Brad Tolkin speaks to agents onboard the Carnival Pride.
It couldn’t be any clearer to Brad Tolkin, chairman and CEO, World Travel Holdings (WTH). In delivering a speech to hundreds of CruiseOne and Cruises Inc. agents onboard the Carnival Pride this past week, he was adamant.
“Now is the time to market hard,” said Tolkin. “Now is the time to maintain and even increase your marketing expenditures of effort and energy. Time and again it has been shown that those companies that increase their marketing expenditures during a recession increase their sales, not necessarily during a recession but in the period afterwards.”
A Painful Path
Tolkin reminded the agents and agency owners that at the previous year’s conference he had implored them to bunker down but not go into a bunker. “I define bunkering down a watching your overhead and cutting expenses,” said Tolkin. “Not going into a bunker was defined as maintaining your presence in the marketplace, as these are the times when marketshare is taken.”
From the WTH corporate side, soon after returning from the 2008 conference WTH announced a labor reduction. All employees – except those in sales centers – were placed on a two-week furlough. “This was incredibly painful,” he said.
In addition, WTH renegotiated three of its significant property leases, sublet one location and consolidated two locations into one. All employees were put on an incentive plan to earn back 100 percent of their furlough sacrifice.
“But we did not cut back on our sales initiatives and … we did not furlough our sales team,” stressed Tolkin. “Our marketing efforts went forward. And guess what? The market has stabilized and people have come out of shellshock.”
Calling the velocity of new bookings over the past four months “amazing,” he heaped praise on d CruiseOne and Cruises Inc. agency owners and individual agents. And, he said the results are factual evidence that the path taken by the company is the right one.
Potential in the Cruise Segment
“Cruising is the most resilient sector of the industry,” stressed Tolkin, who said the industry will continue to grow, especially in North America. He also said the home-based travel sector will rise faster than other distribution models. And he believes the cruise lines will continue to recognize the travel agent as the distribution system of choice.
What’s happening right now? “Cruise lines are dealing with inventory holes they have in the next 60 days and will price accordingly,” said Tolkin. “And I think we’ve all seen our average selling price drop significantly.”
With that in mind, Tolkin urged the agents to not shy away from close-in bookings because they help cash flow.
Tolkin cited a misperception in the cruise marketplace. Many believe cruising is still only for the aging, which isn’t true. He showed that the percentage of cruisers under 40 – 27 percent – is actually greater than the number of cruisers over 60. The majority of cruisers are between the ages of 40 and 59.
As for the cruise lines, “The economic tsunami that engulfed the world reinforced to the cruise lines that their bread and butter is here in North America,” Tolkin emphasized. Yes, more tonnage is deployed around the globe. “But instead of negative growth in the U.S. capacity forecast just 18 months ago, the cruise lines are now budgeting for 3-4 percent annualized capacity growth in North America in the next several years,” he said.
He mentioned several recent examples of redeployment closer to home:
-Carnival is now operating the Carnival Liberty year-round from Miami, foregoing it’s planned its planned Mediterranean operation
-Celebrity canceled the Millennium’s 2010 Australian season and is going to San Juan as well as moving the Summit to Bermuda, Canada and New England from New Jersey, instead of home porting it in the Mediterranean.
The Road Ahead
Tolkin said he continues to be impressed by the little things agents and owners are doing to promote in the marketplace. But, he acknowledged that the marketplace has changed. He said 2010 will not mark a return to the environment of the last 10 years; instead, the industry has entered a new phase – a new normal – that will be around for a long time.
In the 1992 Presidential campaign, then Governor Bill Clinton used the phrase – “It’s the economy stupid” to defeat President H.W. Bush. Similarly, Tolkin said today’s consumers are no longer shopping and buying recklessly.
The economy is everything and “value is once again king,” he said. “Anything that is perceived to be overpriced will fall victim to unsold and highly perishable inventory. This is the new normal.” So someone who previously purchased air tickets to their cruise embarkation point might instead today drive five hours to the port.
