Cruise Industry Needs New Pricing/Booking Model

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

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.

New insights into Italy

Here are few new thoughts, insights or updates since our last visit to Italy four years ago:

1. Italians are becoming more customer-oriented and friendly. They are still nowhere near as responsive or friendly as hospitality workers in the Scandanavian countries, Germany or other countries. But they are learning that, in a highly competitive travel and tourism industry, and with economies in recession, that customers (aka tourists) can not and should not be taken for granted. Hotel staff in particular have greatly and noticeably improved. Restaurant and food services are also better but service can still be spotty. Transportation workers (including airport staff, bus drivers and taxi drivers) and retail workers have not improved much.

2. Moving around and through Italy, especially with luggage, remains a problem. Streets often lack sidewalks and ramps. Hotels have small and cramped lifts and sometimes don't even have a lift or elevator. Stairs and steps are everywhere and there is often no other option than to carry your bags. Venice in particular is difficult on the elderly or physically challenged individuals as most of the city is not accessible by bus or taxis and thus walking is mandatory in most of the city. To compound the problem, most locations require traversing multiple bridges with steps and uneven surfaces are prevalent.

3. Unlike other, more modern and progressive places in Europe (Copenhagen comes to mind), tour companies, taxis and many shops and stores still do not accept credit cards.

4. Many taxis still operate without meters so knowing your routes and the tariff (or at least the going rates) in advance is a must if you don't want to be ripped-off by drivers.

5. Non-Americans still have a different and more expansive notion of personal space, so be prepared to be pushed and shoved whenever you are in close proximity to others! This is useful to know when waiting in queues entering attractions, boarding trains and buses, etc. If you are not careful about closing your spacing, you might find people butting in front of you in queues!

6. In restaurants, coperto was far less common, and servizio incluso (service included) was non-existent, during our most recent visit.

7. Always have a couple one Euro coins handy as some bathrooms, especially in the train stations, use automated pay entrances to use the toilet/bathroom.

Venice

Venice is a magical city that is built on a series of small islands and canals in the middle of a lagoon. The lack of motor vehicles in most of the city, and the fact that one must use boats or walk to get around is what makes Venice so unique and beautiful amongst the world's great cities.

But the lack of transportation options makes Venice a particular challenge for the elderly or for  physically-challenged individuals--especially if you are not independently wealthy. Since most of the city is not accessible by bus, car or land taxi, one must either spend using water taxis, or be fit enough to take public transportation and walk, and carry your belongings, though most of the city. To compound the walking problem, most locations require traversing one or more pedestrian bridges with steps and uneven surfaces are prevalent.

On top of all this, you have the same common problems that you will find in most of Europe: narrow, cramped streets that lack sidewalks and ramps. Hotels with either small, cramped lifts/elevators or sometimes no lift at all. Stairs and steps are everywhere and there is often no other option than to carry your bags.

In summary, if you are planning a visit to Venice, consider your budget and physical fitness. If you are either physically unable or unwilling, but can afford over 100 Euros a pop, taking water taxis is a good option. If you are like the rest of us, then you are well advised to pack light and to choose your lodging location carefully!

A New Cruise Booking Strategy

There has been a notable imbalance between cruise ship stateroom supply and demand in most peak season markets that has resulted in huge "last-minute" sales this year. At least in the U.S., booked cruises must be paid in full (and the fare is mostly or totally non-refundable depending on how close your cruise is) by the final payment date, which is typically 70 days prior to your sailing.

I believe the cruise industry is having trouble selling staterooms due to a number of factors: (1) industry overbuilding has resulted in too many ships and staterooms saturating specific popular markets in Alaska and Europe as just two examples, (2) the global economic recession/slow-down, and (3) an airline industry at or near full capacity that has resulted in full planes and high airfares. The result this 2013 summer cruise season has been large and substantial post-final-payment price drops in cruise fares. And there is an increase in sales promotions including stateroom upgrades, free gratuities, free beverage packages, onboard credits to spend, travel agency discounts and other perks. This season, you can even get two or more of these perks!

So I now recommend the following cruise booking strategy for peak season cruises. First make one or more bookings within the travel window you desire. This is to ensure you have something in the event that the cruise should sell well, stateroom inventory decline and prices slowly rise. Then follow cruise pricing and sales carefully in the 70-120 days prior to each sailing you are following. Check common cruise booking web sites for stateroom availability and prices. As the final payment date nears, determine if your sailing is indeed selling well or not. If it is selling well (which was highly unlikely in most of 2013's Alaska or Europe summer itineraries), cancel the original booking(s) and wait until the final payment date has passed for the inevitable fare sale!

