Cruise Lines Fight Agent Discounts 3

| Tuesday, 16 Oct. 2012

Some agents play fast and loose with cruise pricing policy

There is a little secret in cruise buying that doesn't get a lot of attention - but the cruise lines see it as a very serious problem. It is certain cruise agents exploiting any loophole possible to offer discounts to customers in order to sell more cruises. This practice is generally called "rebating."

All of the cruise lines attempted to enforce flat pricing policies years ago to end "rebating" once and for all - but some cruise agencies continued to find ways to rebate despite the cruise line policies and the protestations of their cruise agency colleagues.

The many ways that cruise "rebating" can happen are pretty complex, but here is a simplified version; If a cruise is selling for $1000 and the agent expects a 15% commission their effective wholesale cost is actually $850. Some agencies choose to undercut the competition by setting a price for that cruise somewhere in the middle - say at $925. They then take a payment from the customer and pay the cruise line themselves, using some out of pocket money to supplement the cost of the cruise and deferring their profit until they receive their commission checks (after the cruise sails). Although the cash-flow factor seems to be a deterrent, the ongoing exchange of funds between agency and cruise line makes it manageable - once they get started.

Have you experienced any cruise pricing confusion? Tell us here: Cruise Forum

This practice was especially tough on smaller cruise agencies for these reasons:

  1. The lower profits are compensated by "making it up on volume" as the saying goes. In fact, the cruise lines actually encouraged rebating by paying higher commissions to higher volume sellers. Top sellers generally received as much as 15% commission - but the commission percentage goes down as the volume goes down.
  2. Top sellers also make more profit in the form of "overrides" - the term for a "free cabin" for every 10 to 15 cabins sold on a given cruise. This practice started as a free stateroom for the "tour conductor" for a group booking. But cruise agencies soon realized they could place individual bookings into a "group" and collect the comparative value of the "tour conductor" cabin in the form of a check.
  3. The more a cruise agency discounts the more they can sell, making it easier to rebate more and more and make up the difference on increased volume.

Back in 2010 several cruise lines tried to nip rebating in the bud. They implemented a "flat pricing" policy where no agency was allowed to advertise a price lower that the one set by the cruise line. The cruise lines also forbade the practice of giving any incentives with a specific cash value from the cruise line to cruise buyers, such as pre-paid onboard credit, free transfers or spa treatments.

But the cruise lines didn't stop agents from offering lower prices in private as long as they didn't advertise the lower price. It didn't take long for cruise buyers to figure this out and learn to call cruise agencies to ask if a lower price was possible. Furthermore, the cruise lines couldn't stop the agencies from offering incentives to buyers that didn't come from the cruise line, such as third party cruise insurance.

Two years later, despite industry-wide attempt to stop them, some cruise agencies have essentially "gone rogue" and continue to offer incentives (rebates) to cruise buyers -- despite the protests of cruise lines and competing agencies.

The Latest Developments

Today, (10-15-12) Royal Caribbean implemented a flat base commission to U.K.-based travel agents of 10%. According to industry magazine "Travel Weekly" it is "hoped the dual move will bring more price clarity into the market and combat commission rebating which Royal Caribbean says is confusing customers and frustrating the trade."

But Royal Caribbean has not yet sorted out its "override" policy, saying they will tailor it to the individual cruise sellers based upon their sales model. Some sellers are merely call-centers (such as Travelocity) while others are "cruise repackagers" such as large branded cruise agency franchises where the sellers use a common name to buy in volume and receive a higher commission percentage.

Another cruise line, Silversea, came out this week and said it will not allow any agency to advertise a lower price than what appears on the cruise line's web site. They also set a limit on the value of other incentives at 5% of the total cost of the cruise.

Oceania and Regent implemented a similar policy not long ago that says:

  1. no advertising of lower prices
  2. all payments must be paid in full on time
  3. the total value of added incentives may not be more than 5% of the cruise fare
  4. any transferred cruise will be paid a flat 10% commission
  5. if that transfer is less than 30 days pre-cruise, the 10% commission will go to the original agency
  6. the cruise lines reserves the right to change or deny commissions for any reason

What All of This Means to You

While you may be wondering why you should care - in fact all of this matters a great deal.

One of the biggest problems created by all of this is confusion in minds of buyers trying to compare prices between different agents and cruise lines. This has been a pet peeve of my own for a long time - that once you add in all of the various incentives you are no longer comparing apples to apples.

Cruise pricing has become the opposite of "transparent" and easy to understand. These days it is common to advertise a fare as "two for one" although you are still paying the advertised price per person. "Free airfare" can still come with supplemental charges and your "free upgrade" will be awarded without any indication of your original stateroom assignment.

Bottom line - it is up to the buyer to understand what they are getting for what they are paying. I suggest that you simply ignore any mentions of "two for one" pricing or "free upgrades." The only thing that should matter to you is "what am I paying and what am I getting?" Do not let an agent quote you a price and then tell you "but you are getting two for one pricing and a free upgrade." Those things are already factored into the price - they are NOT coming later.

Have you experienced any cruise pricing confusion? Tell us here: Cruise Forum

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