What's a fair commission on cruise?

Now that the dust is starting to settle, I’ve been trying to get to grips with why Complete Cruise Solutions would court such controversy and risk so much business by radically reducing their commission.

To understand the root cause of the current predicament that cruise companies find themselves in, it’s necessary to travel back in time to when the High Street was beginning to be dominated by the vertically integrated travel agencies.  One in particular had a very aggressive discount policy.  In a relatively short space of time Lunn Poly managed to create for itself a virtuous circle; growing market share with unprecedented discounting, then translating the resulting volume into higher commissions which in turn allowed for even harder discounting.

The non-vertically integrated tour operators and cruise companies found themselves with a difficult choice to make: Pay higher commissions and keep the sales coming in or walk away and rely solely on independent agents for support.  Most opted to pay the higher commissions and in doing so inevitably chose to inflate their ‘selling prices’ to pay for it.  A world was created where tour operators and cruise companies costed in significant extra commission, so that retailers could give it away as discount.

Since then things have moved on.  The vertically integrated multiples have become so much more directional in their sales policies that the volumes they now produce for other tour operators are relatively small.  The traditional cruise companies however, without their own distribution networks and without anything ‘in house’ for the multiples to switch to, have been suspended in a time warp.  Still massively reliant on the multiples, they have had to pay the same high commissions to the online players and Cruise Clubs so they can all compete with each other on discount.

Independent agents have been left with two choices; either join in the discount ‘free for all’ and hope to drive enough volume to make up for reduced margin; or hold their nerve and their prices knowing they may only make the odd sale every now and then.  The problem is, if they go for margin they are always going to be left with a nagging feeling that they have just ripped off their best customer.  And if the customer realises he could have had the same cruise for £500 less, it’s the agent he’s going to blame.

So CCS have made the decision; it’s a lower commission for everyone, all the time.  It’s a bold choice but if they are true to their word we might just be heading back to a world where the playing field is once again level and service is king.  There’s no place to hide now.  Multiple or independent, it’s your service not your price which counts for most.

Ask yourself this: Is it CCS who have decided that 5% is a fair reward for selling one of their cruises, or is it those agents who for years have routinely discounted 10% from their 15% gross margin?  Food for thought.