Travel Agency and Tour Operation I: The History and Significance of the Travel Trade, Types of Travel Agent, Wholesaling and Retailing, Types of Tour Operator and Tour, Distribution Networks, Charter, Meeting, Incentive, Convention and Exhibition Business, and Starting, Recognising, Organising and Running an Agency
1. The history and significance of the travel trade
The travel trade began when someone offered to arrange travel for others for a fee or commission. Thomas Cook's excursions from 1841 grew into a business that sold rail and steamer tickets, hotel coupons and conducted tours across Europe and to Egypt and India. American Express, founded as an express courier company in 1850, entered travel and introduced the travellers cheque in 1891. The jet age, the package holiday and the airline agency system of IATA made the retail travel agency a fixture of every town by the 1970s. In India the trade grew after independence with the tour operators serving foreign visitors and the agents selling air tickets; the Travel Agents Association of India was formed in 1951. Some famous names have also failed, a reminder that the business is thin-margined: the historic Thomas Cook group collapsed in 2019, and Cox & Kings, which traced its origins to 1758 and called itself one of the oldest travel companies in the world, went into insolvency the same year.
A travel agency is significant because travel is a complex, intangible and expensive purchase made from a distance. The agent brings product and destination knowledge, access to reservation systems and supplier contracts, the convenience of a single point of purchase for many services, advice on documents, health and safety, bargaining power with suppliers, and help when things go wrong. For suppliers the agent is a sales outlet that costs nothing until it sells. For the economy agencies earn foreign exchange (inbound operators), create skilled jobs and are the channel through which destinations reach markets.
2. Types of travel agent, skills and competencies, and wholesaling and retailing
| Type | What it does |
|---|---|
| Full-service agency | Offers every travel service under one roof: air, rail and bus tickets, hotels, packages, cruises, car hire, visas, foreign exchange and insurance, for leisure and business clients |
| Commercial (corporate or business) agency | Specialises in the travel of companies and their staff, often under a contract with negotiated fares, travel policies, reporting and 24-hour support |
| Implant agency | A branch of an agency located inside a client company's premises, staffed by the agency and serving that company's travel needs exclusively |
| Group or incentive agency | Designs and operates group travel and incentive programmes, reward trips for a company's high-performing staff or dealers, with themed events and gala dinners |
| Wholesale agent (tour wholesaler) | Buys travel components in bulk at discounted rates, assembles them into packages and sells them through retail agents rather than directly to the public |
| Retail agent | Sells travel products (tickets, packages) directly to the public on behalf of suppliers and wholesalers, earning a commission or charging a fee |
| Online travel agency (OTA) | Sells travel through websites and apps with instant booking: international examples are Expedia (1996) and Booking.com, and in India MakeMyTrip (2000) among others |
Running an agency calls for a mix of skills and competencies: product and destination knowledge, geography and time calculation, fares and ticketing, command of a GDS, knowledge of passport, visa, health and customs rules, communication and salesmanship, customer service and complaint handling, languages, financial management and cash control, networking with suppliers, and increasingly digital marketing. The future of wholesaling and retailing has been reshaped by the internet. Airlines and hotels sell directly and have cut commissions, which is disintermediation, the removal of the middleman; but OTAs, metasearch sites and specialist advisers have reinserted intermediaries for complex, high-value or specialised trips, which is reintermediation. Retailers survive by specialising (cruises, luxury, adventure, pilgrimage), charging service fees, offering expertise and personal service, and packaging dynamically; wholesalers survive by owning exclusive product and by selling through every channel, including online.
