Eight years ago, the travel community held its collective breath in the wake of the September 11 terrorist attacks. When it finally exhaled, reality set in: travel stopped, consumers recoiled, industry revenues shrank. “After 9/11 there were immediate cancellations,” says Connie Moody, a travel consultant with Preferred Travel of Naples, FL, who has been in the travel business for 23 years.
Move ahead to another September—September 2008. On the 15th of that month, Lehman Brothers filed for bankruptcy, sending shockwaves through financial markets: pundits used subprime mortgage as a rallying cry against miscalculating banks; the stock market tumbled; employees were scared to look at their plunging 401ks for fear of shock; and consumer confidence dried up like a prune.
Unlike 9/11, which froze the world due to a singular barbaric event, the current paralysis is based solely on economic distress. “9/11 wasn’t an economic situation like it is now,” Moody laments.
The immediate fallout was quick and pernicious. “I’ll never forget those initial days and months after September 15,” says Malaka Hilton, owner and president of Admiral Travel Gallery (ATG). “Everybody started canceling and nobody was booking. We went through October and November thinking it was going to get better—but it got worse.”
Tales of woe are common. Karen Good Satzman, a master travel planner with TravelStore in Brentwood, CA, had an older couple cancel their Regent world cruise immediately after the financial crisis. “It broke my heart,” she says, not to mention her pocket book (commissions on world cruises can exceed $20,000). “This was the shock of the real world. I was nervous about how this year would unfold.”
Early on, many were flummoxed. Phones rang with clients frantically wanting to cancel previous bookings even though nonrefundable deposits had been laid out. Preferred Travel’s Moody was lucky; she already had a lot on the books once the economy soured. “My emphasis,” she says, “was protecting what I had. From October through November, it was about attrition, not losing what we had.” Moody escaped being a casualty of the times. “I only lost one big booking because of the economy,” she notes.
Others, like Nancy Omlid of Tzell Travel Group in New York, didn’t begin to feel the pinch until January, though she reports not sustaining any cancellations. “What was happening was that we had to put more time into every booking,” she says. “It took more time to get bookings completed.”
The question that some luxury travel advisors had to deal with once the economy began to flounder was, “What do we do now?” Many were accustomed to calling their longtime clients and telling them about a great trip or opportunity. Problem was, many of these clients took a bath in the stock market or—even worse—fell victim to the various spurious “get-rich schemes.”
ATG’s Hilton has many prominent clients in the Sarasota, FL, area. Sadly, some were bilked out of millions of dollars by Sarasota hedge fund manager Arthur Nadel, who in April was indicted on 15 counts related to investment fraud. “Initially, there was a need to be sensitive,” Hilton says. “The area was hit hard by the scam and we didn’t know who had millions stolen and who didn’t.” Hilton decided not to market as aggressively as she might normally. “When they were ready, they’d call us.”
Let’s Make a Deal
Nowadays, it seems that phones are ringing more frequently. While business initially slowed as a result of consumers reining in spending, they are slowly unclenching their wallets. The reason? Suppliers are offering what some are describing as staggering deals at a rate far surpassing any other period.
It’s “Let’s make a deal,” says TravelStore’s Good Satzman. She says the amount of deals that pop up in her inbox is overwhelming and almost impossible to keep up with. “I’m inundated all day long,” she says. Not that she’s complaining; it’s created a great source of business. “We aggressively market deals through e-mail and ads in the Los Angeles Times, which really works and keeps phones ringing,” she says. Deals at the luxury level are also allowing premium clients to step up to luxury. “They’re in the catbird seat,” Good Satzman says. “It’s surely a buyer’s market on every level.”
Moreover, “In my 15 years, I have never seen anything like this,” says Preferred Travel’s Donna Christensen.
Nowhere is this playing out higher than in the luxury cruise segment. The big four luxury lines—Crystal Cruises, Seabourn, Silversea and Regent Seven Seas—have all devised deals or new pricing structures that would have been derided only months ago. Now they are a part of sign of the times.
Crystal Cruises, for one, came out not only with its Crystal Assurance Plan, aimed at fare protection and cancellation periods, but also $2,000 per couple onboard credits. (“That just blew my mind,” says ATG’s Hilton of Crystal’s substantial onboard credit. “You can’t afford to stay home for that!”)
Like many agents, Crystal’s Senior Vice President of Sales and Marketing, Bill Smith, has never seen a flat line like this for such a long stretch. “On September 16, business was shaping up well, but then everything got thrown off,” he says. “We talked to agents and customers and tried to figure out what was going on. The situation was bad; guests were concerned about future bookings and cancellations. Agents began asking us what we can do.”
The first step was to placate consumer fears by permitting cancellations with a full refund up to 45 days. “This stopped the hemorrhaging,” Smith says, noting that today, Crystal’s hold rate is back to where it was in August. The “As You Wish” $2,000 shipboard credits came about, in large part, to Regent’s promotion offering complimentary shore excursions, which has driven a palpable amount of new business to the cruise operator. Crystal felt they’d rather give their customers the choice to spend the money on what they liked. “Let’s leave it to the customer to decide what is all-inclusive,” Smith says.
