My wife, Sherrie, and I sold our agency last October and embarked on another adventure, acting as consultants to small to midsize travel agencies interested in improving profitability and to major financial institutions, to which we offer guidance on the cruise industry and its recovery.
I have written numerous times over the past two years lauding the efforts of so many agency owners and their ingenuity in devising ways to survive as well as offering insight into course corrections we had made and recommendations to others.
In interviewing travel retailers, a frequent comment I heard related to agency cash flow, commission protection, advanced commission payments and more. A number of cruise lines protected commissions on supplier-canceled bookings, paid out at the time the canceled booking would have sailed. Others offered a percentage of commissions at deposit, and one offered an opportunity to apply for interest-free loans.
It is worth noting that all those suppliers acting to help the retail channel are members of CLIA, and some that did not are not CLIA members.
A question raised several times related to how cruise lines could possibly be burning through so much cash when their ships were laid up and "doing nothing." Wasn't this the same as pulling the Buick into the garage? It turns out that it wasn't and isn't.
So, what does a cruise line that isn't sailing its ships spend money on, anyway?
Putting a ship into cold lay-up is done at a substantial cost. Depending on ship size, lay-up costs can range from about $3 million to $8 million.
Lay-up sites needs be chosen carefully to hit a happy medium of temperate weather and availability when needed. Warm waters tend to have more hull fouling, cold waters tend to stress operating systems that are sensitive to cold soaking.
Maritime rules and regulations require that the ship owner keep sufficient onboard personnel to provide safe watch-keeping, respond to emergency situations and maintain watertight integrity relevant to fire protection and buoyancy. Additionally, the ship owner must comply with applicable maritime codes.
This means that, depending on its size, a ship in cold lay-up will have onboard staff ranging from about 80 to as many as 200 to assure these important tasks are fulfilled.
Many systems must be up and running 24/7, which, combined with utilities, crew provisioning and payroll, etc., can result in costs of $1 million to $3 million per ship, per month.
And we haven't even looked at maintaining minimal shoreside staffing, nor ancillary costs for insurance and more.
And bringing a ship out of cold lay-up can cost $7 million to $20 million per ship, depending on the ship's size.
In my mind, it becomes not a question of how in the world "they" could spend so much money each quarter but rather how do the major cruise lines keep cash burn as low as they do? Thank goodness for a financial world that shares our collective optimism for the future of the cruise industry and its willingness to lend billions to the various lines.
The cruise industry will rebound, as will the retail channel. But I believe the retail channel won't look the same again. I would estimate that we're likely to see 40% of the agencies that were in existence on Dec. 31, 2019, disappear. Part of this diminution will stem from the hefty increase in direct bookings that have occurred across the industry since recovery began. (And if your clients who received future cruise credits for supplier-canceled cruises are redeeming them with the cruise line, that's on you.)
It's like this: Covid and recovery have created a historically tough time for all in the travel industry. Some suppliers have done more to support the retail channel than others. Keep that in mind when next you have a client looking for that next exciting cruise.