The document discusses the structure of the travel and tourism industry. It describes the key players as suppliers, intermediaries, and customers/consumers. It explains that suppliers provide transportation, accommodation, hospitality and other tourism services. Intermediaries connect suppliers and consumers and help facilitate transactions. Tour operators purchase services in bulk from suppliers and combine them into packages, which they sell directly or through travel retailers. The document outlines different types of tour operators and intermediaries. It also discusses regulations around travel packages, linked travel arrangements, and single travel services.

1. The Travel and Tourism
Industry Structure
Types of operations and products/services offered to the consumers.
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2. The Travel and
Tourism Industry
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3. Industry distinctions for the terms are far from clear,
since many travel companies perform any or all of the functions
of each other.
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4. How does the
product reach the
consumers ?
• Through distribution
• In general: it is the way how
the product reaches the
consumers
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5. In most industries
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6. In tourism
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7. Suppliers (Supply side)
• Everybody who can offer and sell
something to the visitors:
• the travel and tourism industry:
• transportation;
• accommodation;
• hospitality;
• cultural service providers;
• …
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8. Intermediaries
• Called connected industry in some
literature.
• The individuals and companies who create
the link between the suppliers and the
consumers.
• Their main tasks are:
• to bring buyers and sellers in the field
together;
• to reduce transaction costs and
supply/ownership costs between
buyers and sellers instead of
completely eliminating an intermediary
(such as a distributor).
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9. Customers/consumers
(Demand side)
• Leisure travellers:
• group or individual individual
travellers.
• Business travellers:
• Regular (!) business travellers:
• individual travellers.
• MICE travellers:
• tour operators usually deal with
incentives for MICE
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10. Types of
intermediaries
Tour Operators
Mass
operators
Specialist
operators
Travel retailers
Traditional
travel
agencies
On-line travel
agencies
Traders facilitating
linked travel
arrangements
Special types
Consolidators
GSAs
(General
Sales Agent)
Others…
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11. 1. Tour Operators an their roles in the
distribution
• They purchase services from suppliers in andvance . (They invest into the product)
• Combine these services and create new products = package
• Store and sell or offer packages for sale, either directly or through another trader.
• Because of volume buying they are able to discuss for discount:
• they pass cost savings to consumers.
• They ensure financial security to supplier.
• They satisfy wide variety of needs.
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12. Tour Operators might
be
• Mass market tour operators:
• arrange travel for the majority of
holidaymakers travelling on inclusive
tours;
• can sell holidays/trips on lower price
because they buy services in big volume
(in bulk) from the suppliers;
• produce holiday packages /trips usually
to well-known and highly developed
resorts;
• their packages are standardised and
rigidly packaged;
• their packages are usually holiday
packages that are consumed „en
masse”;
• use their purchasing power.
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13. Tour Operators might
be … cont
• Specialist tour operators:
• deal with niche products and markets;
• might focus on a particular activity, on
travelling to a geographic area or on
certain type of holiday maker;
• prefer regular flights to charter flights;
• try to keep the groups small;
• do not (?) compete with price;
• market their products to individuals
with different needs, incomes;
• take the local culture, local life,
environment into account.
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14. 2. Travel Retailers
• Sell or offer for sale travel services combined by an organiser and sign contracts
on behalf of the organiser
• They act as agent
• They maintain a delicate balance between serving the client and promoting the
interest of the principal he/she represents. How?
• Providing convenient location
• Acting as counselor
• Being sales representative
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15. Travel retailing and retailers will be discussed in this subject in details
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16. Travel and
Tourism Industry
regulation
Direct (normative) regulation
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17. Travel and
Tourism Industry
Regulation in the
European Union
• DIRECTIVE (EU) 2015/2302 OF THE EUROPEAN
PARLIAMENT AND OF THE COUNCIL
of 25 November 2015 on
Package Travel and Linked Travel
Arrangements,
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18. Regulations in
the industry in
Hungary
2005 CLXIV Trade Act.
213/1996. Gov. Decree on Tour Operation and Travel
Retailing – amended by the 473/2017.
472/2017 Gov. Decree on Travel contract related to
travel services, with special attention on travel packages
and linked travel arrangements.
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19. • The crucial point of the regulations: what
is sold or offered to the travellers?
• The type of the product sold/offered
determines:
• the legal requirements of setting up
and running a business in the travel
industry;
• the liabilities of the players in the
transactions;
• the legal aspects of the producer and
seller and buyer.
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20. • Types of the products in
tourism.
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21. Travel package
• Covers all sales which include two or more different types of travel
services for the same trip/holiday which are booked under a single
contract with one supplier.
