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| Brad Tolkin gives his industry outlook for agents and agency owners at the annual CruiseOne and Cruises Inc. conference onboard Norwegian Escape. // Photo by Susan J. Young |
In 2015, the industry has witnessed a “sea change,” according to Brad Tolkin, co-chairman and co-CEO, World Travel Holdings (WTH), who adddressed approximately 800 CruiseOne and Cruises Inc. agents, agency owners and vendors at the the two groups' annual conference on Norwegian Escape late last week.
"Simply put, ‘sea change’ means a profound transformation,” Tolkin explained. Originally referenced in William Shakespeare’s play, "The Tempest," that “sea change” depicted a form of human migration with people abandoning city living for the perceived easier life in rural coastal communities.
A Sea Change
Tolkin said that the cruise industry's sea change meant “cruise lines have stopped discounting the price to fill every last cabin." But he also stressed that it didn't happen with cruise line executives sitting around in their boardrooms and saying they were going to raise prices.
Most importantly, “in 2015, we basically had what I will call ‘deployment Nirvana’ – basically supply and demand around the world were matched," Tolkin said. So there wasn't over-supply in any one market and lines had the ability to raise prices, but "without that they couldn’t have done it.”
The lines also adopted a “market to fill” philosophy, according to Tolkin. "They were going to put more promotions, more ingredients, more value into the price as they increased the price,” he stressed. "The result for us is that we are making money because there is a higher price."
That said, one plus for agents is that the cruise lines have complicated the booking process with complex value-adds. Tolkin gave the example of Chinese restaurants of the past at which consumers could order one choice from Column A and two from Column B, or vice versa, he said: “Well, the cruise lines took it to a whole new level – and now there’s three columns, four columns, five columns."
Citing Royal Caribbean International’s new Suite Class, Tolkin noted there are now different types of promotions just within the line's suite category. “But this is to our benefit because we have some of the best travel consultants and the consumer needs a travel consultant to navigate through all of these offers," he said.
In addition, inventory is still out there, but as the lines have opted to not cut pricing, it's at a higher price. “If you want to book a Christmas sailing you can get cabins, but what we’re not finding is that massive discounting to fill every last cabin,” Tolkin told the audience.
The major publicly owned cruise companies "are willing to take a slight hit to their load factors in order to maintain price integrity and this is a good thing,” he stressed.
Tolkin revealed that WTH – across all brands – has seen a significant reduction in the complaint that cruisers in past years have often voiced – that they sailed and learned the passengers in the cabin next to them paid 50 percent less and booked the previous week.
Citing Carnival Corporation's 2015 Super Bowl advertising and Royal Caribbean International's new “Come Seek” branding campaign, “the cruise lines are confident in the industry, they’re confident in their product and they’re willing to spend more money on consumer advertising,” Tolkin said.
Lengthening Booking Window
As a result of the "sea change" factors outlined above, the booking window – the time between when the agent makes the sale and when the cruise departs -- is lengthening once again, Tolkin told the agency audience.
In the first quarter of 2014, 40 percent of the bookings CruiseOne and Cruises Inc. agents booked departed within 90 days. But this year, those close-in bookings dropped 15 percent in the first quarter, 18 percent in the second quarter and 20 percent in the third quarter. And, for an early look at the fourth quarter, those 90-days-or-less bookings are trending down 20 percent.
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| More than 46 percent of CruiseOne and Cruises Inc.'s Alaska bookings for this year were within 90 days of sailing. // Photo by Susan J. Young |
The booking window is expanding, there is less last minute business out there, because, frankly, some of it is a result of sticker shock,” says Tolkin. But that said, he urged agents not to abandon the last-minute bookers.
"It’s still a huge market," he said. "Even though it’s dropped significantly, do not abandon it."
This year, 21 percent of European bookings for CruiseOne and Cruises Inc. were taken within 90 days of departure and 30 percent of Caribbean bookings were within that time frame. Most shockingly, though, 46 percent of Alaska bookings were also taken within 90 days of departure.
Still, the booking window overall is lengthening. “Our average booking window has jumped by 15 percent, to 200 days," Tolkin said.
The NCF Situation
A hot button for many agents is NCFs or noncommissionable fares. For the first time in five years, Tolkin said the selling price of a cruise is rising more than NCFs are for Carnival Cruise Lines, Celebrity Cruises, Holland America Line, Norwegian Cruise Line, Princess Cruises and Royal Caribbean International.
"The good news is that we're making more money because this is 6.7 percent better than last year," he stressed. But "we won't stop," he said in terms of pressuring lines to keep reducing NCFs as a percentage of the selling price.
He said the competition for the cruise industry isn't between individual cruise lines. Rather, "it's about resort vacations."
