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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.

  10 thoughts on “NCFs and the Big Blue Ocean

  1. You make good points however, your resolution is easier said than done. Niche cruise, more often than not, means luxury or special itineraries that are quite expensive–3000+ per person. I know my market/clients/town, for the most part, does not bear those prices. If I moved into only the niche cruise or a niche only market, I would starve to death.

    I specialize in certain niches, areas of expertise and I like to learn about new trends and products. However to be financially successful, I have to offer all types of travel and primarily more moderately priced product. Moderate priced product in my market is about 2000- 3500 per couple. This is not the price point of most niche cruise markets.

    Selling/servicing cruise clients takes far more time than land and all inclusive vacations. It is not the time that is the problem, I am happy to serve my clients. Serving my clients gives me great satisfaction, it is why I have chosen this profession. I just would like to make a reasonable margin from the cruise line for selling their product.

    I recently had a BDM from Carnival, (a “veteran” in the industry) say to my face,”I don’t want your onesy and twosies. I want your group business.” I tell you what, EVERYONE would like group business. Vendors will beat your door down to get it! My thoughts on this are, if you don’t want my little business, you are NOT going to get my group business if I have anything to say about it.

    My answer to the dilemma is similar to your advice, I rarely sell cruise anymore but this is not what I want. I want a well balanced business that pays, selling all types of product.

    Not selling individual reservations of cruise products may be the direction some cruise lines are moving when they pay low commissions and especially, if the comments made by that BDM reflect the desire of the cruise industry. However, I know this is not entirely true.
    I recently attended a Home Based Agent conference in Chicago, where Celebrity spent a lot of money for an entire day of pre-conference training in their products, new booking engine and services. They treated us like stars and told us they want our buisness, big or small.

    When I receive a call for cruise, I try my best to sell the better categories and better cruise lines. Few people REALLY do want a small inside cabin. It is not their dream or expectation of cruising. To prove my point, typically, inside and oceanview cabins are not depicted in advertising, balconies and suites are.

    I live in a town of 25,000 people who predominately work at factories or blue collar jobs and surrounding me are smaller farming communities. My competition is one brick and mortar (which probably wont be around much longer) and another home based agent or two. I cannot just sell niche. I must be a full service agent that includes niche and luxury but does not solely depend on it. I am pretty certain, in the travel agent community, there is a large percentage of agents just like me.

    The way I am successful is by being well balanced in my product knowledge, providing service, value and experience. Over the past 15 years, I have developed a fine reputation with a successful ratio of repeat clients and referral business. I may not be the biggest fish in the pond, but I am one of the best and my clients will tell you so!

  2. Mindy says:

    You know, I would like one cruise line – just one, (although ideally, Princess) – to simply lay out exactly what the NCFs are. the used to say Port, taxes, etc. but now it seems to me that there is separate line for Port and/or taxes and then there are the mystery fess…. I’d like to see:

    NCF:
    port $XX
    local taxes in addition to port $XX
    other taxes $XX
    fantasy costs we’re keeping for ourselves $XX

  3. These NCF’s are akin to us now adding line items for our Rent, phone bills, electricity, furniture depreciaition, etc.

    What ever happened to the basic cost of doing business and adjusting accordingly, on your own budget?

  4. Tim Richmond says:

    I can post this comment for Richard’s article or for John’s. The suppliers are not to blame, agents are. The distribution system has changed and is continuing to change, yet agents want the status quo. Look at the responses and we hear service and value all the time. Yet, the service and value we provide is to the consumer, not the supplier. The retail sale of travel is a 20th century product. For agents to move forward we have to get out of the retailer (selling) mentality and truly embrace the service.

    If you are in a market and you say your clients will not support a service fee, then my question would be: How much did they really value your service? It starts with the attitude of the agent to take control of their business. As long as suppliers are the ones feeding us (commission) we will never be a stable industry. They will dictate to us their policies at will and we will have no choice but to take it. Instead of working for them, we need to make them work for us and our client.

    If an agency would go out of business because a fee based model would not work, then that is the marketplace at work. The demand for that travel will not go away. It will be fulfilled by someone.

