ABOARD THE NORWEGIAN JOY -- Agents selling Norwegian Cruise Line have seen commission payouts rise by almost a third during the past three years, according to president and CEO Andy Stuart, as the line's value-add strategy of "free" amenities has allowed it to steadily raise fares.
Stuart said that by giving guests a choice of up to five amenities, depending on cabin category, the line has been able to pay added commission through the back door.
"It's a huge change in commission, honestly," Stuart said. "The way I look at it, it is game-changing. There aren't many businesses where margins have been taken up by 30% over a three-year period, and that's really what's happened in our relationship over the last three years."
Stuart made his comments at an agent forum on a preview cruise of the Norwegian Joy, which the line is introducing to the North American market after initially basing it in China for more than a year.
Agents interviewed about the increase in commissions agreed they have mostly seen higher fares from Norwegian in the past few years and that the value-add promotions are working.
One agent, Karla Mundell, owner of Travel in Style in Fife, Wash., agreed that prices are higher and that the value-add promotions are bringing in business, but she added that the strategy may be reaching its limits with some customers who realize the fares are rising.
"My clients say 'three for free or five for free -- it's not free; we're paying for that,'" Mundell said. One consequence is that they're sometimes asking for lower-priced cruises on other lines, she said.
Stuart said the value-add program lets agents earn commission on items that are normally noncommissionable, such as shore excursions. In response to a question, Stuart said Norwegian doesn't directly pay on shore excursions, except with groups that prebook, and that policy isn't about to change.
"We're just not going to go down that road," Stuart said.
But by including a $50 credit for shore excursions as an amenity choice, agents earn partial commission on the excursion because it's bundled into a higher fare.
"So, essentially, there is a commission on shore excursions inside the cruise fare," Stuart said.
In 2018, Norwegian's parent company, Norwegian Cruise Line Holdings, reported $999 million in expense for "commission, transportation and other," up 12% from $894 million the year before.
Stuart said that the 30% figure represents the increase in the amount that consumers are paying for Norwegian cruises since 2016 and that the value-add promotions have paved the way for that rise.
Stuart also discussed an April 1 change in Norwegian's promotion in which free or reduced airfare was taken out of the standard promotion and made into a kind of stand-alone offer on a more limited basis.
What had been marketed as "Take Six Free" is now down to a maximum of five amenities, including a beverage package, dining package, shore excursion credit, an internet credit and a "friends and family" rate on third or fourth bookings in a cabin on selected sailings.
At one point, prepaid gratuities had been one of the choices, but Norwegian dropped that. "It's just really, really expensive," Stuart told the forum. "There's some things we just can't do."
Stuart explained that with the other options, the cost to Norwegian is lower than the retail value of the option to the customer. In the case of prepaid gratuities, they are the same.
Stuart also agreed with an agent who commented that the value-add promotions had become so rich that they undermined the value of benefits offered in Norwegian's affinity group sales programs.
"We understand it's been a bit bumpy," Stuart said. Norwegian is finalizing a new affinity group program that should address that issue, he said.