Cruise lines ponder commission cuts

Question Time special report: Cruise lines are considering cutting travel agents commission in a move that could have worrying implications for the trade.

Carnival UK managing director David Dingle confirmed it was examining the possibility of reducing rates with Royal Caribbean and Island Cruises saying they may follow suit.

The move will spread further unease through the trade which is already facing reduced commission from mass market tour operators.

Fears are now rising that every sector will start to review its rates of pay.

“The benchmark has been set. Thomson’s decision to go to 7% has set the ball rolling,” said one observer.

Speaking at TravelMole’s latest travel industry question time, Dingle said it wanted to reel in the level of discounts offered by retailers. Paying them less, he explained, would mean they could not throw commission away on discounts.

“The issues we need to consider are similar ones to those of tour operators. That is, quite simply, that we need to have control over pricing,” said Dingle. “Travel agents rebate quite significantly and the question is, is there any sense in that amount of rebating?”

Pressed directly on whether commissions would be cut, he said: “I don’t know. We are still thinking about it and I don’t know when we will make a decision.”

Dingle claimed a decision would only be made once he was certain a cut in commission would not erode margins for agents.

“I have no interest in reducing margin. I actually want agents to retain more of their commission,” he said. “We are close to our travel agents and we need to talk to them and understand what the full spectrum of issues are.”

Royal Caribbean UK and Ireland managing director Robin Shaw said its rates were “under review.”

“We have no immediate plans to reduce commission but are reviewing the situation,” he said.

Island Cruises managing director Patrick Ryan also said the company was looking at the position.

Kevin Ivie, managing director of retailer 1^st4cruising, dismissed arguments that commission needs to be cut to reduce the level of discounting.

“The cruise lines themselves offer discounts of up to 65% and if they say that defines the market, then reducing commission will not alter that. It’s nuts,” he said. “I understand the economics but it’s up to agents to make the decision on how much commission to give away. Lowering the base level will give agents no room to manoeuvre.”

It will also penalise those agents who don’t heavily discount and retain the bulk of their commission, added Ivie.

Dingle admitted the move by Thomson in reducing base commission to 7% had bought the issue into sharp focus for Carnival.

“The cruise industry may not have been having these discussions had tour operators not made a move,” he said.

Observers predicted that, as with tour operators, once the market leader cuts commission, others will inevitably follow.

“Within hours of Thomson reducing commission, Thomas Cook and First Choice did the same,” said one. “Once P&O makes a move, the likes of Royal Caribbean and island Cruises won’t be slow in following suit either.”

Report by Steve Jones