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Lecture on Intermediaries

A lecture on Intermediaries and their role in the tourism industry for the subject Principles of Tourism II for the students enrolled in the College of International Tourism and Hospitality Management of the Lyceum of the Philippine - Cavite campus.

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Lecture on Intermediaries

  1. 1. INTERMEDIARIES (updated January 2015) Sourced from the Lesson Plan for Principles of Tourism II
  2. 2. OBJECTIVES  Explain the functions of travel and tourism intermediaries  Explain the basic process of distribution  Discuss the challenges facing the travel agency sector in travel retailing.
  3. 3. UNIT TOPICS 1. The Tour Operator 2. The Business of Tour Operation 3. The Role of the “New” Consumer and Future Trends in Tour Operating 4. Travel agents and Retailing 5. Travel Agents: Role and Activities 6. Business Travel Agents 7. The Online Travel Revolution and the Future of Travel Agents
  4. 4. INTERMEDIARIES Firm or a person who acts as a mediator on a link between parties to a business deal, investment decision, negotiation etc. Intermediaries usually specialize in specific areas, and serve as a conduit for market and other types of information. They are also called the “middleman”. In tourism for example intermediaries are people or businesses that link the tour package with the tourist.. DEFINITION OF TERMS
  5. 5. OTHER DEFINITION OF INTERMEDIARIES? To transform goods and services from a form that consumers do not want into a product that they do want. Principal role is to bring buyers and sellers together. Inserted themselves between providers and customers.
  6. 6. DEFINITION OF TERMS Tour Operator A tour operator typically combines tour and travel components to provide a holiday. The most common example of a tour operator’s package would include a hotel, a transfer from the airport, a specific activity and possibly a flight. Niche tour operators may specialise in specific destinations, e.g. Italy, India, UK, activities and experiences, e.g. skiing, music trips, special interest tours, or a combination of both. For profit, tour operators usually negotiate net rates with suppliers and then add their own margins onto the package on a percentage or per passenger basis.
  7. 7. DEFINITION OF TERMS Travel Agent A travel agent is a private retailer that provides travel related services to the public on behalf of suppliers such as hotels, flights, car hire or package holidays (tour operators). A travel agency’s main function is to act as an agent selling travel products and services on behalf of a supplier. Consequently, unlike other retail businesses, they do not keep any stock in hand. A package holiday or a ticket is not purchased from a supplier unless a customer requests that purchase. The holiday or ticket is supplied to them at a discount and profitis therefore the difference between the advertised price which the customer pays and the discounted price at which it is supplied to the agent. This is known as the commission.
  8. 8. BENEFITS OF INTERMEDIATION PRODUCERS Able to sell products in bulk Reduce promotional costs CONSUMERS Avoid search and transaction costs Gain from knowledge of the specialists Gain from lower prices DESTINATION International marketing networking
  9. 9. As agents sell packages on behalf of tour operators financial protection is generally not required as the consumer’s contract is direct with the financially protected tour operator. However, many travel agents now wish to provide financial protection to provide their customers with an added level of protection and piece of mind.
  10. 10. WHAT IS A TOURISM DISTRIBUTION CHANNEL? The tourism channel of distribution is an operating structure, system, or linkage of various combinations of organizations through which a producer of travel products describes, sells, or confirms travel arrangements to the buyer.
  11. 11. TOURISM DISTRIBUTION CHANNEL TWO WAYS: DIRECTLY - through advertising, brochure distribution, website, social media, client referrals and so on. INDIRECTLY - through a third party (indirectly) by using tourism distribution channels such as retail travel agents, wholesalers and inbound tour operators.
  12. 12. TOURISM DISTRIBUTION CHANNEL EXAMPLES: A TOURIST has seen footage of beautiful Western Australia on TV and also heard about it from his friends. He decides to find out more. A tourist visits his local RETAIL TRAVEL AGENT to enquire about Western Australia, and ends up booking an eight-week adventure including accommodation. A travel agent plans a comprehensive West Australian itinerary through the brochure of a TOUR WHOLESALER and then proceeds to book all tour operations through them. The tour wholesaler contacts the INBOUND TOUR OPERATOR (ITO) to book each individual element of the tour itinerary, such as accommodation and tours. The inbound tour operator contacts individual LOCAL TOUR OPERATORS to book accommodation and tours directly.
  15. 15. TOURISM DISTRIBUTION MECHANISM? The tourism channel of distribution is an operating structure, system, or linkage of various combinations of organizations through which a producer of travel products describes, sells, or confirms travel arrangements to the buyer.
