During Royal Caribbean's recent earnings call, Chairman & CEO Richard Fain addressed the issue of value-adds, 1st noting the company's increasing use of them. "We're doing more integration between onboard revenue and ticket revenue," Fain told financial analysts. "As we evolve the sophistication of our revenue management systems, one of the things you've seen is that we are doing more and more with value-added vs. discounts."
He explained that programs such as Celebrity's 123go! have proven effective for 2 reasons: consumers prefer bundled packages and it works out better for travel agents.
"It's popular with the travel agent, because it effectively increases their commission by bundling more into what is commissionable," explained Fain. "And it means instead of touting ourselves on price we tout ourselves on what we are offering... we are very much focused on trying to upgrade ourselves, the image, and do less price fighting and more `this is why you're better on this kind of a cruise.'"
In terms of the relationship with onboard spending, Fain acknowledged, "I do think that one of the implications of that [bundling] is that mathematically it could actually have a little bit of a reduction in onboard revenue."
But he concluded: "The other thing is we have also gotten so much better at what we're offering... so we're looking at positive momentum on both sides."
Retailers continue to report that one impact of value-adds is getting them to pay more attention to selling cruises vs. competing vacation products. Equally important, they say, is that today's shopper - particularly the premium shopper - is no longer falling for the lead-in price. They know their vacation is going to cost more than advertised and want to know in advance how it breaks down.
A key retail leader, John Lovell, President of Vacation.com, explains why value-adds are mutually beneficial to supplier and seller: "Nobody wants to commoditize their product. Nobody wants to continue to have some of the yield issues that we've seen. The value-add maintains pricing integrity in the marketplace and I think that’s very healthy and very important for the industry as a whole.”
He adds: "What happens is that if you cut your price, you can never make it up. In contrast, the value-add is driving the right customer onto their ships."