The Association of Canadian Travel Agencies is issuing an open invitation to cruise lines to sit down with ACTA to discuss the increasing controversial issue of Non-Commissionable Fees (NCFs). Over the past half dozen years, cruise lines selling ocean cruises have steadily increased the amount of revenues on which they do not pay commissions to the travel agencies selling these cruises.
At the same time, some lines have added more and more seemingly unjustifiable amounts to base fares and have followed the habit of other travel suppliers in moving amounts from base fares to the mislabeled ‘taxes’ added on top of base fares. This practice attracts more consumers to lower prices but irritates consumers when ‘taxes’ escalate the actual cost of the trip far over expectations. This tax column is also used to disguise business costs such as port fees and fuel surcharges mixed in with taxes and enables cruise lines to call these amounts NCFs, according to many travel agencies across Canada. NCFs also are declared within base fares.
An example from a cruise that shocked both a passenger and his travel agency includes an invoice which shows a cost of $888 per person as a port fee. The cruise called at only one port. This fee was part of the amount within the cruise price that the cruise line said was ‘non-commissionable’. The passenger was reportedly irate over what seemed to him an exorbitant port fee while the agency manager was frustrated that the cruise line determined, unilaterally, that the agent would not be paid a commission on a business rather than taxation cost of the cruise line.
“NCFs and inflated tax lines are ruining the credibility of pricing across travel,” says ACTA President and COO David McCaig. “Not only are customers fed up with the numbers game in pricing by many travel suppliers, travel agencies are being harmed by significant losses of income that they should realize for their hard work.”
Mr. McCaig said cruises are now at or near the top of popularity among Canadian vacationers. “It is time that cruise lines and travel agencies strengthen their partnerships so they can work together to make the most of current and future opportunities,” says the head of ACTA. “By working together, with more innovation, more cooperation and less aggravation, cruise lines and travel agencies will be able to provide consumers not only with honesty in pricing but with better products and services.”
ACTA wants to discuss ways to improve the partnership between cruise suppliers and the travel agency sales channel. Key issues will be full disclosure of the components of cruise fares, return of all non-tax items to the base fare column, and removal of all NCFs except amounts defined as true taxes levied by Acts of Parliament of the federal and provincial governments, not including any charges and fees.
ACTA also wants to exchange information with the cruise lines on how travel agencies and cruise lines operate and how they think about their businesses. “There are substantial gaps in our respective knowledge of how the other partner works and thinks,” says Mr. McCaig. “By learning more about each other, we can devise ways of partnering that will help both of us and the consumer. We should be thinking about the consumer first and not about how much money can be made through bookkeeping exercises.”
While other suppliers use NCFs and tax labels to boost revenues, cruise lines have only recently escalated these practices to levels that can seriously harm travel agencies and consumers, according to ACTA. A recent survey of ACTA members turned up a number of examples where, as Mr. McCaig says, cruise lines can be questioned about their partnerships with travel agencies.
ACTA members say a majority of ocean cruise lines are lowering the base fare by moving amounts to the tax column and adding NCFs. These amounts may include components like port fees, fuel surcharges and other charges that are not taxes. On the other hand, most river cruise companies get high marks from agencies.
An agency head who has been selling cruises for more than 30 years has long studied the industry segment, taking courses and about 60 cruises. This veteran wrote, in response to the ACTA request for information from members, “The trend of NCF’s has been growing … often to the point where the combination of NCF’s, port charges and government fees exceed the actual cruise fare.”
The veteran claims, as well, agencies have to work harder to get to higher commission rates. Cruise lines have increased the sales levels agencies have to reach before they earn higher rates of commission and these higher sales levels are for entire base costs of cruises, including non-commissionable fee items.
There are, the agent points out, increasing revenues for cruise lines that agencies never see – money made from onboard sales of items and subsidiary tours to consumers which are being added and sold more aggressively. Increasing onboard sales means cruise lines can keep base fares low while making revenues from captive audiences once the cruise begins. Low base prices, however, mean agencies are making the same commissions today as they did 25 years ago, says the agent head, while consumers pay more during their voyages. At the same time, agencies have to provide more help to their clients to meet demands from cruise lines for online registration, printed documents and more planning for shore excursions. The agent says, “Selling cruises (is) now a higher maintenance and low profit product for us …”
A glaring example cited by the veteran agent is for a cruise sold with a cruise line for a cruise of the Baltic in July, 2009. The total cost for two staterooms including the cruise line’s provided airfare was USD $14,158. The total commission on this booking was USD $586.00 which was just over four percent. At this rate of commission, travel agencies must charge higher service fees to clients.
This is a brief look at the non-commissionable fees included in typical cruises from major lines:
- two persons, 12 day cruise in British Isles in June, 2010: price $3,519.00 plus $89.04 taxes per person (p/p). Base of $3,519.00 includes $300.00 NCF;
- two persons, 12 day cruise in Mediterranean in May, 2010: price $4,248.00 plus $53.52 taxes p/p. Base of $4,248.00 includes $330.00 NCF;
- two persons, 10 day cruise in Caribbean in Nov., 2010: price $1,874.41 plus $100.27 taxes p/p. Base of $1,874.41 includes $259.90 NCF;
- two persons, 10 day cruise in Caribbean in Nov., 2010: price $1,874.41 plus $100.27 taxes p/p. Base of $1,874.41 includes $259.90 NCF.
In just four cruises, a travel agency is denied commissions on $2,299.60 worth of the revenue the agency produced for the cruise line. At 8 percent commission rate, this is $183.97 in lost commissions from just four cruises. At a 15 percent commission rate paid to a high earning agency, this amounts to $344.94. Given that a high performance agency might sell four cruises a day at a 15% commission rate, this represents a potential loss to the agency of almost $345 per day or about $2,070 per six day week or a total of $107,621 per year. Four similar cruises sold each day, totals $7,208,903.32 worth of cruising in a year.
Mr. McCaig says he wants to ask cruise lines, “Does it make sense for cruise lines to be declaring NCFs with potential commissions between USD $28,791.5 (at a 4% commission rate) and over USD $100,000 (at a 15% commission rate) a year for over USD $7 million of cruise sales?” He adds this loss in income could be enough to jeopardize the existence of smaller travel agencies, thus depriving cruise lines of important sales channels in smaller communities or for specialty cruises. By co-operating, adds Mr. McCaig, agencies and cruise lines may find better ways to increase profitability for both while offering consumers more services and better values.