  16. 16. THE TOUR OPERATOR AKA travel supplier or travel wholesaler
  17. 17. THE TOUR OPERATOR A tour operator will organize package tour together and offer them for sale to the public either through the medium of a brochure, leaflet or advertisement, or using ICT to display its offering. For a tour operator to offer a package also known as an “inclusive tour”, it will normally have to have at least two elements which are offered for sale at the inclusive sale price and will involve a stay of more than 24 hours in overnight accommodations?
  18. 18. INCLUSIVE TOUR Normally includes: • Transportation • Accommodation • Meals • Entertainment • Attractions • Sightseeing Activities
  19. 19. THE NATURE OF THE BUSINESS OF TOUR OPERATION Success of a tour operator depends on its ability to buy its product in bulk at a much lower price Compared to direct buying from customers Such packaging gives value for money to the customers 11/14/12
  20. 20. TOUR OPERATION PROCESS AIRLINES HOTEL ANCILLIARY SERVICES Once the dates of departures have been fixed, negotiations start with different parties e.g. Airlines, hotels and other tourism counterparts, leading to formal contracts Hotel agrees to guarantee accommodation based on receipt of the notification of booking from the tour operator, whether by phone, mail fax or e-mail Inbound tour operators and coach companies to provide coach transfers between airport and hotels Spell out the conditions for the release of unsold accommodation or of block bookings on air-seat of a scheduled flight, or the cancellation of aircraft flights with any penalties that the tour operator will incur Tour operator must also clarify a number of other facts; including :- 1. Reservations and registration procedures 2Accommodation requirements for tour guide or representatives 3.Handling procedures and fees charged for Porter 4. Special facilities availabilities 5. Languages spoken by hotel staff 6. Systems of payment by guest of drinks or other extras 7. Reassurance on suitable fire and safety precautions Car rental companies’ commission 10% of the total cost for a deposit to be paid upon signing the contract Consolidated into a form suitable for printing into a tour brochure Consolidated into a form suitable for printing into a tour brochure Determined dates and frequency of departures, airports to be used and times of arrival and departure Consolidated into a form suitable for printing into a tour brochure
  21. 21. THE BUSINESS OF TOUR OPERATION 1. Tour operators fulfill a major role in the tourism sector as they allow the different tourism sectors to sell their capacity in advance – often a long time in advance as contracts are drawn up a year prior to tourists using accommodation or services 2. The tour operator connects together with all the delivered services to negotiate contracts and deals which will allow a holiday to be sold and be delivered on the ground.
  22. 22. THE BUSINESS OF TOUR OPERATION 3. Tour operators traditionally have provided a guaranteed level of sales which allowed principals to fix their costs in advance and allow the operators to achieve economies of scale by giving them heavily discounted rates on their purchase 4. The tour operator will often add a mark up on the product they are selling by calculating all the input costs, their overheads, profit margin and then producing a price.
  23. 23. TYPES OF TOUR OPERATOR Mass market Tour Operator Domestic Tour Operator Specialized
  24. 24. PACKAGES ARE OFTEN SEGMENTED INTO: 1. Those focused on a mode of travel, such as ferry or coach holiday. The package may also be based on twin-transport packages such as fly-drive, which are very popular with inbound tourist in the USA. 2. Mode of accommodation, where hotel chains become tour operators by packaging their surplus capacity to offer weekend or short breaks in business oriented hotels, selling rail or air transport and visits to attractions as an all-inclusive package for holiday makers.
