Cruise lines are considering cutting travel agents commission in a move that could have worrying implications for the trade.

Carnival UK managing director David Dingle confirmed it was examining the possibility of reducing rates with Royal Caribbean and Island Cruises saying they may follow suit.

The move will spread further unease through the trade which is already facing reduced commission from mass market tour operators.

Fears are now rising that every sector will start to review its rates of pay.

"The benchmark has been set. Thomson's decision to go to 7% has set the ball rolling," said one observer.

Speaking at TravelMole's latest travel industry question time, Dingle said it wanted to reel in the level of discounts offered by retailers. Paying them less, he explained, would mean they could not throw commission away on discounts.

"The issues we need to consider are similar ones to those of tour operators. That is, quite simply, that we need to have control over pricing," said Dingle. "Travel agents rebate quite significantly and the question is, is there any sense in that amount of rebating?"

Pressed directly on whether commissions would be cut, he said: "I don't know. We are still thinking about it and I don't know when we will make a decision."

Dingle claimed a decision would only be made once he was certain a cut in commission would not erode margins for agents.

"I have no interest in reducing margin. I actually want agents to retain more of their commission," he said. "We are close to our travel agents and we need to talk to them and understand what the full spectrum of issues are."

Royal Caribbean UK and Ireland managing director Robin Shaw said its rates were "under review."

"We have no immediate plans to reduce commission but are reviewing the situation," he said.

Island Cruises managing director Patrick Ryan also said the company was looking at the position.

Kevin Ivie, managing director of retailer 1st4cruising, dismissed arguments that commission needs to be cut to reduce the level of discounting.

"The cruise lines themselves offer discounts of up to 65% and if they say that defines the market, then reducing commission will not alter that. It's nuts," he said. "I understand the economics but it's up to agents to make the decision on how much commission to give away. Lowering the base level will give agents no room to manoeuvre."

It will also penalise those agents who don't heavily discount and retain the bulk of their commission, added Ivie.

Dingle admitted the move by Thomson in reducing base commission to 7% had bought the issue into sharp focus for Carnival.

"The cruise industry may not have been having these discussions had tour operators not made a move," he said.

Observers predicted that, as with tour operators, once the market leader cuts commission, others will inevitably follow.

"Within hours of Thomson reducing commission, Thomas Cook and First Choice did the same," said one. "Once P&O makes a move, the likes of Royal Caribbean and island Cruises won't be slow in following suit either."

If Dingle wants control over pricing simply cut out TAs.. then he won't have any bother, and many fewer pax too. The guy is looking for trouble, he needs to tread carefully.

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Originally posted by PamM:

If Dingle wants control over pricing simply cut out TAs.. then he won't have any bother, and many fewer pax too. The guy is looking for trouble, he needs to tread carefully.

Pam

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People said the same thing when the airlines did this. Now look at it. Most airline bookings are made via the Internet (without travel agent involvement) which has the lowest distribution costs.

I have to wonder if cruise lines are going in the same direction. Of course they will deny it to the bitter end. The fact is they have all quietly added booking capability to their websites so perspective passengers can bypass a travel agent.

As cruises become more and more mainstream, I fear they will become a commodity just like the airlines. Price will be the deciding factor, and the products will become harder and harder to differentiate - at least at the mass-market level.

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Originally posted by PamM:
Airline tickets are a means of transport, cruises are vacations. A far higher proportion of the North American population are net users. It is not so pronounced here, especially amongst the retired. I cannot see many using the net to actually book.

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Many in the US do book cruises on the Internet, and the percent is increasing every year. They either book directly though a cruise line website or an internet travel agency. It doesn't matter that airlines are transportation and cruises are for vacation, the process is the same and that argument is becoming less and less relevant. Booking a 7-day Caribbean cruise on the internet is no different (or more difficult) then booking an airline seat. In many cases the cruise is actually cheaper than the airline seat depending on the class you are booking. It's a very simple process and the advance software that cruise lines have developed are designed for "internet challenged" individuals. In a nutshell, it's painless and easier than picking up the phone. I can remember when people said "I would never book an airline ticket online", and now it's the preferred method.

Times are changing and I won't be surprised to see travel agents get squeezed out of the picture. Renaissance Cruises tried it and it didn't work, but they were premature and went about it the wrong way. A powerhouse like Carnival won't make the same mistakes, but they are greedy (just like airlines) and will figure out a way to cut distribution costs. If Carnival and Royal Caribbean decide to slash or cut commissions, what can travel agents do? Nothing. These two companies make up the majority of the cruise industry and they will basically dictate the terms. This is one reason I was dead set against Carnival becoming such a powerhouse when others seemed to embrace it. A monopoly is never a good thing for consumers. Bottom line ... people will continue cruising with or without the involvement of a travel agent, just as they continue to fly without using a travel agent. Companies like Carnival now have "Personal Vacation Planners" which take the place of a travel agent. The customer can actually call back and speak with "their" planner anytime they wish. This process totally excludes any involvement from an outside travel agent.

In the future, travel agents will be delegated to corporate travel, and more involved trips which require coordination of multiple vendors.

