Increased Airfare Discounts - Hotels Doing It, How About Cruise Lines

[SelectSys]

This month's (10/08) Perrin Report in Conde Naste Traveler is reporting on new airfrare subsidies by Hotels in reaction to increased airfares. According to Wendy, leisure/resort hotel occupancies have been falling and hotels in locations (Las Vegas, HI, Caribbean) hardest hits by capacity reductions are fighting back by providing airfare credits to guests.

 

Here are a couple of examples -

 

Sandals - $1,100 / couple

Four Season Nevis - Total reimbursement for weeks stay

Big Island - $200 off 5 night packages

 

I would bet the that the cruise lines will react as well. It could be by moving ships to more populous locations - e.g., Celebrity leaving Australia, it could providing more discounts on airfrares.

 

My own belief is that more airfare subsidies of one form or another are coming for leisure passengers. I have posted this in the past and articles like the Perrin report provide evidence that this strategy is gaining traction in the market.

 

What do you think? Is there an alternative to giving air travel subsidies to passengers other than traditional cruise air?

[Lookingforfacts]

I'll speculate any subsidies would be done via cruise air packages. Cruise lines might attempt to get better consolidator fares. I could even see cruise lines subsidizing the cost of transfers instead of passing them on.

 

Quoting a "reasonable" airfare package cost might look more attractive then a rebate. I haven't looked at the numbers. I wonder if a cruise line could offer free air, from at least some locations, if a passenger booked at brochure rate.

[greatam]

This month's (10/08) Perrin Report in Conde Naste Traveler is reporting on new airfrare subsidies by Hotels in reaction to increased airfares. According to Wendy, leisure/resort hotel occupancies have been falling and hotels in locations (Las Vegas, HI, Caribbean) hardest hits by capacity reductions are fighting back by providing airfare credits to guests.

 

Here are a couple of examples -

 

Sandals - $1,100 / couple

Four Season Nevis - Total reimbursement for weeks stay

Big Island - $200 off 5 night packages

 

I would bet the that the cruise lines will react as well. It could be by moving ships to more populous locations - e.g., Celebrity leaving Australia, it could providing more discounts on airfrares.

 

My own belief is that more airfare subsidies of one form or another are coming for leisure passengers. I have posted this in the past and articles like the Perrin report provide evidence that this strategy is gaining traction in the market.

 

What do you think? Is there an alternative to giving air travel subsidies to passengers other than traditional cruise air?

 

Land based resorts do not have the same problem as a cruise line-namely, the fluctuating cost of fuel. And cruise ships are sailing full. No need to subsidize air.

 

And I would just bet that if the land based resorts subsidize a lot of airfare, either packages will go up (on the all inclusives) or more likely, the bar drinks/food/activities will all be jacked by XXX%. Not enough to make it REALLY noticeable. But enough to cover the cost of the subsidized air.

 

Vegas is doing it but they have ALWAYS had a lot of freebies. They are looking for gamblers, not food and drink customers. And if the Vegas hotels have to spring for $500.00 in air, you can bet they have run the numbers over and over to MAKE SURE they get back the airfare. Not the same with cruises or resorts.

 

What would a resort or cruise line gain if they subsidize air, but the subsidy causes the bottom line to fall??? Just because you are filling ships or resorts DOES NOT mean you are making money. Empty rooms-lay off room stewards/housekeepers/chefs/bartenders, etc. 95-100% capacity is generally the goal at most resorts/cruises. But you may not be making a profit. You gained NOTHING even with subsidized air.

[Lookingforfacts]

Agreed. I'll speculate cruise lines might promote the cruise air package. Possibly sharpen the pencil, get better consolidator fares and price out whatever profit the included transfers provide. Something like let our buying power get you airfare cheaper then you can get on your own.

 

Want to be creative. Have a limited time offer, with some subsidy but word the fine print in a way that precludes fare reduction if the price of the cruise drops. Limit the offer to passengers who are either willing to pay in full or at least pay something like half the total cost of the cruise and air.

 

I understand cruise lines typically slash fares until they fill the ship. They hope to make money on extras; photos, excursions, spa, liquor...I suspect many of the passengers who grab those last minute deals are repeat cruisers that live near the ports. I wonder how much of those extras bargain hunting repeat cruisers purchase.

 

Cruise lines have already moved ships to ports closer to their passengers. Look at the increasing number of cruise ships departing from the NYC area and Alaska cruises departing from cities like San Francisco.

 

Some of the resorts are offering discounts similar to previous offerings but are postioning as an airfare subsidy rather then a hotel discount.

