Cruise Pricing - The Facts!
Two companies, Royal Caribbean Cruises Inc. and Carnival Corp. dominate the cruise industry. Both are publicly owned corporations with annual revenues of approximately $5 billion. Most popular cruise brands (Celebrity, Princess, Holland America, Costa, Cunard etc.) are wholly owned and operated subsidiaries of Royal or Carnival. An Asian company, Star Cruises, owns the number three cruise brand, Norwegian Cruise Line. Norwegian's, annual revenue of approximately $1 billion places them a very distant third.
All cruise suppliers sell their product through a retail distribution channel of Travel Agents. Pricing, however, is established exclusively supplier's 'Revenue Management Department'. Travel Agents are paid commission based on the retail selling price (net of port service fees and governmentally imposed taxes) of the cruise vacation.
Historically, some Travel Agents have offered consumers rebates (giving a percentage or all commission to the consumer) in hopes of capturing business from another Agent. Although this sounds good for the consumer, purchasing a cruise from an agent involved in rebating is dangerous. Fundamentally, a business must earn a profit in order to stay in business. Considering a cruise guest will transfer an average of $2,800 per booking through the agent, one would hope the agents business is financial sound. This danger magnifies with group bookings were the average monetary transfer averages $90,000. The result of Travel Agents engaging in rebating will inevitably lead to bankruptcy or business closure. Obviously, cruise guests loosing large sums of money on travel sheds negative light on the industry as a whole. This has prompted cruise companies to take action.
During the late 1990's, the airline industry began lowering Travel Agent commission. Their logic ... if Travel Agents are willing to rebate commission, they can apparently operate their business on less revenue. Additionally, if airline customers are going to save money by choosing carrier A over B, than it will be the carrier that offers the savings. Surprisingly, after the first round of commission cuts, the rebating continued. By 2000, major airlines discontinued paying Travel Agents commission. Agents who once sold (and rebated) airline seats were now looking for new work. Sadly, some found new opportunity in another commission based product, cruise vacations. As it is common practice for pricing in cruise brochures to be much higher than the actual price the cruise company will charge, the new agents now offered savings of "more than 50%", simply by calling the convenient toll free number. During this same time, the internet came to fruition. Within the year, a plethora discount cruise websites were created. Each offered the lucky shopper the opportunity to save big with just a few clicks.
THE IMPORTANT QUESTIONS TO ASK ARE:
1. If cruise companies provided a small handful of Travel Agencies a 'special rate' legitimately lower than other Agents could receive, what would happen? How would major 'national accounts' (American Express, AAA, Carlson) react? Would major accounts continue to sell the cruise suppliers product?
2. If cruise companies provided large 'national accounts' with lower price than the estimated 750,000 Travel Agents could receive, what would happen? Is it possible for "Mom and Pop Travel" to stay in business when every consumer booked the lowest price elsewhere?
CRUISE LINE BUSINESS 101!
Large publicly held companies perceive advertising tactics promoting, 'book with me and save', devalues the product. Royal Caribbean offers a superior product in the contemporary cruise market. They are the cruise equivalent of a Sheraton or Westin hotel. Product pricing is set by the company, not by a Travel Agent.
After a careful examination of the distribution channel, cruise industry executives concluded the purchase of a cruise vacation was not as simple as booking a flight. The value of a knowledgeable Agent was vital to achieving high guest satisfaction. The decision was made to create pricing policies to prevent rebating and thereby, protect professional Travel Agents. These policies officially came into effect in August 2004. Below, you can read the official release distributed to all Travel Agents and cruise retailers.
CRUISE COMPANIES SET PRICES, NOT TRAVEL AGENTS!
In conclusion, if you view an advertisement or are offered a lower price, don't fall for it. This business practice is in direct violation Royal Caribbean's (and Carnival's) price policy. In addition to the Travel Agent facing possible disciplinary action, guests may find the remaining balance posted to their shipboard account. Sadly, by the time the guest realizes the true financial impact of their 'low priced cruise', the dishonest retailer has long disappeared.
Royal Caribbean International® and Celebrity Cruises® Announce Policy Change - Distributed June 2004
Royal Caribbean and Celebrity Cruises appreciates the praise and support from our travel agent partners on the recently announced new Rebate Policy. To ensure a full understanding and compliance with the new policy, the following procedures are to be adhered to when marketing, advertising and selling Royal Caribbean or Celebrity cruises or cruisetours.
No agencies can advertise, market or sell below our published or contracted pricing programs. Any rebating or incentive programs that can be converted to cash or currency, (e.g., a $50 credit card certificate), are not permitted. Agencies in violation of these policies will be subject to a reduction in the co-op support provided by the cruise lines and other effects such as a reduction in the base commission paid on all future cruises booked by that agency. The marketing, advertising and selling mediums shall include, but not be limited to, TV, radio, phone, newspaper, catalogs, direct mail, call centers, and all on-line vehicles such as search engines, websites, e-mail, pop-ups, and banners.
Royal Caribbean and Celebrity Cruises new Rebate Policy was effective as of Monday, August 16th, 2004. The 5-day implementation period to ensure all agencies are within compliance ends at end of day Friday, August 20th, 2004.