This week’s musings, reflections and observations about travel affiliate marketing…

1. I think travel affiliates and travel suppliers might find Ad-ology Research’s recent survey conclusion that the majority of Americans are making their travel plans offline a bit disconcerting.

Ad-ology Research conducts research and provides forecasts, analysis and insights to some 2,000 advertising agencies, media properties and corporate product marketing departments.  They track and analyze key marketing and advertising trends and attitudes in over 440 industry categories, of which travel and hospitality is but one.

According to the findings from the firm’s Travel and Vacation Services Summer 2009 which was released in early September, it appears that less than half of all U.S. adult Internet users (47%) had used the Web recently to research travel.  Though not addressed in Ad-ology’s study, we presume the other 53% used offline resources to plan their trips, or refrained from undertaking any travel research as they were not planning to take any leisure or business trips.

Whatever the travel consumers’ reasons were to forego the use of the Internet, TravelDividends thinks 53% is a huge number, one that shouldn’t be so easily dismissed.  Nor should another of the major finding from this survey: Ad-ology suggests that social networking websites, blogs, forums, and other social media sites have little overall influence on traveler trip-planning behavior.  In fact, a rather paltry 23% of all survey participants said they looked to social media for assistance to sort-out their travel plans (with 36% of 18-34 year olds, the highest-scoring cohort, reporting that they were most influenced by social media).

Travel Dividends found Ad-ology’s list of the top consumer-researched travel topics far less surprising: airfare search topped the list at 34% of U.S. Internet users, followed by hotel/motel rates and availability (30.4%), car rental scored third (14.3%), followed by cruises (10.3%), and adventure vacations (10%).  Seven other travel categories scored in the single digits: train travel (6.3%); casino vacations (4.4%); guided tours (3.8%); bus tour (2.5%); travel agents/agency; and golf vacations (1.7%).

I think that if you’re a travel affiliate or an adventure tour operator with a travel affiliate program, learning that adventure travel was nearly as popular in terms of traveler search as cruises is very encouraging, given the disproportionate advertising and marketing dollars spent by the cruise industry to market their product.  Likewise, if you are a tour operator in the escorted tour space, or a travel affiliate that markets escorted tours, you’re thrilled to see pricey ‘guided tours’  running neck and neck as a viable travel option with less expensive casino-based travel product.

Commenting on the overall Travel and Vacation Services Summer 2009 findings, C. Lee Smith, president and CEO of Ad-ology Research said: “People are still traveling, despite the economy, but they’re certainly doing their research before they go…Through their sites, service providers have the ability to give consumers lots of information, and that helps the consumer feel like they’ve made a smart choice.”

Although TravelDividends agrees with Smith’s observations, we’d prefer Smith comment on the main ‘open issue’ that was raised but not answered in Ad-ology’s analysis: Why aren’t the other 53% of adult Internet users researching travel online?  Perhaps Ad-ology Research can address this question in its next survey.

2. I think cruise affiliates found a ‘mixed blessing’ in the third-quarter numbers reported by Carnival Corporation last week.  Despite the fact that year-on-year revenue was down 14% for its most recent quarter, to $4.1 billion, the cruise industry’s largest company achieved a net income of $1.07 billion.

In the press release announcing Carnival Corp’s financial results, Chairman Mickey Arison attributed his Company’s ability to overcome a portion of its revenue shortfall to its ability in wringing an 11.6% decrease in operating expenses, the large majority of which was generated from its two of its largest expense items, commissions & transportation and fuel costs, down 22% (to $515m) and 38% ($327m), respectively.

Among all of the cruise companies, Carnival Corporation is the only one to offer a cruise affiliate program (for their eponymous sub-brand, Carnival Cruises).  Reporting on the holding company’s overall ability to reign in commissions (which are paid to travel agents and travel affiliates) and transportation costs, Carnival Corp noted these fell largely because “…fewer passengers bought air-sea combo tickets,” and because airfares across the board were lower on air-sea purchases.