 

 

 

Land based resorts do not have the same problem as a cruise line-namely, the fluctuating cost of fuel. And cruise ships are sailing full. No need to subsidize air.

 

And I would just bet that if the land based resorts subsidize a lot of airfare, either packages will go up (on the all inclusives) or more likely, the bar drinks/food/activities will all be jacked by XXX%. Not enough to make it REALLY noticeable. But enough to cover the cost of the subsidized air.

 

Vegas is doing it but they have ALWAYS had a lot of freebies. They are looking for gamblers, not food and drink customers. And if the Vegas hotels have to spring for $500.00 in air, you can bet they have run the numbers over and over to MAKE SURE they get back the airfare. Not the same with cruises or resorts.

 

What would a resort or cruise line gain if they subsidize air, but the subsidy causes the bottom line to fall??? Just because you are filling ships or resorts DOES NOT mean you are making money. Empty rooms-lay off room stewards/housekeepers/chefs/bartenders, etc. 95-100% capacity is generally the goal at most resorts/cruises. But you may not be making a profit. You gained NOTHING even with subsidized air.

[greatam]

Possibly sharpen the pencil, get better consolidator fares

 

 

You KNOW that ain't going to happen.

[Lookingforfacts]

You KNOW that ain't going to happen.

 

I don't know what, if anything, cruise lines could do to get better airfare. I was thinking lower fuel prices, combined with revenue from checked bag fees might give cruise lines the ability to negotiate somewhat but I'll concede you're right; it's not going to happen.

 

I don't know if there would be any savings if cruise lines chartered flights. NYC-MIA(FLL) probably wouldn't work because you still have deeply discounted fares available. Is there enough Alaska business to run NYC-Chicago--Seattle/Vancouver charter?

 

Direct Air is a "new" (fly by night?) LCC that is leasing planes (and flight crews) from Virgin Air. I'm sure there are a number of airlines that are willing to charter flights, if the price is right.

 

It's possible the consolidator fares cruise lines are currently booking may be lower then the cost to charter a flight.

 

I'll agree with your conclusion, I don't see a cruise line subsidizing airfare to any meaningful extent.

[Travelcat2]

Many cruise lines are running at full capacity. No incentive to do anything other than what they are doing. JMO

[SelectSys]

Land based resorts do not have the same problem as a cruise line-namely, the fluctuating cost of fuel. And cruise ships are sailing full. No need to subsidize air.

 

Land based resorts are cruise ships have quite a bit in common - large staffs, high fixed costs, extremely expensive to build, difficult to start up and shut down, etc

 

Another areas where they are different (other than Vegas) is that lots of new capacity is coming on line. Law of supply and demand suggests that prices will be falling either directly or indirectly (unless the lines mothball or scrap a bunch of capacity)

 

I would like to see what the projection of bookings are going out. We still are running on bookings made before airline cuts have been fully absorbed by the market. Carnival's Q3 report said advance bookings are down from a year ago but ahead of 2006. Bookings would have been worse except for Europe but that market is now also slowing down.

 

http://www.ttglive.com/c/portal/layout?p_l_id=61139&CMPI_SHARED_articleId=1291924&CMPI_SHARED_ImageArticleId=1291924&CMPI_SHARED_articleIdRelated=1291924&CMPI_SHARED_ToolsArticleId=1291924&CMPI_SHARED_CommentArticleId=1291924&articleTitle=Carnival%20sales%20slowdown

 

Here is a new promo that Carnival is starting. While not talking yet about airfares, discounts are on the way to keep demand up:

 

http://travelvideo.tv/news/more.php?id=15629_0_1_0_M

 

RCL has yet to report. It will be interesting to see what they say about the health of the market and bookings.

 

And I would just bet that if the land based resorts subsidize a lot of airfare, either packages will go up (on the all inclusives) or more likely, the bar drinks/food/activities will all be jacked by XXX%. Not enough to make it REALLY noticeable. But enough to cover the cost of the subsidized air.

Maybe yes but likely not. Unless the resort is really remote - like a cruise ship - the guests will simply make more purchases off site and mix more drinks in their rooms. Perhaps hotels will start inspecting bags for alcohol like some of the cruise lines. :)

 

Vegas is doing it but they have ALWAYS had a lot of freebies. They are looking for gamblers, not food and drink customers. And if the Vegas hotels have to spring for $500.00 in air, you can bet they have run the numbers over and over to MAKE SURE they get back the airfare. Not the same with cruises or resorts.

 

Sure, but these had dried up considerably over the last 10-15 years. They also became more sophisticated in handing out traditional perks with their guest programs. It is not an all or nothing game. I would just suggest that the perks will be increased.

