RCCL: Berth Control & Self Control


Feedback from veteran agents regarding Royal Caribbean's just announced policy of ending discounted prices for last minute bookings on 7 day or longer cruises can be summed up as supportive but skeptical.

“In the past we've had cruise line execs say, 'We're going to sail with cabins unsold,' in order to maintain pricing integrity," explains one retailer. “The main problem is that they don't have control over the competition."

The issue came up during Tuesday's Q1 earnings call when Felicia Hendrix of Barclays asked RCCL execs, “On the price integrity side, I know it is early and you are talking about this now, but do you have a sense if your competitors are going to kind of join the party?"

Chairman & CEO Richard Fain's response indicated that as of now the party is rather small. “I think we have said that this is the right policy for us independent of anyone else and I think that is really the approach we took in deciding. It was really important to strengthen our brand because in the long run it is our brand that is going to drive our yield improvements.

“And so, no, I can't comment on anybody else. But I really would emphasize we think this is going to help us out regardless of what anyone else does."

Other lines have talked of limiting last minute bookings, sailing with empty cabins, etc., but in terms of a specific policy laid out in public such as Royal Caribbean did this week, nothing has been done.

Several other retailers said the issue is more related to self control. For instance when a competing cruise line drops its rates, and price conscious consumers book them accordingly, will the Royal brands really leave port with a fair amount of empty cabins?

Retailers say that based on history, the answer is no. One agent who called Royal's move, “a step in the right direction," added that based on her experience she doesn't believe the company will have the self-control to keep it as a long term policy. “The big problem is they have a formula, say 4 months out a certain percentage of the ship is sold out, but sometimes these sailings just don't work as planned. Norovirus comes up or something bad happens in Europe. Often they wind up needing to fill up to 15% of the ship in the last 30 days, despite the best of intentions."

The end result when this happens is the big question. “They don't like a cabin going out empty, because it hurts onboard revenue. The question is will they stick to their word when this happens?"

A 3rd retailer concurred, saying that he hopes Royal's new policy will work because it will help agent group business, but doesn't believe it will actually do so, pointing to out of the blue promotions like Royal's April 15 Tax Day that had his clients who had booked cruises later in the year cancelling and rebooking outside of the group in order to qualify for the no-tax booking day: “They always seem to make exceptions to policies."

But what's different now is how Royal Caribbean brands have changed in recent times. The agents are basing their comments on historical data, based on a time when the Caribbean market was constantly growing. Of late, Royal is emphasizing its newest tonnage outside of the North American market, most recently by announcing that Ovation of the Seas will open in China, before moving on to Australia.

This lack of growth for sourcing from North America could give Royal more control over its pricing policies than in the past. There may not be as much Royal Caribbean to book in the future for North American agents, but what there is might be pricier.

More importantly, the days of Royal competing head-to-head with CCL in the North American market are dwindling. Carnival has a unique home port strategy and focuses on many source markets that Royal is not emphasizing, such as the west coast. And Royal's 3 to 4 day cruises, where there is much head-to-head competition, are not included in this new policy.

Indeed it was a west coast agent who told CruiseWeek that Royal's new policy might work given the changing market conditions. “They're starting it carefully," he said. “Final payment on a 7 day cruise or longer is usually 75 days. What they're doing is for 10, 20, 30 days out depending on the situation, so they're not overstretching."

In a sense timing is everything. As one east coast agent said, “I hope it works and they expand on it. Currently, the policy often infuriates our customers who book early. We have a client who has been on over 100 Celebrity Cruises and came within a hair's breadth of never going on Celebrity again because Celebrity tanked the rates by $700 a person on a Bermuda cruise about 4 weeks before they were to depart."

To this agent, what Royal is doing will eliminate the most egregious offenses for a 7 day or longer cruise, though price drops within final payment still have the potential to be offensive to his clients that book early. “Royal is testing the water and saying they're willing to sail with some staterooms empty," he said. “It's a big step in bringing sensibility to the pricing model. But who will blink 1st, the cruise line or the customer?"

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