Cruise Lines Expect Boost From Agents Hefty Commissions For Bookings Will Counteract Airlines’ Cuts
Stung by a flat fourth quarter, cruise industry leaders hope to capitalize on a recent decision by airlines to restrict the commissions they pay travel agents.
“The travel agents will discover cruising like they’ve never discovered it before,” said Adam Aron, president of Kloster Cruise Ltd., the parent company of the Norwegian and Royal lines. Cruise sales are “simply the most profitable transaction that a travel agent has.”
Seven major U.S. airlines set a maximum $50 commission for agents on round-trip ticket sales last month as a cost-saving measure. The rule replaces a standard 10 percent commission and the travel agents have complained bitterly that the airlines are taking money out of their pockets.
Aron noted most cruise lines pay more than 10 percent. Even without the higher rates, agents are accustomed to earning more on cruise tickets because the commission is based on the total package price rather than the smaller air, hotel and car rental components of land-based travel.
“It’s not a message that’s going to have to sneak out of the closet,” said Al Wallack, chairman of the Cruise Line International Association and senior vice president of Celebrity Cruises Inc. “The attitude has changed with a bang.”
While some believe the airline commission cut could put 10,000 of 40,000 travel agencies out of business within two years, Carnival Corp. president Robert Dickinson said 10,000 to 15,000 agencies are responsible for the bulk of cruise bookings.
For some cruise lines, the airlines’ move is well-timed because a slump in cruise bookings last fall generated big discounts following bad publicity about hot tub Legionnaire’s disease, a ship fire and rocky sailings on an incompletely renovated Queen Elizabeth II.
“I think it’s fair to say that much of the industry is right on the margin of profit and loss,” John Olsen, chairman of Cunard Line Ltd.
Olsen and others spoke during a panel discussion on the state of the industry at its annual Seatrade convention last week in Miami Beach.
The challenge is filling berths at a profit in a business that keeps adding new and bigger ships.
More than $8 billion has been committed to ship orders for an addition of more than 50,000 berths through 1998, and industry-leading Carnival will boost its capacity 75 percent within four years. Carnival and Princess cruises have ordered 100,000-ton ships, the biggest ever for cruising.
Unlike others, Carnival had record sales and profits last year. Dickinson said much of the industry failed to anticipate last year’s slump - a situation that could happen again.
“It’s been reasonably well documented that the fourth quarter was a disaster,” and the situation was unforeseen as late as August. “If we can’t manage it today, how are we going to be able to do this tomorrow?”
Aron described Kloster as recovering from being “a very, very sick company” 1 years ago. Restructuring and an attentiongrabbing Norwegian ad campaign pushed passenger counts up 13 percent in January and revenues up 9 percent in the first quarter.