The Charter Cruise/Resort Business: A Primer

In explaining our business, note that when we use “ship,” we actually mean “ship or resort,” and when we use “cruise line,” we mean “cruise line or resort company.”

The Basics of the Business
VACAYA is a cruise ship charter company, one of only a handful of full-ship charterers around the world. That means we work with various cruise lines to take over a piece of their hardware (a ship, a hotel) for a specific moment in time. We rent the whole ship (with crew) for a specific date range, usually 7 nights. By taking over the entire ship, we are granted certain privileges to create an experience for you from the ground up. We touch nearly every onboard department from housekeeping and food & beverage to entertainment and everything in between, allowing us to create a signature rhythm and feel.

The Investment & The Risk
Each cruise line has a specific department within their corporate structure to handle full-ship charter requests. VACAYA works with these charter departments to figure out which ships are available for charter, the destinations, and the price of the overall charter. Chartering a large ship can cost anywhere from $2-6 Million depending on the ship, the time of year, and ports of call. After putting a down payment on the charter (which is usually around 10%), we pay the cruise line in installment payments, each of which is tied to our various guest payment plans. So when you’re purchasing a trip from VACAYA and are looking at the payment options, know that those are directly tied to when we have to make a payment to the cruise line. All of this is usually, but not always, girded by a Letter of Credit that covers the entire cost of the charter.

So when VACAYA announces a new large-ship charter, know that we’ve made a multi-million dollar bet on what we hope will end up being a well-informed choice that will be supported by LGBT+ travelers. From our side – even with over 100 years of collective experience in hospitality, entertainment, and LGBT+ travel – each and every choice we make charter-wise is a bit scary. Will people like it? Will they buy it? And if they don’t like it or won’t buy it, what will we do? Anyone who’s ever opened a new business will fully understand that entrepreneurial angst. Luckily so far, we’ve made solid choices that have been well received by the travel community.

How Charter Companies Make Money
Ultimately, VACAYA makes money by reselling rooms on ships. It’s that simple. We buy all the rooms at X price, we add entertainment, parties, and activities, then we sell them for Y, and we make Z. And to be truly profitable, we have to come close to selling out each and every time. In addition, we have onboard revenue targets we must meet. These are not insignificant numbers. With large-ship cruises, every purchase you make – drinks, excursions, spa, fine dining, etc. – goes toward an overall target for the week. If we meet our target, VACAYA typically gets a cut of any overages. Miss the target, though, and VACAYA has to write a check to make up the difference. Understanding how/where we make money as a business is important as we all face the uncharted waters of the current Covid-19 crisis.

Why Charters are Different from Standard Sailings
When chartering a ship, VACAYA takes that ship out of the cruise line’s deployment schedule and it’s no longer available for sale to the general public. This is done anywhere between 12 and 24 months in advance of the sail date. The handling of that particular sailing then shifts from the cruise line’s general sales department to their charter sales department. This is a shift you never see and would never be expected to know anything about. However, today, it’s important you have a better understanding of this shift.

The Charter Contract
Charters are not part of a cruise line’s standard week-to-week business of selling cruises to the general public. It’s a carve out, run by its own department with its own executives, budgets, sales force, sales goals, operations team, etc. And this one aspect of our relationship with the cruise lines is the one that’s causing most of the confusion as it relates to all that’s going on with Covid-19. Because cruise lines have carved out charters as a separate business, we don’t get the same benefits the general public would get in regard to the rebooking terms and conditions the cruise lines are offering to their standard (read non-charter) passengers. We are being held to a different set of terms. And frankly, they’re not very forgiving.

In fact, “pandemic” is a specific call out where most of the cruise lines ultimately bear no responsibility whatsoever – creating a sort of “like it or lump it” scenario. So we’re having to have very complicated conversations – ones where relationships are worth their weight in gold – with multi-billion dollar corporations whose charter business is a locked revenue stream for them, not subject to the ups and downs of standard sales (since the contracts are guaranteed so far in advance). These cruise lines’ guaranteed charter revenue is sometimes used to balance losses the company might face elsewhere (for instance, during these Covid-19 days where they’re having to give so much back to their non-charter guests). So the cruise lines hold to those contractual guarantees with a tight grip, holding nearly all the cards over the charter companies.

It’s a really tricky position for us to be in – caught in a strange in-between. These large corporations can afford to have a bad year. Sure, their shareholders might not like it, but they’re built to withstand even major business disruptions. But make no mistake about it, the cruise lines will lose countless millions here. But… and it’s a big but… they are all likely to weather this particular storm. Charter companies like VACAYA are in a much different spot – unable to amortize losses across fleets of ships sailing week in and week out like the cruise lines can. We are an event company – with set events throughout the year. So we have to approach these challenge in a different way. And our challenges are myriad.

Charter Insurance
VACAYA is, of course, very well insured, but like our contracts with the cruise lines, losses caused by “pandemic” are specifically not covered. Luckily, though, with our next trips still months away, we’ve had the luxury of time to have the hard conversations we’ve needed to have with our partners and our guests. It’s a constant dialogue where we’re all working non-stop with each other to make it through these tumultuous times.

