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Did you get your invitation to the suppliers’ dinner?

Larry Norman’s column created quite a stir—as was expected. The conversation got even more heated in the TRO Community. Some folks agreed and others vehemently opposed but what is becoming very clear is that there is a yet another fundamental change in the way we do business looming on the horizon. But if you have been in the industry for any length of time, you will realize that the more things change, the more they stay the same. The discussion is on non-airline suppliers and their imminent shift to a different model of compensation—or perhaps a model featuring no compensation. Where have we heard this discussion before?

Déjà vu

If you take the word “cruise” and do a word replacement in every conversation with the word “air” you will see that this is essentially the same conversation that was being had in 1996 when the airline “partners” began to whittle away commissions to zero. Back then, many (if not most) agencies relied on airline commissions for a majority of their income. In fact, in 1996, you could make more money selling a single ticket from the US to Australia than you could selling a cruise or tour to a family of four.

Back then, the attitude of most agents was initially, “they would never do that” followed by “this will never stick.” Well folks, it stuck! Back then, the answer to tack on a $10, $25, $40, or $50 fee for the additional service we provided to what was now a commodity.  It certainly helped to offset the loss of the commission. But I am sure that there are very few agencies whose fees truly replaced the lost commission—if you are one, send me an email, I would like to do a story on you! Ultimately, what happened was that a travel agency (in general terms) went from a 13% margin business to a 10% margin business if you were lucky.  If you extrapolate that, the 3% is a huge cut—30%. Since most agents today are home based, let me put it in terms that might hit home.  Assume you sell a half million dollars of travel a year at 13%. That is $65K of gross income. From this you need to pay yourself, your expenses, etc.  Now that is reduced to 10% and your income is now $50K. Can you survive?  What if you weren’t lucky enough to see that 10%? Many agencies I know fall between the 6% and 8% range.  Now ask yourself if you can afford to absorb that when (there is no if any longer) that the cruise and tour operators begin to follow the airlines a decade and a half later.

Now we are looking at another large segment of most agency business. Are we as an industry prepared to revise our business plan so it “just helps” or are we preparing our business plan to allow us to continue to remain profitable?

Nolan Burris made a fantastic comment on Larry’s article that we need to depend on us, not them to put food on the table.

Right now, travel professionals have two choices.

  1. We can continue to second guess the suppliers, or we can proactively react. We can second guess the travel suppliers till the sun goes down, but in the end, we do not have a seat at their dinner table.  We can think that they would never go net/direct/eliminate commissions/ etc, but again, we have no say and any changes they do make–will necessitate a reactionary response from us.
  2. Or we can get our act together and learn to survive on the backs of ourselves. Now is the time to look deeply into your business and your abilities and pull out the strengths and benefits you bring to the table. You need to look at some difficult scenarios—do you downsize, fire clients, fire suppliers? Do you get out entirely? Do you find a niche that you handle particularly well?

Now is the time to look into these alternatives rather than later.

If you are still not convinced that the suppliers are prepared to go to a different model, when was the last time a first time cruiser contacted you and did not mention Carnival? When was the last time an engaged couple came to discuss honeymoon plans and did not mention Sandals?  Do you really think that Sandals and Carnival are not prepared to go direct when they have that strong of a brand recognition and market penetration into the psyche of your client?

  11 thoughts on “Did you get your invitation to the suppliers’ dinner?

  1. Kelly Watts says:

    Carnival, the mere mention of them makes me ILL! I have lost a number of cabins to them because they do not publish the “lowest fare” on the agent website. If a customer calls them they ALWAYS low ball the agent, I say to HELL WITH THEM. I do not, no will not actively promote Carnival.

  2. Peter says:

    “overcapacity” is the buzz word everywhere

    anyone please try and sell too much of anything yourself w/o a distribution channel that gets paid properly and see how that business strategy will do.

  3. Tom Woodward says:

    In option #2 how is this going to help if there are no commissions being paid??

    I have been saying this since I first got into the business 7 years ago. This is the ONLY professional selling situation I can think of where your largest competitor is your vendor.

    And now, there are sites like CruiseCompete.com that actively promotes the idea to consumers of getting the agents down to NET pricing — it’s OK, he says, because the agent will make plenty of money on the TC’s and year end overrides …. so go for all you can and see how much of their override you can get them to give you.

    I sent out 300 bids on their site and found that most of the sailings booked, were booked at a mere 20 to 50.00 above net. I managed to sell one and made a whopping $57.00 gross commission.

    It is very sad what is happening … Sometimes listing to the cruise line BDM’s is like listing to Saddam or Kaddafi denying there are riots in the streets.

  4. Dan Ilves says:

    Stocks are commodities and easy to buy online without the broker as a middle-man. But there are plenty of brokers still around, and some are thriving just fine. Some people want service and advice and someone to do the work for them, and some don’t. If you add value and work at maintaining relationships, you have a future.

  5. Ray Wilson says:

    To paraphrase an old saying , ” A Fool and their bookings are soon parted “. The best action is to
    pick ONE in several categories and STARVE the others.Too many suppliers are like Turtles On A Fencepost… They didn’t get there by themselves…. someone had to help them get to their elevated ‘ position’.! When the experienced agents ‘ go elsewhere ‘ to use their Sales abilities the old ” Between a Rock & a Hard Place comes into play.

  6. We stopped selling most Carnival Corp product years ago and means all their companies!! Scary at first but we are now making more money by supporting those suppliers that support us! Remember Renaissance?? There was no forgiveness there and they could NEVER get back on the agents shelves..Watch out Carnival the bigger you are the harder you fall!!!

  7. John Frenaye says:

    Outstanding point. It will not work!

  8. John Frenaye says:

    Tom, the airlines often still refer to us as “partners” as well. I think the partnership days are long gone. We are two separate entities looking to make a buck.

  9. John Frenaye says:

    Dan, I agree 100%. ANd in the old days, stock brokers worked 100% off commissions and now they too have modified their models to include fee-only models. And yes I can pick out three letters and buy a stock, but I much prefer to have someone ther to explain it for me!

  10. John Frenaye says:

    I was with CWT a while back when Carnival messed with the commissions. CWT dropped them and it was like someone passed gas in church–how could anyone to that? Cutting off our noses to spite our faces. Well, there were some agencies that were hurt for sure, but overall it was a good move and in some ways forced the agents (lets face it we can become complacent) to get back on the sales bandwagon and not the transaction one!

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