Unit 04 - Travel and Tourism Products and Services

Travel and Tourism
Unit 04 - Travel and Tourism

Products and Services
Explore the roles of Tour Operators and Travel Agents
Marketing services
► We will now explore the roles of tour operators and travel
agents in much more detail and will use a case study approach
to understand the specific roles that each plays in bringing
travel and tourism products and services to the customer.
International tour operators

► A tour operator typically combines tour and travel components to create
a package holiday. This means that the tour operators are responsible
for arranging the transport, accommodation and leisure activities that
make up a typical package holiday.
► International tour operators work with suppliers and principals from the
industry (airlines, hotels, tourist attractions etc.) in order to obtain their
products in large quantities such as airline seats, hotel stays, places on
an excursion, car rentals etc.
► It is in the way in which international tour operators obtain these
products that give them a ‘wholesale’ function - they acquire these
various components of a package holiday, such as 25 double rooms in a
hotel for the first week in August, 50 economy class airline seats on a
charter flight to the destination in which the hotel is located to arrive at
the beginning of August, a 54-seater coach to transfer passengers from
the airport to the hotel upon arrival in the destination, and 50 places on
an excursion to the local tourist attraction within that destination on a
given day during that week in August.
International tour operators
► Having ‘accumulated’ all of these products, the tour operator bundles
them as a package and makes this package available to the customers,
by marketing and distributing the package to the customers in their own
country.
► There are many different types of tour operator around the world. Many
operators specialise in specific destinations, example; offering packages
only to Mauritius or in particular activities such as skiing.
► Other tour operators target specific segments of the market such as by
age appealing to seniors or young people or by lifestyle such as
ecotourism packages for the responsible tourist.
Types of tour operators - Mass market tour operators
► Mass market tour operators operate within the mainstream of the
travel and tourism industry. This means that they tend to offer the
traditional ‘sun, sea and sand’ package and cater to very large
numbers of tourists in popular destinations such as the traditional
Spanish Costas and appeal predominantly to the European market.
► Mass market tour operators tend to be the most recognisable names
in the industry such as TUI Travel PLC; the world’s leading leisure
travel company operating in over 180 countries with more
than 30 million customers using 200 different brand names.
It owns TUI, the market leading tour operator
brand in Germany and Thomson,
the leading UK tour operator as
well as LateRooms.com, the
hotel industry’s leading online
late availability’ database.
Inbound tour operators

► Inbound tourism is the
name given to the type of
tourism which brings
Maurisun International, though based in the
visitors into specific Indian ocean, represents travel agencies
tourism receiving areas. worldwide.
► Therefore, an inbound Its services range from booking hotels and
tour operator is the type of other accommodation to organising exciting
organisation which adventures and eco tourism activities in
Mauritius and Rodrigues. It consults agencies
produces packages aimed when creating holiday packages to fit the
specifically at bringing traveller’s budget and taste.
overseas visitors into a They also provide personalised services like
destination. airport transfer, car hire, eco tours, seminars,
► Look at the example of excursions, adventure, guided tours etc.
Maurisun, an inbound tour Local experience and local connections are the
main benefits that a customer derives from an
operator for Mauritius. inbound tour operator such as Maurisun
International.
Outbound tour operators

► In the same way that inbound tourism describes tourist activity with
people coming from overseas into a destination, outbound tourism
describes tourists who travel abroad.
► An outbound tour operator is one based in the tourist’s home country
offering holiday packages to destinations overseas.
► Club Med is just one example of an outbound tour operator, with
branches across the world.
Example E
► The Club holiday Mediterranean
experience was first created in 1950. In its
first year, 2,300 customers from France
were taken to stay in tent-accommodation
on beaches in the Balearics, taking part in
sporting activities. Some 10,000 other
interested customers had to be turned
away because of the popularity of this first
‘all-inclusive’ package.
► Since then, Club Med has gone from
strength to strength as a tour operator,
now operating 80 different holiday villages
in 25 different destinations, and with an
average of 1.2 million customers each
year. Club Med started small by offering
holidays for single adults but scaled fast.
Example E
► This rapid growth has been made possible
by loyal guests who are willing to prepay
for their vacations, the lack of any direct
competition, and Club Med’s ability to
‘cross’ into the mass tourism market.
► The latter required Club Med to replace its
original tent villages with more comfortable
hotels and bungalows, add couple and
family-friendly facilities, and extend sales
and marketing efforts outside France.
► Club Med uses a combination of direct
sales methods as well as developing a
relationship with travel agents, in order to
make its products and services available
to customers around the world.
► http://
www.clubmed.co.uk/cm/home.do?PAYS=3
41&LANG=EN
Domestic tour operators

