As if the ongoing uncertainty in our topsy-turvy economy weren’t enough to make hard-working travel professionals a little queasy about the future, the ongoing battle over the various non-commissionable portions of the cruise fares is making them downright seasick.
Imagine selling a cruise for which your client pays nearly $450, but you only receive $16. Sound far-fetched?
Ask any travel professional who’s booking cruises these days, and they’ll tell you it is part of a new reality, even when – as in the actual case above – the travel agent was supposed to be earning 16% commissions because of her longstanding “partnership” with the cruise line, cultivated and won from her ability to move market share to it. The breakdown on that $450 cruise included over $69 in “taxes and fees” and $80 in “fuel surcharges” on a “cruise fare” of only $100.
While it’s hard to believe that a cruise fare of just $100 could render taxes of over two-thirds that amount or a fuel surcharge that’s exactly four-fifths, the $450 price tag’s most incredible component – as in too improbable to be believed – is what’s become the most dreaded and reviled charge cruise lines are blithely disguising as a way to reduce what they’re paying to travel agents: the “non-commissionable fee” or NCF.
In the case I outlined, the cruise line charged the consumer a staggering $198 in NCFs – a sum nearly 100% more than the actual cruise fare itself.
It used to be that NCFs were called port charges – that is, a crazy quilt of non-government-related fees incurred by the cruise lines to cover such port services as ground labor, piloting, shore power and stevedoring. It’s beyond comprehension how these costs have skyrocketed in recent years, particularly when the so-called fixed costs on board the ship, including crew, maintenance and food have not.
What’s more, the cruise lines have essentially been free to change these fees at whim to reflect their “costs.” That’s akin to mail order companies hiding profits in “shipping and handling” fees that routinely blindside consumers. When it comes to NCFs, there’s a complete lack of oversight or accountability to anyone other than their stockholders.
Speaking of which, stockholders in general, let alone those owning shares in cruise lines, are currently nervous, particularly in the wake of the giant sell-off during the first full week of October. As of this writing, Carnival has seen its stock fall over the past year from a high of $50.30 to just $29.10, while Royal Caribbean has fallen from a high of $43.89 to only $15.29. In just the last month, Carnival lost upwards of 30% of its value, while Royal Caribbean lost around 45%.
But while Wall Street began to rally again this week, the latest Gallup poll is showing a severe crisis of confidence on Main Street, the place where our prospective cruise clients live. In fact, early this week, a Gallup poll showed 59% of Americans now rate our economy as “poor” – that’s not only up 21% from just one month ago, it’s also set a new, downright frightening record. To say the least, that crisis of confidence does not bode well for travel sales of any kind.
Without a doubt, a tougher economic climate is always more pronounced in the travel industry. The ripples that other economic sectors typically feel always crash like waves within ours. The waves now crashing through the rest of the economy have hit our industry like a tsunami.
There’s now a greater propensity for consumers to closely scrutinize every discretionary dollar. It doesn’t help that the incessant media preoccupation with all things negative is fueling this behavior even further. You can bet that instead of merely considering whether to take a land-based vacation over a cruise, habitual cruisers are now second-guessing the idea of taking vacations altogether. Like other consumers, they’re rethinking whether those discretionary dollars may be better used toward a new refrigerator or other necessities or saved in the event of a rainy day. And with storm clouds fast approaching, if not already here, fewer vacations will be booked.
Certainly, there is going to be increasing pressure from Wall Street on cruise lines to lower the boom even further on travel agents. However, Wall Street has increasingly demonstrated a naïveté on how the 85% of all cruises now booked by travel agents not only make the difference in prequalifying each consumer for the right cruise experience, but especially make the difference in booking a cruise over a land vacation.
Cruise lines would do well to understand that paying commissions is actually investing in the future. They’ll get what they pay for. They should want to support a well-paid, well-trained and highly motivated sales force. If they want travel professionals out there doing a good job, they need to be paid well and not worrying about paying their rent every week or cutting back their businesses because they don’t get paid enough. This is one proven investment that pays dividends where it matters: in customers.
Because of the economic concerns of Main Street, coupled with the fixed costs associated with the cruise lines adding another 4% capacity to the Caribbean and another 12% annually to Europe, the cruise lines need to double down on their partnerships with the travel agency community in order to fill those berths. Only through an increased commitment to agents – the cruise lines’ truly cost-effective sales force – can cruise lines ensure that travel agents are not only motivated to steer clients toward cruise vacations, but sufficiently incentified to make the difference in making the sale at all.
Today, cruise lines have a rare opportunity to navigate toward smoother waters. For starters, let’s hope other cruise lines follow Carnival’s lead by eliminating the fuel surcharges on 2010 sailings, now that the price of oil has dropped dramatically. Given that the price of fuel has plunged by as much as 50%, cruise lines should reimburse the fuel surcharges already charged for 2009 sailings.
But equally important is for all cruise lines to pay agents on the actual cost of a cruise, rather than a piecemeal basis. By doing so, cruise lines can ensure an unparalleled commitment on the part of their partners to enthusiastically counsel their clients on the advantages and value of a cruise experience when consumers are finally ready to book a vacation. Short of that, cruise lines may be stuck in the doldrums for a long, long time.
Roger E. Block, CTC, CFE, is president of Travel Leaders and The Travel Franchise Group, part of Travel Acquisitions Group (TAG), a new North American travel company that includes over 1,700 company-owned and franchised travel agencies in Canada and the United States. Mr. Block reports directly to the CEO of TAG, which is based in Minneapolis, Minnesota.