In my opinion, it is much rather to change sailings, book an alternative land vacation, or not go at all, than to risk taking a huge hit on the cruise fare. The lowest post-final-payment prices paid by many for most 2013 peak summer sailings were less than half of what many early bookers paid for the same staterooms! In addition, I've learned that the best way to secure a better stateroom, i.e. suites, CC or AC, is to wait. Of my over a dozen cruises, the only two times I've had a suite were both last-minute deals whereby I got a suite for a good deal because nobody would pay the advance booking premium over the preceding 18 months. And finally, the best air fare these days is often about 60 days out so that's after final payment anyhow. This strategy has worked great for our last two Celebrity cruises AND they were/are both peak season too!

Things I wish I knew before visiting China

Touring

Over the years, many of China's historical sites and artifacts have either been looted by Western colonial powers, or destroyed by invading armies (both foreign and Chinese themselves). As recently as the mid-1970's at the end of China's Cultural Revolution, China was actively destroying cultural and religious structures and artifacts to reinforce Mao's social orthodoxy.

The Chinese have only recently begun to appreciate the value of their long and rich history and culture. They've rebuilt many damaged or destroyed sites, and worked hard to reopen many tourist destinations of historical, cultural or religious interest. However, even when China has attempted to perform an excavation of historical value (that of the Ming emperor Dingling's tomb), they totally botched it and many important artifacts, including the emperor's and empresses' corpses, were either lost or destroyed.

So when you are touring China, it's important to realize that there are relatively few intact ancient archeological sites comparable to the Roman Forum, Colisseum, or the Greek Acropolis, nor well-preserved "recent" (i.e. within the last 500 years) sites. A lot of what you see has often been rebuilt within the last several years. For original content, fortunately there is still the Great Wall (which was too vast for even the Chinese to destroy) and the Terracotta Warriors (buried and lost over the centuries, and only recently rediscovered). Note even emperor Qin Shi Huang's Terrcotta Warriors and Horses were severely damaged by a rebel Chinese general of the time, so they have had to be painstakingly reassembled and restored!

Site maintenance, tourist facilities, English-language offerings and transportation options are all inferior to most Western tourist sites. The good news is that the admission fees are all reasonable.

And finally, touring China during the hot summer months is worse than touring Europe during the same period. First, China is hotter and more humid. Second, there are fewer places to cool off. At the very least when touring the Mediterranean, there are hotels with pools and beaches nearby or you can buy a cold drink with ice, if you desire a respite from the long, hot days of touring. However in China, few hotels have pools, there are no beach options near most tourist sites, and ice is a relatively rare commodity. In addition, Chinese ice cream is vastly inferior to Italian gelatti or ice creams.

Restaurants and Eating

Unlike Chinese restaurants in the U.S., restaurants in China:

1. Do not have non-smoking tables or sections. If smoking is really bothersome and you have a decent-size group, ask for the private room. Most larger restaurants have them.
2. Most servers do not speak any English.
3. Do not provide napkins or often do so for 1-2 Yuan. Don't use the provided packaged napkins or wet towels if you don't want to pay for them later!
4. Do not have or provide serving utensils. So unless you are completely comfortable eating foods communal style, you will have to ask for extra chopsticks or soup spoons to use.
5. Tea is often not included and can sometimes be the most expensive item you order. So don't assume the tea is complimentary.
6. Chinese beer is so cheap that it's not much more than other non-alcoholic beverages. 
7. Do not provide drinking water or glasses.
8. Serve drinks hot or room temperature--no matter how hot it is outside! So if you want a cold drink, please sure to specifically request it!
9. Serve beverages and food in a different order. In the U.S., you typically get drinks first, then appetizers (such as dumplings and soups), and then other dishes we consider to be the main courses. And rice is usually served along with these main courses. In China however, soups or rice are generally served very late in the meal. And beverages often come after some of the food is already served.
10. Generally do not accept credit cards. And if they do accept them, you usually have to leave the room to pay because, like in Europe, the restaurant staff are usually not permitted to take your credit card out of your possession. And unlike Europe, the use of portable credit card scanner/machines is far less common.
11. Do not have wait staff that expect a tip.

In summary, napkins, water, tea and rice must usually ordered and paid for a la carte.

