You spend a week with a client going back and forth over a family cruise booking. The client wants to change dates and cabin categories, wants you to check and double check prices on other lines. Finally, you get them to settle on a cruise, and you get ready to make the booking. Then you get an e-mail from the client saying they’ve decided to go with another agency that is offering the exact same cruise for $300 less.

While that scenario may not exactly duplicate any of your own experiences, most agents have at some point lost a booking to another agency that used its commission to compete on price.

It’s a practice two industry insiders described as “bastardizing” the industry.

Not everyone agrees. The practice is rarely discussed in open forums, and it is surrounded with more questions than answers. How do you define rebating? What, exactly, does rebating include? Where do onboard credits and promotional gift items fit into the discussion? Why do some cruise lines allow rebating while others don’t? Is it okay to give clients a “discount” on a cruise if the agency doesn’t advertise it? And how is the entire rebating issue affecting the travel agency profession?

Travel Market Report provides an overview of some of the key issues involved in cruise product rebating in the first of a four-part series.

Definitions: Rebating, discounting and short paying
In the strictest sense of the word, rebating is the practice of paying a client out of the travel agent’s commission payment on the product the client has purchased.

While it’s not completely unheard of for a client to get a check from their agent after returning from a cruise, rebating more typically takes the form of discounting on price, and the two words have become virtually synonymous.

In discounting, a travel agency charges a client less than the published price of a cruise. There are two approaches. The agency can “short pay” the full amount of the cruise upfront and take a cut in commission from the cruise line (if allowed by cruise line policy). Or, based on the full published price of the cruise, the agency can use their commission to actually pay for part of their client’s cruise.

Editor’s note: Some travel sellers said discounting involves more than price and includes gift cards, onboard credits, and promotional freebies. The issue will be explored in a future article in this series.

What’s in a name?
Are rebating and discounting the same thing?

Jim Smith

“It’s six of one, half a dozen of the other,” said Jim Smith, CTIE, principal at Market Share Inc. and Brand Congruency. Smith, who began his career in the travel industry as a front-line agent, and is the former director of marketing for the Cruise Line International Association (CLIA).

It doesn’t matter if a travel seller is offering money off the cruise price up front (discount) or giving money back after the cruise (rebate). In Smith’s opinion, as long as the final purchase price has been reduced because an agent gave up part of a commission, it’s all the same thing.

Chris Russo

Chris Russo, president and chair of ASTA, agrees. “I would define rebating as taking a commission earned and using it to lower the cost to your client,” he told Travel Market Report.

Impact on agents
On the micro level, small to mid-sized agencies are the hardest hit by rebating and discounting. They generally can’t afford to give up any part of a commission to land a client and could lose prospects and even repeat clients to competing agencies that will rebate to land a sale.

“We all come up against it at some point or another,” said Michelle Fee, president and CEO of Cruise Planners / American Express.

Michelle Fee

The profession can’t afford to have smaller agencies pushed out of business by big discounters, she said. “We’re one of the big guys, but we know you have to have a healthy distribution system. It can’t just be a couple of us out there fighting each other.”

Industry-wide repercussions
The entire industry, including small and large agencies and cruise suppliers, is affected by rebating.

“Rebating does two disservices,” Smith told Travel Market Report. “One is to the vendor distribution system because it denigrates brand value. The other disservice is to the professional travel agency community, because all rebating does is besmirch perceptions and the reputation of knowledge-based agent professionals.”

Brad Anderson

Rebating is a lose-lose proposition, agreed Brad Anderson, co-president of Avoya Travel / American Express. “It’s in all of our best interests that we sell based on the value we create for the customer and to the supplier, not based on giving things back out of commission.”

Remember airline commissions?
Rebating practices, should they become widespread in the U.S. or elsewhere, could force cruise lines to cut or eliminate commissions.

“If you really go back through the history of travel, what has put us in some of the positions we are in as an industry are some of these practices that we have done to ourselves,” said ASTA’s Russo, referring to the disappearance of airline commissions.

“When airlines saw that they were paying commissions and that the agent was giving half of the commission back to the client, why not question why they should pay a commission?”

Dwain Wall

That scenario recently played out in the U.K., when one cruise line cut agency commissions to 5%, said Dwain Wall, senior vice president and general manager of Cruise One and Cruises Inc.

“What happened in the U.K. is that agents were discounting at such a great rate that the cruise line found it was competing with its own product,” Wall said. “Consumers were calling the cruise line and saying, ‘I got this rate from XYZ agency, can you match it? At a certain point the cruise line took action to protect its consumer pricing.” (See related story, Carnival's U.K. Commission Cuts: Headed This Way?, March 3, 2011.)

This is the first in a four-part enterprise series on cruise rebating policy and practices. Next week Travel Market Report charts individual cruise line policy on rebating, including which lines allow travel agents to advertise discounts, offer unlimited value adds, or short pay the full price of the cruise.