For travel agents, the profit margin on sales of non-luxury cruises is smaller today than at any time in the history of the modern cruise industry. That statement may not be verifiable, but it’s certainly the feeling among many travel agents who sell cruises.
While the cruise industry now offers more capacity and variety than ever before, that growth and diversification make the sales process more time-intensive for agents. Every extra hour spent on a cruise booking means smaller profits for the agent.
Meanwhile, persistently low cruise fares and the upward creep of non-commissionable fees (NCFs) reduce the dollar amount on which agents are compensated, while making it more difficult for them to reach cruise line sales goals and advance to higher commission levels.
Can agents still make money selling non-luxury cruises? At what point does selling mainstream and mid-market cruises stop being worth an agent’s time?
Robert Joselyn, president of TAMS, told Travel Market Report that a recent data review of TAMS member agencies showed that to be profitable, an agent needs to produce, on average, between $60 and $70 an hour in revenue.
Obviously, this number will vary from agency to agency. But for agents selling inexpensive cruises to couples or families, hitting this mark on commissions alone is next to impossible.
Case in point
Let's say an agent has sold a four-night cruise on Royal Caribbean’s Enchantment of the Seas to a family of four with two children. The price for a large ocean view stateroom for a Bahamas cruise departing May 5 is $1,145.12 for the four cruisers.
Taxes, fees and port expenses account for $296.12 of the fare, according to Royal Caribbean's online booking engine. In other words, nearly 26% of the fare is non-commissionable.
This drops the commissionable fare to $849. Let's further assume an agent is making a 12% commission: He or she will earn $101.88 on the booking, barring any future re-pricing. This amounts to $25.47 per cruiser.
If he or she spent five hours on the sale from start to finish, walking the client through various cruise and vacation options, booking the Royal Caribbean cruise and printing out documentation, he or she will have earned $20.38 per hour.
“Basically, the whole commissions structure has some faulty logic,” said Joselyn.
Not necessarily for the cruise companies though. “The lines look at their P&L [profit and loss statements] and see the cost of distribution going down as a percentage of revenue,” Joselyn said. That’s due in large part to NCFs, he said.
Meanwhile, agents are earning less money on the same sale.
In a Travel Market Report reader poll earlier this year, more than eight in 10 respondents said sales of mass market cruises became less profitable for them in 2013.
Fees, taxes & port charges
For many agents, NCFs are the bad boy in the cruise profitability equation.
Agent Bryan Harris of Operation Destinations Travel in Nashville was shocked to see the bite that non-commissionable taxes, fees and port charges took out of a Carnival cruise he sold last fall.
He booked five inside staterooms with an average total cost, including taxes and NCFs, of between $920 and $1100 per stateroom. His average commission per stateroom? $35 to $62.
“When I saw the commission on the invoice, I literally did a double and triple take,” said Harris, an independent contractor for A Way to Go Travel, a Signature member in Greensboro, N.C.
As cruise lines have lowered their pricing in order keep their ships filled, it has created a double whammy for agents. Obviously lower cruise fares mean smaller commissions.
“They’re going to say they’re still giving you 11% of the base fare of $600, but that fare used to be $850,” said Harris.
Lower fares also mean NCFs are a larger portion of the cruise fare. “NCFs are a fixed amount, so the percentage of commissionable cruise fare has shrunk,” said Alex Sharpe, president of Signature Travel Network.
NCFs are 29%
Data from World Travel Holdings for 2012 showed that NCFs represented 29% of the total cruise price for WTH’s retail cruise-selling outlets.
“It really is a reflection of where the average selling point is,” Brad Tolkin told Travel Market Report shortly after WTH released its 2012 data.
The impact on agent commissions can be dramatic. “It’s sad when you hear the horror story of a cruise agent having a commission of $4, because NCFs are high and fares are automatically re-priced lower by the lines,” Sharpe said.
Another factor affecting the profitability of cruise sales, especially for smaller and unaffiliated agencies, are changes to the cruise lines’ commission structures.
There’s been a solid trend for years of cruise lines adjusting compensation thresholds in ways that make it harder for agents to reach the sales goals that would qualify them for higher commission levels.
“Lines have shifted their thresholds, and mostly at the small agency level,” said Gary Davis, president of Acendas in Mission, Kan., a Vacation.com agency. “The cruise lines have to make money for their shareholders.”
Tougher thresholds was a complaint heard from many agents after Carnival Cruise Lines revised its commission structure in 2012, earning the wrath of many. “They’re breaking the kneecaps of the agencies that do the majority of their business,” one agent said at the time.
While it’s standard for suppliers to tweak their commission models over time, as agents earn less on each booking, the economics of the travel-selling business shift.
“What separates good agencies from the rest is the ability to figure out how to reach that threshold,” said Sharpe.
Agents who sell non-luxury cruises told Travel Market Report that low commissions have directly affected the kinds of vacations they market.
“Am I going to use my marketing avenues to push cruise over other types of vacations if I can’t make money on it?” asked Harris of Operation Destinations Travel.
Even former cruise agency exec Dwain Wall, now CLIA’s senior vice president of agent and trade relations, has said that the most profitable portion of a non-luxury cruise sale can be commissions on the non-cruise portions of a booking, such as travel insurance, pre- and post-cruise itineraries and custom shore excursions.
“When combined with a group booking, these types of vacations can be very profitable, even on a low-cost cruise,” Wall said.
Next time: What the cruise lines are saying.