The last big failure in cruise retail sent shock waves through the industry. It was the memory of this, in part, that prompted Carnival UK to cut commission to 5% last week.
The collapse of Cruise Control in 2005 left a number of cruise lines with some pretty ugly holes in their accounts. And it made the cruise industry nervous of the power that a single large-volume agent could build up.
For its part, Cruise Control, through its somewhat flamboyant owner Paul Moore, always insisted it did not discount and made a decent margin on its cruise sales.
But following its collapse it emerged the company had only recently installed a finance director. This led cruise operator bosses to question how Moore knew what it was making.
By the time of its collapse Cruise Control said it was making £1.3 million on a turnover of £93 million, although it claimed to be making as much as 14% to 16% commission.
The Essex-based firm grew rapidly in its seven years and almost doubled its turnover in the 12 months prior to its failure.
It was this rapid expansion that was probably its downfall. The company, hooked on volume, committed to costly national advertising campaigns.
Ever since, the industry has feared a repeat of the Cruise Control collapse, and it is against this backdrop that Carnival UK devised its new payment structure.
Its ‘suite of changes’, encompassing commission cuts and overrides, are, aptly, all about control – about limiting agents’ scope to discount.
The problem has always been that in a discounting market the volume players accept skinnier margins to compete for business. They do so knowing an operator will pay them handsome override payments based on the volume of sales.
This, says David Dingle, chief executive of Carnival UK, will no longer be the case.
Speaking first to Travel Weekly, in an exclusive video interview for the latest in our TWnewsmaker interview series, Dingle set out the business case.
“The hidden benefit, I hope, is that in recreating pricing stability it puts total yield management back in our hands and that means less should be given away unnecessarily in discounts,” he said.
“We gain full control of our pricing and with that we can yield-manage to our benefit without some of our pricing being used to fund travel agents’ own competitive battles.”
Control is something he also believes the new deal will give to agent bosses, whose own yields will no longer be determined by what staff are cajoled into giving away by bargain hunters.
“If we give agents more certainty and more stability, and they realise they are not going to have to give away so much commission, that’s going to bring more financial stability,” he added.
“The last thing we want is to see travel agents giving away so much commission to compete that they threaten their own survival, because if they fail that could be costly to us.
“We are doing ourselves and the travel agency community a service if we work towards reducing the risk of that.”
Watch David Dingle defend the cuts on travelweekly.co.uk/newsmaker