While there is a certain element of truth to Carnival Corp’s preceding statement, TravelDividends suggests that if you were able to speak to Carnival’s executives in private, they’d admit that the Company’s surge in profits to a large extent have been driven by another factor: the unbundling of the traditional cruise product, and the effect this has had on the commission they pay (or not) to resellers..

Much like the airlines have done, cruise lines have been unbundling their product the last several years, and when those unbundled cruise components are subsequently bought by consumers separate from the core cruise fare, the cruise line saves on the commission it formerly paid to their travel agent or travel affiliate distribution partners.

As the cruise industry continues to introduce larger ships, with each newbuild there is an ever growing and wider array of on-board activities available to cruisers; most of these activities, services or amenities are marketed and sold separately from the core cruise product as ‘ancillary sales’ (think air/sea packages, on-board themed restaurants, on-shore excursions, etc).  As such, the proportion of non-commissionable ‘ancillary’ revenue to commissionable core cruise product will grow in the ancillary category’s favor, regardless of whether the cruise product  is bought by the cruiser through travel agents, travel affiliates or supplier-direct, and all of that ancillary revenue drops straight to the cruise lines’ bottom line.  And conversely, the travel affiliates and travel agent’s top and bottom line will shrink.

So, while we think the news about Carnival Corporation’s financial turnaround is heartening, in our opinion, we also think travel affiliates should be a bit less sanguine about their future prospects if this unbundling trend  deepens and accelerates.

As a cruise affiliate, what’s your take on this subject? If you’re with a cruise line, where do you stand?  We’re interested in hearing from you.

3. In looking at another positive indicator from Carnival Corporation’s third quarter financials – passenger numbers registered a 7% year-over-year increase, to some 2.5 million for the quarter – I think this performance is not unique to Carnival’s portfolio of brands, but likely to be reflected by Royal Caribbean and NCL when they report their 3rd quarter results as well.

Why is that, you might you ask? Well, according to online web analytics company, there has been a ‘tidal wave’ of consumer interest in cruising of late.  Based on their analysis of the number of U.S. consumers researching cruise trips online, so far in 2009, cruise searches are up 2% from the corresponding period last year, and grew a whopping 19% in July compared to the prior month (8.2 million consumers versus 6.9 million, respectively).

According to Carnival, this trend is shaping their forward bookings.  The cruise holding company pointed out that booking volume for the remainder of 2009 and the first half of 2010 are up 19% company-wide, and that occupancy levels, though still lagging last year’s numbers, appear to be catching-up as a result.

In many respects, Royal Caribbean, which financially speaking, had a particularly poor 2008 and first two quarters in 2009 (after hitting its lowest point in more than a decade [$7.70] earlier this year, their share price has surged 200% over the last few months), as well as smaller competitor NCL, need to get a similar ‘bounce’ out of this consumer interest to sustain their new found momentum.  But it’s not clear to us if this will, in fact, be the case.

If in fact, much of the increase in demand (and the resulting rise in occupancy levels) has been driven by deep price discounts, what will happen when the cruise lines look to restore their ‘pricing integrity’ as we move into the peak cruise booking periods in the months ahead?  Will consumers buy at the higher price points, or, will they balk at the increases, and simply wait until the cruise lines reinstate the discounts in an attempt to fill their berths?

Given the uncertainties in the economy at the moment, this is a tough call, even for the most seasoned industry observers; in a recent investment advisory, Majestic Research, a New York-based equity research firm, found that Carnival’s pricing was “…beginning to show some sequential improvement” in the fourth quarter of this year, and that Royal Caribbean International’s upcoming ship, the massive Oasis of the Seas, “appears to be generating very strong pricing premiums.”

However, Majestic Research didn’t rule out a subsequent tumble in share price if the economy sours again, or consumers remain stingy with their purse strings.   Time will tell, so watch this space…

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