3. Types of tour operator and tour, the diversified role of tour operators, and distribution networks
| Tour operator | Business |
|---|---|
| Inbound | Handles foreign tourists coming into the country, usually working with overseas operators who sell the tour abroad |
| Outbound | Sells and operates tours for residents travelling abroad |
| Domestic | Sells and operates tours for residents within their own country |
| Ground operator (handling agent, destination management company) | Provides the services at the destination for other operators: transfers, hotels, guides, sightseeing and local arrangements |
| Specialised | Concentrates on one product or market: adventure, wildlife, pilgrimage, luxury, students, MICE |
| Type of tour | Defining feature |
|---|---|
| Independent tour (FIT) | The client travels independently on a prearranged, prepaid itinerary of transport, hotels and some sightseeing, without an escort or group |
| Escorted tour | A group accompanied throughout by a tour manager (escort) who looks after the arrangements from start to finish |
| Hosted tour | No escort travels with the clients, but a host (the operator's representative) is available at each destination or hotel to assist and arrange local services |
| Incentive tour | A trip paid for by a company to reward and motivate employees, dealers or customers for meeting targets |
The tour operator's role has diversified far beyond selling. It researches markets and designs itineraries; contracts with suppliers, taking allotments (blocks of rooms or seats) and sometimes guaranteeing them; costs and prices the package; produces brochures and online content; sells through its distribution network; operates the tour, with guides, escorts and transport; handles emergencies; and bears the financial risk of unsold capacity and of failure to deliver. It adds value by combining components at a price the client could not get alone. Its distribution network runs through direct sales (its own offices, website, call centre), retail travel agents on commission, online travel agencies, overseas sales agents and partner operators for inbound business, and the travel trade fairs where buyers and sellers meet.
4. Charter operators, meeting and incentive planners, convention and conference business, and trade fairs and exhibitions
A charter tour operator, which fills whole aircraft with inclusive-tour passengers, needs special services at the destination: ground handling of the aircraft and passengers, airport slots and landing permissions, fast immigration and baggage handling for large arrivals, coaches for mass transfers, hotel allotments matched to each flight, and representatives on arrival. Meeting planners, working in-house for companies and associations or as independent professional conference organisers, carry an event from start to finish: analysing its objectives and audience, choosing the destination and venue, budgeting, negotiating contracts for the venue, rooms, food and audio-visual services, designing the programme and booking speakers, managing registration and delegate travel, marketing the event, running it on site and evaluating it afterwards. Incentive planners design reward trips with exclusive experiences. Destination management companies deliver the local services, and convention and visitor bureaus market the city and help bids.
Trade fairs and exhibitions are both a MICE product and a distribution tool for the travel trade. The largest travel trade fairs are ITB Berlin (held since 1966), World Travel Market in London (since 1980), the Arabian Travel Market in Dubai and FITUR in Madrid; in India the trade meets at fairs such as SATTE and OTM, and the Ministry of Tourism organises marts that bring foreign buyers to Indian sellers. At such fairs national tourism boards take pavilions, operators sign contracts with buyers, airlines and hotels launch products and the media is briefed. Exhibitions are B2B (for the trade), B2C (for the public) or mixed.
5. Starting an agency: requirements, recognition, organisation, revenue and information technology
The essential requirements for starting a travel agency or tour operation are a business plan; a legal form (proprietorship, partnership, limited liability partnership or company) with registration under the shops and establishments law and for GST; an office in a commercial area with communication and computer systems; working capital; qualified and experienced staff; supplier contracts and, for ticketing, accreditation. Airline accreditation is granted by IATA through its agency programme, which checks the agency's financial standing, requires a bank guarantee or other financial security, and requires qualified staff; an accredited agent may issue tickets through the BSP. Recognition by the Ministry of Tourism, as an approved travel agent, tour operator, adventure tour operator or tourist transport operator, is voluntary and applied for online; the Ministry checks the office, staff, experience and turnover, and approval brings eligibility for its promotional support and credibility with overseas partners. Membership of trade associations (TAAI, IATO and others) follows.
| Element | Content |
|---|---|
| Organisation structure | Under the management, departments for air ticketing, rail and domestic reservations, inbound tours, outbound tours, MICE, visas and documentation, foreign exchange, sales and marketing, operations, accounts and IT; a small agency combines several in one person, a large one runs each as a profit centre with branches |
| Sources of revenue | Commissions from hotels, car rental, cruise lines, insurers and (now rarely) airlines; service or transaction fees charged to clients; the mark-up on packages the agency assembles; incentives and override commissions for sales volume; margins on foreign exchange; fees for visa and documentation services |
| Use of information technology | The GDS and airline and hotel systems for booking; websites, mobile apps and booking engines; dynamic packaging tools; customer relationship management and mid- and back-office accounting software; social media and search marketing; and, increasingly, chatbots and analytics for pricing and personalisation |
Key takeaways
- The trade grew from Thomas Cook (1841) and American Express (travellers cheques, 1891) to the IATA agency system; TAAI dates from 1951; the failures of Thomas Cook and Cox & Kings in 2019 show how thin its margins are; the agent adds knowledge, access, convenience and bargaining power.
