The Charter Cruise/Resort Business 201: BALANCING GUEST SERVICE & THE BUSINESS
By Randle Roper
Several of our guests have asked, “Why can’t VACAYA’s cancellation policies be more liberal?”
It’s a great question and one that provides us the perfect opportunity to share even more of how our business works. Think of this as “THE CHARTER CRUISE/RESORT BUSINESS 201: BALANCING GUEST SERVICE & THE BUSINESS.” Welcome to VACAYA Academy, Sophomores!
As we’re sure you can imagine, we’ve been involved in countless conversations with other LGBT+ travel companies, cruise lines, resort companies, and travel industry leaders since the very beginning of the crisis. It’s been 6 straight months of speculation and calculation. And every time we all think we know what the path forward looks like, we run into another curve in the road – just like you’re experiencing in your everyday life. We’ve watched other companies implement “one size fits all” measures that were anything but, so we’ve carefully observed, benchmarked where we could, and taken a different approach.
While we wish we had a 30-year war chest or billions in emergency loans to tap into like some of the multi-national travel companies out there, the truth is we simply don’t. We’re a young company facing the biggest disruption in travel history and we’re navigating our way through it successfully – playing the cards we’re dealt as they’re dealt to us. That has allowed us to remain nimble as we analyze and respond to the ever-shifting situations that present themselves.
EXAMPLES OF THE BENEFITS OF MAINTAINING FLEXIBILITY
With our 2020 Lisbon Pride Cruise, we met with all of our guests over Zoom and ultimately decided to cancel the trip. We presented the group with 4 incentivized future credit options or a full refund, and then executed those options as each individual guest requested them. No refund request took us more than 24 hours to process.
For our 2020 Iceland Cruise, we held another series of face-to-face Zoom meetings covering booked guests on 6 continents. For that particular cruise, we were given an unprecedented option of postponing the cruise even though it was still sailing. We presented everyone with both sides of the argument, laying out the pros and cons of the two options. Then we took a vote. With nearly universal approval, our guests elected to postpone the cruise to 2021.
VACAYA’s next trip – our Mexico Resort vacation this October – is actually moving forward. The resort is in operation and we’ve paid for it. UNICO has instituted strong and successful safety protocols that VACAYA has enhanced with our own additional protocols. We didn’t have the option to cancel or postpone. We did, however, lay out for our guests all the possible scenarios where a postponement might occur. We also recognized that some guests may not be ready to travel and ultimately may choose not to come, but even there (and although none of the money they’ve paid us and that we’ve paid the resort is coming back to us), we’ve offered a $1000 future credit per couple.
And that brings us to our February Caribbean Cruise. What do we know so far?
- We know Celebrity won’t return to the water until October 31.
- We know they’ve had to postpone that date multiple times.
- We know that the best scientific and operational minds in the industry are working to create a safe environment for cruisers and that their ships won’t sail again until those contributors feel they’re ready.
- We know that if they’re not ready by February, our cruise will be postponed. And if that happens, we’ll work with Celebrity – just like we’ve worked with every one of our other partners – to craft the best hand we can play with whatever cards we’re dealt at the time. We’re still more than 6 months out from this cruise and as we’ve said countless times, that’s a lifetime (maybe 5 lifetimes) in this new era. So we patiently wait for the cards to be dealt. That’s what we do.
We’ve invested countless hours easing the minds of our guests over these past 6 months and we’ve been happy to do so – because our guests are our lifeblood. It’s been therapeutic for us, too. Using our core value of doing the right thing as the lead driver, we’ve done everything we can to effectively manage these crazy crazy times. Very early on, we offered to delay payments for those guests affected negatively by the pandemic and were happy to offer that. Quite a few guests exercised the option.
As we outlined in our Business Primer Blog back in March, this can be a tricky business. Oftentimes we’re spending millions to charter these vessels/resorts. We pay those charter/buyout fees with the money that comes in from our guests. This business isn’t sustainable – not for any charterer – where all the money that comes in suddenly disappears. So existing promotional offers aren’t sustainable long-term; they’re temporary fixes to help companies manage the crisis and usually come with a long list of terms and conditions.
Let’s break down the math of one specific request that’s been made of us – extending our 15% penalty until just before our 2021 Caribbean Cruise. To keep the numbers simple, we’ll break down what a typical million dollars looks like in the world of VACAYA (keeping in mind that a full-ship Caribbean Cruise charter can cost anywhere between $2-6 million USD):
For each $1,000,000 in Charter Fees, VACAYA brings in about $1,600,000 in Revenue. From that revenue above the charter fees, about 25% goes into Production for the cruise (entertainment, parties, etc.). An additional 25% goes into Marketing and Day-to-Day Operations, leaving behind earnings before interest, taxes, depreciation, and amortization of around $300,000 if the trip sells to 100% capacity.
As mentioned in our Primer, guest payments are laid out to coincide with the charter fee payments we have to make to the cruise line – with the entire charter typically paid for in full 90-120 days before the sail date. So let’s stick with our $1,000,000 example as it relates to the request to keep the 15% penalty in place until 60 days before the sail date:
- $1,600,000 in revenue comes in
- $1,000,000 goes to the cruise line to pay the charter fees
- $600,000 remains
- $300,000 of that $600,000 goes into production (whose elements are contracted months in advance), marketing, and day-to-day ops
A HYPOTHETICAL EXAMPLE
Now, let’s say everyone decides to cancel the trip on December 14 (61 days before our sail date) and is penalized the proposed 15%. With a 15% penalty on the $1,600,000 in revenue, that means 85% or $1,360,000 is returned to guests. So in this scenario, with everyone hypothetically cancelling at the last minute, VACAYA’s revenue on the trip would plummet from $1,600,000 to $240,000 – far short of paying even a portion of the charter fee, much less covering the entertainment and marketing costs. So when we say “it’s not a sustainable model,” we mean it’s not a sustainable model. Without a significant war chest or access to millions in emergency capital, it’s a sure path to bankruptcy. That’s why VACAYA can’t/won’t go down that path. Instead, we’ve worked with our partners to renegotiate everything and craft new paths forward. Those efforts ensure that not only will VACAYA get through this challenging time, but we’ll also be around for a long long time.
We are very lucky to have partnered with some of the greatest and most guest-focused companies on earth. And although VACAYA is only in its second year, our decades-long relationships with these companies have opened up the door to options that have never existed before (for example, with our Iceland Cruise). So although we can’t offer the type of “fear of travel” protection that’s being requested, we can make this promise to you: our guests will always be our number one priority, as they have been since Day 1. We made a promise that VACAYA would be “maniacal” in our guest service and that’s exactly what we’ve done.
We know these times haven’t been easy for anyone. That’s why we’ve been so transparent – so each and every one of our booked and future guests knows exactly where we stand. We recognize this level of business transparency and openness isn’t the norm, but that’s ok. VACAYA has been rewriting the playbook since Day 1 and we continue to do so here. And for all of us to successfully get through these challenging times, it’s essential. So thank you for your support. We look forward to welcoming you safely and soon to VACAYA!
#StrongerTogether #AdaptToLive #myVACAYA