More years ago than I choose to admit, I took up tennis. All you needed was a racket, some neat shorts, a cool visor and a good pair of shoes, right? I read a couple books on how the game was played and began taking on people I met at a local public court. I was good enough that I decided I needed to take lessons to develop my skills, so I signed up for classes at the YMCA.
In short order, I found that just having the tools and reading a couple of books was totally insufficient. My instructor beat me like a rented mule.
After three or four sessions, I was discouraged enough to ask the instructor what I was doing wrong. She pointed out that tennis was as much about strategy as it was muscles and brawn. She explained that I either needed to play the net or play the baseline. In between the two was a place called "no man's land" and the "kill zone," where a player couldn't be on offense or defense but was perfectly positioned to get beat up.
Retail travel sales is much like playing tennis. Having the tools and reading a couple of books aren't enough.
In the early days of the cruise industry, travel agents accounted for better than 99% of all cruise sales. Those who knew the joys and value of cruising also knew that they had to book their client's cruise many months in advance or face the distinct possibility of not being able to go. If prices changed, they went up. Ships filled up quickly. Rebating was not only unheard of, it was unnecessary.
It wasn't hard to generate commissions in excess of $500 when booking a four-night cruise for a family of four. Commission checks with a comma in the dollar amount weren't that unusual, either.
Travel agents could be all things to all cruisers because there just wasn't a lot of pressure, nor a lot of competition between one travel agency and another.
The introduction of cruise-focused publications and the use of toll-free numbers in the 1980s expanded the traditional travel agency marketing footprint from a five-mile radius to the entire U.S. As the number of agencies advertising in these publications grew, competition for the sale ultimately led to commission rebating.
Twenty years ago, a retailer selling $15 million a year in cruises had a big agency. Today there are agencies that sell that much in a week. Today, a leisure travel retailer has to have volume in excess of $250 million a year to be considered large.
Let me put this more succinctly: There are large cruise-specialist online travel agencies that sell more in just one hour than several thousand of the hobbyists and smaller agencies sell in a year. We're not in Kansas anymore.
In 1999, agents still booked more than 98% of all cruises. That has changed. According to CLIA, agents booked 90% of all cruises in 2010, 80% in 2013 and 70% last year.
Or, to look at it in reverse, cruise lines booked 10% of all cruises in 2010, 20% in 2013 and 30% last year. In other words, cruise lines' direct bookings increased 300% at the same time that total passenger count increased 16.3% (from 19 million in 2010 to 22.1 million in 2014).
A retailer has to take the risks to either go big (play the net) or identify and implement a business model that shies away from big retailers (play the baseline). The time is past when a retailer can be all things to all people or even a substantial segment of all people. Retailers of any size who try to play in the middle are firmly planting themselves in no man's land. It's a recipe for failure.
To those who point out that only about 30% of the U.S. population has ever cruised, which means the other 70% are potential cruise passengers, numerical reality just doesn't bear that out.
CLIA data reveal that the average cruise passenger in 2014 was age 49, married, employed, had a college degree and an annual family income of $114,000. Income-wise, that puts this family in the top 20% of all U.S. households.
It is statistically inaccurate to conclude that the bell curve that describes the total universe of cruise passengers extends to the top 40% of all households in the U.S., but for the sake of argument, let's say that we can do this and that, indeed, there are, combined, about 120 million past and prospective cruise passengers in the U.S. About 90 million have already cruised, which leaves about 30 million potential first-timers.
It is unlikely the cruise industry will ever return to the 50-50 ratio of first-timers to repeat cruisers that was common as recently as 10 years ago. By some estimates and reports, that ratio today is 30-70 first-timers to repeat cruisers, which suggests that staying in front of clients is going to require a lot more ingenuity than retailers have had to muster in the past.
So, we've dropped from some 210 million first-timer prospects to about 30 million. In the immortal words of Snagglepuss, heavens to Murgatroyd! That certainly seems to be enough to go around, even if cruise lines do book 30% direct. But the question then becomes: Where are we to put all these passengers?
After a relative lull in shipbuilding, more than 25 blue-water cruise vessels will make their maiden voyages in the next seven years. That new inventory will exceed 85,000 berths, with Norwegian adding 17,000 and MSC adding 22,000 berths. This is enough capacity to absorb 4.5 million passengers annually.
Put another way, some of the cruise companies are adding more berths than the total for all their brands combined before the early 1990s.
I can hear the groans of disbelief making their way through the channel: "We already have too much capacity. Prices in the Caribbean are too low as it is, and this is only going to make it worse."
North American travel retailers need to stop thinking about the cruise industry as mainly being cruises to the eastern, western and southern Caribbean. It could already be that the number of non-Caribbean cruise passengers exceeds the number of those who sail the Caribbean.
The challenge we face is not too many new ships but not enough new ships. Two realities that make this so:
• China and the Far East: There is a reason Royal Caribbean International is moving so much capacity to this area. It is the next cruise market explosion, and we need to be prepared for it. These likely will be cruises that North America-sourced passengers will include as part of a much longer vacation. These will be complex transactions that will require skilled travel professionals.
• Cuba: As I write this, long-standing barriers to U.S. citizens traveling to Cuba in sizable numbers are falling. When Americans are allowed to travel by cruise ship to Cuba, there won't be enough ships available to meet the demand in the short term. All those past passengers who have stopped cruising the Caribbean because they've been to all the ports a half-dozen times will be knocking at your door.
As a side note, I can see Jamaica and Nassau taking a major hit as ships don't just visit Havana for the day but stay over at least one night, perhaps two, so that passengers can get a better flavor of the island.
(Next week: How retailers work with suppliers to capitalize on new opportunities.)