 

All business run models to see whether or not they are going to get their money back from promotions. Some industries and companies are better at it than others. I don't see a fundamental difference in any travel company deciding to alter pricing (which is what a subsidy is) in reaction to changed market considerations.

 

What would a resort or cruise line gain if they subsidize air, but the subsidy causes the bottom line to fall??? Just because you are filling ships or resorts DOES NOT mean you are making money. Empty rooms-lay off room stewards/housekeepers/chefs/bartenders, etc. 95-100% capacity is generally the goal at most resorts/cruises. But you may not be making a profit. You gained NOTHING even with subsidized air.

 

You may gain something, you may not. It is a postive if the extra revenue you gained exceeds the extra costs associated with that passenger/guest.

 

My suspicion is that cruise ships have high fixed costs and low marginal costs associated with taking on an additional passenger and this makes it likely that subisdies and cost reductions are possible.

 

You are correct that the profit margins will fall as prices fall. However the cruise business is still fairly competitive market and one line just can't sit still while competitor's take business. Perhaps this is why Deustche Bank downgraded Carnival to a sell:

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=AP&date=20080925&id=9191416

 

The other alternative is to shed capacity, but this is tough with cruise ships that scheduled sometimes years in advance. I guess you could shut down the lowest decks as you proposed. However, unless one is an executive or board member in these companies it would be tough to make definitive rather than speculative statements as to how they are going to react to increased air travel costs and expanded fleets.

 

 

Agreed. I'll speculate cruise lines might promote the cruise air package. ...

 

Want to be creative. Have a limited time offer, with some subsidy but word the fine print in a way that precludes fare reduction if the price of the cruise drops. Limit the offer to passengers who are either willing to pay in full or at least pay something like half the total cost of the cruise and air.

 

...

 

This is certainly possible. The cruise companies just start needing to apply change fees like the airlines.

 

Many cruise lines are running at full capacity. No incentive to do anything other than what they are doing. JMO

 

I would love to find an easy source for finding out how bookings are really trending. The best I can think of are the 10-k and 10-q reports filled with the SEC. Maybe travel agents can get this info.

 

BTW - good luck with your hotel venture!

[greatam]

I guess you could shut down the lowest decks as you proposed. However, unless one is an executive or board member in these companies it would be tough to make definitive rather than speculative statements as to how they are going to react to increased air travel costs and expanded fleets.

 

 

BTW - good luck with your hotel venture!

 

I never proposed shutting down the lowest decks. A cruise ship is just kind of STUCK with their employees (but primary income is from tips, NOT wages, so not much savings).

 

Land based resorts/Vegas are not STUCK with their employees. Lay off some when times get tight. I co-managed a resort in Hawaii for a short while. When times got tight (months of October/November and again in April/May), we just closed up some rooms, laid off some employees-housekeepers, bartenders and dining room staff. Kept the bottom line intact.

 

I see no reason to subsidize air-personal opinion. Cruise ships are being moved and sold all over the world. It is truly a global market and there is a LOT of money floating around the world.

 

One of my close friends, a TA in Los Angeles, has told me that the Asian cruises are sold not only to Americans flying to Asia, but their extended families are joining them onboard IN ASIA. So little or no airfare. Same thing in SA. I wouldn't be surprised to see more cruises aimed at SA families-maybe on older ships which were somehow thought of as "USA ships" (I'm thinking Carnival's older ships-they could sell them off to SA cruise operators and reduce capacity if needed)

 

I have never been on a Caribbean cruise nor do I have a desire to go. But if your concern is USA domestic airfare, the cruises have become so cheap (most of the time) that any increase in airfare is still within the budget.

 

As for Europe, with the decline in the dollar, even adding in expensive air, the price is still lower on a cruise than taking an air trip + hotels + meals a couple of years ago (just looked at what I turned in for receipts in 2006 for air/hotels/food for a 7 day business trip to London and Amsterdam). The same hotel today in London is $480 per night as opposed to $270 in 2006. I can have a d**** nice cruise for $480 per night (and that doesn't include food or transport).

 

Thanks for the wishes on the hotel. It has been a LOOOONG struggle-Cambodia is truly a third world country and a COMMUNIST country to book. The rules and regulations have changed month by month. I thought we would be open by Xmas. But now it looks like January. I am keeping my fingers crossed.

[Jade13]

They are moving the ships. That is the advantage of the cruise line industry! My understanding is that HAL is getting away from the Caribbean market. They will have more ships in Europe and Asia. Why not when the EUR is doing do so much better than the dollar. They will look to Europeans (and Asians) to take these cruises.

