When it goes into effect Aug. 1, Carnival Cruise Lines’ ban on using cash-equivalent value-adds as booking incentives will be among the tightest such policies in the industry.
Even so, agents greeted the policy change with more praise than criticism after it was announced in early July.
Most other cruise lines allow agencies to fund their own value-added booking incentives. Depending on the cruise line, these can include cash-back cards, free upgrades, free or discounted shore excursions or other items. While all such plans impose parameters, the limits are usually based on a percentage of the cruise cost.
Carnival’s ban on the practice is part of an ongoing evolution in cruise lines’ attempts to enforce pricing integrity.
For Carnival, that evolution began in 2005, when it instituted its Advertised Price Policy, which required agencies to advertise all Carnival cruises at the prices the cruise line set for them.
Initially it did permit discounting in one-to-one communications, but in 2010 it expanded the policy to prohibit discounting in face-to-face conversations, phone conversations and email correspondence.
The pending new policy tightens the existing rules and offers agents a long list of what Carnival considers a cash-equivalent incentive. That list includes airline miles, reduced airfare, free or discounted hotel nights and travel protection.
The new policy, however, does not apply to group space, which many agencies, consortia, hosts and franchises book as a block, then bundle in air, special onboard events, shore excursions and agent-hosts on the cruise. This gives them a unique product packed with extras at a very competitive price.
Carnival said that it is banning cash-equivalent incentives because agents have complained that such incentives are a form of rebating that leaves one agency undercutting other agencies.
As a direct seller of cruises to consumers, Carnival itself benefits from the new policy.
Carnival Cruise Lines does not report what percent of its sales are direct to consumer, but its parent, Carnival Corp., said that 18% to 19% of total sales by all its brands are direct.
Many agents said they believe that Carnival Cruise Lines’ direct bookings are far higher than those of other Carnival Corp. brands.
Whatever the actual figure, banning cash-equivalent incentives ensures that the cruise line will not be undercut by its distribution channel.
Last week, some in the industry were critical of Carnival’s new ban. Among them was Dave Spinelli, vice president of industry relations and revenue management for Travel Leaders Group, No. 10 on Travel Weekly’s 2012 Power List.
Spinelli said Travel Leaders believes that cash-equivalent booking incentives are quite different from rebating; it sees them as a way for agencies to package products and services to differentiate themselves within the marketplace.
But Spinelli appeared to be in the minority in embracing this view.
Scott Koepf, vice president of sales for Avoya Travel/American Express, No. 41 on the Power List and a cruise powerhouse, praised the ban.
Koepf sees it as a strategy to keep a few mega-agencies from stealing market share by cutting prices.
In addition to competitive issues, he said such practices confuse consumers.
“The stronger cruise lines are at protecting their pricing, the better it is for the industry,” he said.
Koepf seemed to share the majority view.
Critics of agency-funded cash-equivalent booking incentives said they give an advantage to volume sellers whose higher base commissions and override bonuses for exceeding sales thresholds mean they can kick back some of those commissions to their clients without cutting their margins to the bone.
Such practices can confuse consumers, who don’t know if they’re truly getting the price they want.
Andi Mysza, president of MTravel, said that many mega-retailers have become highly skilled at using cash-equivalent incentives.
“But they’re undermining pricing and continuing to teach consumers to continue shopping,” she said.
It remains to be seen if other cruise lines will follow Carnival’s lead.
Holland America Line, also a Carnival Corp. brand, already has a fairly strict policy, which states that agencies can advertise only approved rates and cannot include any message that directly or indirectly offers any discount, reduction or special price that HAL hasn’t specifically authorized.
Princess Cruises must approve any cash-equivalent offers; non-cash items can be advertised at any time. The actual or perceived value of any incentive cannot be more than 10% of the cost of the cruise, and it cannot be positioned as a discount on the approved fare.
Norwegian Cruise Line said it does not allow cash-equivalent or non-cash booking incentives other than shipboard credits. It also limits the size of these agency-funded credits.
Royal Caribbean International allows cash-equivalent incentives, but they cannot be given in the form of cash, a gift card or a check.
The perceived value cannot exceed 10% of the value of the cruise, and it limits other cash-equivalent incentives using a formula based on the length of the cruise.
For example, onboard credits are limited to $50 per stateroom for a three- to five-night Royal Caribbean cruise. It maxes out at $250 for a Celebrity cruise of 10 nights or more. Acceptable value-adds include anything Royal Caribbean sells, such as Gift and Gear items.
Vicki Freed, Royal Caribbean’s senior vice president of sales and trade support, said Royal Caribbean International discusses the issue with its travel agency advisory board, which includes agencies of many different sizes and models, “and they themselves cannot agree.”
There are still many ways for travel agents to create attractive packaging that is packed with value and attractive to consumers without competing on price alone.
Consortia and franchises create unique offers that combine cruises with an agent who hosts the group along with unique events onboard and during shore excursions. Vacation.com’s Vacation Vignettes and Ensemble Travel Group’s hosted cruises are examples of cruise packages that offer elements consumers can’t replicate.
Group space — which according to Joni Rein, Carnival Cruise Lines’ vice president of worldwide sales, is not covered by the cash-equivalent policy — is another route. Individual agencies, host agencies, consortia and franchisers can block group space and sell individuals into this space, again adding in extras that make the package price attractive to consumers looking for value.
Freed said that currently, agencies can offer their clients more attractive prices than the cruise line can offer. She said she knows this because Royal Caribbean gives consumers the option of shifting a direct booking to an agent within 60 days of the initial booking.
Royal Caribbean tracks the reasons customers give for moving a booking to travel agents, and a large majority of consumers say they’re doing it because the agent is offering a better price. And usually, Freed said, that better price is because of added amenities or group rates.
Even so, Freed said Royal Caribbean is fine with this scenario because it wants to nurture a healthy distribution network for its product.
After Aug. 1, Carnival will still allow agents to offer noncash equivalents, such as hats or bathrobes, although they can’t be worth more than $25.
In addition, Carnival will continue to offer its own promotions, which will be available to its entire distribution channel. Follow Kate Rice on Twitter @krtravelweekly.