It's time for the cruise industry to reassess and reengineer their pricing, booking and refund policies for U.S. and other customers. The current system that has been in place for decades is unlike any other system in the travel and hospitality business.
For North American customers, one contacts either a travel agent or the cruise company directly, and makes the booking along with a modest deposit. If the customer elects not to go, the booking can be cancelled with a full refund of the deposit and nothing further due. If the customer elects to proceed with the booking, they make "final payment" (or the balance due) approximately 60-75 days (depending on the specific cruise and cruise line) prior to the day of sailing. After that date, there is a harsh, regressive, and draconian refund policy that limits the customer's options to little to no refund if they should need to cancel for any reason. Basically, prior to final payment, the customer is firmly in control. Once the customer however has made the final or full payment, the cruise company has your money and is highly unlikely to return any of it in the event of a customer cancellation.
Prior to about 2-3 years ago, customer who booked early and made final payment generally got decent (if not the lowest) fares and the best selection of staterooms. Sales, or the supply of staterooms, generally seemed to be linear so that the supply of unsold staterooms closer to sailing did not warrant massive discounting to sell them.
Recently however, the cruise industry (and especially Celebrity Cruises from my experience) seems to be unable to sell a sufficient number of staterooms, even for their peak season cruises, prior to final payment. The resulting post-final-payment discounting has distorted the pricing and value proposition for savvy customers. Nowadays, it is knowable that booking closer to sailing, i.e. 14-60 days from sailing, easily offers the best value proposition for many of the larger-ship mainstream cruises on the most popular itineraries.
From my perspective, the problem is due to poor management and/or insufficient information and tools when responding to periods of low demand and high supply. Clearly, the industry's people and/or sales/load management models don't properly price staterooms during the early sales phase so too little is sold. The result has been consistent and predictable wave of "last-minute" discounting to dispose of remaining inventory. In other words, prices are set way too high early so that too little is sold prior to final payment. Then after final payment, prices are driven very low to sell the balance of inventory.
In addition, the industry's practice is to sell the unsold staterooms using "guarantees" to avoid having to refund the price difference for all those who already booked specific stateroom categories. The practical effect is that buyers of these heavily-discounted staterooms also happen to get the best staterooms too. Talking about adding insult to injury. One would think that a multi-billion dollar corporation would have the wherewithal and means to at least upgrade or otherwise compensate their early-booking, high-margin customers instead of giving away the better stateroom categories all to last-minute, discount buyers, but it appears that the cruiselines either don't have the willpower, manpower and/or the information systems to handle what should not be an insurmountable challenge. So except for upgrading some customers in higher stateroom to suites, most of the early-booking, high-margin customers are stuck and the other staterooms are virtually given away to last-minute, no margin customers instead. Does Celebrity Cruises think that these early booking, loyal customers do not notice or care?
I don't know the impact on margins but I cannot believe that the current pricing and booking approach offers Celebrity Cruises, as just one example, maximum margins or profitability. In addition, there is another, less immediately tangible, perhaps even more serious negative impact in the long term: the signal you give your early booking customers (often your best and most loyal customers) that you've screwed them big time. By discounting staterooms (and often the best ones too) 30-50% less than what others have paid, the cruiseline punishes customers who both booked months earlier and paid much much more.
All this is possible because of a draconian and extreme booking policy whereby the cruise lines have virtually no leverage prior to a customer making final payment, but can hold customers' monies hostage after final payment. It is simply and obviously a case whereby, after final payment, cruise lines exploit those who paid more for near-term profits with absolutely no consideration for the future.
I believe this entire booking model and sales approach is very short-sighted and creates enormous customer dissatisfaction. Does anyone within the industry have the courage to at least consider switching to an passenger airline-style booking model? Customers could pay more or less depending on the restrictions they are willing to accept. Customers could pay more for specific stateroom assignments or for cruise-assigned staterooms (currently done in the form of "guarantees"). Airlines have an excellent track-record of maximizing revenues per flight and making sure that no plane flies with an empty seat (i.e. no lost opportunity revenue). Clearly the way the cruise lines do it now cannot work well in the longer term. Either they need to be more realistic on early pricing so that ships are more full closer to final payment, or they need to use a different sales/booking model.
Below, is my own recent letter to Richard Fain of RCI specifically regarding my unhappiness about the manner in which Celebrity Cruise has been handling their most recent cruise bookings and their massive post-final-payment discounts.
