Taking a lesson from the digital world on transparency in setting rates, Carnival Cruise Lines leads their sector in offering flat rate commission on all cruises. As an increasing number of online self service models have demonstrated, the long tail can be well served through self-service models and flat rate pricing eases administration of partners while allowing a proliferation of small businesses capitalising on the simplicity. The travel industry has long relied on opacity in pricing and commissions to keep consumers guessing and to create massive profits for itself. In a bold move, Carnival is showing that they understand the way business is headed and are becoming clear and transparent in their commission relationship with Travel Agents.
In the video that follows (warning, it’s 15 minutes), David Dingle, CEO of Carnival Cruise Lines, explains their rationale in making the commission pricing change. With Agents providing roughly 90% of sales, this is clearly an important channel. Dingle suggests that 25% of these are late bookings made at 5% commission already so we’re talking about 67.5% of Carnival’s sales. According to Dingle, this move will reduce the consumer rebates which agents use to compete with each other during peak sales periods, meaning that pricing will be consistent across agents and competition becomes a question of service and brand loyalty – are any of us actually brand loyal to a travel agent? The benefits for Carnival are meaningful as they regain control over the price at which they sell their cruises, and therefore increase their importance in the supply chain. Clearly there will also be an incentive for Carnival to use the savings from agency payments to attract more consumers – directly through their own promotional activity and indirectly through more attractive pricing that is available to all channels.
So how much of this is today’s spin on the well known practice of cost cutting? Cruise lines are not the first to take control of their destiny as far as pricing and sales are concerned. Earlier this year, American Airlines had a well publicized dispute with two prominent online travel agents (Orbitz and Expedia) and Sabre, a major GDS (global distribution system) that enables travel agents to sell American tickets. The details are covered on MS-NBC here. Airlines have accomplished a much higher proportion of direct sales than cruise lines so far, but despite Dingle deflecting attention to the benefits for agents, direct sales make good business sense and are clearly on the horizon for Carnival.
There are many unanswered questions which will unfold in coming months:
- Will there be enough margin for agents to change the way they compete as competition on service carries a cost?
- Is this an opportunity to shift the mix of sales channels further online where innovations such as Zendesk are reducing customer service costs by improving efficiency?
- Travel planning is complex and therefore should be a high value add activity for an experienced agent. This is not a lower order task which can be comoditised, or is it?
Watch the full video here.