A new PhoCusWright report confirms what many travel agents already knew intuitively: While sales of cruise products by traditional travel agencies have grown slowly in recent years, agents’ share of total cruise sales has been falling.
The study, titled “Travel Agency Distribution Landscape 2009-2013,” is a wide-ranging body of research touching on all aspects of travel agent sales across product segments.
An especially poignant finding, however, was the drop in agent share of total cruise sales, which led PhoCusWright to predict that travel agencies’ share of the cruise market will fall from 68% in 2009 to a projected 64% by 2013, or about one percentage point per year.
The study suggests there are several reasons for this. First, the number of agents has remained flat at a time when the growth of ship capacity has accelerated, forcing cruise lines to broaden their distribution channel.
And second, the report suggests that a significant part of the reason for the decline in share is a direct result of the fall-off in agent compensation as a result of both lower fares and increases in noncommissionable fees (NCFs).
Both have served to reduce agents’ incentives to sell cruises and to encourage them to look for ways to expand the range of travel products they offer, PhoCusWright said.
(PhoCusWright is owned by Northstar Travel Media, which also publishes Travel Weekly.)
In part, this is because a greater number of cruises are being sold directly to consumers by the cruise lines as well as through online travel agencies (OTAs), the report said.
This trend is not exclusive to cruises. The report found that while travel agency sales will grow through 2013, exceeding $100 billion, their share of overall travel product sales will drop to 32% in 2013, from 35% in 2008.
Still, cruise has long been the leisure travel agent’s bread and butter; cruises currently account for 40% of total sales for leisure agencies and home-based agents, PhoCusWright found. (Click chart at left.)
But that dependency is changing, the study found. Many of those agencies are trying to diversify their product mix to depend less on cruises. This includes increasing focus on air, hotel and car rental, the market segment that corporate agencies dominate.
“After years of adapting their business models to reduce their reliance on air tickets and to focus instead on complex leisure (cruises and vacation packages), leisure agencies and home-based agents are now booking more individual air and hotel components,” the report said.
Reduced sales incentives
The study gives quantitative support to what agents have been saying over the last few years: Due to low fares and higher NCFs, cruises no longer pay the bills as they once did.
This is happening just as changing business models and technologies have made it easier for agents to profit from booking air and hotel.
“Most everyone I know is diversifying into noncruise-related products,” said Howard Moses, president of the Cruise Authority in Atlanta. “Noncruise leisure is the fastest area of growth for our agency.”
In offering an example of the necessity to diversify, Moses said he was working on a 100-cabin incentive group where the commissionable cabin price was less than the noncommissionable port charges and taxes.
“It is no wonder that ‘regular’ agencies aren’t interested in selling three- and four-night cruises,” he said.
In his agency’s case, he said that being a member of the Signature Travel Network enabled him to tap into additional leisure travel options outside of cruise, the main growth areas being hotels, spas, tours and resorts.
The Cruise Authority is not unusual in that regard. In 2009, CruiseOne and Cruises Inc. launched a land travel division, and shortly after, Cruise Holidays made the same decision.
Leisure agents might be looking to their corporate brethren as examples: PhoCusWright found that corporate travel agencies account for three-quarters of all agency sales and that 80% of those bookings are made up of air, hotel and car rental.
External factors
PhoCusWright also cited other reasons for agents’ change in market share that have nothing to do with agents or what they sell.
First, there has been an overall shift in consumer behavior to online booking that favors both OTAs and supplier-direct channels. (Although many traditional agencies have a strong online booking presence, they are dwarfed in sheer scale by the OTAs.)
Second, the cruise lines have found it necessary to expand their distribution channels to make up for the passenger capacity they have added over the past two decades: According to the Florida-Caribbean Cruise Association, the cruise industry is the fastest-growing segment of the leisure market, increasing 7.4% annually since 1980.
This has happened, PhoCusWright reported, at a time when agencies are simultaneously aging, with three in five leisure and home-based agents now over the age of 55, and “facing an imminent recruitment crisis.”
Accordingly, cruise lines have had to find additional ways to distribute their product and have made a push to better support their direct-sales channels.
The findings suggest that agents’ total cruise sales will grow through 2013. But noncruise components will grow faster, even in areas that agents have moved away from over the last decade, such as air.
That shift is evident, the report said, in the new air programs that travel agencies are offering. In the last year, CruiseOne and Cruises Inc., Nexion, Vacation.com and Ensemble Travel Group all rolled out programs that offer their members ways to make commissions selling air.
The report pointed out that agents are increasingly selling air not only to make money but to broaden their product and customer service offerings.
“Leisure agencies are turning back to air out of customer service, so their clients do not have to go elsewhere for their travel needs,” the report said.
This assertion was shared by many of the agency groups that added air programs.
Ensemble Travel Group Co-president Libbie Rice, in introducing Ensemble’s air program, said many Ensemble members were cruise-only.
“This gives them access to fares and the ability to make money on air,” she said.
And while Rice admitted the incremental revenue would not be huge for agencies that were not already big air sellers, “it comes back to being able to fully service your client,” she said. “It allows you to be all-encompassing and make sure someone comes back to you and you can support them on bigger-ticket items.”
Follow Johanna Jainchill on Twitter @jjainchilltw.