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Richard Fain
For North American customers, one contacts either a travel agent or the cruise company directly, and makes the booking along with a modest deposit. If the customer elects not to go, the booking can be cancelled with a full refund of the deposit and nothing further due. If the customer elects to proceed with the booking, they make "final payment" (or the balance due) approximately 60-75 days (depending on the specific cruise and cruise line) prior to the day of sailing. After that date, there is a harsh, regressive, and draconian refund policy that limits the customer's options to little to no refund if they should need to cancel for any reason. Basically, prior to final payment, the customer is firmly in control. Once the customer however has made the final or full payment, the cruise company has your money and is highly unlikely to return any of it in the event of a customer cancellation.
Prior to about 2-3 years ago, customer who booked early and made final payment generally got decent (if not the lowest) fares and the best selection of staterooms. Sales, or the supply of staterooms, generally seemed to be linear so that the supply of unsold staterooms closer to sailing did not warrant massive discounting to sell them.
Recently however, the cruise industry (and especially Celebrity Cruises from my experience) seems to be unable to sell a sufficient number of staterooms, even for their peak season cruises, prior to final payment. The resulting post-final-payment discounting has distorted the pricing and value proposition for savvy customers. Nowadays, it is knowable that booking closer to sailing, i.e. 14-60 days from sailing, easily offers the best value proposition for many of the larger-ship mainstream cruises on the most popular itineraries.
From my perspective, the problem is due to poor management and/or insufficient information and tools when responding to periods of low demand and high supply. Clearly, the industry's people and/or sales/load management models don't properly price staterooms during the early sales phase so too little is sold. The result has been consistent and predictable wave of "last-minute" discounting to dispose of remaining inventory. In other words, prices are set way too high early so that too little is sold prior to final payment. Then after final payment, prices are driven very low to sell the balance of inventory.
In addition, the industry's practice is to sell the unsold staterooms using "guarantees" to avoid having to refund the price difference for all those who already booked specific stateroom categories. The practical effect is that buyers of these heavily-discounted staterooms also happen to get the best staterooms too. Talking about adding insult to injury. One would think that a multi-billion dollar corporation would have the wherewithal and means to at least upgrade or otherwise compensate their early-booking, high-margin customers instead of giving away the better stateroom categories all to last-minute, discount buyers, but it appears that the cruiselines either don't have the willpower, manpower and/or the information systems to handle what should not be an insurmountable challenge. So except for upgrading some customers in higher stateroom to suites, most of the early-booking, high-margin customers are stuck and the other staterooms are virtually given away to last-minute, no margin customers instead. Does Celebrity Cruises think that these early booking, loyal customers do not notice or care?
I don't know the impact on margins but I cannot believe that the current pricing and booking approach offers Celebrity Cruises, as just one example, maximum margins or profitability. In addition, there is another, less immediately tangible, perhaps even more serious negative impact in the long term: the signal you give your early booking customers (often your best and most loyal customers) that you've screwed them big time. By discounting staterooms (and often the best ones too) 30-50% less than what others have paid, the cruiseline punishes customers who both booked months earlier and paid much much more.
All this is possible because of a draconian and extreme booking policy whereby the cruise lines have virtually no leverage prior to a customer making final payment, but can hold customers' monies hostage after final payment. It is simply and obviously a case whereby, after final payment, cruise lines exploit those who paid more for near-term profits with absolutely no consideration for the future.
I believe this entire booking model and sales approach is very short-sighted and creates enormous customer dissatisfaction. Does anyone within the industry have the courage to at least consider switching to an passenger airline-style booking model? Customers could pay more or less depending on the restrictions they are willing to accept. Customers could pay more for specific stateroom assignments or for cruise-assigned staterooms (currently done in the form of "guarantees"). Airlines have an excellent track-record of maximizing revenues per flight and making sure that no plane flies with an empty seat (i.e. no lost opportunity revenue). Clearly the way the cruise lines do it now cannot work well in the longer term. Either they need to be more realistic on early pricing so that ships are more full closer to final payment, or they need to use a different sales/booking model.
Below, is my own recent letter to Richard Fain of RCI specifically regarding my unhappiness about the manner in which Celebrity Cruise has been handling their most recent cruise bookings and their massive post-final-payment discounts.
---------------------------------------------------
Richard Fain
Royal
Caribbean International
1050
Caribbean Way
Miami,
FL 33132-2096
Dear
Mr. Fain,
I
had
read
with considerable
interest
your April comments to shareholders and
others regarding
pricing and last-minute discounting. As both a shareholder and a
long-time and loyal customer, I had personally experienced the
demoralizing and
negative effect
of post-final-payment,
last-minute
price drops and discounting. In the past, as with many other regular
customers, we always booked early and made our final payment at the
anointed time. Due to recent shifts
in booking/pricing
patterns however, for our three
most
recent cruises, we waited until after final payment to book because
we knew that the best and lowest pricing would be available at the
last-minute.
