Charlie Funk
In another life it was my job to analyze economic statistics and events to determine how these data would affect sales of capital equipment my employer manufactured. Often the data were from disparate areas of the economy and society.
It meant tracking interest rates, the jobless rate, how many people were changing jobs and more to come up with a forecast of whether additional synthetic carpet fiber production capacity was going to be needed, what kind of fiber it would be, whether or not my company's equipment would be used in that manufacturing process and how likely my company was to get the contract.
I guess that's why I enjoyed the book "Freakonomics" (by Levitt and Dubner, published by William Morrow, 2005) so much. It looked at statistical information that seemed to have nothing at all to do with the subject at hand. In one case it explained what sumo wrestlers and teachers had in common. It helps to be a nerd sometimes.
So it was only natural that I would look at factors that might impact leisure travel sales. I settled on changes in unemployment rate, prime interest rate, home sales and interest rates, Dow Jones Index, consumer confidence index and gasoline pricing. Each was assigned a "weight" from 1 to 7, with my choice of the most important being 7 and the least important 1.
Cutting to the chase, my algorithm was barely better than a guess at forecasting projected call volume. That is, until I made gasoline price the most important factor, followed by consumer confidence index. All of a sudden my algorithm to predict leisure travel sales tracked actual observed results a lot more closely.
We were able to predict, for example, in September 2003 that 2004 and 2005, and probably 2006, were going to be boom years. We suggested to suppliers that prices that tanked following 9/11 and the 2003 Iraq War could be raised. That didn't happen, and some profit opportunities were missed, but indeed those were really good years for us.
What do the factors in my algorithm look like now and for the next couple of years?
• The Conference Board Consumer Confidence Index was 92.6 at the end of December compared with 78.3 in February 2014 and 25.3 in February 2009. These numbers trend similarly to results from March 2003 to June 2004.
• Gasoline prices are at or near $2 a gallon on average, down from $3.55 a gallon about two years ago. Adjusted for inflation, gas is cheaper today than it was in 1960 and is expected to stay at or near this level for the next two years.
• Unemployment is 5.6%, down from about 10% five years ago, and is expected to go lower based on a study that found that 60% of businesses surveyed plan to add employees this year.
So if all these indicators are so good, Mr. Smarty Pants, why is it a "meh" Wave season for cruise bookings so far? It's not always about hard numbers, or maybe I don't have the right variables in my equation. In any event, my conversations with agency owners in business more than five years indicate mixed results thus far in 2015. Reasons for why bookings and dollars are up, down or neutral include:
• Big December. Wave season is more loosely defined, and some believe a big December came from bookings that might have come during Wave season in years past.
• Not all have seen the recovery. A perhaps significant portion of the cruise market making up contemporary brand sales haven't seen economic recovery or are holding off to be sure it is real.
• First-time cruise-passenger percentages are still down. A higher percentage of past passengers is good (easy to sell) and bad (conditioned to wait for prices to drop), and the need for more first-time cruise passengers is great.
• Promotions and offers. The various incentives and promotions offered are really great, but some prospects seem to be looking at them as the norm, and they're waiting for the next big offer.
All these factors and more have an impact on leisure sales. The following do, as well:
• The population base needed to grow sales is there. The millennial generation is now the largest single population group, and many of them are reaching the prime age to be looking at resorts, all-inclusives and cruises. Selling to millennials is very different from selling to boomers.
• The middle class in the U.S. as a whole is still not fully recovered. A greater percentage needs to see positive results and believe it will last. The Great Recession left an indelible mark on many in the 21-to-35-year-old age range as it relates to saving and spending.
• If travel retailers stumble in filling beds and berths, look for direct sales efforts by suppliers to intensify.
• That said, it would seem that a new equilibrium has been reached with cruise lines and their support of the retail travel community. The Royal Caribbean brands, Regent, Oceania and some other brands never wavered in their support of agents. Norwegian initiated programs four years ago to improve relations. Other cruise lines through management changes and other initiatives have signaled that they recognize that the travel retailer is a necessary part of their business model.
• Supplier support for the retail channel will continue, but the relationship going forward will likely be different from what it was 15 years ago and maybe even seven years ago.
• Travel professionals, as opposed to hobbyists who sell travel but not as a primary income source, will need to adjust business models to sell those products that are more profitable or offer substantial opportunity to sell third-party ancillary travel products to make a profit.
• In absolute numbers, most travel professionals cannot compete or don't want to compete for travel packages that don't produce enough revenue to cover costs. The challenge is exacerbated by having to compete with some portion of the retail sales agency community that not only continues to rebate but has found novel ways to circumvent supplier policies and rules against rebating.
Absent some untoward event, I still believe 2015 will be a good year for leisure travel sales and that the improved economy bodes well for better travel sales through 2017. Retailers have to reinvent themselves to take advantage of the opportunity. Cruise lines must find a way to attract more first-time cruise passengers, most of whom are millennials.
All that said, y'all make sure the locking bar is securely in place, because the ride is getting ready to leave the station.
• • •
Changing subjects, my Dec. 22 column, headlined "Don't get on my naughty list" and about the standards of conduct among travel professionals, generated more comments and emails than any of my columns in the last three years.
I had notes and emails from agents as well as suppliers. With one exception, all were positive and supportive. One did, however, profess understanding for how an ambitious travel agent might put his business cards all over a cruise ship and wondered if I would have been as irritated if the person had been an insurance salesman. In a word, absolutely. I don't go on vacation to be hustled by anyone selling anything.
Suppliers that responded either recounted policies they already had in place or were preparing to implement that address the issues raised. It is encouraging to know that suppliers agree with agents on matters such as this that tarnish the reputation of true retail travel professionals.