16 JUL 2010: Two senior and experienced cruise line executives last week discussed the industry’s philosophy about non-commissionable fees (NCF), making it clear, in ACTA’s opinion, that these fees are accounting tricks used by cruise lines to enable the lines to cut more from their prices. ACTA says travel agencies are being victimized to bolster the cruise lines’ competitive battles with one another.
Speaking to an American audience in a Webinar sponsored by the American Society of Travel Agents (ASTA), Vicki Freed, senior vice president of sales for Royal Caribbean International, said about non-commissionable fees, “It is what it is. It is the portion of a cruise fare on which we don’t pay commission.”
Freed offered no other rationale for NCFs declared by her company and most other major cruise lines.
Justin French a Canadian travel industry veteran of more than 30 years, with senior positions in both the US and Canada, spoke to the ASTA Webinar audience as managing director, Canada, for Carnival Cruise Lines.
French is quoted as saying the non-commissionable portion of cruise fares do “seem to be impacting commissions more so than they used to.”
This is in line with a recent ACTA survey that drew disparaging comments about cruise lines from all agencies that responded. ACTA says Canadian agency heads are angry at this growing ‘impact’ on their businesses.
French said the non-commissionable portion of cruise fares has been growing in recent years as a percentage of the overall price because cruise prices have been dropping. But, he added, as prices increase, the percentage of NCFs will drop.
A tax or not a tax?
ACTA claims the standard explanation, is that NCFs are amounts within the price on which commissions will not be paid to agents because these amounts are taxes. This explanation has broadened from real taxes to anything travel suppliers decide to stick in the column marked ‘taxes’.
But French’s explanation makes it clear says ACTA, that NCFs have little or nothing to do with taxes while Freed’s remark can be seen as an admission that cruise lines unilaterally refuse to pay commissions on any portion of the cruise fare they decide, and brook no discussion or complaint about the policy.
ACTA believes the only way French’s comments make sense is if NCFs are being applied to normal, fixed costs of the cruise line, not taxes.
When a cruise line cuts prices, they can reduce variable costs like entertainment, food and beverages, but not on fixed costs like port fees and fuel. However, the lines can reduce their fixed costs too by refusing to pay commissions to travel agents.
Why would suppliers jeopardize the good will and loyalty of travel agents to save money on commissions? Asks ACTA.
Answering its own question – “One reason is simply because they can.
“The other reason is because the lines are valuing low prices much more than the work of travel agents as a means to attract and keep consumers in a market burdened by the overcapacity created by the cruise lines themselves.
“Freed and French seem to have admitted taxes have very little to do with NCFs – NCFs victimize travel agents so the lines can cut more prices to attract consumers, plain and simple,” says ACTA president. David McCaig.
Rely on agents?
McCaig says if the lines relied on agents to attract and sell consumers on cruises, and paid the agencies fair commissions, they would see more business, higher quality business, and a more honest, trustworthy business environment for consumers, agencies and the lines themselves.
French’s other comment about the percentage of revenue lost by travel agencies dropping as prices rise is extremely bad news. Predictions are that cruise costs will not rise for years so French is saying travel agencies are to be saddled with high NCFs for as far into the future as we can see.
Freed and French told the Webinar audience travel agents could make up for the rise in NCFs by upselling, seeking referrals and looking for other ways such as using incentives, backend overrides and bonus commissions programs offered by cruise lines to agents who qualify for them.
In other words, maintains ACTA, according to Freed and French, agents can work even harder for the cruise lines as the lines take away rewards for previous hard work. As well, these added programmes are all variable costs to the cruise lines and can be changed, along with commission rates, at the drop of a hat.
Over the past month, ACTA has been spotlighting the issue of cruise line NCFs and reporting examples of NCFs applied against Canadian travel agencies.
ACTA says that right now, it appears the only cruise lines that don’t apply NCFs, are river cruise lines including Avalon, Viking and Uniworld.
It is time, says McCaig, for ocean cruise lines to look at these forward-thinking companies and adopt their fair treatment of travel agents.
“The first ocean cruise line that treats travel agencies fairly by eliminating NCFs, paying adequate commissions and disclosing all fare components is the cruise line that should get all our support,” ACTA’s president says. “I believe this would put a cruise line in a much more competitive position than the lowball pricing that is a mug’s game to play.”