► A domestic tour operator
specialises in putting together
packages for the home
market - this means that they
appeal to people living in that
country.
► Examples of domestic tour
operators include Kerala
Travels Interserve in India;
Casey Tours in Australia and
the London Travel Service in
the UK among others.
Specialist tour operators

► Specialist operators specialise by destination, by
activity, by theme, by transport, or by age group.
An example of each of these is as follows:
 By destination - example, Austravel, which
specialises in holidays to Australasia.
 By activity - example, SkiSolutions, which
specialises in skiing holidays.
 By theme - example, Responsible Travel, which
specialise in sustainable tourism packages.
 By transport - example, Coachtrips.com, which
specialises in holidays by coach.
 By age - example, Evergreen Excursions, which
specialises in tours for seniors in South Africa;
2wentys, which specialise in clubbing holidays
for young people in their twenties.
Operating characteristics of tour operators

► While there are a large number of small-scale tour
operators within the industry, the package holiday
market is dominated by a small number of large
internationally-operating tour operators.
► Tour operators all work within the private sector - this
means that they are profit-seeking and need to make
money to survive. The main trends in the industry are
economies of scale, horizontal and vertical integration.
► Through these strategies, tour operators can achieve
considerable buying power and control over their
suppliers - the principals, as well as the distribution of
their products.
Horizontal integration refers to a situation when companies

join together with the aim to remove competition, to increase
economies of scale, and to increase their purchasing power.
KEY NOTE FOR STUDENTS
Horizontal integration occurs with mergers at the same level

in the tourism distribution or supply chain, i.e. mergers between
different tour operating companies.
Vertical integration occurs with the take-over of businesses at
different levels of the distribution chain. For a tour operator
this means investment into either suppliers through backward
integration (example, accommodation, transport) and/or
forward integration (example, travel agents). The main
advantages are control over supplies in terms of quality,
availability, access and price, and the ability to reach
consumers.
Vertical integration is a significant feature among leading tour
operators today and has drastically increased in recent years.
Operating characteristics of tour operators

► Integration practices have also led to increased
specialisation and the development of niche operators
and niche products. Small and medium size operators
have to compete with larger, integrated companies.
► As vertically integrated operators capture a large
proportion of mainstream package holidays,
independent operators increasingly focus on
specialisation.
► Independent tour operators compete by providing high
quality, specialist and tailor-made services.
► The following table illustrates the operating
characteristics of mainstream and independent tour
operators.
Mainstream tour operators

 Carry high volumes of tourists.
 More destinations in developing countries are available to more customers.
 Generally operate on low margins and high volumes.
 Continue to sell mainly on price.
 Serve customers that are highly price-sensitive and low spending. In recent
years, all-inclusive developments and thus the manageability and predictability
of holiday expenditure, have become increasingly attractive to this segment.
 Tend to channel their clients and market their destinations through travel agents
that they own. High Street travel agents remain the first choice for consumers
seeking package holidays.
 Focus on a relatively standardised and basic product (sun, sand and sea), with
little interest in destination specific products and attributes.
 Carry large volumes and have thus considerable power in tourism destinations
dependent on them for visitors.
 Are now introducing less standardised and more tailor-made holiday options,
reflecting changing consumer demands and offering more opportunities for local
suppliers.
 Are frequently preferred trading partners for local suppliers because of the
volumes that they provide.
Independent tour operators

