Courtesy of Mark Tré – “The Cruise Examiner” first published on 28.02.11
The UK travel agency community was shocked by the recent announcement by Complete Cruise Solution, Carnival UK’s trade marketing arm for P&O, Cunard and Princess, that it would be cutting UK commissions to 5% in 2012.
THIS WEEK’S STORY
Cunard, P&O and Princess Cut UK Commissions
Complete Cruise Solution, Carnival UK’s trade marketing arm for P&O, Cunard and Princess, has announced that it will drop travel agents commission to 5% in 2012, in an effort to stop rebating of commission by travel agents, a disease that is particularly pervasive in the UK. This is a drop from the standard 10% or the 12.5% to 15% that high volume producers now earn.
Although it is early to get a reaction, agents have so far been reacting mostly in a negative manner. Apparently 70% of agents who belong to Advantage Travel Centres, a consortium of independent agents, disagree with this move by Carnival UK, and John McEwen, Advantage chief executive has been quoted in Travel Trade Gazette as saying “I would have thought that bringing it down to 10%, not 5%, would be more reasonable.”
The industry-accepted norm for commission is 10%, although more recently, some lines have been paying 9% on telephone bookings and 10% on on-line bookings. The only area where 5% has been remotely acceptable to the trade, and then only grudgingly, has been in last-minute bookings, which Carnival UK now say account for 25% of their trade (itself an interesting measure).
The problem has been created by marketing funds and overrides, and possibly low net rates given to high volume agents and operators, against which smaller agents cannot compete. As often as not, these extra funds are used to give 10% off the cruise line price, which leaves any agent earning only 10% totally unable to compete.
But Carnival UK CEO David Dingle, in an interview with “Travel Weekly,”was quoted variously as saying “some overrides will still be paid,” “some overrides may be paid, not on volume, but on booking behaviour” and also “marketing funds support will, in size and control, discourage rebating.”
But others retort that maintaining overrides will just perpetuate the unfairness that has existed in the UK market, where high volume producers can undercut small agents by chopping the cruise fare through rebating from their higher commission.
CCS does not seem to appreciate that many cruise agents actually manage to achieve net returns of between 9.8% and 12.5% and that not all agents rebate from commission. This seems to have been overlooked, so much so that the professionals who sell on service are being punished because of the non-professionals who sell purely on price and try to live on a meagre 4%.
In order to “level the playing field,” Carnival UK has also volunteered to remove its 5% on line booking reduction (what agent could compete with that when they are only paid 5% commission?) and to add credit card fees to on line bookings as well.
How completely different all this is to North America. Below is a summary of what the Cruise Examiner wrote almost three years ago (May 25, 2008).
At Issue: Who Should Set Cruise Fares?
In North America, the lines frown upon rebating as they consider it diminishes the value of the cruise product, but in the UK the practice has become widespread. Most of the public who know accept the fact that the travel agent’s usual remuneration is a commission of 10%, although they may earn more based on productivity.
Rebating has also become a bone of contention with some UK-based lines. In this regard, while North American-based lines can come down hard on agents who rebate, UK lines claim that different competition laws mean that they cannot set the price that an agent charges the public. And where in North America almost 50,000 travel agents compete for business, in the UK there are several large groupings that include not only the multiples but also consortia and call centres.
Many years ago now in North America, Carnival and Royal Caribbean introduced hard policies that made it difficult for agents to rebate. The “Los Angeles Times” summarised these developments on September 12, 2004, reporting that “two of the major cruise lines, Carnival and Royal Caribbean-Celebrity, last month acted to take at least some of the confusion out of their pricing. Both now restrict travel agents from advertising rebated pricing. Royal Caribbean/Celebrity took the action one step further. It not only doesn’t allow advertising of rebates, but it also forbids the practice of rebating altogether.”
The cruise lines contended that the market can look after cruise pricing and that if enough consumers did not buy then cruise prices will drop anyway without agents having to rebate. One particular agent, CruiseShipCenters of Vancouver, now part of Expedia, was made an example of when it was put on “stop sell” by Royal Caribbean for crossing the line.
Many UK agents complain that they are being priced out of the market by the preferential deals given to larger agents. Carnival UK commercial director at that time, Peter Shanks, contended that UK law prevented lines from dictating the price at which agents could sell their cruises, and added that those with volume would always get preferential terms.
Also at the time, Reg Holmes, director of The Travel Desk in Worthing, wrote to the UK’s “Travel Trade Gazette” saying that, “Complete Cruise Solution is obsessed by volumes, not margins, and frustrates us at every turn.” He mentioned two regular clients who sought competitive quotations, stating that “in each case they had been quoted about 8% less than the net we would have paid to P&O.” Holmes went on to add that when he called their marketing department, “they said that these big agencies get very high overrides, which they had chosen to use to subsidise selling prices, and that if I raised my sales I could earn these too.”
This situation differs completely from that in the United States, where the same Carnival has openly stated that one of the reasons for trying to stop rebates was to allow smaller agents to be able to compete with larger ones based on service. Indeed, Carnival (and Royal Caribbean) want all those who sell their product to have a “level playing field.” In the UK it seems that that level playing field means 5% commissions rather than the standard 10%.
We also said three years ago that “there may come a time when a standard scale of commissions will arrive in the UK, as well as elsewhere in Europe, as they have in North America. Such price stability would allow the public to investigate the right cruise and itinerary rather than worrying about whether they had received the best ‘deal.’ There are always exceptions such as group fares, senior citizens fares, on board credits and so on, but Royal Caribbean’s policy in North America is quite explicit. It states that ‘no agencies can advertise, market or sell below our published or contracted pricing programs.’ “
While that time seems now to have come for a standard scale of commission in the UK no one expected it would be 5% and all of Carnival UK’s competitors continue to offer the normal range of 10% to 15%. This is not what happened in North America and one wonders where this will leave Carnival UK in the long run. Many agents say they will switch-sell and one even said last week that he had driven all his Carnival UK brochures to the recycling centre!
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From the above, clients of The Cruise People will understand that we will not be in a position to grant a 5% loyalty reduction to repeat clients of Cunard Line. Unfortunately, Cunard Line has been affected by policies brought about to prevent the rampant rebating that has prevailed in the P&O mass market in the UK. Although Cunard is a far superior brand it is now marketed by the same people that are responsible for P&O and Princess.
It is worth noting however that none of the other cruise lines have shown any evidence at all of following suit.
The Cruise People’s cruise page is at http://www.cruisepeople.co.uk/cruises.htm or you can e-mail firstname.lastname@example.org. Please note that we have removed P&O Cruises and Princess Cruises from our web site – although we do retain Cunard Line for old time’s sake.