Selling land is a topic near and dear to the hearts of many CruiseOne agents, who lobbied for more "land sales" over the past few years. To assist those with a more diverse business model, CruiseOne developed a new brand, Dream Vacations, which some of the CruiseOne agencies will choose to switch to in spring 2016.
At the end of last week, more than 150 CruiseOne franchise agencies attending the conference had decided to switch to that new branding.
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| Brad Tolkin discussing "Sea Change." // Photo by Susan J. Young |
Competition From Resort Vacations
Tolkins talked to the trade audience about cruise-versus-land competition. “You sell millions of dollars of Sandals," he said. "I’ve seen your numbers. Sandals is a fabulous property. Sandals gives you 15 percent." He said a $3,000 booking at Sandals is a very simple invoice, "a beautiful invoice."
Tolkin said he looked at a lot of them last week and noted that each represented a $450 commission. But for that same $3,000 booking for one of the big six cruise lines in North America -- when NCFs are deducted out -- the agency receives a 22.9 percent to 37 percent reduction in commission.
What needs to happen for improved cruise sales for the lines and more commission for agencies? Keeping the "deployment Nirvana" up this year is critical as "the only way we’re going to keep cruise pricing up, the only way we’re going to be able to increase cruise pricing is by increasing demand," said Tolkin.
He said the lines need to keep commissionable fares up, avoid more NCFs and use travel agencies to overcome misperceptions from potential first timers.
The lines should tap into the army of over 100,000 travel consultants out there pushing cruise. "That’s the guaranteed way to increase demand," he said.
Potential in Europe
He also urged agents to sell more Europe. “If you want to make more money in the cruise industry – the simplest way is you’ve got to sell more Europe. The cruise lines want North American passengers on European ships." North American passengers book earlier and therefore the price is higher. They also spend more onboard.
"Our share of the cruise market in the Caribbean is substantial," he said. "Our share of North American passengers traveling to Europe is less and we have a lot of running room."
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| European deployment is on the rise. // Photo by Susan J. Young |
He said looking at industry numbers and European deployment, "it's not at the Caribbean levels but it’s getting dangerously close. And one day the deployment in Europe will surpass the amount of investory in the Caribbean."
He also urged the agents and franchise agency owners to "do the little things right and make it magical for our customers."
Bullish on 2016 and Beyond
The cost of oil is down, people feel better, cruise prices are up and the cruise industry's headwinds are now in agencies' rear view mirrors, not front and center as they were with what he called a tragic event in 2012 [a reference to Costa Concordia] and a "made-for-CNN event in 2013" [the Carnival Triumph propulsion situation].
The good news, he said as that "no one talks about either anymore."
"New ship orders are bonkers again, and I just heard Viking announced announced another two oceangoing ships," relayed Tolkin, believing that it's not coincidence that Viking doesn't have NCFs and, thus, have been so successful. "I think there's something behind that."
He said Viking enjoyed great success from river side with strong trade support for a no NCF policy and “they were bold enough to go into ocean cruising and they did not change their ways." Tolkin thinks some major ocean line will step out of the box on NCFs, and if it happens, it likely won't be a competitive advantage for that line as others will likely follow. "But it will get that army of travel consultants behind the industry.
He also stresses that the cruise lines have complicated the booking process, leading to a 13 percent drop in WTH's online business. I think it’s a really good thing," Tolkin said, noting "the consumer needs a travel agent," someone they can rely on and talk to about all the options. "If we go back to where there’s an oversupply in a market and pricing takes over, then online bookings will increase."
Another positive factor? Virgin Cruises is coming, and Tolkin said most cruise executives see that as a positive -- building cruise interest in a new way.
China sourcing is also great for the cruise industry, he emphasized: If the cruise industry can succeed in this market it will help that deployment Nirvana situation – the balance of supply and demand – which I think was the foundational reason why we were able to increase pricing this year. If China is successful it will result in a ton of new ships.
He guaranteed that North American [agencies who sell to North American consumers] will get their share of the new products. He tried to ease agent fears that the newest ships will all sail for China. The biggest challenge for the lines, he said, is that there just aren’t enough shipyards to build all the new cruise ships needed.
Cuba too is important, he mentioned, noting that a lack of infrastructure is a positive for cruise ships that will move in during the next few years. As the market begins to develop, "we will be able to raise prices as everyone is going to want to go there," Tolkin stressed. "China and Cuba will be great for the cruise industry. Don't be distracted [seeing it as a negative] by ships going there."
Keep up the great work, he told the CruiseOne and Cruises Inc. agents. "Failure is never fatal. It's courage that counts." He said WTH is emboldened by the agents' success and it's own success and "we believe the best is yet to come."