- Agencies are full-service, commercial (corporate), implant (inside a client's premises) and group or incentive; wholesalers assemble and sell through retailers, retailers sell to the public; the internet brought disintermediation and then reintermediation by OTAs and specialists.
- Tour operators are inbound, outbound, domestic, ground (DMC) and specialised; tours are independent (FIT), escorted (manager travels throughout), hosted (host at each place) and incentive; operators contract, price, package, sell, operate and bear risk.
- Charter operators need ground handling, slots and mass transfers; meeting planners run objectives, site selection, budget, contracts, programme, registration, marketing, on-site management and evaluation; ITB Berlin (1966) and WTM London (1980) lead the trade fairs.
- Starting an agency needs a plan, legal form, office, capital, staff and accreditation (IATA's financial checks and bank guarantee); Ministry of Tourism recognition is voluntary; revenue comes from commissions, service fees, mark-ups, overrides, forex and visa fees; IT runs from the GDS to CRM and dynamic packaging.
Practice questions (10)
Attempt each one before opening the answer. Every explanation names the tempting wrong option as well as the right one, because that is where marks are lost.
A branch of a travel agency located inside a client company's premises and serving only that company's travel needs is called
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Answer: A — an implant agency
An implant is the agency's own office placed at the client's site, staffed by the agency and dedicated to that client's travel. A full-service agency serves the public with every product, and a wholesaler sells through retailers.A tour on which no escort travels with the clients, but a representative of the operator is available at each destination to assist them, is a
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Answer: C — hosted tour
On a hosted tour a host meets the clients at each destination but does not travel with them. On an escorted tour a tour manager accompanies the group throughout; an incentive tour is defined by its purpose, a company reward.An agency books a package: flights of ₹60,000 carrying no commission, a hotel stay of ₹50,000 on which the hotel pays 10 per cent commission, and transfers of ₹10,000 at net cost. It also charges the client a service fee of ₹2,000. What is the agency's revenue from the booking, in rupees?
Numerical answer — type the value.
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Answer: 7000
Only the hotel pays commission: 10 per cent of ₹50,000 = ₹5,000. Adding the service fee of ₹2,000 gives ₹7,000. The flights and transfers pass through at cost, which is why agencies depend on fees and package mark-ups.A company at the destination that provides transfers, hotels, guides and sightseeing on behalf of overseas tour operators is a
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Answer: A — ground operator or destination management company
Ground operators (handling agents or DMCs) deliver the services at the destination for operators who sell the tour elsewhere. A consolidator buys airline seats in bulk, and a GSA sells a foreign airline's tickets in a market.Which of the following are sources of revenue for a travel agency? Select all that apply.
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Answer: B — Commissions from hotels and car rental firms; C — Service fees charged to clients; D — The mark-up on packages it assembles
Agencies earn commissions, service fees, package mark-ups, override incentives, foreign exchange margins and visa fees. Landing fees are paid by airlines to airport operators and are no part of agency revenue.When airlines sell tickets directly to travellers online and cut commissions to agents, the process is known as
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Answer: B — disintermediation
Disintermediation is the removal of the intermediary between supplier and customer. Reintermediation is the return of intermediaries in new forms, such as OTAs and specialist advisers.Assertion (A): A tour wholesaler normally does not sell directly to the travelling public. Reason (R): A wholesaler assembles packages from components bought in bulk and distributes them through retail travel agents.
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Answer: A — Both A and R are true, and R is the correct explanation of A
Both are true and R explains A: the wholesaler's role is to create and supply product to the retail trade, which deals with the public and earns a commission on each sale.The travellers cheque was introduced in 1891 by
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Answer: C — American Express
American Express, which began as an express courier firm in 1850, introduced the travellers cheque in 1891. Thomas Cook had earlier issued hotel coupons and circular notes.Which of the following are activities of a meeting planner? Select all that apply.
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Answer: B — Managing delegate registration; D — Selecting the destination and venue
Meeting planners select sites, budget, negotiate contracts, design programmes, manage registration and delegate travel, market the event and run it on site. Visas are issued by governments and fire safety is certified by the authorities, though a planner may help delegates apply and check that a venue holds its certificates.Which travel trade fair, held in Germany since 1966, is regarded as one of the world's leading tourism trade shows?
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Answer: A — ITB Berlin
ITB Berlin has been held since 1966. World Travel Market is in London (since 1980), FITUR in Madrid and the Arabian Travel Market in Dubai.