    We need to kick the addiction to our “partners” and realize they are a business trying to maximize their revenue at the least cost. Same as all good businesses do. We need to do the same. In the end it will make for a healthy relationship for both parties and the consumer would benefit from both.

  5. Laura says:

    This is exactly why I stay away from selling cruises!

  6. Linda says:

    I also realize that when looking at an advertised prise and then call Carnival as an individual the will quote (for example) 300 cruise plus 253.00 port, tax and NONCOMMISSIONABLE fees. This sounds like the cruise portion is MUCH cheaper than what the cruise line has on the web. IT may show 459 with tax additional.
    For Carnival I break it down to my client now as 300 cruise plus 159.00 which is port and CARNIVAL FEES plus tax of 94.00
    Many time the tax and port and cruise line fees are more expensive than the cruise.
    Has anyone thought that since you have to achieve higher revenue to keep your commissions and the lower cost of the cruises that it will be harder to siurvive if the cruise lines drop your commissions next year? (UP those fees, lower the cruise rates and less for the agent’s commissions)

  7. Steven says:

    To Tim Richmond, I would respectfully submit that the “retail” industry (name your product) buys its’ products from a manufacturer/supplier at “wholesale” prices and then adds the margins it requires to meet its’ cost of doing business. The problem here is that we are competing directly with cruise lines’ booking sites where we would obviously be non-competitive. they are looking to eliminate the retail agencies just as the airlines did.

  8. Charlie says:

    Interesting views from everyone. Becoming a fee based for service is why the travel agent may not last. Consumers are very savy today and can find the same information we provide online. I find it hard to beieve the cruise lines are not making money. Ten plus years ago, everything was included in a cruise, now consumers are being nickled and dimed by the cruise lines, paying for ice cream, special dining venues, 24 hour room service was free now some lines are charging for certain hours of service (you can be sure all the lines will follow. They are reminding of our telephone companies where there is a fee for everthing.
    Cruise lines gained thier popularity by “everything being include” for one price. You can be sure the American public will get feed up and find other ways to vacation. Most of your resorts are “all-inclusive” including all beverages and you can be sure I am pushing my clients that direction as it is a better value for their money and I make more commission.
    Wake up cruise lines before it is to late!

  9. Natalie Smith says:

    Just a couple of points:

    1. We are providing a service and many people are willing to pay for it. Look at CPAs and accountants. Can you do your taxes yourself? Of course, but they have more experience and keep up to date with they newest deductions and changes in the law and save you time and money.

    2. As someone who used to work on the supplier side for a land based package compay, the profit margin is actually higher with agents. There are less customer service problems, less compensation given and therefore less need for a large customer service/resolution department. What they save in commission, they will spend in staffing call centers and counters.
    3. We need to make consumers aware of the service we provide. Many have already figured this out and don’t want to deal with the online companies and airline direct because they don’t have a contact person. They dont’ want to trust their vacation to their computer. We also save them hours on online research, which is why they are willling to pay a service fee.

    Many want an agent for the bigger overseas trips. If they realize they need to support us with the simpler trips also or there won’t be anyone to help them with that safari trip to Africa, or their dream itineray around Europe etc. most would do that.

    How much are we getting the word out about what the airlines and cruise lines are trying to do to the customers who already support us? How long would the airlines consider it profitable to eliminate travel agents if the alternative was every consumer calling the 800 #s instead every time they had a question, problem or needed to change a flight?

  10. Susan says:

    “Niche cruise, more often than not, means luxury or special itineraries that are quite expensive–3000+ per person. I know my market/clients/town, for the most part, does not bear those prices. If I moved into only the niche cruise or a niche only market, I would starve to death.”

    Why limit yourself geographically? There’s obviously a market for niche cruises, and if your local market does not bare that out, why not look for those niche cruises elsewhere? There are a lot of consumers out there that’ll work with an agency that’s not local, if said agency provides the service that they’re looking for.

    As others pointed out, we need to change with the times, and that includes charging fees and not counting on commissions, working for the clients (not the suppliers), and expanding our market to include more than consumers that are geographically local.

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