Published on Wednesday, October 24, 2012

Independent agents fight cruise line commission cuts

Independent agents announced today they were joining forces to drive business away from a number of the largest cruise companies following cuts in their commission rates.


The move followed last week's announcement by Royal Caribbean that it will cut agents' base commission from 15% to 10% from January 1. Last year, Complete Cruise Solution, which owns P&O Cruises, Cunard and Princess Cruises, slashed commission to just 5%.


Advantage Travel Centres and The Travel Network Group, which together account for around £350m worth of cruise sales, are now advising their combined network of more than 1,500 member agencies to sell alternative cruise lines instead.


Gary Lewis, The Travel Network Group managing director, said: "We have now discussed this issue in great depth with our members and with Advantage Travel Centres and we are all deeply dissatisfied with moves by certain companies to reduce commission.


"Our strategy is, and has always been, to work with operators who help our members satisfy the needs of their customers, and who at the same time support the trade and our members commercially.


"There are a number of great quality cruise lines providing fantastic cruise product to us as a group and therefore, with immediate effect, we will be looking to strengthen our relationships with those cruise operators who are more supportive of our members and the trade.


"This will inevitably lead to a reduction of business going through those suppliers that are not supportive of this strategy."


However, agents suffered a further blow today when Norwegian Cruise Line announced that from January 1 it will move to a 10% base rate from a variable rate of 12% to 15%. Francis Riley, VP and general manager international said the revised business model had been devised following discussions with trade partners in an attempt to end discounting.


"Moving to 10% and putting in place policies to police the rebating will help attract new travel agents to the market who have in the past felt they were unable to compete with the big discounters," he said.


Advantage leisure director Julia Lo Bue-Said said the two consortia would be encouraging agents to switch-sell away from cruise lines that offer the lowest earnings potential. "If a customer requests a particular ship, the agent will make that sale, but good agents can use their product knowledge and business acumen to recommend alternatives that are right for the customer but also right for them as a business.


"There is always an opportunity to switch sell, providing it works for the customer."


Bue-Said said that where Advantage had advised members to switch-sell following commission cuts by other operators, it had resulted in a "significant" shift of business away from the principle.


It took a similar stance with TUI several years ago when it reduced commission. "Eventually they came back to the table and now we are working with them in a more productive manner," she said.


She said principles should also bear in mind that agents' commissions were being eroded by the growth of non-commissionable sales. "Seven years ago they earned commission on every component of the holiday, but now there's a whole stream of add-ons from air passenger duty to premium flights for which agents don't get paid.


"These non-commissionables can account for at least 2% of the holiday price but agents don't earn anything from them. Operators need to consider this factor when looking at commission payments."


By Linsey McNeill


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  • The article you link to...

    ....agrees with the point I have made. Quote: "...UK and EU competition laws are clear that suppliers must not fix or set minimum resale prices with their retail customers. This is referred to as resale price maintenance and is illegal. In essence, retailers should be free to set prices at their absolute discretion...." That changes might be afoot in the USA (and the other article you link to is very cagey about that) does not mean that the same changes will occur in the EU - even if they do occur in the USA. I am not defending or opposing RPM; I am simply saying that, at the moment, in most countries (including the UK) it is illegal. For what it's worth, my own feeling is that the present consumer-focused attitude of most governments, means it is highly unlikely that RPM will ever become legal again and retailers who are hoping it will return and thereby help protect their businesses from competition, are holding a rather forlorn hope. Deal with the business situation as it is, not as you wish it were.

    By Richard English, Thursday, November 8, 2012

  • illegal, but sensible?