David Morris, former Silversea executive vice president of worldwide sales and marketing who left the cruise line in April and has since opened his own sales and marketing company, recalls the fear that set in back in September. “What happened last fall caught everyone by surprise,” he says, pointing out that, until then, the luxury cruise market was going through an unprecedented growth period. “I remember sitting there, looking at my computer and not believing anything like this could happen so fast. The cancellations began to pile up. January came and we were scrambling. That’s when you saw the deals, and the deals on top of deals. We had no choice. Seabourn took the lead and then Regent came out. The bottom line is, people are waking up. These are the best deals you’re going to get and they are taking advantage.”
It’s a brave new world for luxury travel advisors, who are adapting their skills to function in an altered landscape. “Clients are looking for deals,” says Katie Cadar, general manager of TravelStore’s Brentwood, CA, location. “I have many itineraries going on, but each one is taking longer to close. Luxury travelers have been watching the news and they are asking what each hotel is offering. The hotels are making deals so each booking requires more research than ever. There still are clients who want what they want and price doesn’t really matter, but even they want to feel they are getting something extra.”
Steven Silverman, an executive consultant with New York-based Protravel International, says clients are waiting longer to find and book that perfect deal or price. “Prices have come down ridiculously low now,” he says. “It’s like we were going for our master’s degree and now we are back in high school.”
Protravel sponsors a new trip each day that behooves a client to book through them. One recently promoted trip proffered a $1,000 room credit for anyone who booked the Four Seasons Resort Hualalai through Protravel. It’s even sweetening the pot on Crystal’s “As You Wish” credit by offering $500 per stateroom off all categories on most sailings this year.
Deals have become so rampant, in fact, that some customers are more concerned with getting a great price than the destination. “They are focused on the deals as opposed to the trip,” says Karen Rothenberg, who works in business development at New York’s Tzell. “They are more about price and will even switch destinations.”
Travel advisors have had to stay vigilant more than ever before, watching their bookings all the way through up to the trip date, particularly for cruises. “We’ve had to make sure that at the time of final payment our clients are getting the absolute best deal,” says Moody of Preferred Travel. “Some lines have last-minute sales and 2-for-1s. We’ve had clients who were booked for a long time so we have to make sure they get those advantages, too.”
Being a dealmaker is also about convincing and making sure clients understand that they are receiving the best value possible. “You have to tell them that they are going to get this; that here is the key value; and here’s your per diem when you get done adding perks and amenities and deducting all the discounts,” says TravelStore’s Good Satzman. “You have to let them know exactly what they’re getting.”
There is, however, one glaring disadvantage to deals: they can be a commission killer. When Seabourn is advertising 65 percent reduced rates in Europe, that’s two-thirds less commission, too. “There are pros and cons to deals,” says Tova Fink, CFO of Protravel. “You work twice as much for the dollar.” She implores suppliers to not lower prices, but, rather, add more value and amenities.
TravelStore’s Cadar has similar issues. “Where the hotels and cruises are cutting prices, we also earn less commission and we are doing much more work for each booking,” she says.
Will it keep up this way? When will premium pricing return? Greg Furman is the founder of New York-based The Luxury Marketing Council, an organization of 2,800 CEOs and marketing executives who represent more than 860 major luxury goods and services companies. He says the situation is dire. “This is the worst luxury market in our lifetime,” he says point blank, referencing a recent Booz & Company study that foresees a 40 to 50 percent drop in growth revenues in the next two years as compared with a
15 to 32 percent increase before September. “I believe nobody knows where and when the bottom will be,” Furman says.
What he does know is that luxury brands are doing a disservice to themselves if they market exclusively on price. “Radical discounting disillusions people,” he says. “It’s not about pricing, but value. The companies that can give a good price and not compete on price, but rather on relationships and value, those are the people who will see this through. This is a time for opportunity and creativity. Pricing, however, is not the lever, value is.”
Snapshot: Sales of the Century
“All-Inclusive, As You Wish” Europe promotion:A $2,000 spending credit per couple extended through 2010.
Regent Seven Seas Cruises
2-for-1 savings, free unlimited shore excursions and free air available on most remaining 2009 cruises if booked by May 31.
50 to 65 percent off published brochure fares on certain Europe voyages in 2009.
Silver Sailing program: Encompasses itineraries in all seven continents with 50 percent savings in all suite categories. Some Silver Sailing voyages also offer additional perks, such as free or reduced air and $1,000 onboard spending credits.
Fairmont Hotels & Resorts
“Everyone’s An Original” summer rates: Up to 20 percent savings at properties worldwide through September 30.
Four Seasons Hotels & Resorts
“With Our Compliments” packages: Complimentary nights, spending credits and complimentary breakfasts. Each hotel offers a different spin on the package; check individually.
“Summer Splendour” and “The Suite Life” promotions: Through September 15, Summer Splendour features special room rates, daily breakfast, a $100 credit and a gift certificate for a complimentary night’s stay at any Peninsula Hotel. The Suite Life extends a second night free in a suite.
Ritz-Carlton Hotels & Resorts
“Peace of Mind” package: Available in city and resort locations, the packages are designed to be inclusive including deluxe room accommodations, breakfast for two, daily Internet access and local phone calls, overnight parking, and Ritz Kids special activities. The package offers the option of three nights for the price of two; five nights for the price of three; and a week for the price of four nights.