When Frank Del Rio, chairman and CEO of Prestige Cruise Holdings, announced a new and tougher anti-rebating policy at the launch of the new Oceania Riviera last month, the agent crowd went wild with applause. Except for about four sullen people in the room.
That, said Scott Koepf, vice president of Avoya Travel/American Express, is a fitting analogy for rebating: It may boost profits for a few companies, but it hurts everyone else in the distribution system.
Loosely defined, rebating is giving a client a discount by paying back some of a travel agent's commission – either as an upfront discount or after the cruise.
Like the other agents who stood and cheered, Koepf said he is "100% supportive" of efforts to stop rebating.
Princess Cruises adds policy
Most of the major cruise lines, though not necessarily the smaller ones, have anti-rebating policies in place – each a little different and with varying degrees of enforcement.
Princess Cruises had been a notable holdout among the big lines. But in January Princess put a new policy in place that "requests" that agents advertise only the line's approved rates. The cruise line said that consumer feedback showed they found price differences confusing.
Lines getting agents’ message
Agents have vocally called for more restrictions by more lines and there are signs the message is getting through.
"The cruise lines don't want a bunch of different prices advertised by a few big rebaters any more than agents do," Koepf said.
In addition to Prestige, parent company of Regent Seven Seas Cruises and Oceania, Paul Gauguin Cruises also announced a new policy on rebating, effective June 1, which bans agencies from advertising a lower price than the published rate.
Prestige gets tougher on rebating
Kunal S. Kamlani, president of Prestige, told Travel Market Report that the company's new policy is "far more protective" of travel agents than its previous rebating policy.
The change, he said, came after "lengthy discussion" with agency leaders who called for a harder line.
"Clearly, the agency community is looking for more leadership from suppliers to preserve pricing integrity," Kamlani said.
The new policy bans advertising or promotions of products at a price lower than published rates, including by websites with restricted/members-only access. The policy also requires final payments in the gross amount due and puts a limit on the value-added amenities that can be advertised (they can't exceed 5% of the cruise fare advertised).
Changes on transferred bookings
The most protective aspect of the new policy is a change on how commissions are paid on transferred bookings, according to Kamlani.
Under the new Regent/Oceania policy, if a reservation is transferred to another agency (or cancelled and rebooked) more than 30 days after booking or any time in the final payment window, the 10% commission is paid to the originating agency – and the receiving agency gets nothing.
The legs of the new policy: "The cruise line reserves the right to reduce commissions and/or marketing funds, cancel or deny group contracts or take any other actions it deems appropriate if a travel agency violates this policy."
Sends a message
"For us as agents it's good news," Vicky Garcia, executive vice president, sales & marketing, for Cruise Planners - American Express Travel, said of the new Prestige policy. "It is taking a new approach, which is interesting."
She said allowing 5% of gross for value-added is a fair number – allowing agents to do something special, for instance, for repeat clients who have booked a suite. Most lines leave the window at 10%, which Garcia said is too big, equating to rebating in another form. (In the view of some agents, value-adds in any amount constitute discounting and should not be allowed.)
"Prestige is sending a big message and that's important. And if someone else will follow and make their policy stricter, that's great too," Garcia said.
"It will make a level playing field," she added. "Let's sell the customer with products and service and not just based on price."
Rebating confuses consumers
Avoya Travel's Koepf said he sees cruise lines in general as being increasingly serious in their efforts to end the practice of rebating and that's a good thing for both agencies and the lines themselves.
"What eventually happens (with rebating) is you have a confused consumer and a confused consumer becomes a hesitant consumer," he said.
The best argument agents can make against rebating, he added, is that hesitant consumer.
"The consumer ends up unhappy, that's the argument," he said. "All the consumer knows is I have no idea what to pay for this product."
Apple’s pricing model
The best pricing model for the industry, he added, would be something like Apple, which prices its computers and other products the same whether they are sold at an Apple store, a retailer like Best Buy or online. The company has a loyal customer base.
"Have the right people selling the right experience to consumers," Koepf said.
Another argument against rebating – and one reason cruise lines may be taking a new look at rebating – is it's becoming clear that rebaters simply move market share from service-oriented agencies and are not necessarily bringing in new business, Koepf added.
For more on cruise rebating, see Travel Market Report’s comprehensive series on the topic:
Rebating on Cruise Sales: Where Do You Stand?
Are Value-Adds Discounting? Agents Can't Agree
Cruise Line Rebating Policies: The Great Divide
Cruise Line Rebating Policies: A User's Guide and Chart (Updated, June 2012)