 

Btw, as far as I know my last two HAL cruises (in the past two months) were sold out.

[paul929207]

My guess is that the cruise line reaction will be based on our reaction. If we keep cruising, then the cruise line will take little or no action. On the other hand if bookings drop off, we will see so reaction. The cruise lines will either offer cheaper air or move ships to population centers.

[Globaliser]

They will have more ships in Europe and Asia. Why not when the EUR is doing do so much better than the dollar. They will look to Europeans (and Asians) to take these cruises.

 

Btw, as far as I know my last two HAL cruises (in the past two months) were sold out.

The fact that the Euro is "doing so much better" than the dollar doesn't mean that moving ships to Europe will make them more profitable. And it's totally irrelevant to the wisdom of moving them to Asia.

 

Why should anyone think that Europeans and Asians have any more money than Americans in the present climate?

 

And "sold out" means nothing either - you can easily sell out a ship at fares that mean that you make a loss, not a profit.

[Jade13]

The fact that the Euro is "doing so much better" than the dollar doesn't mean that moving ships to Europe will make them more profitable. And it's totally irrelevant to the wisdom of moving them to Asia.

 

Why should anyone think that Europeans and Asians have any more money than Americans in the present climate?

 

And "sold out" means nothing either - you can easily sell out a ship at fares that mean that you make a loss, not a profit.

 

This is what I was recently told onboard a HAL cruise by the FCC. I don't know if they were talking about scheduling for 2010 that is not (all) out yet. I do know that the past 2 summers we have gone to Europe to cruise and there are many more Europeans onboard, so it made sense to me (people are asking if cruise prices will go down because of air, and the cruise lines do not need to do that if their ships are closer to the passengers). The HAL ships I have been on this summer were sold out in advance but I do know what you mean in terms of the Caribbean. Earlier this year on a Celebrity cruise (Carribean) the fares just kept going down. I don't know how that cruise was profitable when insides went down to $349.00 pp and $299.00 for New Yorkers and other resident specials.

[happy cruzer]

The issue is a bit complex -

 

I think the cruiselines make alot of money up front on the higher end cabins. Maybe even totally breakeven on what folks pay for the high end cabins.

 

Then the inside cabins and maybe even outside cabins can be discounted to fill the ship and probably make money off the extras sold on board.

 

I think currently most lines have no problem selling the balconies and suites, it's the other 2/3's that may be the problem.... Lots of capacity. I voted that many lines will fill the low cost cabins by moving the ships to ports with lots of cruisers that don't need to buy airfare. JMHO

[SelectSys]

Why should anyone think that Europeans and Asians have any more money than Americans in the present climate?

For a while it seemed that the economy outside the US was doing much better than here. It looks like the downturn is spreading both to Europe and Asia due to oil, financial markets, real estate, etc.

 

... told onboard a HAL cruise by the FCC...

I would take anything provide by the line's representative with a "grain of salt." They have every incentive to tell their passengers that demand is high to drive onboard bookings.

 

... I don't know how that cruise was profitable when insides went down to $349.00 pp and $299.00 for New Yorkers and other resident specials.

Like the vegas casinos, they want you on board and start selling you high margin drinks, the casino, "gold chains by the inch", etc.

 

I am sure the cruise lines forecast in advance how much revenue they'll get from each onboard passenger. Sort of like the ULC airline trying to make more money off luggage, seats, food/drink, "fees", etc than the base fare.

 

...I think the cruiselines make alot of money up front on the higher end cabins. Maybe even totally breakeven on what folks pay for the high end cabins.

 

Then the inside cabins and maybe even outside cabins can be discounted to fill the ship and probably make money off the extras sold on board.

Something like this seems reasonable. I would expect that the high-end cabins like balconies turn a profit without extras although maybe not in places like the Caribbean.

 

I think currently most lines have no problem selling the balconies and suites, it's the other 2/3's that may be the problem.... Lots of capacity

 

That is why the newer ships have a much higher percentage of balcony cabins compared to older ships. RCCL's Oasis is even creating "internal balconies" by having courtyards open to the sky to cut the number of traditional inside cabins even more.

[SelectSys]

Looks like more than 1/2 the posters are expecting some type of change by the cruise lines with more redeploying of ships being the highest ranking alternative for cruise line reactions to high airfares.

 

It does seem to be getting more e-mail from travel providers offering "free air" on cruises. Of course I could be selectively filtering my e-mail to reflect my belief that more air discounts are coming from the cruise lines to keep demand up for 2009 schedules.:)