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Originally posted by PamM:
Ernie I understand what you are saying and that this works in the US, but despite all the "jokes" about the UK being the 51st State, until cruising becomes as mainstream here I do not think it will work. Cruising is far from being an average man's holiday. Air travel has become the norm for anyone, but there is a long way to go for cruising.

Pam

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Pam,
I'm speaking strictly for North America where cruising truly is "mainstream". Europe has a way to go but with so many ships now homeporting in the Med. year round, you are well on your way.

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Originally posted by Matts:
In my attempts to book cruises this year P&O, EasyCruise, HAL and RCI were booked on line.

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Matt, I don't book Cruises on-line becase the you get them at least 5% cheaoer from a specialist TA, at present. This represents a lot of 'dosh' on a major cruise.

The Cruise lines offer the TA 10% commision (built into the cruise fare) and many TA's will give you back 5%. If you book on-line via the cruise lines web site, the cruise line keeps the 10%.

I happy to book all other aspects of travel on-line. The RCI and Easy cruiseweb sites seem the best to me. Easycruise have certainly made the whole process very simple, like booking one of their flights.

[ 12-07-2005: Message edited by: Malcolm @ cruisepage ]

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Originally posted by Malcolm @ cruisepage:

Matt, I don't book Cruises on line becase the you get them at leat 5% cheaoer from a specialist TA, at present.

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Commission rebating here in the US is becoming a strict "no no". In fact some lines will not let you charge the final payment on a credit card for any less than the full cruise amount. In addition, travel agencies can no longer advertise prices any lower then the standard, published, rate offered by the cruise line (or a group rate if blocked by an agency). If they do, they may be restricted from selling the cruise line all together. Travel agents are having to get more creative. Instead of rebating they must offer "value added" services such as throwing in transfers, or paying for a shore excursion ... something along those lines.

Frankly I agree 100% with cruise lines cracking down on rebating. They have basically stated if an agent rebates any part of their commission, then cruise lines are paying too much commission. They have a point, and then the travel industry will wonder why commissions are being cut in the future.

Putting a stop to rebating puts almost all agencies on a level playing field. The small mom and pop agency along side the mega Internet agency. Guess which one will offer the better service? And service and knowledge is what should really matter when choosing a travel agent, not just the bottom line.

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Originally posted by eroller:
Frankly I agree 100% with cruise lines cracking down on rebating. They have basically stated if an agent rebates any part of their commission, then cruise lines are paying too much commission. They have a point, and then the travel industry will wonder why commissions are being cut in the future.

Putting a stop to rebating puts almost all agencies on a level playing field. The small mom and pop agency along side the mega Internet agency. Guess which one will offer the better service? And service and knowledge is what should really matter when choosing a travel agent, not just the bottom line.

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The agencies are already on a level playing field, they all get the same commission. It is up to them how they wish to spend it. They can choose to have plush offices or a shed, knowledeable staff or a script reader. It makes no difference if you are a large or small agency if you wish to spend the commission, in rebating customers or not. You will get more customers doing so, but will need them, as the gross profit will be less on each transaction. The downfall of Cruise Control. But this is all of no business of the cruiselines. Does any other trader put up with being told how to spend their profit?

If you run an employment agency dealing with temp placements on a commission basis, do the employers you find staff for have a right to tell you how much to pay the temp and how much you may keep? No way.

Cruisers have a right to the choice of a cheaper cruise with no service/frills or paying slightly more for the advice and knowledge of a decent TA. Just as you have the choice to book a no frills airline or one that provides a service.

You can book direct with the cruiseline but it is more expensive and provides even less of a service. RCI & Celbrity in the UK shove you through to their US sites using currency conversion. Booking online with some TAs here shoves you through to them too. The TAs get the commission and it's the same price.. I'd rather give someone some money than every penny to the cruiseline FOCL permit online booking, but P&O's Matts is very pricey, higher rates whenever I've looked than whatever commission a TA would get.

Likewise all the airport carparks here work on the same system. Book through anagency for the same price and give them a commission.

Within a week Carnival would be offering 15% commision.

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Originally posted by PamM:

The agencies are already on a level playing field, they all get the same commission. It is up to them how they wish to spend it. They can choose to have plush offices or a shed, knowledeable staff or a script reader. It makes no difference if you are a large or small agency if you wish to spend the commission, in rebating customers or not.

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Apparently the cruise lines don't agree with your assessment and neither do I. The fact is, travel agencies are not on a level playing field. They don't all receive the same commission amount. Large agencies that are part of a conglomerate tend to receive commission overrides because of the sheer volume the conglomerate produces on a national level. It doesn't matter if the individual agency only does a small amount of business ... if they are part of the conglomerate they get the commission override. The single storefront travel agency that only has one location can't possibly compete with that level of volume, and they will not receive the commission override. Basically you have one agency receiving 10% commission, and the other receiving 15%-17% for the same booking.

