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News Analysis: Cruise Fuel Fees— Ho-Hum or Horrible?

May 5, 2010 By: Susan Young

Yesterday, Cunard Line and sister UK brand, P&O Cruises, notified travel agents that the lines would re-introduce fuel surcharges of $3.85 per person daily or a maximum of $154 per person per voyage. Even the kids don’t escape this fee, with the two brands applying the supplement onto any third and fourth berth passengers as well as children’s fare bookings.

Are fuel supplements that onerous? Do they stifle bookings? Or, are such add-ons to cruise fares becoming more ho-hum for consumers accustomed to yo-yo pricing and added-fee tactics within the airline industry?

Barbara Oliver, a California travel agent, doesn’t have clients currently booked that are impacted as yet, but says “my gut tells me, though, that it won't phase people as much anymore since they have grown accustomed to— and weary of— added surcharges everywhere they turn travel-wise anymore with luggage and carry-on charges; seat selection charges; paid meals and snacks; and the phased out blankets and pillows.”

From another point of view, “I dislike fuel surcharges, even in cases where they might be necessary,” says Michelle Mangio, owner, Magical Escapes, Attleboro, MA. “If there is a need to increase prices, increase prices. It has the impression of a 'hidden fee'— a surprise charge that's not included in the base rate.”

And from the perspective of Jonette Shepherd, general manager, Unique Travel of Palm Beach: "I do not think the majority of clients who traveled under the imposed charges in the past will have an issue, however clients who did not travel will no doubt have an adverse reaction to the 'extra charge.'"
The new charges will apply to all new bookings effective May 10, and to all departures from November 1 and beyond. While the move wasn’t unexpected by many cruise industry observers, the big question mark now is when— or if— other cruise lines will follow?

Cruise lines began adding fuel supplements in 2007 when oil costs soared. Most supplements were removed in late 2008 when oil prices stabilized at a much lower level. But in removing them, some lines left the door open – establishing a threshold at which they might add the supplements back in. For some that was around $70-$75 a barrel. Today’s cost for a barrel of oil is at least $10 higher.

British operator Fred.Olsen Cruise Lines was first to implement a fuel surcharge about a week ago. Still, Cunard and P&O are considered much bigger industry players with many more ships, and Cunard is an iconic luxury brand with a strong complement of American guests. 

Yesterday, I asked a sampling of lines about whether they had a fee or whether they have any plans to put that supplement back in. “Carnival Cruise Lines currently has no plans to institute a fuel supplement,” said Tim Gallagher, the line’s vice president of public relations.

Of course, I’m already hearing the word “currently” in that statement. And as Scarlett O’Hara wisely said: “Tomorrow is another day.”

But to be fair, price points at which one line adds a fee in and another holds off are directly related to the line’s cost and revenue structure and— in great part— to the price sensitivity of their guest base. Psychographics and demographics truly count.

Contemporary brands such as Carnival cater to customers seeking great value and affordability in their vacations. Those folks often have much more price sensitivity. If the cost is prohibitive they won’t book and when the fare of a Fun Ship cruise is only $599 per person, for example, an added fee that equates to $100-plus per person on a cruise really hits the consumer’s pocketbook and can have a strong impact on the guest’s mindset and ability to book.

In contrast, when a luxury line’s voyage carries a higher ticket price to start, and it attracts guests with a higher net worth, the line's decision to add in a fee is based on different parameters.

In addition, Cunard is essentially a British brand that attracts guests from both the UK and U.S. markets. Some experts say continuing economic woes in the U.S. have left more wholly U.S. brands less inclined to add in more fees at a time when the industry is just getting momentum back in North America and, from all accounts, having a positive booking year.

At last month’s Carnival Corporation annual meeting in Miami, Micky Arison, the company’s chairman and CEO, told stockholders that there were no plans for a fuel supplement to be reinstated. Apparently, he was referring to the company’s many U.S. brands including Princess Cruises. Cunard and P&O are both considered British products in the Carnival stable of cruise brands, although Princess and Cunard share U.S. offices and many operational resources.

As of yesterday, all lines we talked with as a sampling said they had no supplement— from contemporary Carnival to ultra-luxury Silversea Cruises, from premium Holland America Line to small-ship line Hurtigruten.

The Cunard fuel surcharge announcement wasn't a surprise to Shepherd, who said her agency had expected fuel supplements given the posturing that cruise lines have taken in the past about re-instating the fees based on rising oil pricing.
But she acknowledged it has become a daily obstacle to explain to clients about government and non-commissionable fees. "This is just another hurdle for the professional travel advisor to overcome," Shepherd stresses, saying agents clearly do a terrific job in that regard.

The decision to add in a fuel surcharge should be evaluated for more than economics, according to Mangio: “It's not only the fact that this is a way for the cruise lines to mark up rates without paying commission to the travel agents making the sales. It's the fact that clients feel ‘nickeled and dimed’ to death.”

She also points out that it’s particularly difficult for agents when cruise lines impose fees even after a booking is made. While some government agencies have questioned the legality of the practice in the past, even if it’s legal, is it ethical or customer-friendly?

That’s a fine line. Cruise lines stress that fees put on any existing bookings are so far out that clients can simply get all their money back; close-in sailings for existing bookings generally are exempt, as in the case with Cunard.

But “that cruise lines can add these even after a booking has been made, tends to upset clients [who] booked a trip based on paying a set amount,” says Mangio. “Having another charge added in after the fact often makes them feel taken advantage of.”

She makes a good point about timing: “In this case, although gas prices have been rising, they have not been rising to the levels of last year. Re-implementing a fuel surcharge seems premature, and comes across as a way to get extra money from clients under the guise of rising fuel prices - much the way airlines are now charging for luggage.”

What's your opinion on the rise of fuel supplements? We asked fans of our Facebook page the same question.

Jason Coleman wrote:
Since Cunard and P&O just announced this morning, I wonder if Princess will be next— and the other Carnival brands soon thereafter? Honestly, I'm surprised they've waited as long as they have!

Adele McIntosh added:
Yes, I think the rest will follow!

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