  25. 25. PACKAGES ARE OFTEN SEGMENTED INTO: 3. Whether they are international or domestic packages 4. Length of holiday: (short breaks (less than four nights away) or long holidays (more than four nights) 5. distance, where market is divided into short haul and long haul 6. Destination type (eg. City breaks, beach holidays, adventure holidays)
  26. 26. RESPONSIBILITIES OF THE TOUR OPERATOR Providing general and specific advice about different travel destinations Drawing up complicated travel itineraries and ensuring that all the needs of the customers are met Making arrangements for transport, accommodation, tours, and activities Contacting airlines, hotels, and ground transport companies such as coach operators to make suitable arrangements
  27. 27. RESPONSIBILITIES OF THE TOUR OPERATOR Advising the customer about travel issues including required documentation and financial matters, such as appropriate exchange rates Using the computer database to research information about hotel accommodation fares and hotel ratings Dealing with payments Performing general administration tasks Dealing with and documenting complaints in an efficient and diplomatic manner
  28. 28. RESPONSIBILITIES OF THE TOUR OPERATOR Planning and advertising different promotions Making alternative arrangements for customers who have had their trips interrupted by unforeseen issues Evaluating customers’ holidays and issuing appropriate feedback forms Every now and then, tour operators travel abroad for research purposes Making presentations to travel groups Creating and putting up displays at trade shows
  29. 29. FACTORS AFFECTING THE TOUR OPERATING SECTOR • Declining profits • Globalization • Safety & security • Mergers • New market • Rise of e-travel • Rapidity of innovation • Wider use of the internet • Tourism sustainability • Infrastructure devt • Greater regulation • Global terrorism • Increased use of technology • Diversity • Late booking trends • New consumers Tourist as Consumer Government Business Environment Technology ICT
  30. 30. TOUR OPERATION CYCLE Planning Contracting Costing Quotations and Tariffs Reservation Field Operation Accounting Evaluation
  31. 31. THE ROLE OF THE ‘NEW’ CONSUMER AND FUTURE TREND IN TOUR OPERATING • ‘New’ tourism is characterized by more experienced travelers who have growing environmental concern about the impact of their holidays on the place they visit and require more individualized products rather than the mass products that are less predictable, products that are full of surprise, discovery and memorable experiences rather than simply a repetition of last year’s beach holiday. • “New” tourism offers the tourism industry many growth opportunities given that tourism businesses can react to the demand for increased flexibility through the greater use of ICTs.
  32. 32. TRENDS IN TOUR OPERATION • Future growth in internet-only low-cost air travel sales • Online Travel • Continued direct selling by tour operators • Shifting consumer preferences • New markets • Integration, Consolidation and Concentration
  34. 34. TRAVEL AGENTS AND RETAILING The travel agent’s role in tourism is to recognize and highlight that tourism is:  Intangible  Perishable  Dynamic  Heterogenous  inseparable
  35. 35. Since the consumer is transported to the product, it is an unusual form of distribution. There is a need for timely information on all of the elements as outlined in the brochure. TRAVEL AGENTS AND RETAILING
  36. 36. 1. The cost of setting up in business is relatively small compared to that of other retail business 2. Agents are only able to sell products made available by the tour operator or principals, so in times of peak demand, they may be competing with other agencies to find the products that the consumers wish to purchase. 3. Agents are not seeking to dispose of products that they have already purchased so they may display less brand loyalty towards a particular product or company. IMPLICATIONS OF BUSINESS TRAVEL DISTRIBUTION
  37. 37.  The structure of travel agents has changed in recent years as consolidations has led to greater pressure on independent agents and less choice for the consumer, as multiple dominate the retailing of product  Travel agents have no stock, acting in behalf of the tour operator, and so have little financial risk and do not purchase products themselves.  Travel agents receive a commission for each sale and as such do not become part of the contract of sale, which is between the tour operator and the consumer. TRAVEL AGENTS: ROLE AND ACTIVITIES
  38. 38. TRAVEL AGENT – CLIENT PURCHASE PROCESS THE HOLIDAY Commitment Agent presents choices Understand the client’s needs Establish Rapport with client Lost Client
  39. 39.  Making reservations  Planning itineraries  Calculating fares and charges  Producing tickets  Advising clients  Communicating with clients  Maintaining accurate records on reservation  Ensuring racks are stocked with supplies of brochures  Acting as intermediary when clients complain TRAVEL AGENTS: TASKING
  40. 40.  Individual business travel (corporate travel) involving business trips related to employer needs.  Occasional work activities – such as conferences, conventions, events and incentive programs. BUSINESS TRAVEL AGENTS
  41. 41. The impact of ICTs on the travel agency sector is likely to see a reconfiguration of the existing market into three segments. The market will be categorized by: 1. Larger global players 2. New forms of travel agencies 3. Reduction of convention high street travel agents ON LINE TRAVEL REVOLUTION
  42. 42. Travel agents will face competitive pressure in the areas of:  E-tailing  Internet-only low cost air travel sales  Direct selling by tour operators  Shifting consumer preferences THE FUTURE OF TRAVEL AGENTS
  43. 43. REFERENCES 012/12/06/tour-operator-or-travel-agent/ tors/#philippine tour operators PRINCIPLES OF TOURISM II: Student Learning Guide 11/14/12