 Carry relatively small volumes.
 Often serve ‘off-the-beaten-track’ destinations to a fast growing consumer segment
that desires tailor-made and high quality tourism products.
 Are increasing their specialisation and have adopted niche products in order to
distinguish themselves from inexpensive mainstream operators.
 Serve consumers that are less price-sensitive, and higher spending customers.
 Interest in ethical products is growing and customers interested in ethical tourism
are often the better- off, sophisticated travellers, using independent and niche tour
operators rather than mainstream.
 Generally do not use integrated High Street travel agents, but independent agents
and direct-sell. Technological advances, in particular the Internet, have largely
advantageous impacts on niche operators.
 Are highly dependent on local supplies, to the point that this is often their unique
selling point. They provide a more complex and less standardised product, one that
goes beyond simply providing accommodation and transport, by focusing on
destination characteristics.
 Tend to have long term relationships with their suppliers in the destinations and to
adopt a partnership approach.
 Generally pay higher prices to local suppliers due to the low volumes they purchase.
Adapted from: http://www.propoortourism.org.uk/info_sheets
Nature of tour operations

► All tour operators have to perform similar roles in putting together a
holiday package or a tour; this involves planning, organising and selling
tours or packages.
► The initial stage of the process involves research and planning. Product
managers will focus on a selection of resorts, choice of accommodation
and selection of departure airports aimed at particular market segments.
► A holiday season is planned almost 12 to 18 months before the
brochure is issued and tours or holiday packages are released into the
market.
► Tour operators estimate how many customers are likely to require each
type of product, in order for the
capacity of the package to be
calculated. This helps in deciding
how many holidays are to be
arranged in each resort. Once
this has been decided,
accommodation and flight
arrangements are considered.

► The planning process also involves market research, to determine the
requirements of the potential market as precisely as possible. This helps
tour operators to maximise their sales potential.
► Internal and external data from the previous seasons are also
considered together with an analysis of what their competitors are
offering.
► Once the initial planning and research stage has been carried out, tour
operators begin negotiating with providers in the resorts and with travel
principals. This role is often carried out by senior managers within the
organisation as it will result in
contracts being drawn up.
► The negotiations include agreements

on price, quantity and quality.
Competition here is strong as several
mass market tour operators
incorporate the same accommodation
in their packages.

► There are three main types of contracts used in these ‘deals’:
 Commitment/guarantee - this is where the tour operator
guarantees to pay for a certain number of bed spaces;
 Allocation/release back - a number of bed spaces is
agreed but any bed space not sold by an agreed date is
‘given back’ to the accommodation provider to be sold
elsewhere; and
 Ad hoc - this is a flexible arrangement where the tour
operator agrees a on discounted rate with the hotelier and
makes the bookings as and when required.
► Flight arrangements also have to be made - usually by
chartering a plane. This means a tour operator makes a block-
booking of all of the seats on certain flights, often from regional
airports.

► The tour operator then decides an appropriate price for the
package before beginning the marketing and selling of the
finished product. Brochures are produced to provide all of the
details about the package - these can be online or printed.
Depending on the type of tour operators, travel agents may
also be involved in this process.
► Once the packages are released

for sale, tour operators and
travel agents are engaged in
sales of the product, and
reservation processes. There
are usually computerised
systems to handle the holiday
bookings.
Tour operators and price