Hotels

1. Hotel beds will range from plywood hard to U.S.-style soft. The more international the clientele, the more likely you will get a softer bed.
2. Most American and European hotels make their beds using a flat sheet, blanket, comforter and/or a bedspread. In China there is usually only a single, covered comforter or duvet.
3. There are very few connecting hotel rooms in China. Most hotels don't have any.
4. Hotels always provide potable bottled water for drinking and tooth brushing. If you need more water, just ask housekeeping and they will usually keep you well-stocked for no extra charge.
5. Hotel breakfasts are a common amenity in China so ask whether and how many are included with your hotel fare. 
6. Hotel breakfast buffets typically offer a mix of Western (eggs, bacon/sausages, breads, fresh fruit, yogurt, coffee, juices, etc.) and Chinese (noodles, dumplings, steamed buns, green vegetables, soup) food.
7. Most hotel rooms in China require the room key card to be inserted into a slot in the entryway in order to power the lights and the heating/cooling. So I recommend you request one extra key card so you have the option of leaving a card in the slot upon leaving the room.
8. Upon check-out, many Chinese hotels will immediately have housekeeping make sure the room is vacated and that none of their property was taken. So don't check-out until you have physically left the room with your belongings!
9. Wifi and internet access is available in most hotels. From my experience, roughly half the hotels provided complimentary wifi and the other half charged for it. In-room wifi access is rarer still as most only have wifi access points in the lobby, restaurant and meeting areas. In-room wired Ethernet access seemed common but I did not have my computer to try this. In any case, the internet access speeds are relatively slow as compared to other countries.
10. Every hotel has power outlets that support all the major international standard plugs so you will not likely need any adapters. Just make sure your AC-powered devices and/or chargers are dual-voltage (i.e. 110-120V/220V)--most electronics these days are!
11. There aren't many English-speaking TV channels (and in a couple of our hotels, there were none!), so you'd better learn Chinese!

Bathrooms

1. Assuming you're not using your own, remember to grab toilet paper prior to entering the stall to use the toilet (i.e. on the way in). There is often only one communal toilet paper dispenser at the entry. When they do provide toilet paper, most non-hotel bathrooms do not do so in each stall.
2. While Western-style toilets are becoming more common, most bathrooms will still have many more squat than sit-down toilets. If you must use a sit-down toilet, look for the marked stalls or look for a non-raised toilet platform as the raised platforms are usually the squat toilets.
3. Some public bathrooms do not have sinks or running water, and many don't have soap.
4. For the above reasons, always carry spare toilet paper and some anti-bacterial wipes. 

Miscellaneous

1. If your party will be using two or more cameras, be sure to synchronize the time zone, date and time.
2. When going through Chinese immigration, be aware that they review the passport and visa, and will take a picture, of each member of your party. So have each person ready to step forward when the system prompts you.
3. If you want to use the internet while traveling in China, know what you will want to access and how you will do it before you leave. To access censored sites or content (e.g. Facebook, Twitter are all inaccessible), you will need to have any VPNs and proxies ready to go before you leave the U.S. It will be very difficult to do after you arrive in China.
4. There is no sales tax.
5. You will often get an "invoice". This is not an invoice as most Westerners know it but rather it is a document that provides proof that tax was paid to the relevant taxation authority for the product or service rendered.
6. The air pollution in Beijing, Shanghai and many major cities is very bad. Follow the U.S. Embassy/consulate hourly air quality updates, and wear a good air mask whenever possible (I used Totobobos). A bad, "Code Red" air quality day in the U.S. would be a very good day in China!
7. Be very assertive whenever you are queuing or lining up for something, because most Chinese and many Europeans will cut or push right in front of you. 
8. When using your credit card, after signing the receipt, write a small note or comment as to what you just purchased. Later, when you are reconciling your bills and receipts, you will know what you just bought or ate (remember, the entire receipt is in Chinese!).
9. Prior to your trip, make a list of all the things you plan to buy. Given that most of what we buy and use in the US is now made in China, you can only imagine how much cheaper many of the things you need or want will be over there!
10. Queuing in line, driving an automobile, or crossing the streets in China requires an aggressive attitude. As there seems to be no accepted concept of "yielding the right of way", you must push to avoid people cutting in front of you in line when queuing, and must sometimes step in front of moving vehicles to successfully make it across the street. By being aggressive, you will fit right in and others will be forced to yield to you. If you don't, you will find yourself frustrated by line cutters, or waiting forever to cross busy streets.
11. At the gate and boarding our international flight home, Chinese airport security in Shanghai Pudong airport rescreened our carry-on bags. They forbade us from boarding with liquids, including the bottles of water that we had just purchased in what we thought was the "secured area" of the terminal.

"Washington" is YOU!

