Become a Home Based Travel Agent

Travel Agents, Airlines and NCFs
By Tom Ogg

The more things change, the more they stay the same. A cliche, I know, but I just got out of the water from surfing Threes, a surf spot in Waikiki. Once I paddled away from the Reef Hotel and made my way out to the break, I noticed that the waves have not changed ever since the very first time I surfed Threes back in the 1960s. Nor have Paradise, Populars, Kaisers or any of the other wonderful surf spots in Waikiki. Few people today know of Joanie’s and my immersion into and love for Hawaii. I worked for Aloha Airlines in various marketing positions from the late 1960s through 1981 when Joanie and I married and opened a wholesale tour company serving Hawaii. Joanie and I were married on the beach at Kapulehu on the Big Island and continue to come to Hawaii for surfing vacations even today. It is interesting that Hawaii has been through dramatic changes over the decades, not from the perspective of infrastructure, but because of myriad market fluctuations caused by different elements of supply and demand. The most notable was during the 1980s when Hawaii’s fabulous growth peaked and the market virtually collapsed because of abusive price points, vertical integration by the hotels and resorts bypassing the travel agent distribution system and a deteriorating value proposition. Consumers just found other vacations that were more affordable, agents found other products that were more profitable to sell and the cost of a consumer conversion through vertical integration by the hotel or resort became non-sustainable. Hawaii suffered greatly and is only now regaining a U.S. market presence.

During the 1960s and 1970s I saw the increase of airline commission from 5% to 10%, tour commissions going from “Plus 10% Service Charge” to all inclusive pricing and the dawning of FIT operators, GIT packaged vacations and the prolific growth of retail travel agencies who went from hand writing airline tickets to being automated. During the 1970s one could rent a location in a mall, open an agency and immediately expect to turn a profit. Travel agents didn’t really “sell” airline tickets, but they did offer the valuable service of being local for consumers and also acting as an agent on behalf of the airlines to accept payment for airline tickets, issue accountable documents against the payments (airline tickets) and settle the transaction (the ATC Area Settlement Process)

Of course, the wide spread introduction of credit cards, satellite telecommunications and vertical integration changed all that. It wasn’t until the introduction of eTickets that airlines began the disintermediation of travel agents since they could now settle transactions directly and distribute accountable documents electronically. The World Wide Web only accelerated the complete disintermediation of retail travel agents and sparked the growth of home-based travel professionals.

The elimination of travel agents as a viable distribution channel by the airline industry was based on the reality that travel agents could not;

** move market share between airlines
** affect overall transactional yield
** create new meaningful demand for airline products and services
** implement service fees on transactions that were performed at a loss that enabled short haul regional airlines that were successfully competing with trunk carriers.

Regarding today’s NCFs, It is important to remember three things.

** NCFs are no different than commission caps and cuts.
** Airlines that followed an airline capping or cutting commissions did so to remain “Cost Competitive”.
** Travel agents have no inherent right to a commission from any cruise line and could be removed as a distribution channel should they not continue to offer a compelling value proposition to the cruise line.

So what is an agent to do?

Get Over It!
Every time I read about industry pundits complaining or making fun of the cruise line’s NCFs it reminds me of the agents that thought that if they complained about the airline commission caps, that airlines would abandon them. Of course, that did not happen. The cruise lines can adjust their NCFs (commission levels) as they wish. It is up to you, to find your way to profitability given the reality that the cruise lines are seeking to reduce your remuneration.

Use “Plan to Go Agreements”
Get away from the idea that you should sell a cruise that costs you more to sell than the eventual commission it generates. Collect advance “research” deposits that will be treated as remuneration for commodity type cruises. Offer a flat fee for consulting the client for 3, 4, 5, or 7-night cruises and explain that you have invested years and a ton of money in learning your trade nd that your unbiased advice is worth its weight in gold. It is OK if the client wants to book it with the cruise line directly. If they would like to book it with you because of the many benefits of using your services, offer a “Booking Service Fee”. for handling the booking. You are under no obligation to handle a cruise booking at a loss.

Move Market Share
You can make up for NCFs by increasing your commission levels by focusing your business on a specific cruise line. Of course, you should pick cruise lines whose NCFs are not the most punitive and that offer a fair commission and override program. By focusing your sales on a preferred cruise line you will benefit from being more knowledgeable while also showing up on the cruise line’s radar from a productivity standpoint. If a particular cruise line has punitive NCFs on 3, 4, 5, and 7 day cruises, don’t sell that line. Why in the world would you? If your clients demand it, then use your Plan to Go Agreements and Booking Service Fees. Become an extension of your preferred cruise line’s sales fore. Never say “I only sell xxx cruise lines if my client demands it” as an excuse for handling a booking that is going to cost you money.

Increase Profitability by Bundling
Sure NCFs have cut into the profitability of selling cruises, but think about all of the other things you can sell with the cruise. Pre and post hotels, transfers and/or car rentals, pre and post sightseeing, pre-booked third party shore excursions and third party travel insurance. The more ingredients that you add, the more value you add and the more difficult it becomes for competitors (including the cruise line itself) to price shop you. Don’t forget to “Super Size” the sale by offering upgrades and other inclusions that will up the profitability of a sale.

Focus on groups
You can easily turn an advance booking into a group. Since you may have already sold a few cabins in the original booking simply increase the number of cabins to the minimum group size and start selling. As in the idea above, package group inclusions that make it a unique experience for the members and also make it difficult to price shop your offering. Remember that price is only a function of marketing and the specific value proposition of the offering being made. Sure, it may not be for everyone, but it will fit perfectly for clients that are looking for the specific inclusions that you have packaged. Preplanned group shore excursions can add a tremendous value to your groups and also allow for exceptional profitability. Remember you get to make money too.

Revamp Your Business Model
While for years selling cruises has been a wonderful niche, understand that selling mass-market cruises, especially commodity type short cruises may not generate the same return, as they once did. But, because NCFs are limiting the profitability of selling mass-market cruises there are still plenty of opportunities in our industry to earn exceptional margins. Luxury cruises, niche cruises, river cruises, all inclusive resorts, special groups and other land based vacations offer generous commissions and fabulous value propositions.

In today’s technological environment travel professionals enjoy the ability to communicate globally, package and market globally and then settle transaction on a direct basis globally. This has ushered in a wealth of new opportunities that have enabled travel professionals to generate dramatic profitability. If the cruise lines start losing the support of travel marketers to new and more profitable opportunities, they may find it extremely difficult and costly to replace them and rethink the NCF issue.