1. Pricing and Profits
Dickinson & Vladimir Selling the Sea: An Inside Look at the Cruise Industry. John Wiley and Sons, Inc. Hoboken, NJ.

2. Consumers’ Cost Comparison
Land-based hotel resort: low initial price, high subsequent costs
Food, activities and entertainment, transportation
Cruise: high initial price, low subsequent cost
“sticker shock”
Stigma of elitist tradition still hard to remove
Especially when most travel agents are unfamiliar

3. Comparisons www.atlantisbahamas.com www.royalcaribbean.com

4. Cost Comparison: Cruise vs All-Inclusive Resort
Activities, Tipping
AIR comfortable running at 50-60% capacity
Lower fixed costs
Price Stability
Discount: price reduction offered by a supplier
Rebate: given by a travel agents
AIR have fewer major players, are able to enforce anti-rebating
Cruise lines are stuck
Carnival policy against advertising rebated prices
Cease and desist letter
Level playing field
Staff motivation better with no tips included
Off premises activities not free in either
AIR accept little or no rebating,, and cruise lines generally don’t like it either when commissions are used to rebate
- can choose to not work with agencies who don’t conform to policies, but need the ships full

5. Price Structure NCFs: Non Commissionable Cruise Fare
One room for 2 guests total includes:
Cruise fare
NCF
Commission
Taxes
NCFs: Non Commissionable Cruise Fare
Cruise lines say it is a “tax,” or based on fixed costs that can’t be eliminated
Company can reduce variable costs like entertainment or food in some ways, but not fuel or taxes
Taxes: VAT and port fees levied by various destinations, customs, security, head tax

6. Pricing Variables and Complexity
Room type
Location: forward, middle, aft
Location: low to high deck number
Seasonality
Selecting a room vs a Guarantee (loss-leader to advertise better)
Cancellation flexibility
Promotions
Oasis of the Seas Room Categories:
Loss leader gives them advertising edge

7. Walk through a Carnival booking
Find lowest deck – look at inside and oceanview
Find theater
Guest services and lobby bar
Main dining room
Mezzanine – Conf Center and Atrıum
Promenade – Casino and Dance Club and Lanai
Upper – Balcony
Empress – Suite
Lido – Pool and Marketplace
Spa- Spa , Fitness, Slides, Minigolf
Carnival Breeze:

8. Rebating Debate Much more common in cruising than land-based vacations
Commissions: sliding scale based on dollars or pax
Airline: 0.5%
Hotel: 11%
Cruise: 14%
Tool for TA to increase market share, but margins not big enough to give profitable “wiggle room”
Lowest price offer amongst competing agencies is a poor one
Customers WILL shop around for what seems like a lower price, trying to get everyone to match pricing
Nobody wins in a price war

9. Rebating Debate TAs very afraid of losing a client
If you lose their cruise reservation, you probably lose all other travel-related business too
Sometimes have to decide if client is worth it
“Butterflies”
The key to stopping the shopping, is GTM
95% of deposited reservation stick
Rebating is a crutch, as well as holding Options
Option: here, you have this much time to change your mind

10. Rebating Debate Commissions are number 1 or 2 costs for cruise lines
Remains to be seen if they decide to lower them like the airlines industry
Would effectively eliminate rebating, but effects on sales volume and TA relations may be great
And is the airlines industry really something to emulate?

11. Travelweekly 2012

12. Discounting
Tariff pricing / brochure pricing: these days is outrageous
Up until the 1970’s capacity was quite low, and demand high enough where most guests paid full tariff
Flexible to get upgrades and such
Increase in capacity created new pricing schemes
Up until the 1970’s capacity was quite low, and demand high enough where most guests paid full tariff
Flexible to get upgrades and such
Increase in capacity created new pricing schemes

13. Groups FIT and Groups Groups make up about 25% of sales
Affinity group: specific organization, family reunion, church group, alumni group
Open Promotion: agency blocks off number of rooms
Agency promotes and sells the space
Typically, Agency and guests get a price break, maybe additional incentives
Commonly, every 16th berth is free
Not on every sailing; strategic