Preventing commission rebating achieves a single purpose ... it puts the large and small agency on a level playing field ... regardless of which agency gets the commission override. A side effect is more stabilized pricing and integrity of the cruise brand and how it is priced from the onset by the cruise company. Smart companies take control of their pricing. Look Apple and Microsoft. They set pricing and their retailers must adhere to that pricing. If they undercut it, then they will no longer be a retailer for that product. Simple as that.

As you say, it's fine for an agency to due what they want with their profit or commission ... except to undercut a cruise products pricing. The cruise lines feel this jeopardizes the integrity of their own pricing strategy and I understand their point. If an agency wants to offer a discount using their profit, they are going to have to do it without reducing the cruise price itself. Of course there are ways around this ... the agency can send the client a check for the rebated amount after they receive their commission from the cruise line ... but I don't see many doing this. Besides, they can't advertise discounted prices lower than what the cruise line is offering.

I'm all for it. It's nice to finally see some stability in cruise pricing.

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Originally posted by eroller:
Frankly I agree 100% with cruise lines cracking down on rebating.

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Originally posted by Malcolm @ cruisepage:

Bear in mind that rebating in the UK makes our overpriced cruise slightly more affortdable.

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Malcolm,
Keep in mind my viewpoint is limited to policies in the US. Were I in the UK I might feel differently. Cruise pricing and rebating here has gotten way out of hand, and most people in the industry are quite happy to see action taken by cruise lines and other vendors. I imagine the only ones not happy are the internet only agencies that relied on nothing more than sheer volume and underpaid/overworked employees.

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Originally posted by PamM:
This smacks of Carnival price 'fixing', with no consideration for anyone but themselves. What Thomson/First Choice/Thomas Cook do is neither here nor there, they are not cruise lines as a whole. What TAs wish to do with their income is of no concern to Carnival. If Carnival wish to reduce that income, then TAs will give up the business as it won't be worth their while with nothing under their hats to compete with....

If Dingle wants control over pricing simply cut out TAs.. then he won't have any bother, and many fewer pax too. The guy is looking for trouble, he needs to tread carefully.

Pam

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What can you expect from a Dingle?

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Originally posted by eroller:
Keep in mind my viewpoint is limited to policies in the US. Were I in the UK I might feel differently.

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The original report is about the UK. Carnival are using Thomson as an excuse to play bully boys in the UK with sharp US practices, which as Malcolm has pointed out is of no relevance to them. Carnical should be reducing their prices not increasing them to the end user, which is what the effect will be.

If the direct online prices were cheaper than using a TA people would use the online systems. But at present they are more expensive. As no commission is being paid to an intermediary it is a double rip-off, I won't be using it as such, and would rather pay the same price to a TA to earn an income.

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Originally posted by Malcolm @ cruisepage:
Don't cruise lines need tavelagents?

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They do here Malcolm, even Dingle's Carnival CL cannot be booked online here. So he'd better keep in with the TAs for a while at least. They do now have a UK website for what it's not worth.

Pam

[ 12-08-2005: Message edited by: PamM ]

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Originally posted by PamM:
They do now have a UK website for what it's not worth.

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Originally posted by Malcolm @ cruisepage:
Don't cruise lines need tavelagents? There will always be Cruise lines that DO NOT cut commission in order to tempt the TA's into selling their products.

For example, did MSC not say that they were increasing commission?

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Now they do Malcolm, but that will most likely change over time. Cruise lines have already put the wheels in motion to cut out the travel agent. It wasn't that long ago that a direct consumer was turned away by most cruise lines and referred to a travel agent. As for commissions, they have already been cut. Have you ever heard of the "NCF"? It stands for "non-commissionable fare". In the US, every cruise fare you see online or in a brochure includes a NCF. It's usually not broken down for you the client, but it is for the travel agent. It's generally a large chunk of the cruise fare. For instance if the cruise fare is $499, probably $150 or more of that is the NCF. Cruise lines have arbitrarily increased the NCF and no one really knows what it consists of. It started out as port charges but then became larger and larger. It's kind of become a monster and the lines never break down where the money actually goes, only that commissions are not paid on it. This is new within the last 5-6 years, and basically is a way that cruise lines have already cut commission. Lines have also cut all commission on the air add-on if you book air with a cruise. They used to pay commission on that.

All it takes is a powerhouse like Carnival to make the first move and the others will follow very quickly. They will have no other choice but to follow suit in order to stay competitive. If you think Carnival's competitors will raise cruise fares in order to continue to pay commissions, you are mistaken. A few may initially keep commissions, but the pressure will be too great to stay competitive and increase profits, so they will eventually succumb.

If it's anything like the airlines, it will start with a cut in the commission percent. Say from a standard 10% down to 7% or lower. From there it will go to a commission cap, say $50 commission per booking regardless of the price paid by the client. Finally, no commission at all. At least that is how it played out at the airlines, and to my knowledge, NO US carrier pays commission. A few International carriers still do, at a greatly reduced percent.

Regarding MSC ... here in the US they are not raising commission. They do pay commission (10%) on the air and NCF (non-commissionable fare) which no other line does. They have already stated that by next year they don't know if they can continue the commission on the NCF. The only reason they do it now is they are trying to gain recognition in the US, not out of the goodness of their hearts.