NCFs and the Big Blue Ocean
The subject of NCFs (non-commissionable fees) is certainly getting a lot of attention. Travel agent communities on the internet frequently target NCFs as a high priority for discussion. Most agents are voicing the opinion that in an era of deep discounting it is no longer worth the effort to sell a three, four or even five day cruise for a commission that essentially amounts to pocket change. But if travel agents have been vocal on the topic, the majority of cruise executives have been eerily quiet on NCFs. Those that have joined the discussion point to the fact that NCFs are a fixed cost. It is not that NCFs have increased, cruise line executives will tell you, but rather than the price of the actual cruise has been discounted to a much smaller percentage of the total cost of the cruise. Some agents respond that there seems to be little direct relationship between NCFs and the costs that historically made up NCFs such as port charges, that NCFs have actually risen as the commissionable portion of the cruise has fallen. These more cynical agents will tell you that the cruise lines are quietly testing the pain threshold of the agency community for what effectively are commission cuts.
During the early years of the cruise industry, many agents built their entire business plan around cruise line product. The industry experienced tremendous growth during the formative years and the public required the guidance of the agency community to differentiate between cruise lines and product offerings. Every indication, however, is that the honeymoon is over both for agents and the public. Mass market cruising has become a well known and easily understood product, even a commodity. Direct bookings by the cruise lines are up as might be expected in a more mature consumer market.
The free market system is whispering to you, agents, and here is what it’s saying:
“It’s time to move on.”
The anger being displayed by travel agents is understandable, but misplaced and non-productive. The public buys brands and the brands that advertise the most get the attention. Royal Caribbean and Carnival have done an excellent job establishing their brands with the public. A public that knows what they want will gravitate to the most direct, inexpensive route of obtaining the product. This is the maturation of the market and like most maturing markets, it is less and less profitable all along the chain of distribution as the gross volume of product sold increases.
Travel agents need to demonstrate some business craft at this juncture and move from the red oceans of the mass market cruise lines to the blue oceans of niche cruising and land-based tours. For those travel counselors not familiar with the term “blue ocean” and “red ocean” the concept is a simple one, borne out very well by the cruise industry. Over time, says blue ocean theory, markets mature, distribution channels streamline and become less profitable and the ocean turns red from the fierce competition. Smart competitors then move on to blue oceans where there is less competition, where their services are more needed and where the profit margins are better. Sound familiar?
Travel agents should take all of the energy that is right now expressing itself as anger and quickly marshal it to learn new product and to move on to new, more exciting markets. There is a literal world of destinations out there, and slews of tour operators with new twists on product, destinations and opportunities. Just take a look at the “Webinar” page on TRO’s site and look at how eager these tour operators and niche cruise lines are for your business. One of the upcoming webinars is titled “Teaching English & Building Homes“. Are your clients going to buy that off the internet or do you think they will better appreciate your services in the selection of such a specialized travel program?
You don’t have to be angry, just do what everyone would expect. Gravitate to more profitable product and marketing. Begin educating your clients about something other than mass market cruises.
The travel agency community has shown an amazing resilience and ability to adapt, but with each major sea change, a lot of blood gets spilled. This time, get ahead of the curve. Don’t worry about the mass market cruise lines, they will be fine. If they need your help, they will let you know by paying you for it. But don’t wait around any longer gnashing your teeth. Set your sights on blue waters and sail on.