Why Carnival and Costco Kissed Goodbye
by Dori SaltzmanAbout a year ago, two dominant players in their respective industries decided to part ways.
Carnival Cruise Lines says it never intended to chase away Costco Travel, which at that time was one of its top selling retail partners. But when the cruise line introduced a bold new rebating and discounting policy in 2010, that’s exactly what happened.
The premise of Carnival’s new policy – no rebating or discounting of any kind – wasn’t particularly new in the cruise industry. Other brands already had similar policies in place, and they are still partnered with Costco to this day.
What made Carnival’s rebating policy different – and ultimately led to the dissolution of the Carnival-Costco partnership – was that it also prohibited travel sellers from offering everyday discounts and value-adds to closed membership lists, something other cruise rebating policies allow.
No exceptions
Whether Carnival initially believed Costco would simply acquiesce to the line’s new rules and change its business practices is unclear. But one thing the cruise line was clear about from the launch of its new policy was that it would make no exceptions, even for its best sellers.
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“The parting of the ways of our relationship [with Costco] was one of the unintended consequences of our launching our new rebating policy,” Joni Rein, vice president of worldwide sales, told Travel Market Report. “We had a very long, happy and productive relationship with Costco.”
Rein would not disclose how many passengers Costco booked on Carnival in a typical year except to say it was “a significant number.”
“The vast majority of our customers are the Costco demographic,” she added.
Losing Costco’s business was not something Carnival took lightly. “We spent months with Costco, trying to find a way. We turned every which way but loose.”
Irreconcilable principles
Rein said the guiding business principles of each company were at odds and ultimately made any continued agreement impossible, as neither side was willing to compromise.
“Costco needed to have a 365-day-a-year member benefit and needed to be able to promote it on their website, and Carnival could not in good faith make an offer to Costco and not to anyone else. That would have been considered a different price point at the end of the day. So it was with real sadness and regret that we had to part ways,” Rein said.
Costco Travel executives declined to be interviewed for this story.
We mean it
Rein said Carnival’s willingness to walk away from such a high-producing partner speaks volumes about how serious the line is about its rebating policy and about keeping the playing field level for all travel agencies regardless of their size.
“It’s one more way we can prove our commitment,” Rein said. “If we’re really going to put teeth into this and not talk out of both sides of our mouths, we had to walk away from a lovely partnership. There was no other way.
“We absolutely believe that you need to have a level playing field across the board to allow the market to strengthen and give our travel partners the opportunity to sell on skill,” she added.
Rein said although it was a difficult decision for Carnival to walk away, the line has not experienced any long-term negative impact from the loss of Costco Travel’s business.
“The passenger production that was lost when we ended our relationship with Costco was immediately absorbed by the balance of our trade distribution,” she told Travel Market Report.
Other travel selling entities, in particular Avoya Travel and Vacations to Go, immediately began selling more Carnival cruises, according to Rein – and at a higher price point because they no longer needed to discount to compete with Costco.
“We got strong support from the balance of the trade,” she said. “It was immediate, which was a pleasant surprise.”