• It also includes sales where services are booked with different suppliers
under separate contracts as long as one of the following conditions is
met:
• The travel services are bought at a single point of sale (shop, call
centre or website) where the customer selects the services before
agreeing to pay, i.e. before he/she concludes the first contract.
• The services were sold at an inclusive price.
• The services were advertised/sold as a "package" or under a
similar term.
• Customers are entitled to choose from a selection of travel services,
for example a travel gift-box.
• A combination of one travel service such as accommodation and
another tourist service (guided tour or admission to a concert) can
only be classed as package travel if the additional service accounts
for 25% or more of the overall value of the trip, or is an essential
feature of the trip.
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22. Note!
• There are services that can never be considered as travel service:
• accommodation for residential purposes;
• financial services (insurance);
• services which are intrinsically part of another travel service (transfers,
luggage transport, meal privided as part of accommodation access to the
hotel facilities, overnight on transportation facilities);
• everything what represents less than 25 % of the value of the combination.
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23. Linked travel arrangements (LTAs)
• Are travel services that are bought from different traders in
separate contracts but are linked. They are classed as linked
when one trader facilitates the booking of the subsequent
service(s), and they are purchased for the purpose of the same
trip or holiday.
• Linked travel arrangements only apply if the combination of
travel services do not constitute a package and a supplier
facilitates the:
• booking on the basis of a single visit or contact with his/her
point of sale, e.g. during one visit to a travel agent,
or
• second booking, which is made in a targeted manner and
the conclusion of a contract for the second travel service
from another supplier is made within 24 hours of the
confirmation of the booking of the first travel service
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24. Click-through packages
• Online bookings (flight, accommodation etc.) made by a
customer at different points of sale - are also classed as
'packages', as long as the first service provider transmits
the customer's name, email address and payment details
to the second provider and the second contract is
concluded within 24 hours of the first contract.
• If there is no transfer of the customer's details between
the suppliers, these bookings are considered as linked
travel arrangements (LTAs).
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25. Solo items (single travel
services)
• when travellers buy, and pay, and contracts for services
separately .
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26. Trade Act (2005 CLXIV)
defines the type of activities and
businesses
• Tour operation (equal to the organiser
in the EU Directive)
• means the business activities of a
trader who combines and sells or
offers travel services (packages,
linked travel arrangements – see
472/2017),
• either directly or
• through another trader or
• together with another trader,
or
• the trader who transmits the
traveller's data to another
trader.
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27. Trade Act (2005 CLXIV)
defines the type of activities
and the businesses – cont’
• Travel retailing:
• means the business activities of a
trader other than the organiser who
sells or offers for sale travel services
combined by an organiser and
signes contracts on behalf of the
organiser
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28. Trade Act (2005 CLXIV)
defines the type of activities
and the businesses – cont
• Trading activities facilitating linked
travel arrangement:
• are the activities of a trader who
offers and sell travel services due to
the 472/2017 Gov. Decree and these
activities result the sales of LTA.
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29. 213/1996 Gov. Decree
on Tour Operation and Travel
Retailing
• This Decree applies to everybody who
• deals with tour operation,
• travel retailing and
• facilitates linked travel
arrangements
in the territory of Hungary.
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30. 213/1996 Gov. Decree
onTour Operation and Travel
Retailing – cont’
• BUT 213/1996. Gov. Decree does not apply to:
• packages and linked travel arrangements
covering a period of less than 24 hours
unless overnight accommodation is
included;
• packages offered, and linked travel
arrangements facilitated, occasionally and
on a not-for-profit basis and only to a
limited group of travellers;
• packages and linked travel arrangements
purchased on the basis of a frame
agreement for business travel services
between a trader and another natural or
legal person who is acting for purposes
relating to his trade, business, craft or
profession.
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31. The Business of Tour
Operation – Overview

32. Terms and definitions
• Inbound, Outbound and Domestic
• Long haul - Short haul
• Short haul: travellers coming or
going from/to a nearby area.
(Usually, if the traveler’s
destination is further away
than one day’s driving
distance, they are considered
to be long haul)
• Package travel, Group travel,
Independent travelers (FIT)
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33. Role of the
Tour
Operators
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34. The Features of Tour
Operation
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35. One of the riskiest
businesses
The reasons
• Different currencies used
• Purchase and sales on different
currencies – there is long period of
time between purchase and sales
• Affects of external factors
• Changes in the demand
• Political changes
• Economic changes
....
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36. One of the riskiest
businesses
The reasons …cont’
• Characteristics of packages:
• Intangible product – bought „blind
• can not be seen, touched or
experienced by the consumer
before use
• tour operators prepare brochures
which represent their products –
but can not give accurate
impressions
• Discretionary product:
• income and price elastic
• does not belong to the products
what are necessary to consumes
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37. One of the riskiest
businesses
The reasons … cont’
• It is heterogenous:
• packages are by their very nature
varied.
