Carnival Corp. CEO and Chairman Micky Arison told analysts during a second-quarter earnings call that Carnival Cruise Lines had reduced direct sales and was selling more through travel agents this year than in years past. Cruise Editor Johanna Jainchill asked Carnival Cruise Lines President Gerry Cahill what prompted this change.
Q: What did your team find when it re-evaluated your direct sales program?
A: I've always believed, and I believed this when I was at corporate, that travel agents bring a lot of value to a cruise company. They can help us to differentiate the product, what makes the Carnival product unique. They can help us on the marketing side. They can also have the ability to reach customers we don't reach.
Q: So you reduced your direct sales business?
A: Before I got here, there was a direct-business buildup. Now, I'd be foolish to turn down business that comes direct. We've done a lot of research, and the majority of our guests would prefer to book through a travel agent. So I need to meet the requirements of those guests. There are some guests that prefer to book directly with us. I also need to meet their requirements.
What has happened this year is our business with travel agents has grown significantly. Key to us is that the travel agent adds value. If someone is just an order-taker, that doesn't do a lot for us. But when somebody can help add value, they are a very important business partner to us.
We have grown our business in the last year through travel agents. It's a zero sum game: We can only fill the ship. So our direct business went down.
Q: Have you actually reduced the number of people who work in your direct sales department?
A: There are less people, yes. The factor that caused this is the increase in our business with travel agents. I've got a finite amount of capacity. If I have 100 cabins to fill, let's say in year one, 15 are filled by direct and 85 by travel agents.
In year two, if I increase that so that 90 are filled by travel agents, by definition only 10 can be filled by direct. What we've done is we've increased our business with travel agents. That forces down the amount of business we can do direct.
Q: What has your direct sales force decreased to?
A: We're not going to go into those kinds of details. I don't think anyone ever talked about that in the past.
Q: What cost analysis led you to make that decision?
A: I'm not going to tell people exactly how I analyze, and help my competitors. It's not hard to do. We have the ability to track how much profitability we get from every channel and every agent. You don't have to be a rocket scientist for that one. I did an analysis of what I think are the most efficient ways for us to distribute things, and I made certain decisions as a result of that.
Q: Micky Arison said on the earnings call that as a result of this change in strategy, Carnival has improved yields and reduced general and administrative costs.
A: I think what Micky is saying is that Carnival Cruise Lines is performing well this year. Our yields are up, our costs are down. Some of that we attribute to this increase in selling through travel agents. You are never 100% sure. We're just performing well this year, and he is pleased with that, obviously.
Anytime there is a change in your operating results, it is usually more than one factor.
But typically, management will try to identify which they think are some of the more important ones, and he has identified one.