Carnival Commission Change ‘Hits Hard,’ Agents Say

Mid-size cruise-selling agencies will take the biggest hit under a new commission structure announced by Carnival Cruise Lines last week – and many travel agents are not happy about it.

“I’m fuming. It’s going to hit me really hard,” said Emily Katsotis of Sailaway Cruises & Tours in Cooper City, Fla.

“It definitely affects us for the bad,” said Sherrie Funk, president of Just Cruisin’ Plus in Brentwood, Tenn.

“They’ve really lifted your sales goal,” said Cindy Clifford, co-owner of Gotta Go Cruises in Riverhead, N.Y.

First in 10 years
In the first change to its commission tier program since 2003, Carnival set new sales thresholds for agents and revised its volume-based formula for calculating agent commission levels. The revised tiers take effect on new bookings starting Jan. 1, 2013, and will be based on agents’ 2012 sales.

In the new plan, agent volume will be measured by net cabin sales, rather than using the previous “seven-day equivalent” formula, which was based on number of guests booked and cruise length. The revised commission tiers range from: 50 cabins for 11% commission up to 1,000 cabins for 16%. (See “Carnival Revises Commission Tiers & Terms,” Sept. 20, 2012.)

In announcing the new program, Carnival said the “majority of travel agents” will see no change in their commission levels.

But that was of little comfort to those agents who will suffer a loss of revenue.

‘Heavily affected’
Among them is Katsotis, who last year booked “upwards of 250 guests” on Carnival and has been in the 15% tier for the past several years. To stay at that level in 2013, she would have to book 400 cabins under the new formula.

Instead, her commissions will drop to 12% – even though her Carnival sales revenue is up 30% so far this year. “I’m losing between 20% and 25% of my commission.”

A loss of 2 to 3 points
Funk had a similar tale. Just Cruisin’ Plus currently earns 16% on its Carnival sales, but that figure will drop by “at least two, maybe three points,” she said.

The new commission structure “has doubled what we have to do. For us to maintain 16%, we had to have 1,000 passengers. Now we have to sell 1,000 cabins.”

Nor is Funk eager to sell more three-and four-day cruises to drive up her cabin numbers. “We can’t make money on those.” Just Cruisin’ Plus was named Carnival’s “agency of the year in 1990, ” and the line used to be its top supplier, Funk said, but “they’re not now.”

After Clifford of Gotta Go Cruises did the calculations, she concluded, “They’re breaking the kneecaps of the agencies that do the majority of their business.”

Gotta Go Cruises, a Vacation.com member, currently derives about 20% of its overall sales volume from Carnival bookings.

Carnival’s response
In an email to Travel Market Report, Carnival sales executive Lynn Torrent acknowledged that “some agents” are affected by the commission changes.

“Our sales team is committed to working with agents small, medium and large on growing their business and increasing their commissions,” said Torrent, executive vice president of sales and guest services.

Torrent reiterated Carnival’s support for “travel agents of every size.” She cited the line’s investments in agent tools and training as well as its sales team and its marketing efforts, especially those designed to grow the first-time cruise market in the U.S.

Mid-size agencies suffer
But agents noted that neither the smallest agencies nor the biggest are likely to see any changes in commission levels under Carnival’s new structure.

“The big OTAs and the larger agencies that aren’t OTAs, the $25 million to $60 million agencies – it isn’t going to affect them one way or the other, because they’re going to do 1,000 cabins and maintain their commission level,” Funk said.

“We also don’t see it affecting really tiny agencies who book very few cruises, because they’re going to be at the 10% level.

“It’s just the middle agency, the $2 million to $12 million to $15 million agency that’s going to suffer. This middle tier is really going to get hurt,” said Funk.

Katsotis agreed. “It makes a difference to people in the 14% to 15% range like me,” she said.

Shift to direct & the megas
While some agents saw the Carnival move as one more sign that the line is intent on cutting agents out of the picture and selling direct to consumers, one longtime cruise insider suggested that the change is designed to benefit big online sellers.

Carnival’s biggest producers had been pushing the line to shift to a more straightforward commission formula, he said, speaking off the record.

“People who have a lot of volume will shift a lot of volume to Carnival. They wanted to make a bold movement so they could capture more market.”

Positive change
Jason Coleman, CTC, ECCS, is another agent who expects his Carnival commission levels to drop. “I’m projected to end the year at 243 cabins. That will drop me from 15% to 13%, which is significant,” he told Travel Market Report.

Even so, Coleman saw Carnival’s move in a favorable light. “I think this is a very positive change overall,” he wrote in a posting on Travel Market Report.

The new formula will be “much easier to track. As for adjusting the commission tiers to fleet size, it’s long overdue,” wrote Coleman, who is president of Jason Coleman Inc., an Ensemble agency in Los Angeles.

Maximizing profits
“I have to look at it from two perspectives – one as an agent, the other as a shareholder,” Coleman said by phone. “This is a business. They have to do everything they can to maximize profits for the shareholders. So I see it from their perspective.”

Coleman said he doesn’t expect cruise lines to rely exclusively on travel agents for their sales. “They’re public companies. They have to recognize that there are multiple channels.”

Timing hurts
Coleman also accepted Carnival’s explanation that it needed to adjust its commission tiers to reflect its 50% growth in capacity. Other agents also noted that it is standard for cruise lines to revise their commission tiers when they add capacity.

But it would have been easier on agents if Carnival had made the changes incrementally, Coleman said. “I would like to see their making smaller changes every couple years, rather than making these big dramatic changes.”

Also, he said, “the timing of the change, in how it’s calculated and the tiers at the same time – right on the edge of the fourth quarter where there’s not a whole lot we can do – all those things are a little bit of a sting,” Coleman said.