Carnival’s Direction—Not Direct

micky arison carnival corp

Micky Arison, Carnival Corp.'s chairman and CEO

Carnival Cruise Lines is reducing its direct-business model, Micky Arison, Carnival Corp.’s chairman and CEO, said during his company’s second-quarter earnings call with analysts this past month.

“As far as direct business, what I can say is that since Bob Dickinson [Carnival’s former president and CEO] retired, two of Carnival’s senior sales and marketing executives, who were clearly the most aggressive in growing Carnival Cruise Lines’ personal vacation planner and direct business, left the company,” Arison said, responding to a question posed by an analyst regarding the percentage of Carnival’s direct business, call center and online bookings vs. traditional travel agent channels. “Since that time, Gerry [Cahill, president and CEO of Carnival Cruise Lines] and his team have reevaluated that program [direct business], and the fact is they have significantly reduced the business from that program. The result is, and will be at least for the time being, less direct business.”

He continued: “I think it’s very important to state that the travel agency distribution system has been an effective and efficient distribution system for this company for 35 years, and it got us to where we are. We clearly believe that we need to continue to support them. They have shown this year that they can give us the yield improvements we need to overcome—at least partially—these higher fuel costs; so, despite the fact that I would expect that we would have a little bit less direct business next year, particularly at Carnival Cruise Lines, the effect of that will be higher yields.”

Shunning direct business is sweet music to a travel agent’s ear. Not only does it represent the prospect of more business, it demonstrates the value that the biggest cruise line in the world places on travel agents.

One more thing: If Arison says it, it’s got to be true. “[He] is a straight shooter: He talks the talk and walks the walk,” says Jeff Kivet, chairman and CEO of Cruise Value Center in East Brunswick, NJ. “If he said it, you can take it to the bank. It’s a great idea.”

A colleague of Kivet’s agrees. “It’s a smart move—three cheers for Micky Arison,” says Anthony Hamawy, vice president and managing director of in Port Everglades, FL. “I think that Carnival really took a close look at something the agencies have been saying for years.”

Hamawy says that Carnival worked on expanding its call center business when it felt that agencies were becoming less inclined to sell cheaper cruises. “When agents begin to fear the product because they feel they are being undercut, they will stop selling,” Hamawy says. “You lose goodwill.”

Another reason is cost. Running call centers is far more expensive than letting agents simply sell the cruises. “I hope other lines follow,” Hamawy says.

Also, in the same earnings call, Arison touched on Royal Caribbean’s recent decision to increase sales thresholds for agents to reach certain commission levels.

Steve Wieczynski, an analyst with Stifel Nicolaus, an investment bank based in St. Louis, MO, asked if Royal Caribbean’s decision presented opportunity for Carnival to take away some of Royal Caribbean’s business from certain agents.

Arison said that Royal Caribbean Cruise Ltd.’s and Carnival Corp.’s business models were so different that it would be unfair to compare. Royal Caribbean’s commission program operates on the corporate level, while Carnival’s commission programs are brand-specific. “That doesn’t mean that our brands won’t take a very strong look at what was done and see if there is opportunity or not,” Arison said. “Our philosophy has been that the needs of each brand are different and you can’t do these things from our perspective on a corporate basis.”

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