Over the last year, and especially in the last two months, major cruise companies have offered some of their most transparent remarks to date about the percentage of their total sales that are made direct to consumers.
In October, Norwegian Cruise Line divulged that over the last three years it had doubled the percentage of business it takes direct, to 27%.
Last month, Carnival Corp. Chairman Micky Arison told Wall Street analysts during an earnings call that his brands' direct-to-consumer sales in 2009 made up 17% of its revenue. He said he expected 2010 to be about the same.
While not going on record with an exact number, the brands of Royal Caribbean Cruises Ltd. early last year divulged the range that their direct sales represent. Royal Caribbean International CEO Adam Goldstein said during an earnings call last March that RCCL’s direct business was in the mid- to high teens for all three brands.
And Dondra Ritzenthaler, Celebrity Cruises' vice president of sales, said in a letter to Travel Weekly that "over 90% of Celebrity’s business comes from travel agents."
Arison’s decision to speak so candidly about his company’s direct sales was unusual.
The 17% he cited is an average for all of the Carnival Corp. brands, including Carnival Cruise Lines, Princess, Costa, Holland America, Seabourn, Cunard and its European lines.
It does not indicate what percentage of Carnival Cruise Lines’ sales are direct, which many agents assume is on par with NCL’s.
Carnival Corp. executives on the earnings call explained to analysts how its direct-sales strategy differed from NCL’s and suggested that Carnival’s brands were less aggressive in terms of selling direct.
"I think they have put a lot more investment into their direct-sales program," Carnival COO Howard Frank said of NCL. "They see a lot more benefit from it. And when you look at our business model, it’s multiple brands and different countries around the world with different percentages of direct business. So I don’t think that we’re really comparable to what they’re doing. I think in the last couple years they’ve made a concerted effort to get more direct business, and it works for their business."
NCL revealed its direct-sales numbers in an S-1 document filed with the Securities and Exchange Commission as part of its first step in taking the company public.The S-1 document also provided insight into the quality of NCL’s direct sales, and the line’s direct-sales strategy.
NCL said that passengers who book direct tend to book earlier and "in premium category inventory, which provides higher net yields."
NCL also said that the direct-sales channel "is at a significantly lower cost for us and has grown from 13.3% of our net ticket revenue in 2007 to 27% for the first nine months of 2010, and we expect to further increase our mix of direct business in the future."
NCL added that it was growing its direct business "through investments in our brand and our website as well as increasing our direct-sales force."
But the line also noted that the majority of its sales came through travel agents and that "a major focus of our marketing strategy is motivating and supporting our travel agent partners."
The cruise line pointed to the Partnership 2.0 initiative, which has resulted in "close to 100 individual projects specifically designed to improve our efficiency with the travel agency channels and our guests, ranging from more timely commission payments to aggressive call center-quality monitoring."
During the Carnival earnings call, Arison also associated the drive behind NCL’s direct-sales growth with Bob Becker, the former Carnival Cruise Lines executive who has been with NCL since 2008 as senior vice president of consumer research, responsible for direct-sales channels, the same position he had at Carnival.
It was the second time Arison has called out Becker in an earnings call: In 2008, he identified Becker’s departure as one of the reasons Carnival Cruise Lines had de-emphasized its direct-to-consumer sales channel.
At that time, Arison did not say what percentage of Carnival’s sales were direct, only that direct sales had "decreased fairly significantly" since 2007.
NCL declined to allow Becker to comment on Arison’s recent remarks and also declined a request for comment for this article.
Several travel agents said that they were surprised to discover that NCL’s direct business was so high.
"It seems strange that NCL, a line that has consistently struggled to compete over the years, is now actively trying to move to a direct booking model," said Bud Smead of Holiday Cruises and Tours in Arvada, Colo.
Other agents said they were not surprised.
"It’s not secret that for years NCL and Carnival have been going after direct bookings," said Laure Hristov, owner of Just Cruises and Tours. "Carnival even had kiosks in malls, which wasn’t a success. I have lost several NCL customers, especially gamblers and very frequent past passengers that NCL or their casinos make special deals with."
As a result, Hristov said she sells more cruises on Celebrity, Royal Caribbean and MSC Cruises, which she said "go out of their way to work with agents."
The direct-sales issue often comes up during cruise lines’ meetings with Wall Street analysts because the analyst community has often encouraged cruise lines to book more sales direct, believing it would reduce costs and boost profits. Cruise lines have often had to defend their dependence on agents as their primary distribution source.
Cruise industry analyst Matthew Jacob with ITG Investment in New York, formerly Majestic Research, said that while the investment community would rather see cruise lines keep a higher percentage of their revenue than pay it out in commissions, it also recognizes that consumers want to use travel agents and that the cruise lines need the help of travel agents in absorbing continual capacity increases.
"During a time when cruise capacity is so high, cruise lines would not want to alienate their most powerful distribution channel," Jacob said.
He also said that in addition, cruising "remains something that consumers want to have travel agents involved with. There is a comfort level there. It’s a fairly complex vacation. It’s not like just booking a hotel room."
But Wall Street is not giving up hope.
Going direct, Jacob said, "is something that investors expect to happen at some point. But it never seems like it’s a good strategic time to try and do an end run around their most prolific distribution source."