News Analysis: Will Carnival’s Commission Changes Impact Your Agency?
September 20, 2012
By: Susan Young
Citing a need to keep up with competitors' changes and a doubling of its own capacity, Carnival Cruise Lines said late Wednesday that, effective Jan. 1, 2013, it will adjust commission tiers for travel agents and change the methodology for calculating those.
For 2013, the line will continue to base its tiers on volume rather than revenue – thus protecting agent pay from fluctuating fares – and it will abandon a seven-night equivalent method and move to net cabins sold, a simpler standard.
More Sales Needed
A cursory look comparing the old and new methodology, though, shows agents will need to produce more to get the higher commission tiers. Base commission remains unchanged at 10 percent and is paid for even just one cabin sold.
Previously, if an agency sold a seven-night equivalent of 39 guests, slightly fewer than 20 cabins booked annually based on double occupancy, it could reach the 11 percent tier.With the new commission structure, in 2013, agents will need to sell 50 cabins to reach that 11 percent number.
To reach the top tier of 16 percent in 2013, this year an agency would need to have sold 600 guests sail an equivalent of seven nights, or essentially 300 cabins. With the new structure, for 2013, agents will need to sell 1,000 cabins to reach that 16 percent tier.
For some agents and trade groups, it's business as usual. Michelle Fee, CEO and co-founder, Cruise Planners, told TravelAgentCentral.com that all Cruise Planners agencies trade under the same name, so they’re considered one company. “All sales are combined, so as a company there are no changes in our commission structure,” Fee said.
“It does not affect Cruise Planners’ agents as we sell thousands of beds each year,” she noted, adding: “I believe this is for those smaller agencies who do not grow their business from year to year with the Carnival brand.”
From the perspective of Margie Jordan, CEO, Jordan Executive Travel, Jacksonville, FL: “Those working with a decent size host agency should be okay. But the individual agents trying to build their book of business with Carnival may find this a bit of challenge to meet these levels. My first responsibility is to my client, not to the supplier.”
Another agent who sells Carnival declined to comment, citing the need to "protect his relationship" with the line.
But Barry Liben, CEO, Travel Leaders Group was more blunt. "Any time a cruise line reduces commissions or makes it more difficult for our agents to sell their product, Travel Leaders Group is concerned," Liben said. "The distribution system, which remains uncontested in its ability to match the right cruise product with the right client, is already under increased pressure due to the economy and other factors beyond its control."
He continued: "Changing commission structures at this time only exacerbates the situation. As a result, Travel Leaders Group is very concerned about this news."
More Berths to Sell
, Carnival’s executive vice president of sales and guest services, told TravelAgentCentral.com
that all other major cruise brands have modified their commission tiers as they have increased capacity, but Carnival hasn’t made major changes in its tiers since 2003, despite a 50 percent capacity growth and the launch of nine new ships.
“As such, we found that our commission tiers were not aligned with the current marketplace,” Torrent told travel agents in a Q&A that's available on www.goccl.com
“So what that means is for an agency to continue earn whatever rate they’re at, anywhere between 10 percent to up to 15 or 16 percent, they essentially need to produce more as the supplier is adding capacity,” she told TravelAgentCentral.com. Cruise lines that add sizably more capacity need travel agents to grow with them, she said.
She also stressed that doubling of Carnival's berth capacity has been focused almost entirely in North America. That contrasts with other cruise brands that have grown sizably in international sourcing and operations.
As a result, Carnival pays more to U.S. travel agents than any other brand based on that sourcing. And agents have more berths to sell [realistically] on Carnival given the specific targeting and related marketplace promotions to North Americans.
Lines that serve North America and add capacity, but also target some of their ships for foreign-sourcing – say in Spain or China -- technically offer all cabins as part of their inventory. So, yes, U.S. agents can still sell within that inventory, but the chances of doing so are much less likely, as the product is designed for foreign guests.
Because the sourcing for Carnival is predominantly from North America, and as the line puts more capacity in the market, "it’s fair to adjust the [U.S.] tiers according, because we have more berths for you to sell and we need you to do more,” Torrent says.
Changes in Methodology
In addition to changing the tier levels, for 2013 Carnival will also abandon its current methodology of using “seven-day equivalents” and move to a simpler “net cabins sold” approach. That should help simplify tracking of sales for many agencies.
Torrent said the line will no longer break out short and long cruises and classify cruise bookings based on that methodology. Now all cabins sold, regardless of voyage length, will count for the same credit.
So agents won’t be penalized for only selling a three- or four-night cruise, which this year was considered half of the seven-night equivalent. But under the new system, they also won’t get more credit for longer cruises, either.
While the former methodology made sense, according to Torrent, she acknowledged that Carnival was essentially the only one in the business doing it and that it was complicated for agencies.
Torrent said agencies would look at their production numbers at the end of the week or month and say, “I sold X number of cabins or sold X number of guests, or X number of dollars, but none of them were reporting in seven-night equivalents." So, moving forward in 2013, Carnival wanted to simplify the methodology.
The line considered moving to a revenue-based structure, as some competitors have already done, but decided against that. "It's just a philosophical decision," Torrent said, noting that if pricing drops, agents shouldn't be penalized for that.
While there would be an upside to compensation if prices rise, Torrent said most agents tell her that from a business perspective they want to limit those "ups" and "downs," since pricing isn't something they can control.
Timing for Changes
The new commission structure goes into effect Jan. 1, 2013. The 2013 commission tiers will be based on each agency’s 2012 net cabins (bookings that actually sail) as of Dec. 31, 2012.
Agencies will be notified no later than Feb. 1, 2013 of their final 2013 commission rate. Communication will be received by letter to the address and key contact that is registered to each agency’s Carnival profile. To update an agency profile, contact Carnival's trade engagement team at [email protected]
or call 800-327-7276.
Carnival said all business sold during 2012 for any 2013 sailings will reflect the former commission tier. Only new bookings made in the new year will use the new commission structure and tiers.
Will this help Carnival increase sales in the coming quarter, as agents try to enhance their sales to get a better rate for 2013?
Torrent said that wasn’t the intent, but “I hope so… and with our sales team, they’re hoping so. Agencies that are very competitive will want to get to the next place.”
Changes apply only to U.S. markets, and not to compensation for agents elsewhere in the world. Each country’s commission and compensation structure is evaluated separately.
Agents with questions should contact their business development manager or the line’s trade engagement team at [email protected]
or at 800-327-7276.
In closing, we asked Torrent: “Is this change going to cut the little guy out of the marketplace?”
“I don’t think so,” she said. “I don’t think it will at all.” Carnival will continue to pay 10 percent for even one cabin sold.
Torrent said Carnival will have to wait until the end of 2012 to see where agencies fall within that new commission structure, but her perspective is that: “The majority of agents will not change their base commission rate.”
As for the very smallest agencies, “we’ll see what happens at the end of the year and where the final levels are.”