Revived Cruise Industry Is ‘Cozying Back Up’ to Agents

A resurgent cruise industry is “cozying back up” to traditional travel agents, looking to them as allies in its hunt for higher-revenue passengers, says Phocuswright’s new U.S. Online Travel Overview Report. “Cruise lines are playing nicer with agents, but it is unclear whether this is a meaningful long-term shift or just another fluctuation in a never-ending push-pull cycle.”

Travel agents’ share of U.S. cruise sales grew to 66% in 2015, up from 65% in 2014 and from 59% in 2013 (a 12% increase). “Traditional agents are benefiting from a closer embrace by cruise lines,” Phocuswright said.

The positive trajectory for agents’ cruise sales will continue this year and next, the report predicts. The annual report, published in January, examines trends in the online distribution of travel purchased by leisure and unmanaged business travelers. 

Agents are holding their own
Looking at the overall market for U.S. travel, Phocuswright reported more good news for agents. Travel agents and travel management companies are finally starting to hold their own against online channels, including OTA and supplier websites and apps.

After a long, steady incursion into the travel market by online channels, the rate of growth for online sales is slowing. With that, the downward slide of bookings via travel agents and travel management companies is “flattening out,” Phocuswright reported.

Together, agencies and TMCs accounted for 28% of bookings in 2014.

It’s true that online sales continue to grow faster than offline sales. But taken together, the offline channels of travel agents/TMCs and central reservations/walk-ins still “command” the majority (56%) of bookings and will continue to do so for “at least several years.”

The backdrop for these changes is a robust travel market. Total U.S. travel sales grew by 5% in 2014 and 2015. The pace of growth is expected to accelerate to 6% in 2016 and 2017, bringing total U.S. travel sales to $381 billion in 2017, according to Phocuswright.

In the past, the rate of growth for online sales had surpassed growth of the total market, but by next year online sales growth will slow, equaling that of the market overall, Phocuswright predicted.

Changing cruise dynamics
Changing cruise industry dynamics are an important factor in the renewed strength of the travel agency distribution channel, Phocuswright said.

After surviving several tough years, cruise industry revenues grew 3% in 2014, and the future looks even brighter. Phocuswright predicted that cruise fare revenues will grow by 8% in 2016 and by 6% in 2017, to $18.4 billion.

In this healthier sales environment, bolstered by smarter ship deployment and sales of inclusive packages, cruise lines are discounting less. Instead, they’re focusing on “attracting more spend from repeat cruisers,” Phocuswright observed.

In doing so, they’re selling more complex itineraries and pushing bundled packages, both of which lend themselves more readily to sales through offline channels, including travel agents, than through OTAs and supplier websites or apps. 

Advantage: agents
These dynamics have cruise lines “cozying back up to agents, paying higher commissions to win back their favor after agents began turning toward land-based products when cruises became a tough sell. For selling bigger-ticket trips to today’s repeat cruisers, traditional agents are the cruise lines’ best friends,” Phocuswright said.

In a marked shift from the “contentious” cruise-agent relations that characterized the recent cruise downturn, cruise lines last year began paying higher agent commissions, and they will continue to do so, Phocuswright predicted.

“Sales of bigger, more complex packages and price stabilization are playing into agents’ hands, and cruise lines are budgeting higher commissions going forward. For the first time in a long time, suppliers seem happy with that trend because of the valuable business agents are bringing in.”

Meaningful shift or cyclical?
Phocuswright found more evidence of cruise lines’ renewed affection for agents in changes to their noncommissionable fees or NCFs, which eat into agents’ commission earnings. While NCFs have been increasing for several years, “that trend is reversing,” it said.

The research firm said that cruise lines’ revised NCF tactics signaled “a fundamental change in how cruise lines view agents as distribution partners.” But Phocuswright stopped short of predicting a sustained shift in cruise line relations with traditional travel agents.

“Cruise lines are playing nicer with agents, but it is unclear whether this is a meaningful long-term shift or just another fluctuation in a never-ending push-pull cycle,” it said.

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