Posted on February 2, 2002 - by Ralph Grizzle

North American Cruise Operators and U.S. Travel Agents: Dancing Partners?

More than 90 percent of all cruises sold in North America are booked through travel agents. Travel agents represent a cost-efficient sales system, broadly distributed around the nation. It is hard to imagine how the cruise industry could function without this network of independent sellers.

With more than 30 North American cruise lines competing for consumer attention, cruises represent a complex vacation product that requires the expertise of an experienced cruise counselor. “A cruise is hard to sell without personal contact,” says Alan Rosen, of Sand & C Travel in Boynton Beach, Florida. “The cruise lines don’t have the manpower to handle it, and they can’t live without us. Just ask Renaissance.”

Ah yes, Renaissance Cruises. In the U.S. “Remember the Renaissance” resonates as a battle cry with travel agents who boycotted the company. Renaissance shunned travel agents to market direct to consumers. Only after bleeding red ink and failing to fill its ships did Renaissance begin making overtures to travel agents. Too little, too late. Without the support of travel agents, Renaissance collapsed late last year.

Make no mistake: The cruise lines know where their bread is buttered. “We need travel agents, period,” says Vicki Freed, senior vice president of sales and marketing for Miami-based Carnival Cruise Lines. “And we believe that we will continue to rely on travel agents for the vast majority of our business.”

These are more than just words. Cruise lines support agencies in a variety of ways, providing not only commission payments but also generous co-op advertising funds. A travel agency, for example, may produce a direct-marketing piece for mailing or place an advertisement in the local newspaper and expect cruise lines to kick in 50 percent or more toward the cost. Cruise lines also provide national advertising designed to drive consumers into agency offices, web sites that allow consumers to book online with the sale reverting to the travel agent, and a company sales force that works to educate agents and assist them with marketing.

“The cruise industry supports you to a much greater extent than any other sector of the travel industry,” Norwegian Cruise Line Chief Executive Colin Veitch told travel agents attending Cruise-A-Thon, an annual industry event held this past December in Fort Lauderdale. “The relationship is a symbiotic one. We benefit, you benefit. We support you, you support us. And you can’t say that about any other major sector of the travel industry.”

Slighted by the airlines, which have cut commissions drastically since 1995, travel agents find cruises to be one of the few lucratively commissionable vacation products remaining. “The airlines have been our best friends in making this [cruising's success] work,” says Gary Bruton, senior vice president, international, for Miami-based Royal Caribbean International and Celebrity Cruises. “They’ve made it clear that you can’t make a living selling air tickets.”

Despite the seemingly happy arrangement, however, there are rumblings of discontent. Cruise line executives bemoan the fact that travel agents aren’t selling hard enough to fill ships at respectable prices. Travel agents counter than cruise line pricing policies undermine their sales efforts.

The pricing issue becomes particularly contentious with group pricing. To fill ships, cruise lines offer non-price-protected “new booking offers.” These reduced rates aren’t available for passengers who booked early, thus the term “non-price-protected.” When early-bookers discover they paid more than other passengers who booked late, they become angry with their travel agents. The cruise lines contend that they are returning to a pricing model where those who book early pay less. “After September 11, all pricing models went out the window,” says Carnival’s Freed. “We really were doing it right 95 percent of the time before 9/11. We are finally feeling that we may be back to the formula of setting the lowest prices further out and increasing prices as demand increases.”

On the flip side, the major cruise companies, Carnival among them, instituted increased commissions to agents following the September 11 attacks. Forced to slash prices to spur bookings, the big cruise lines boosted agency commissions to 20 percent through 2001.

Even so, profitability has been hard to come by for agents who are selling cruises. “I don’t think the 20 percent commissions made much of a difference from a sales point,” says Sand & C’s Rosen. “For goodwill, it was terrific. We lost so much revenue with the rate reductions that it helped to offset those losses.”

When Carnival chief Bob Dickinson reminds agents that the industry is selling cruises at 1974-75 prices -a good sale pitch for motivating consumers – he neglects the issue that agency commissions are also based on a percentage of those reduced prices. Clearly, agencies are struggling. Carnival was sold by 2,000 fewer agencies in 2001 when compared to a year earlier, according to Fred Stein, director of agency compensation for Carnival. The probable reason for the attrition: agency closures.

Further complicating an agency’s ability to survive are so-called non-commissionable fees, comprised of port fees and other charges. Speaking to agents attending Cruise-A-Thon about the challenges ahead to fill new capacity, Dickinson quipped, “We will fill those ships, won’t we? We may be selling cruises at $1.49 and $500 in non-commissionable port charges and fees, but we will fill those ships.” The joke wasn’t lost on agents who are seeing non-commissionable fees continuing to rise.

The cruise lines contend that these fees are justified but perhaps not well understood. Particularly perplexing is how these fees are calculated. Two ships of similar size with similar itineraries operated by two cruise lines can have widely varying non-commissionable fees. Less perplexing is the fact that they continue to increase, although Carnival has vowed not to raise non-commissionable fees in 2002, “even though we will have increases due to rising security costs at ports,” Freed says.

In a move that angered agents, cruise lines last year reduced from 10 percent to 5 percent the commissions paid on the air transportation portion of the cruise (among the big players, Norwegian Cruise Line maintained 10 percent commissions on air, at least until this article went to press). Coming on top of proliferating non-commissionables and reduced cruise fares, the air commission cut bred ill feelings. “The impact was minor,” says Sand & C’s Rosen, “but the message was very bad.”

Increasingly, U.S. travel agents question whether, in fact, cruise lines are their partners. Agents feel they are being squeezed out, even going so far as to accuse cruise lines of stealing their clients, by encouraging them to book direct and, in some cases, by calling prospective cruisers before the agency can close the sale. Agents criticized Carnival for its aggressive use of “Personal Vacation Planners,” who work directly with consumers. Carnival’s Freed concedes that her company does take direct bookings, “but only because that is how some consumers want to book,” she says.

“We do not offer the consumer a better price than what the travel agent can offer,” she adds. “In fact many of our direct consumer bookings actually transfer back to a travel agent after we have the deposit, because agents either rebate, or offer group rates that are lower than the rates we have offered the consumer. And we gladly pay the agent their full commission on the booking [that Carnival initiated].”

At times, the relationship between cruise operators and travel agents more closely resembles one of, say, a marriage gone sour than it does a true, working partnership. “I believe this is a partnership that will survive,” says Sand & C’s Rosen, “but only out of necessity.” Of course, given the options, surviving, even out of necessity, isn’t so bad. Just ask Renaissance.