As you obviously know, such discounting only discourages booking early, and increasingly angers and alienates your best and most loyal customers who often book early and pay the most. I took your most recent comments to heart and for upcoming July 20th Europe sailing aboard Reflection, I booked early, and perhaps against my better judgment, made our final payment last month.
Recently however, and despite your commitment to stop the practice, Celebrity announced huge price drops for many Europe sailings. I am greatly disappointed and upset that Celebrity continues to do post-final-payment, last minute discounting on sailings, including on many peak season cruises such as our July 20th sailing. In our case, even factoring in the value of our 123Go promo, the latest discounted fares are $500-$600 less per person. In addition, as before, Celebrity will now assign many or most of the best staterooms to last-minute bookers. This only adds insult to injury for your early booking customers.
What I cannot understand are primarily two things:
1. Why does Celebrity continue to mismanage their booking/load management and pricing to the point that so few staterooms are sold prior to final payment, and why is such extensive discounting required after? Surely there must be better load management model for Celebrity to use to properly manage pricing, inventory and margins? And is there any consideration whatsoever to the negative impact on your early booking (i.e. high profit margin) customers? As time goes on, the early booking, high profit margin customers get smart, no longer book early, there will be fewer high-margin customers and the downward cycle goes on.
2. Even if last-minute discounts and guarantees must be utilized or offered after final payment, why can't Celebrity at least make an effort to give those who booked early and paid the most, some category upgrades or other consideration? I totally understand the dilemma that Celebrity faces in your need to maintain the price point for each stateroom category, and perhaps your information systems and/or personnel are limited in their ability to upgrade large numbers of customers and/or issue small refunds for category pricing differences, but certainly doing something mitigate the considerable negative effect to your most-loyal and highest margin customers. It would be better than simply giving away the best staterooms to the last-minute, low-margin folks booking guarantees. In the end, you would engender far less anger at the inherent unfairness of the current “two-class” early-booker/late-booker model.
I believe the use of cheap guarantees after final payment to overtly circumvent dealing with early-bookers of specific stateroom categories meets the short-term business need to sell staterooms quickly to fill ships and avoid issuing refunds to pre-existing customers, but the strategy is extremely short-sighted and damaging long-term. In summary, most of your problem is in your pricing and inventory management, and another part of the problem is how you sell that remaining inventory. Based on your earnings call comments, I sense that you know all this but wonder if you can and will solve this. Thank you in advance for your time and consideration.
As you obviously know, such discounting only discourages booking early, and increasingly angers and alienates your best and most loyal customers who often book early and pay the most. I took your most recent comments to heart and for upcoming July 20th Europe sailing aboard Reflection, I booked early, and perhaps against my better judgment, made our final payment last month.
Recently however, and despite your commitment to stop the practice, Celebrity announced huge price drops for many Europe sailings. I am greatly disappointed and upset that Celebrity continues to do post-final-payment, last minute discounting on sailings, including on many peak season cruises such as our July 20th sailing. In our case, even factoring in the value of our 123Go promo, the latest discounted fares are $500-$600 less per person. In addition, as before, Celebrity will now assign many or most of the best staterooms to last-minute bookers. This only adds insult to injury for your early booking customers.
What I cannot understand are primarily two things:
1. Why does Celebrity continue to mismanage their booking/load management and pricing to the point that so few staterooms are sold prior to final payment, and why is such extensive discounting required after? Surely there must be better load management model for Celebrity to use to properly manage pricing, inventory and margins? And is there any consideration whatsoever to the negative impact on your early booking (i.e. high profit margin) customers? As time goes on, the early booking, high profit margin customers get smart, no longer book early, there will be fewer high-margin customers and the downward cycle goes on.
2. Even if last-minute discounts and guarantees must be utilized or offered after final payment, why can't Celebrity at least make an effort to give those who booked early and paid the most, some category upgrades or other consideration? I totally understand the dilemma that Celebrity faces in your need to maintain the price point for each stateroom category, and perhaps your information systems and/or personnel are limited in their ability to upgrade large numbers of customers and/or issue small refunds for category pricing differences, but certainly doing something mitigate the considerable negative effect to your most-loyal and highest margin customers. It would be better than simply giving away the best staterooms to the last-minute, low-margin folks booking guarantees. In the end, you would engender far less anger at the inherent unfairness of the current “two-class” early-booker/late-booker model.
I believe the use of cheap guarantees after final payment to overtly circumvent dealing with early-bookers of specific stateroom categories meets the short-term business need to sell staterooms quickly to fill ships and avoid issuing refunds to pre-existing customers, but the strategy is extremely short-sighted and damaging long-term. In summary, most of your problem is in your pricing and inventory management, and another part of the problem is how you sell that remaining inventory. Based on your earnings call comments, I sense that you know all this but wonder if you can and will solve this. Thank you in advance for your time and consideration.
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