► The average profit made on package holidays is low. The Civil Aviation
Authority (CAA) records that, in the UK, the average tour operator’s return
on turnover in recent years remains around 2-3% and amounts to some £8
profit on a £400 holiday.
► Not only are the margins low, but tour operators also have to manage
considerable risks. For example, holiday prices are set at least 12 months
before a holiday takes place and a significant proportion of the costs can
be subject to considerable fluctuation - especially in exchange rates and
aviation fuel costs. Although tour operators are able to protect themselves
from some of these fluctuations by ‘buying forward’, it is expensive.
► Another risk can arise from the unexpected loss of popularity of a country
where the tour operator has made contracts with hotels, tour companies
etc. Trends in popularity often occur because of political or security issues,
natural disasters such as typhoons or volcanoes, or as a result of
economic factors such as unfavourable exchange rates or new aviation or
tourist taxes etc. This causes a high level of price elasticity between
holiday markets.
Holiday pricing
► Many tourists find it difficult
to understand why there is a
variety of prices in tour
operators’ brochures. The
underlying reason for these
different prices is that
differences in demand occur
at different times and for
places.
► Tour operators try to set
prices to ensure that as
many airline seats and hotel
rooms are used as possible.
Holiday pricing
► The main components affecting tour operators prices are:
1. Peak and off peak pricing (seasonality)
 Package holidays are usually organised into two seasons:
Summer (May to October) and Winter (November to April). This is
achieved by varying the price to reflect the changes in demand for
holidays.
 The summer season is the main time to travel due to school and
factory holidays and due to the weather. There is a double
pressure on demand. There are only a finite number of beds and
aircraft seats available at any given time, therefore prices must rise
for those periods.
 Tour operators are generally committed to hotel rooms and airline
seats for a full 6 month season, so that the only tool available to
even out demand is price.
 It should be remembered that in order to fill an aircraft in the
quieter months, tour operators frequently sell holidays at or below
cost price.
Holiday pricing
2. Flight Times
Better overall prices can be
achieved if aircraft are used
throughout the day and night.
Most customers would unsocial
times if the price is right. This
policy helps keep all holiday prices down, not just those
using midweek night flights.
3. Single room and other accommodation supplements
Most tour operators’ contracts with hotels and apartment
owners are based on a price per room, whilst their brochure
holidays are sold price per person. As a result, the per
person price for a single traveller includes the whole room
cost.
Tour operators and exchange rates

► A high proportion of the costs incurred by tour operators is paid in
foreign currencies in the destination country for hotel bills, transfer
charges, airport charges etc. Also aviation fuel is always priced in US
dollars.
► As holiday prices are advertised a long time before the tour operator
has to pay hotels, airlines etc., variations in exchange rates could
have a major impact on the profit a tour operator makes.
► Tour operators sometimes decide against
giving a ‘no surcharge guarantee’ - although
in the UK, tour operators are prevented by
law from passing on the first 2% increase in
costs once the holiday has been bought in
advance. This provides the consumer with
some protection from price increases based
on fluctuations within the economy after the
holiday has been paid for.
Tour operators and consumer protection

► As the figure points out, many tour operator companies around the
world face financial failure because of the strong competition faced
from other such businesses.
► In the case of another tour

operator, XL Leisure which
failed in 2008. hundreds of
tourists became stranded
abroad as the company
went into liquidation.
Consumer protection,
therefore, becomes an
essential part of a tour
operator’s role.
Source: http://
www.travelweekly.co.uk/Artides/2011/04/21/36914/long-
haul-operator-silverbird-travel-fails.html
Tour operators and consumer protection

► This is why some countries have developed licensing and bonding
schemes or have passed legislations designed at protecting
customers once a package holiday has been purchased.
► One example of legislation is the Package Travel, Package Holidays
and Package Tour Regulations 1992 adopted by the European Union.
The aim of these regulations is to give customers access to
compensation when things go wrong with their holiday.
► Prior to these regulations, tour operators in Europe often claimed no
responsibility for overbooking in hotels or if a coach transfer from the
airport did not arrive as these were beyond their control.
► Under the terms of these regulations, tour operators in Europe must
now assume legal responsibility for all of the services they offer under
a ‘package’ they sell.
► As well as adhering to legislation such as these regulations, many
tour operators take part in licensing or bonding schemes offered by
national trade associations.
Example E
► In the United States, the United States Tour Operators Association (USTOA) is a
professional association representing the tour operator industry. Members contribute to
the $Million Traveller Assistance Programme, a scheme that requires each USTOA
member company to post $1 million in security in the form of a bond or letter of credit.
The security, to be held by USTOA Tour Depositors Trust, is solely for use in
reimbursing consumers for tour payments or deposits lost in the event of:
 a USTOA Active Member bankruptcy
 a USTOA Active Member insolvency
 a USTOA Active Member cessation of business.
► Air Travel Organisers Licence (ATOL) is a licence issued by the Civil Aviation Authority
in the UK which protects tourists from losing money or being stranded abroad. It does
this by
► carrying out checks on the tour operators and travel organisers it licenses. It also
requires them to take part in a financial guarantee scheme managed by the Air Travel
Trust (ATT) which provides the funds to protect customers should a tour operator fail. If
a tour operator goes out of business, the CAA will ensure that the customer does not
lose the money they paid, or if the tourist is abroad, the CAA will arrange for the tourist
to finish the holiday and then fly them home.
► Little Luxury Islands is a small, independent tour operator in the UK which offers luxury
holidays to resorts in the Maldives, Mauritius, the Seychelles and Sri Lanka. All of its
holiday packages are ATOL bonded, for consumer protection.
Retail travel agents

