Some years ago, a large lodging chain ran a TV commercial depicting an operating room with surgeons and nurses gathered around the patient. One member of the team begins issuing orders on what to do to save the patient. A second asks, “Are you a surgeon?” He replies, “No, but I did stay at a Holiday Inn Express last night.”
By inference, his stay somehow imparted great knowledge of a field that he was neither trained in nor practiced.
I listen to cruise line earning calls. Some people say they are drier than the Gobi Desert, but I find them enlightening. Without fail, for as many calls as I can remember, some analyst will comment on high commissions paid to retail travel agents, then advise that the cruise line ought to cut those commissions, after which all would be right with the world.
I keep expecting someone to ask, “Do you work in the cruise industry?” but then I remember that this is not a Holiday Inn Express ad.
On recent earnings calls, Micky Arison, CEO of Carnival Corp., and Richard Fain, CEO of Royal Caribbean Cruises Ltd., have each made it emphatically clear that the retail travel distribution system is a vital and integral part of their business and that their company needs the continued support of the retail distribution system.
Is this some sort of emotional or sentimental response on their part? Hardly. To suppose that to be true would be to suggest that these two men are derelict in their fiduciary responsibilities to their shareholders.
In fact, making such a statement is the height of responsibility, a fact seemingly missed by some.
Let’s examine why.
Every vacation reservation consumes time and, as we all know, time is money. Suppliers pay agencies a commission for that time. For a typical brick-and-mortar travel agency, from a client’s first call to file-in-archives, that time costs about $200 to $225 per booking. Even the largest of the mega online agencies have costs approaching $100 per booking.
Surely the suppliers can process a reservation for less than that. Or can they? Both RCCL and Carnival Corp. take a significant percentage of their bookings direct, yet Gerry Cahill, president of Carnival, announced in December 2007 that the line would reduce its emphasis on direct booking and would continue to do so as long as travel agents filled their ships (the emphasis is mine).
Why would they do that? Perhaps it is because the total cost to operate their direct booking group for all their reservations needs would cost more, on average, than the commission that would be paid to a travel agent on the same bookings.
For as long as travelers put at risk their single most valuable, nonrenewable, irreplaceable asset — their leisure time — there will indeed be a need for a travel consultant to either guide the decision-making process or validate the choice the traveler has made. As long as the retail travel distribution system continues to perform that function for less than it would otherwise cost the supplier, the retail travel agent system will thrive.
Read and reread the previous sentence to understand clearly that only those agencies that become more productive will thrive.
And then go back and reread the emphasis I added on Gerry Cahill’s statement.
If travel agents don’t fill the ships, the cruise lines must take whatever steps are necessary to fill the ships themselves. The handwriting is on the wall: Become productive and keep the ships full, or we will do it for you.
Sound business operations dictate that if the time comes when any properly run company can perform any function itself for less than it pays someone else to do it, financial and managerial responsibility requires that it be taken in-house.
I can only conclude that Arison and Fain are acting in the best interests of their shareholders by continuing to value the services provided by the retail distribution system. Analysts whose companies lost $2 billion or more last year would do well to heal themselves before they deign to direct others who often have pretax profit margins greater than 20%.
Me? I’m staying at a Holiday Inn Express tonight. Have you seen how much those Wall Street people make? And if you want to calculate your agency cost of handling a booking, send an email to firstname.lastname@example.org and put “Booking cost” in the subject line.
Charlie and Sherrie Funk own Just Cruisin’ Plus in Nashville and have authored several books on travel agency operation. For information on their books and seminars, contact email@example.com and put “Books” in the subject line.