UBS reports 'share shift' among cruise lines to smaller agencies

By Donna Tunney The major cruise lines are broadening the base of their agent distribution systems in an effort to sell more cruises through smaller agencies that are less likely to reach override volume targets, according to a UBS Investment Research report.

"Cruise lines benefit from selling through smaller agents who have lower commission costs if volume override targets are not hit, and cruise lines have meaningfully shifted share to lower-cost distributors in the past few years," wrote UBS analyst Robin Farley in the report titled "Cruise Lines Outlook 2012-13."

In terms of "share shift" in the distribution channel, the report stated that in the past, 20% of agents did roughly 80% of bookings. However, as recently as a few years ago, Royal Caribbean Cruises Ltd. noted that 40% to 50% of agents were booking 80% of the business, according to Farley's report, which was issued May 14.

"So sales are less concentrated in the distribution channel," Farley said.

'Effective commission rates' down

"Both Royal Caribbean's and Carnival's effective commission rates have come down without the companies having to resort to commission cuts as a result of this share shift to selling through lower-cost agents," she said, adding,"Carnival noted that in FY2011 no controlled group of travel agencies accounted for 10% or more of their revenues."

Carnival Corp. and Royal Caribbean Cruises Ltd. together account for 80% of North American capacity, Farley said.

A Carnival Corp. spokeswoman declined to comment on Farley's observations, explaining that since each Carnival brand sets its own commission structures, she couldn't offer a companywide perspective.

Vicki Freed, Royal Caribbean International's senior vice president of sales, trade support and services, said the line is "dedicated to working with all travel agencies, big and small."

"It does not have to do with overrides or commissions being lower, but rather, many new travel agents are entering the business as encore careers," she said in response to Farley's report. "Therefore, when rookies start out, they have to grow their overall volume to obtain higher commissions and/or overrides."

The report said that in the past, "Many have argued the way to reduce distribution expense is to increase direct sales and disintermediate the travel agent, but that may not have gained much traction."

Farley said she estimates that between 70% and 80% of all cruise vacations are still booked through agents. The new approach, she said, is to reduce distribution costs by making agent sales more efficient through automated

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