The Future of Travel Agents
“If I thought travel agents were a dying breed, I would never have put up my own money to buy our great company,” he stressed to the enthusiastic audience. He mentioned several major news media articles covering the improving health of the
travel agency distribution system; those have been themed as follows: “Are travel agents making a comeback?” and “Travel agents are enjoying a new popularity.”
Some of those articles noted the dissatisfaction with online agencies and service. Tolkin said there is a big difference between using a professional and a machine, particularly when plucking down several thousands dollars. “There is a place for online travel but we at CruiseOne and Cruises Inc. are not selling a commoditized product,” he stressed.
“The fad of booking a multi-component trip by yourself is over,” he said. “It is daunting. It is overwhelming. And then you take the chance that something might go awry.”
In addition, travel products are usually nonrefundable and always non-returnable after one takes their trip. That’s why professional travel counsel is important, just as a consumer would use a doctor, accountant or lawyer, he said.
So “let’s use this improving image and this improving economy to make this our time,” Tolkin stressed. “Now is the time.”
Cruise Line Compensation
While Wall Street analysts love to tell the cruise lines how expensive their distribution costs are with the travel agency distribution system, these analysts don’t understand travel distribution and are poor students of history, according to Tolkin.
“Look what has happened to the airline industry [commoditization since the commission cut period began in 1995],” he emphasized. “No one cares which airline they fly and the airlines can’t overcome this image.”
He said the executives of cruise line are not stupid, they know their products are sophisticated and they understand that a distribution system has to exist. Tolkin said the cruise lines could take the enormous risk of building and funding [a distribution system] themselves or they could rely on a multi-decade system that continually fills greater than 100 percent of their double occupancy berths. “These executives won’t succumb to the naïve talk of analysts,” he stressed.
The last year is a sterling reminder that the travel agency distribution system works. “We just experienced a draconian decrease in prices,” Tolkin said. “They [cruise lines] pay us a percentage of the selling price. Imagine if there wasn’t such a system in place and they had such a drop in prices yet had the fixed cost of labor, facilities, technology, etc. to fund the distribution? These same Wall Street analysts would be berating them to decrease costs and at the same time putting sell orders on their stocks.”
Carnival Corp. recently reported record earning in its most recent quarter. A big expense was agent commission, down 22 percent. Yet revenue was only down 14 percent. The agency system is efficient and a variable cost for cruise lines, Tolkin stressed: “Smart people don’t make stupid decisions. Not only are we here to stay but they will compensate us for our production.”
Predictions for 2010
Getting out his crystal ball for 2010 predictions, Tolkin said he believes pricing will remain attractive for the consumer. The economy will continue to slowly recover, dragging prices along in the process. Pricing won’t return to 2006 and 2007 levels for quite some time but “our year-over-year transactions will grow.”
Leisure will remain strong, he believes. Consumers won’t give up their right to experience cultures both here and abroad. He sees Americans traveling again, taking a vacation from their day-to-day stresses, and more often seeking the advice and guidance of a travel professional.
Tolkin’s other predictions?
-If fuel surcharges are once again implemented by cruise lines in 2010, they’ll either be commissionable or built nto the price of the cruise.
-New ship orders will be announced by the end of 2010 as the cruise industry is making money.
-Cruising will continue to increase its penetration around the world. Agents should take advantage of the value in cruising, set in U.S. dollars, to sell their clients on exploring the world.
-New ships will continue to turn the tide [of consumer interest]. The noise is thunderous about not only the value in the product, but now about the product itself.
In closing, he said the WTH family of brands will continue to grow its marketshare. He praised the CruiseOne and Cruises Inc. executive team, and noted that he and his brother Jeff, co-owners of WTH, “have both hands on the wheel. We love our partners. We love our employees, and finally … you will make money in 2010.”
He also pledged to work tirelessly on behalf of the agency owners and agents to provide vision and strong leadership. “I am not remotely interested in being just good,” Tolkin stressed. “I just want to relentlessly pursue greatness… pursue opportunities. We need to chase perfection. Now is the time.”