Investor calls and quarterly financial updates of cruise corporations can give us invaluable insight as to what is currently going on or what might be coming down the pike. A few days ago Royal Caribbean Cruises Ltd., the corporate parent of Royal Caribbean International, Celebrity Cruises, and Azamara Club Cruises, held their quarterly investor call. For travel agents, the interesting tidbit of information came from Richard Fain, Chairman and Chief Executive Officer of Royal Caribbean Cruises Ltd. He spoke about the company’s recent move to pricing integrity. Vicki Freed spoke to us about this last November. At that time Vicki stated “we are working very, very hard to make sure that pricing is very stable, and the people that book furthest out will have the better pricing.” In the recent investor call Fain addressed this new pricing policy.
I wanted to update everyone on the early signs that we’re seeing from my price integrity policy. As a reminder, we adopted this policy to address the kind of deep last-minute discounts that are so frustrating to our guests and our travel partners and ultimately so damaging to our brands. Depending on the sourcing of the type of cruise, the last-minute might be 10, 20, or 30 days out, but from that point on our policy is to hold our price at the prior level.
We believe that such a policy has to be clear and explicit. Only by setting firm measurable and non-big U.S. terms can we create the kind of credibility that’s so important to the program success. Vague efforts don’t provide the kind of consistency that is so important to our guests and our travel partners. We began this new policy in March and we’re sticking to it. It’s still early days but the impact we have seen from a load factor perspective is relatively small and it’s in line with our expectations.
Our intent with the policy is to achieve happier guests, travel agents, and better branding. It does seem we’re on the right track in fact, during the last period we extended the program. We went for a policy coverage of 10, 20, 30 days before the cruise to covering 10, 20, 30 or 40 days prior to sailing. We recognize that this policy is costing us some money in the short term. But we believe that in the long term it will pay handsome dividends.
In a nutshell, they may be seeing a loss of budget-conscious passengers, but that’s not necessarily a bad thing (for the cruise lines or for us). Over the years many of the cruise lines have slowly come to understand that those passengers looking for the bottom-dollar-deal are also those passengers that don’t spend money onboard; at least not at the levels that the cruise lines count on for their bottom line. Onboard spend is the bigger cash cow for many cruise lines, which is money spent in the spa, at the bars, in the casino, and on shore excursions. Filling berths with passengers unwilling to spend money onboard does not meet the financial goals for any cruise line.
If Royal Caribbean Cruises Ltd. can maintain their pricing integrity strategy, and not panic at the slightest hint of an economic downturn, we as travel agents are set to see steady commission checks. Anyone that has been in the industry long enough has probably seen a single digit commission check. I recall one cruise line (which will remain unnamed) that once had a sale fare of $199 per person. $190 of that was non-commissionable cruise fare, and $9 was commissionable. They actually had to offer a “bonus commission” to travel agents in order to entice us to book the sale fare. Otherwise, who was going to work for a $2.88 commission (assuming they earned 16% commission)? Hopefully the implementation of pricing integrity by Royal Caribbean Cruises Ltd. will continue to show promise, and will entice other cruise lines to implement their own pricing integrity program.
Susan Schaefer is the owner of Ships ‘N’ Trips Travel (www.shipsntripstravel.com) located in Tennessee, and specializes in leisure travel with a focus on group travel and charity fundraisers. Through their division Kick Butt Vacations (www.kickbuttvacations.com), she focuses on travel for 18 to 23-year-olds. Susan can be reached by email at firstname.lastname@example.org or by phone at (888) 221-1209.