Fee factor: Cruise sellers collecting more fee revenue

Back in 1997, when the agent community was trying to reinvent itself in the wake of airline commission caps having been imposed two years earlier, industry consultant Robert Joselyn said retailers had "no choice" but to begin charging service fees.

He offered that advice to some 1,500 travel sellers who had tuned in for an ASTA-sponsored teleconference seminar about fees. By that time, some agents who were selling air tickets had already started to charge a fee of $5 per ticket, and Joselyn was pushing them to increase it to $10.

Fast forward 13 years: ASTA's 2010 Financial Benchmarking report, released earlier this summer, found that cruise agents now derive 34% of their total revenue from a combination of transaction and trip-planning fees.

"A few years ago that number would've blown me away," Joselyn said in an interview a few weeks ago, "but it doesn't surprise me at all now."

And today's fees apply to a far wider range of products than just air bookings, most notably cruise sales.

Retailers, Joselyn declared, "simply can't make money on cruises without fees" as a result of discounting, the emergence of more noncommissionable fees and other factors.

ASTA's attributing a 34% share of total revenue to fees raised eyebrows among many others in the industry, but Joselyn said it sounded right to him.

As the owner of Travel Agency Management Solutions, which specializes in financial benchmarking for the trade, Joselyn said he collects "a lot of metrics on fees."

"Last year we did a really in-depth drill-down, an extensive survey of [virtually] all TAMS members," he said. "I'd say 34% is a good number -- very close to the results of our entire database [research]."

Evolving models

Clearly, cruise agencies' business models are continuing to develop. Just three years ago, fees represented 24% of a typical cruise agency's revenue, according to ASTA. But even as the service fee evolves into a larger and larger part of the agency revenue model, there seem to be as many opinions about the wisdom of charging fees at all, and what those fees should be, as there are cruise ships in blue water.

Some agents charge a service fee only for noncommissionable products, such as air tickets; others levy a set fee for every transaction regardless of the product or the total price; and still others refuse to get on the service fee bandwagon at all.

According to ASTA's 2010 report, which was collected online that year with responses from a representative sample of member agencies, service fees account for 23% of total revenue, and consultation fees contribute another 11%.

Melissa Teates, ASTA's director of research, explained that service fees refer to standard flat fees, and consulting fees are often charged by the hour.

"Sometimes agents will discount the consulting fees if the booking results in a large commission," she said. "We separate them in the report for that reason."

It's mostly upscale luxury agencies that charge consulting fees, she said, "but we have agencies of all sizes doing it. It is a model I believe is best in the long term."

A review of ASTA's data in 1999 reveals that the average fee charged for an air ticket was $10. By 2002 it had risen to $27, then climbed to $37 by 2007. In 2010, it dropped slightly, to $35. (Click on the chart at right for a larger view of the average booking fees charged by agents.)

The whys and why nots

A handful of cruise retailers said they charge planning fees for complicated itineraries and transaction fees for air and cruise fares, but they declined to reveal how much, and they didn't want to be quoted by name.

Others, like agent Jean Kuhn, are comfortable talking about the topic. Kuhn, an independent affiliated with Cruises & Tours Unlimited/Outside Agents Inc. of Jacksonville, Fla., said she uses a fee as a kind of carrot. After she prepares a "plan to go agreement" for new clients who haven't been referred by another client, "I will charge them a $100 fee for research, and if they travel it will go toward their trip," she said. "If they don't travel, it is compensation for my time.

"My many years of travel consultant experience are not always considered beneficial to new clients, because many of them are simply looking for the best rate or what translates to the least expensive. It's a judgment call. If I don't believe they will ever be loyal clients, I direct them to go online and check with the Kayaks of the world."

Linda Allen, who owns Cruises by Linda and is affiliated with the Virtuoso agency Brownell Travel of Birmingham, Ala., said she charges a 10% fee only for noncommissionable items such as air and certain hotels.

"Clients don't balk at paying them, and I'll even send links to [destination information] such as Weissmann Travel Reports, and offer advice if they want to book the noncommissionable components on their own," Allen said. She does not charge for the advice.

