The move by Complete Cruise Solution to cut basic commission to 5% from this weekend’s launch of market leader P&O Cruises, and for sister brand Cunard and Princess Cruises, has sought to change the rules of the game.
Let’s take CCS at their word and accept that the motive behind this is to take back control of its pricing, rather than simply cut back what is a significant cost of doing business in the UK, and that it remains committed to agent distribution.
Let’s also accept that volume bonus payments agreed with partners over the last two months or so have been structured so that those agents can’t just continue their discounting strategies knowing a deferred payment will be winging its way from Carnival UK HQ once undercutting retail rivals has produced the desired effect.
If all that’s an accurate reading then this weekend’s programme launch should see agents competing on a much more level playing field. There will be some who scrap credit card charges or discount one, two or even three per cent of their five per cent, but what future have those working that high risk model got?
There’s been a lot said since Travel Weekly first broke the story about CCS’s commission cut. And I’m told much of what has been said in public is at variance with what has been said behind closed doors as vested interests jockey for position.
For instance, a major travel agency consortium that announced it was advising members to switch-sell away from CCS and strengthening ties with rivals has accepted an offer for its agents to take part in a CCS webinar in two weeks.
And hints of a switch-sell threat from a major high street retailer which just happens to have a significant cruise operation of its own – second only in terms of volume in the UK to P&O Cruises – have reportedly not been reflected in negotiations.
Then there was the large volume cruise retailer who cleared out an entire floor of employees from expensive offices near Paddington to relocate them back to its more-cost effective home town. A quick and decisive reaction to CCS’s move, or a convenient cover story for something that was going to happen anyway?
Away from the public gaze, agents up and down the country are working out whether they can survive in this new world. Five percent, I’m reliably informed, simply isn’t enough to run a profitable cruise retail business on, but that was playing by the old rules, under which agents had to spend oodles to get their price message heard above the deafening noise of discounts in the national press and online.
You have to feel for those good agents who have struggled against the discounters to sell cruise at a decent margin. The line that five per cent might be better than eight, 10 or 12 per cent if price parity allows them to better compete and to significantly grow their volumes in a tough economic climate is a difficult sell.
Some agents unable to adapt could fail. Some will switch away, some will switch in, others will have to remodel their businesses – automate to reduce costs, be more savvy about what product they sell, take advantage of group deals and create bespoke packages.
So what about cruise operators? Asked what he thought of CCS’s move a seasoned industry veteran said the answer was simple.
In effect he pointed out that it costs CCS around a quarter of a billion pounds a year to distribute through travel agents in the UK, most of which is used to determine the end price, which is dependant on how much the agent is able to hang on to.
David Dingle’s bosses in the US “must think he’s crazy” operating like this, my observer said. Carnival Corp may want the Carnival UK managing director to rein back on his spending as rising fuel bills hit profits, and it will certainly want him to stop funding travel agents’ own battles, and maybe use the money in more strategic ways, not least to increase yields.
So far the response from rival cruise lines has been muted. One or two have restated their commitment to travel agents, including most recently Silversea Cruises who wrongly implied the CCS commission cuts applied to rival ultra-luxury Carnival UK line Seabourn.
You might have expected a more vigorous public response from some direct rivals, who apparently have much to gain from taking advantage of the anger directed at CCS.
Could it be other sets of cruise line bosses in the US, equally perplexed by the UK’s discount culture and running businesses in even greater need of improved yields, are keen to see the outcome of CCS’s move before issuing guidance to their UK offices?
The next few weeks and months will tell us if CCS has truly changed the rules of the game, or gambled with the goodwill of its biggest distribution channel and lost.