According to a recent New York Times/CBS poll, 82% of the American public now disapprove of their Congress. Obviously Americans are frustrated with our politicians in Washington, and their inability to get things done.

Our politicians however are OUR representatives, and we voted them in. Politicians aren't some alien beings--they are just ordinary Americans voted in by ordinary Americans. "Washington" isn't the problem, the American people are the problem. "Washington" doesn't cause short-term thinking, political paralysis or the lack of results. Our leaders' inability to solve our problems is rooted in our own citizen's lack of understanding of their own issues and problems, and their resulting poor choices for representatives. The pattern is well-established: Americans feel frustrated. Americans vote for some abstract notion of change by electing a new person to Congress. In a few short years, nothing substantively changes and people remain unhappy and frustrated. Most of those same elected representatives are subsequently voted out because they are "part of Washington", and the cycle repeats.

Do the American people have any idea of the scope and depth of our nation's problems? Do they really understand what "change" they are actually voting for? Why are Americans surprised by the lack of long-term planning, and the uncompromising, simplistic and highly polarized positions their politicians take? They are merely doing what you asked them to do, i.e. represent YOU!

In a nutshell, our country has promised way too much, spends way too much, and taxes way too little. We promise too much in the form of unsustainable entitlements such as Social Security and Medicare, which are IOUs that can eventually lead to our country's financial ruin. Even after the recent debt ceiling compromise, our government still spends too much on various programs. And regardless of what anti-tax conservatives say (sorry Norquist and Demint), we will need much higher revenues over the long term to put our fiscal house in order. Until the majority of Americans realize all this and accept the near-term pain we will all feel from fixing it, nothing will really change.

We don't need to "fix Washington". We need to fix ourselves. Americans need to understand that their problems are complex, long-term and painful, and that politicians with exciting sound bites promising quick solutions aren't the answer. We need more centrist views so there can be some middle ground for compromise and long-term solutions. We need to stop voting for polarizing representatives at the extreme left or right. So if you don't think Sarah Palin, Glenn Beck or Grover Norquist are too far right, or that Nancy Pelosi or Jon Stewart are too far left, then you really have nobody to blame but yourself for our nation's ongoing problems.

Things I Didn't Know about the Baltics

- Due to the "white nights", it never gets truly dark and both the sunrises and sunsets are long and beautiful
- Taxis in Stockholm and Copenhagen accept credit cards, and to save time, you can have the driver scan your credit card during the ride. Then add any tip.
- While people all recommend going to Tivoli in Copenhagen at night because of the beautiful lights, remember that the sun doesn't set until after 10 pm during the summer so twilight is the best you will get--it will never get completely dark. And for us, going early when it opens allowed us to experience shorter ride lines.
- Consider riding bikes in Helsinki--especially on Sundays when vehicle traffic on most of the side streets was minimal!

Who's To Blame For The Gulf Oil Spill?

There has been alot of finger-pointing over who is to blame for the recent crude oil spill and disaster in the Gulf of Mexico. In congressional hearings, Congressmen have sought to pin the blame on BP and other parties involved in the Deepwater Horizon oil drilling project. BP is certainly partially to blame because they are the lessee of the rig and has management responsibility for the drilling project. TransOcean is partially to blame because they own the rig and managed the drilling efforts as the project management. Haliburton might be to blame because it was their cementing process may have been faulty and caused the drill well to fail. And Cameron, the company that made the drill well's blowout preventer, may be to blame because their product is supposed to be the failsafe, last-line-of-defense, to stop the oil flow in the event of a failure further up the well or in the rig.

While any or all of these parties may be partially responsible for this environmental catastrophe, America's thirst for cheap oil is ultimately to blame. As a nation, we are desperate to maintain our current, oil-based way of life. Despite having plenty of natural resources, including energy, Americans continue to consume far in excess of what we can sensibly produce ourselves. Our insatiable thirst for cheap gasoline and oil forces our nation to ignore or downplay the many political, economic and environmental risks associated with finding or producing sufficient supplies of oil. In this particular case, the Deepwater Horizon project was a novel and even revolutionary, but ultimately risky, foray into deeper-than-ever-before off-shore drilling for oil. As evident now, regulators, engineers and risk analysts never considered what they would do if something went seriously wrong with the project. The disaster manifested itself because of a combination of a strong market demand for cheap oil, engineering hubris, lack of regulatory oversight and political near-sightedness.

Our insatiable appetite for cheap crude oil has already cost us dearly economically and politically over the past several decades. Now, we have an environmental catastrophe too.