14. Charters
Special type of group that has exclusive use of vessel for a contracted period
Full or Partial
Recent trends are for musicians, TV themes, radio stations, DJs, national organizations
MUST be contracted and filed with Federal Maritime Commission, otherwise…

16. Charters
Cruise line must make sure they make as much or more than they would if it were not chartered
Pricing typically higher, makes up for lost onboard revenue and themes have value, split with organization
Interesting effects: organization with ability to charter full ship has more buying power, so cruise lines will bid for it
Competing companies with the same cruise itinerary may benefit by the displaced guests of the charter winner

17. Yield Management
Airline industry tool from the 1980s adopted by the cruise industry
Focus on highest yield, not simply revenue
Discourage Seattle sales, capacity control, reprice

18. Yield Management
Objective: sell the cruise to the right person, at the right time, for the right price
Involves maximizing ticket revenue based on demand
Dynamic pricing
Pricing usually issued 1 to 2 years before departure, and from day one pricing is manipulated until the ship leaves
Best companies have advanced models for predicting demand, which they use as an input in pricing models and decisions

19. Yield Management: Stimulating Demand
Taking Guarantees
Giving Upgrades
Adjusting advance purchase discount rate
Market-specific deals: Geographic (state of residency), Demographic (age, number of travelers, occupation)
Offer best available stateroom
2 for 1
Lowering airfare add-on
Stand by fares: offered in market within driving distance, typically within final 30 days

20. Yield Management: Understanding Pricing Programs
Options vs deposits
Retention: model that predicts which guests who make a reservation will actually sail

21. Yield Management: Understanding Pricing Programs
Booking Profiles: model that examines the booking curve of a sailing

23. Yield Management: Understanding Effects of Pricing Programs
Price Elasticity: evaluates how sensitive pricing is to changes in demand
Change price points based on predicted changes in demand

25. Onboard Revenue Keys to maximizing onboard revenue 1. Ship Design
Beverages usually top profit center
Supplies bought duty free
Make drinks available everywhere, and in attractive, very visible environments
Planned purchase, as well as impulse buy
Guests should have to pass by a bar or lounge on the way to the dining room
Provide opportunity and time to consume them
As soon as you board, bars open by the pool
Hosted activities and games and trivia usually located in a venue with a bar
Dining room as full bar
Lounges to meet for a cocktail before and after dinner
Casino bar
Late night activities, clubs have bars

26. Onboard Revenue Keys to maximizing onboard revenue 2. Photos
With captain at formal night
At dining room table with your family, friends, new friends
Embarking and debarking backdrop

27. Onboard Revenue Keys to maximizing onboard revenue 3. Casino
Only 30% of pax actually gamble

28. Onboard Revenue Keys to maximizing onboard revenue 4. Shopping
Souvenirs, t-shirts, etc.
Watches, jewelry, diamonds
Artwork
Alcohol and cigarettes
Future cruises
Not open in ports due to local government insistence
Partnership with cruise company to give seminar on local shopping

29. Onboard Revenue Keys to maximizing onboard revenue 5. Spa and Salon
6. Shore Excursions
Convenient, but always be careful (Jamaica, Italy, China)
Celebrity Istanbul shorex

30. Private Islands Ship controls all food bev and activites Pax like it
Fuel savings cruising at lower speed
Florida Caribbean Cruise Association

32. Port Relations Ports really want / need cruise line passengers
Head tax rebates, incentives for number of guests
Investment in port facility and local infrastructure dictated by cruise line and trade associations like FCCA
Operate their own cruise terminal, free come operators fees

33. Offshore registration
No income tax
No labor laws
No minimum wage or number of working hours
No liability
Accidents, injuries, death government by maritime law
Concessionaires
Schism between company selling the cruise and the one operating the ship

34. Dickinson & Vladimir Selling the Sea: An Inside Look at the Cruise Industry. John Wiley and Sons, Inc. Hoboken, NJ.