► When we briefly looked at the role of the
travel agents in Unit 1, we said that travel
agencies act as a selling agent for a variety
of principals (the suppliers of the travel and
tourism industry’s products) such as airlines,
rail companies, hotels, tour operators, car
hire companies, and currency suppliers.
► The main role of a retail travel agent is to
sell holidays, to offer ancillary products
(such as insurance, car hire, foreign
currency etc.), to provide information and to
advise customers.
► We will now look at the role of the travel
agent in much greater detail and will gain a
better insight into what a travel agent
actually does.
Role of travel agents

► A travel agent acts as the intermediary,
link or the ‘middleman’ between the
customer and the tour operator or the
principals. This means that the agent
represents the interests of both the
customers and the suppliers.
► Customers can be inbound, outbound
or domestic tourists and could be travelling
for leisure, business or for visiting friends and relatives purposes.
► A majority of customers are likely to be those wishing to purchase an
outbound holiday package, but some travel agencies also specialise in
the sale of domestic tourism packages.
► Travel agents do not act exactly the same as other retailers. They do not
necessarily ‘buy-in’ stock in advance to sell on to customers. Instead,
they tend to react to the demands of the customers and contact the
suppliers, on the behalf of the customer, to seek out the availability of
the desired product.
Products and services offered

► Along with the overseas holiday package which is main
product associated with travel agencies, most travel agencies
offer a much broader range of products and services
including:
 information on health requirements.
 excursions and entrance tickets to tourist
 flights, coach, rail and ferry bookings accommodation
bookings travel insurance
theatre bookings car hire
 short breaks cruise holidays
 attractions
 foreign exchange
 passport and visa applications
 airport parking
Understanding travel agency appointments

► It is important that travel agents know the terms and conditions under
which they serve the interests of the suppliers, whose products and
services they are selling. These business interests are clearly controlled
by an individual agency agreement with each supplier that the travel
agent represents.
► The most common type of agreement is made with tour operators,
whereby the travel agent agrees to sell the packages offered by the tour
operator in return for an agreed amount of commission. The travel agent
will then also make agreements with all the individual principals it
represents such as ferry companies, coach companies, hotel chains etc.
► These agreements set out the policies and procedures that the travel
agent should follow in relation to:
 issuing tickets, voucher and other travel related documentation:
 cancellations and refunds;
 racking of tour operator’s brochures;
 accounting for the payment of deposits and balances.
Operating characteristics of travel agencies

► As with tour operators, travel agents operate
within the private sector and are profit
seeking. Many travel agents are located in
areas with high visibility to attract passing
trade.
► However, with advances in technology, there
is a growing trend for people to use the
services of online travel agents. This is
because of the convenience associated with
the 24 hour availability of the Internet.
► Below is a screen shot of the ebookers.com
website. This is an example of an online
travel agency, through which tourists can
research and make holiday and travel
arrangements.
Case Study 2: Online travel agencies

