy of our PowerPoint presentation at CruiseWorld, send an email to charlie@justcruisinplus.com and put "CW PowerPoint" in the subject line.

Charlie and Sherrie Funk own Just Cruisin' Plus in Brentwood, Tenn., and have provided agent and agency owner training throughout North America on every facet of travel agency operations. They are the authors of several books, including "A Recipe for Travel Agency Success," "Creating A Blueprint for Growing Your Agency" and "You're Invited," a complete guide to hosting consumer travel events.
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