Reading The Commission Tea Leaves For Carnival Cruise Lines & Costa

Cruise Week

Carnival Corp.'s latest reported "commissions, transportation, and other" line once again showed a slight decline, dipping from $526 million for Q4 2013 to $520 million for Q4 2014. For the year overall, that line item also decreased slightly, from $2.303 billion in 2013 to $2.299 billion in 2014.

However, revenues from passenger tickets rose 1.8%, from $2.697 billion for the 4th quarter in 2013 to $2.745 billion for the 4th quarter of 2014. For the year, passenger ticket revenue climbed 2.1% to $11,889 billion from $11,648 billion in 2013.

"Softer passenger ticket and onboard and other revenue was largely offset by lower 'commissions, transportation and other' expense and onboard and other expense," concluded C. Patrick Scholes of SunTrust in a note to investors on Carnival Corp.'s 4Q results. Like some other analysts, Scholes notes improving brand perception for CCL but also sees ongoing challenges: "We believe that some 1st time cruisers (and travel agents) are still hesitant to try a Carnival cruise due to last year's negative publicity and are subsequently choosing Royal Caribbean instead."

He explains that in SunTrust's pricing checks, CCL has the least promise for pricing increases of the 3 publicly-traded cruise companies: "We see only low-single-digit pricing growth for CCL in 2015 vs. at least mid-single-digit growth for RCL and NCLH."

Costa and Carnival are the 2 Carnival Corp. lines whose commissions have been described as struggling by agency group leaders in North America.

Costa is not on the list of preferreds of several key agency groups, and retailers of all sizes say that's a problem for the line. Today, a handful of retail groups now control the bulk of the business, and they have within their ranks a wide range of models, running the gamut from rebaters to niche players providing top service. That's a change from a decade ago, when there was more homogeneity within consortia and hosts, and this new breadth has increased the power of the groups and the earnings potential of their members.

However, for cruise lines that aren’t on the preferred list, growing business from retail groups can be difficult.
Like Costa, Carnival Cruise Lines is rarely at the top of the preferred lists of the large consortia and hosts, compared to its chief competitors. That partially explains why reports about agents' bookings of CCL are so mixed.

Anecdotally, according to sources in several key agency groups, the production numbers for agents booking with CCL this year did not increase -- and that was by design.

Factually, it's hard to glean real info from the "commissions, transportation and other" line item, because Carnival Corp. is reporting on 9 different brands; however, the year-end report by Carnival Corp. to Wall Street provides insight into the challenges facing CCL.

Among them, when reporting net ticket yield gains of over 2% for the 4th quarter, Carnival Corp. officials specifically cited yield growth for tail-end Alaska and seasonal European programs as the reason for the increase. The Caribbean, where Carnival Cruise Lines is the dominant player for Carnival Corp., was not mentioned as a factor.

On the other hand, there are many agents out there successfully selling CCL. Perhaps the most visible examples can be found among the 15 travel agencies across the U.S. and Canada honoured earlier this year for innovative marketing techniques, CCL brand advocacy and sales success. Some of the agencies given Carnival's "Excellence Award" were critics of the line in the past, while others are agencies with models outside the norm.

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