Charter Cruising versus Standard Cruising in the Age of Covid-19
Let’s begin with full recognition that we are in an unprecedented situation right now. The industry has never faced anything quite like this before. It appears cruise lines are giving nearly everything back to their standard guests – ability to cancel up to 48 hours before sailing, future cruise credits, full refunds in some cases. At this time, it’s unclear what the equivalent givebacks will be for charter guests, but those conversations are happening daily. From the cruise line’s perspective, they view charterers like VACAYA as a single customer versus 2,000 individual costumers like they have with each of their standard cruises. These charter sailings are singular events like a theatrical show. To illustrate this analogy, if a show is cancelled, the ticketholders would typically get their money back. But if the show is happening and you have a ticket to that show, the expectation is you’ll be there. The same can be applied to a charter sailing. If the ship is sailing, it’s expected that those who’ve purchased a ticket to the cruise will sail. You’ve paid us, we’ve paid the cruise line, and the show goes on. However, this Covid-19 challenge is testing every single travel provider’s mindset on what “doing the right thing” means. Luckily we’ve chosen some pretty great companies to partner with and so far, at least, they’ve been very understanding of our situation as a charterer and are giving where they can.

Why Can’t the Charter Company Just Cancel?
You may be asking yourself that very question. As we stated before, charter companies are viewed as a single customer of the cruise line, bound by a contract with significant non-refundable penalties for cancelling. Think of that like a non-refundable airline ticket you might buy. Sure… you can cancel it, but it ends up being a nearly total loss. With respect to a charter, that loss could range anywhere from $500,000 to millions based on the timing of that cancellation. So that option is just not feasible for smaller charter companies.

By design, 2020 was always a quieter year for us and with our next vacation event still months away, it may go on as scheduled without any issue. Or maybe it won’t. We simply don’t know at this time. Each and every day brings new realities to the challenges we’re all facing. But know that if any of our partners pause operations (like Princess, Disney, Avalon, NCL, Viking, Royal Caribbean, and Celebrity have done) and if that affects our sailings, there are contingencies in place to refund all of our guests. The money we’ve paid for the charter would be funneled back to us and then from us to you. But please understand… that cancellation can only happen in one direction – with the cruise line cancelling the sailing altogether. If the ship sails on our contracted dates, it belongs to VACAYA for our event, plain and simple. There’s no out for us. No wiggle room.

Will Government Assistance to the Travel Industry Help Charter Companies?
While the situation is continually evolving, it’s generally anticipated that the US Government will provide some assistance to the travel industry (specifically cruise lines) to help them through this crisis. However, it’s unclear how or even if this “bailout” will ultimately impact charter companies. While we can’t speak on behalf of all charter companies, we’d hope any assistance provided to the greater industry takes into account the needs of companies like VACAYA.

Travel Insurance
Many of our guests have wisely made it a practice to purchase “Cancel for Any Reason” travel insurance, which at times like these, seems a prescient choice. And for that, we applaud you. While none of The Vacayans have regularly purchased travel insurance in the past, these times are certainly shifting our perspectives on that and will make for a new regular course of action with our own personal travel. As a reminder, if one of our cruise line partners cancels a VACAYA event, the money you’ve paid VACAYA for your cruise will be returned, but ancillary items like airfare, hotels, etc. have their own cancellation policies that are between you and those individual service providers. Comprehensive travel insurance policies, however, often cover all services related to a specific trip as long as you include those ancillary items in your policy.

Our Relationships with the Cruise Lines
Each and every relationship we have with the cruise lines is different. That makes it nearly impossible for charter companies like VACAYA to create standardized terms across all contracts. We negotiate the best terms for each individual event and ultimately live by those terms. Covid-19 has certainly taught us much about how we’ll proceed with future negotiations. We are already employing moves to strike a better balance in the overall charter equation for future events. VACAYA has been rewriting the playbook since Day 1, and watching all that’s been going on in the travel industry these past few months has definitely shown us that it’s beyond time to reach more equitable and balanced charter agreements. We feel that the terms for you, the consumer, should never be worse if you choose to take a charter cruise versus a standard one. Never. We will continue to fight collectively with other charter companies to finally bring balance to the equation and that will better serve us and you long term.

None of us has ever faced this type of global challenge before. And while we could say, “Oh sure, we were prepared for a global pandemic and we have a complete contingency plan to handle all scenarios,” we’d be lying if we said we did. No one had a complete plan for the realities we’re all facing today. We’re having nearly daily meetings to figure out the path forward and just like you’re seeing in the media, it’s ever-changing.

From everyone here at VACAYA, we thank you immensely for keeping your cool as we all travel down this new road together. Grace, compassion, and patience will save us all.

 

Helpful Links:

 

Comments

  1. Wow !! I am so impressed with you and Vacaya for providing thIs information

    you and your Team are doing a stellar job and i applaud all of you !

    Well done Randal!

  2. Thank you for sharing. I leArned a lot about the comPlexity and risk of your industry. HopIng for smooth sailing for You soon.

    • Thanks so much, King. We’re all in this together, so it’s important everyone understands the challenges. ❤️

Leave a Reply

Your email address will not be published. Required fields are marked *