► ebookers.com is a leading pan-European online travel agency specialising
in worldwide travel. It offers a wide range of travel products including a
choice of over 250 airlines, more than 86,000 hotels, holidays, car hire
and insurance, ebookers. com is part of Orbitz Worldwide (NYSE: OWW),
a leading global online travel company.
► It prides itself on its passion for travel and on its strong customer
experience. The company offers a full range of travel products online and
over the telephone. It also operates local online travel agencies across 13
countries in Europe and its headquarters are in Central London.
Why do customers shop with ebookers?
► Customers visit ebookers.com for its travel expertise, range and value.
They are a travel company that has embraced the internet, not the other
way round.
► The call centre and website teams have a passion, expertise and
knowledge of travel which is reflected in the way they do business. The
company is able to offer travel products at a discount of up to 75% off the
standard prices.
Case Study 2: Online travel agencies

► It continues to grow in popularity because of its close relationships with
leading travel suppliers which enables ebookers to offer discounts,
known as ‘negotiated’ or ‘merchant’ fares, to its customers,
ebookers.com sells to destinations around the world and has a particular
speciality in long and mid haul destinations including Australasia, the Far
east and the Americas.
► Ebookers.com also offers travel insurance with one the world’s largest
insurance providers, AIG, bureau de change and airport parking
facilities, as well as
assistance with
processing visas
for Australia.
Operating characteristics of travel agencies

► There is also a strong competition from the
growth in direct sales by some tour operators,
which means that travel agents need to be more
flexible in their approach. They offer high levels
of customer services and are not be so reliant on
selling only the traditional sun, sand and sea packages.
► Travel agents these days are offering tailor-made packages, to cater to
the specific needs and wants of leisure tourists seeking holiday
experiences from the niche markets of, for example, adventure tourism,
ecotourism or cultural tourism etc.
► There are a number of small, independent travel agencies. These tend to
be privately owned with a single retail outlet. There are also miniples -
travel agencies with a small number of outlets in one geographical area.
► However, the market is dominated by the multiples - companies which
operate a large number of retail outlets under a single brand name.
These are often part of a large chain as a result of the vertical integration
of tour operators.
Travel agents and consumer protection

► In the same way that tour operators often enter into bonding and licensing
schemes to ensure that customers are protected in the event of the
financial failure of any component part of package holiday, many travel
agents around the world are also licensed and/or bonded in the same way.
► For example, International Air Transport Association (LATA) simplifies the
business relationship between travel agents and airlines. Some 60,000
IATA travel agents worldwide currently benefit from IATA accreditation.
Some of the benefits of IATA accreditation for travel agents are as
following:
 A single Agency Agreement which authorises the sale of international
and/or domestic tickets.
 IATA’s Billing and Settlement Plan, which is an efficient interface for
invoicing and payment between the agent, airlines and transport
providers.
 Unique identification throughout the global travel industry with the ‘IATA
Numeric Code’.
 Standardised procedures to ensure fair dealings with the airlines.
E
Example
► The ASTA logo is recognised
around the world as a symbol of
professionalism and integrity. It
shows ASTA membership, and offers
customers reassurance that an
agency is reliable and trustworthy.
► ASTA, the American Society of Travel Agents, is the world’s largest
association of travel professionals. Its members include travel
agents and companies whose products they sell such as tours,
cruises, hotels, car rentals etc. ASTA is the leading advocate for
travel agents, the travel industry and the travelling public.
► They also have membership categories for students, travel
schools, retail sellers and others.
Adapted from: http://www.asta.org/about/index (Reprinted with the
permission of ASTA)

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Travel and Tourism

Unit 04 - Travel and Tourism

International tour operators

Inbound tour operators

Outbound tour operators

Domestic tour operators

Specialist tour operators

Operating characteristics of tour operators

Horizontal integration refers to a situation when companies

Horizontal integration occurs with mergers at the same level

Operating characteristics of tour operators

Mainstream tour operators

Independent tour operators

Nature of tour operations

Nature of tour operations

► The negotiations include agreements

Nature of tour operations

Nature of tour operations

► Once the packages are released

Tour operators and price

Tour operators and exchange rates

Tour operators and consumer protection

► In the case of another tour

Tour operators and consumer protection

Retail travel agents

Role of travel agents

Products and services offered

Understanding travel agency appointments

Operating characteristics of travel agencies

Case Study 2: Online travel agencies

Case Study 2: Online travel agencies

Operating characteristics of travel agencies

Travel agents and consumer protection

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