    Richard (English) your comment about the legality or otherwise of resale price maintenance (or what you refer to as 'price fixing') chooses to ignore the USA's fairly recent changes with respect to this. a link to two pages should explain. Note especially the comparison of current trading to that of the 1930's recession in talking of the independent retailers being a necessary part of the mix, and some element of 'reason' being applied in the USA to the decision of illegality, unlike the EU laws under which we, unfortunately in the UK some would say, have to operate. It's a difficult one to prove either way as to whether RPM in some forms increases prices to consumers, or whether on the other hand it allows small retailers to thrive and a chance to compete. In our industry, the massive reductions in commissions across the board have effectively introduced a kind of RPM anyway, since with 2%-3%, or zero in many cases, it is virtually impossible for a retailer now to discount. More sense then to introduce a product where we as retailers control the price we sell at and make an acceptable margin, in the same way as TUI and others do now (since we cannot sell above their web price effectively, and would not survive if we sold below it!) So my wish for discounting to be 'outlawed' as you put it, cannot be blatantly disregarded as a future possibility. The Law as you know is a constantly changing animal, reflecting changes in society and helping make the world a fairer place. Many people have been caught out by the words 'will not happen', most notably politicians, who seek to avoid the term at all costs!

    By derek small, Thursday, November 8, 2012

  • Why do retailers...

    ...and that includes travel agents, press for ever higher margins and then simply use them to give customers discounts? In the end nobody wins since everyone has to run on the discounting treadmill. Price is a very important part of the marketing mix and, where a product or service has become a commodity, then many - maybe most - customers will buy on price. But, I suggest, cruises have not yet reaced the stage of commoditisation and it should be possible to sell them without resorting to savage price-cutting. Clearly this is the view of the cruise companies themselves, which is why they have returned to more sensible commission levels, hoping that the discounting mania will stop. Derek Small's wish for discounting to be outlawed, though, will not happen. Price-fixing - which is what outlawing discounts would be - is illegal in most developed countries of the world, including the UK.

    By Richard English, Thursday, November 8, 2012

  • General Custer's last stand?

    This is reminiscent of the battle Custer fought against incredible odds against the American Indian, and the British redcoats against the Zulu at Rorkes Drift! Agents who have lived through the last 25 years trading will rightly feel that this is the last bastion of fair commission levels which is about to be removed. First airlines, then the big/medium tour operators (I recently had to book a Mexico holiday with one of them and made 2% on a 5K booking because we had to match their website price, and since most small specialist operators buy their seats in from the big boys, they cannot always compete either to offer us an alternative). And now, surprise-surprise, the 'agency loyal' Cruise Lines. It is obviously difficult to pass ALL blame on to them, since quite rightly in their eyes, some agents have given half their commission away anyway to attract more custom from the next agent-a ridiculous state of affairs which leads to reductions in customer service, and those companies gaining volume sales quickly at the expense of others, only to crash spectacularly. If we actually are all able to make 10%, I could live with that, not in the height of luxury, but as a travel agent I'm well used to that scenario! But I suspect that 10% is the 'first stage' which will lead to 5% (and in one case already has) and then the 1 or 2% which our friendly major tour operators give us. I see the role of consortia 'eventually' as providing the ability for agency groups (only where large scale such as TTA/Worldchoice/Advantage joined, if not commercially then with a common strategy) to offer their own unique product which they would all support above and beyond other products. The other products would be a select number who offer a reasonable commission on the sale, and no members would be allowed to discount from the prices advertised (a return to RPM!) So, will we win like the redcoats, or lose spectacularly like Custer? Answers on a postcard please....

    By derek small, Wednesday, October 24, 2012

  • From Bill Munro, Barrhead Travel

    I guess both current commission cutting cruise companies are still testing the temperature of the water as the full details have not been released or I believe even decided. One size does not fit all and for agencies who simply take orders maybe there is an argument to be had but for the many cruise retailers like ourselves who actively promote the product at considerable expense and much management time it"s definitely not. Just look at the damage that has been done to other commission cutters in a difficult marketplace. Some cruise retailers have shared with me the detail of how much switch selling they have done with previous commission cutters which has been to the great benefit of the two who are threatening to follow suit. I don"t understand it and I would suggest they do an immediate U turn before they also incur the wrath of their distributors with reduced sales. Many cruise retailers are turning to longhaul promotion rather than sell cruise.

    By Bill Munro, Wednesday, October 24, 2012

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