At Vacation.com, agency members are urged to charge fees, although the network doesn't suggest how much or for which services to charge.

"We have offered general messages that agents should utilize fees to make more profit and to reinforce their value as consultants and not just order takers," said Jennifer Coulter, director of product marketing.

On the flip side, some travel companies, such as World Travel Holdings -- the parent of franchise network CruiseOne, host agency Cruises Inc. and several retail cruise outlets, including 1-800 Cruises and Cruises.com -- are adamant that agents charge a fee for every transaction.

Brad Tolkin, co-chairman and co-CEO of World Travel Holdings, said a $25 transaction fee is charged for every product the company sells, and yet that revenue "doesn't come close" to the average 34% of revenue cited by ASTA.

Tolkin noted that the company cannot force its hosted affiliates to charge a fee, but starting this year a new policy was created to push them to do it.

"In 2011, all new hosted members are being charged, by us, a $12.50 transaction fee," Tolkin said. "So we're saying to them that they should be charging at least double that, $25, per transaction. If we can charge consumers that fee when they call us, when we don't even have eye-to-eye contact, then certainly our hosted agents can do it, too, because they know their clients personally."

Some agents, he said, don't want to charge fees because the cruise lines don't charge them.

"They're fearful, afraid to lose the sale," he said. "It's a confidence issue."

Even so, he insisted, "A no-fee policy is bad for the retail industry. We were built to be a professional service provider. That's the foundation of the retail industry."

Upmarket agent Steve Shulem, owner of Strictly Vacations in Santa Barbara, Calif., summed up his thoughts about service and consulting fees this way: "I only want to do stuff that makes me big money."

He was referring to commissions, and he was only half-joking.

"It's a complicated question, because my average cruise sale is $20,000, and I have issues with what I consider a petty amount of service fees for these types of clients," he said. "My commissions are so high I really don't need to charge fees."

However, Shulem said, he knows plenty of other agents who charge a fee for everything.

"Twenty dollars for this, $50 for that, $100 for a cancellation," he said. "I probably cancel $1 million a year; would I like to have $100 for every cancellation? Sure. Maybe I should be doing that, but I'm not."

Shulem, who was surprised that the ASTA report's revenue breakdown showed fees at such a high percentage, said he does charge for booking air tickets and for time-consuming itineraries, but so far has steered clear of any service or transaction fees.

"I strongly encourage my clients to book their own air, but fees are a tough call," Shulem said. "Each agent has to decide for himself or herself. I do know that my accountant and my lawyer charge me for every conversation, but with agents it must be stamped on our foreheads: 'Soak me for information and free advice.' In my case, I'm profitable. I haven't found a great reason to change. I know I'm not the norm."

The nuts and bolts
Joselyn said that when it comes to setting and implementing fees, agency owners and frontline sellers need to do three things:

• Realize that customers are not getting the same value somewhere else, such as on the Internet.
• Separate the sale of the product from the value of their own services.
• Be able to articulate the value of the services they will provide.

"These are key stepping stones," he said. "I use them in training sessions with agents. First I ask them to keep a log showing everything they do for a client, from beginning to end. Then we look at the time spent relative to what they earned."

When a client comes in or calls, Joselyn said, agents shouldn't immediately begin talking about fees.

"Find out what they're interested in," he said. "Get a clear idea of that, and then say, 'OK, here's the process.' They should explain what their role will be, and what they will do for the client and then say, basically, 'There's a booking management fee.' And if the client isn't willing to pay, the agent shouldn't do the work."

The rising numbers of consumers who book travel products online continue to frustrate agents, but even those clients still are fair game, Joselyn said, and this is where the separation of the sale of the product and the agent's service can be illustrated.

"Agents should tell these clients that they understand everyone loves to look for bargains online, and if they want to book somewhere else, they should go ahead and do that. The agent can offer to consult," he said, by providing advice about which websites to look at, and the differences between the suppliers' products, for example. (Industry consultant Nolan Burris agrees; see related report on this page.)

"But we're not going to give that information away," Joselyn said. "In fact, the consulting fee should be higher than the transaction fee would have been for the cruise fare booking. I think this is a model that will evolve."