Back in 1996 and 1997 all of the airlines were slashing commissions. For those new to the industry, yes, the airlines actually used to pay commissions on air tickets—first unlimited and then capped. Today, for the most part, front-end commissions are a thing of the past. Since then many have been wondering when the other shoe will drop and other travel types will follow suit.
During the commission slashing Frontier Airlines thought there was an opportunity to work with the travel agents who saw their income slashed along with commissions. They held to a 10% commission for agents in hopes that agents would reward them with market share to their destinations. Southwest had already cut commissions on many of their competitive routes and America West (their largest rival at the time) had also eliminated commissions. The plan made sense. But alas, the agents did not pull through for Frontier. Frontier held out as long as they could (2 quarters) and finally eliminated the commissions and the rest, is as they say—history.
The cruise lines have taken a similar track-albeit not quite so fast paced. Over the years, we have gone from an all-inclusive commission to some cruises earning less than $20. The cruise lines developed a way around paying commissions to agents by deeming an still-undefined portion of each cruise as “non-commissionable.” So, now when there is a $399 cruise rate, there is a good chance that $200 of it will be “non-commissionable” leaving $199; which (at 10%) leaves an agent with a $19.90 commission.
There had been some premium lines who held off on establishing the “non-commissionable” portion of fares, notably Regent Seven Seas. Regent paid agents on the entire cruise fare including taxes, port fees, and included excursions. With a higher-end Regent cruise, agents could easily expect a commission check with a comma. But that has all changed.
According to Travel Weekly, starting with bookings made on October 1, Regent will classify $20 per passenger per day as non-commissionable. So for a seven-night cruise, a $5,000 fare will yield an agent $729 instead of $750. On top of that, it will also make non-commissionable taxes and government fees up to $19.50 per passenger per day, an additional loss. If you do the math, what was once a $750 commission is now $592.50 or a 26% cut in income.
Of course, it is difficult to blame Regent. Their costs have continued to escalate and they do need to remain competitive in the market. However, it is a very real cut to agents in the luxury market. Agents in these markets, as with agents who used to sell commissionable airline tickets, now will need to re-think their business plans to make up for the lost income.
Just this week, Carnival Cruise Lines modified their commission tiers. (The modified tiers are not being published here because we deem them proprietary and confidential.) While not really a commission “cut,” this will have the same effect on many small to medium sized agencies that were earning from 11% to 15%. A while ago, Carnival switched their tiers from passengers traveled to cabins traveled—a commission cut. Now they are raising the bar on the tiers making it more difficult for the largest portion of their supporters to maintain their present commission levels—another commission cut. One agent in the TRO Community remarked, “This is going to effect the small to mid sized agencies. My old host was at 15% and now in order to maintain that, the agency will have to sell 400 cabins. This is a mid sized agency with a few decent IC’s but I doubt they will get to 400 cabins.”
It should be noted that Carnival and Regent are not part of the same corporation.
Will the next step for the mass-market lines be to flat out reduce commissions further or perhaps to cap them as the airlines did?
Time will tell. Certainly the cruise lines are focusing a lot of their marketing dollars on the direct to consumer business as was detailed in a previous column—much more than they readily admit to agencies. While I am not sure of the timeline, I do believe it is only a matter of time. Technology is a challenge as consumers are often falsely led to believe that they can adequately plan their vacation experiences when the reality is often different. Most travel suppliers are investing in tools and campaigns to attract the consumer directly to their call centers and websites. The shareholders are clamoring for them to cut costs and the hired guns on Wall Street have been telling the cruise lines to eliminate agency commissions for years!
Take this news for what it is worth. Perhaps it’s a warning; or perhaps it’s a gentle reminder. Just remember, when dealing with the cruise lines or any travel supplier travel agents are the agent of the supplier and are subject to the rules, regulations; and yes, payments they establish—or not! What do you think?