• Perishable:
• are only saleable up to the date of the
departures, especially if you organize
fixed date trips.
• Suffer fom inseparability :
• The behavior of each participiant is
involved (driver, porter, guides, …)
• the human beings participating in the
business are inseparable parts of the
pruduct.
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38. One of the most
creative businesses
• Pro-activity and creativity is needed.
• Uniqueness is one of the keys of success.
• Range of available products/services are
unlimited
• Range of possible combination is unlimited
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39. The Economics of
Tour Operators
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40. Sales patterns/structure of big tour
operators
• Nowadays the bookings are made
much closer to the date of departure
(6-9 weeks).
• While in the past the majority of
bookings happened 4-6 months before
the journey.
• Due to the increasing demand for
authenticity, there are less bookings to
the traditional destinations.
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41. 40%
36%
2%
10%
12%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Accomodation, meal Flight, taxes Excursions, transfers Commission to the
agents
Gross margin
+
Direct costs of the package tour 88%
Indirect costs of
the package tour
33.33%
25.00%
16.67%
25.00%
Distribution of the 12 %
gross margin
Payroll (4% of the package
price)
Marketing expenses (3% of
the package price)
Office expences (2% of the
package price)
Trading profit (3% of the
package price)
Approximative COST
STRUCTURE
OF A
PACKAGE TOUR
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42. Low return on sales
• 1-3 % net
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43. Tour Operators’
Pricing – in general
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44. Highly competitive industry with
limited flexibility to set prices
• There are no self-produced elements included
in the packages
• The price of the combined elements are set by
the suppliers
• Possibility of the cost reduction is limited
– might threaten the business
• The only discretional part of the price is
the mark-up
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45. • Uniqueness enables producers to establish higher
prices and more flexibility to determine their
prices
• No or low level of comparability
• Higher value for the customers
• Uniqueness means being different
• Being different than competitors (USP is the
key point of differentiation)
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46. • Areas of uniqueness :
• Product related ones:
• combination of the elements;
• new destinations;
• schedule of departures;
• quality of package elements;
• …
• Sales related ones:
• new sales methods;
• sales campaigns;
• …
• Customer relation related ones:
• clubs;
• personal mailings;
• well established follow ups
…
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47. How Tour Operators Can
Keep their Prices Low ?
• By efficient negotiaton for lower
prices:
• volume buying (good projection is
needed);
• creative payment strategy.
• By restraining profit:
• profit margin reduction.
• By changing the cost structures:
• finding the most efficient way of
product creation and sales.
• operational costs cut.
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48. What is the right price?
• Must be right for the target market:
• the people who should be satisfied with
the products can afford them!
• Must be right in comparison to the
competitors’ prices:
• the price and value relationship is highly
comparable.
• Must be right in comparison to the
price of other packages offered by the
company
• re-allocate or not to re-allocate the
demand?
• the image must not be threatened!
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49. Factors
determining
the prices in
general:
Demand
Production costs
Competitors’ prices
Product line
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50. 1. Demand
• Product’s life cycle
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51. Phases of
Product’s life
cycle
• Introduction phase
• there is no pressure for immediate profit
• the product is promoted to create awareness
• if the product has no or few competitors, a
skimming price strategy* is employed
• limited numbers of products are available in
new channels of distribution.
*where a high price is set for a new or exclusive product and then is
lowered by stages as sales are built up
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52. Phases of
Product’s life
cycle – cont’
• Growth phase
• Competitors start to attract the market
with very similar offerings
• Products become more profitable
• Spendings on advertisements are high
• Market share tends to stabilise.
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53. Phases of
Product’s life
cycle – cont’
• Maturity phase
• Those products that survive the earlier
stages tend to spend longest in this phase
• Sales grow at a decreasing rate and then
stabilise. Producers attempt to differentiate
products and brands are key to this.
• Price wars and intensive competition occur.
At this point the market reaches saturation.
• Producers begin to leave the market due to
poor margins.
• Promotion becomes more widespread and
use a greater variety of media.
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54. Phases of
Product’s life
cycle – cont’
• Decline phase:
• At this point there is a downturn in the
market. (more innovative products are
introduced or consumer tastes have
changed).
• There is intensive price-cutting, special
offerings and many more products are
withdrawn from the market.
• Profits can be improved by reducing
marketing spend and cost cutting.
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55. 2. Production costs
• The operational costs of the
company (out of scope of our
subject)
• Production costs of the packages
(out of scope of our subject)
• Costs of the package elements
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56. 3. Competitors’ prices
• What other products on your market
compete most directly with your offering(s)
• Tools for being competitive:
• Cut the price
• Offer another destination on the
same/lower price (for the same or similar
target market)
• Employ market leader pricing policy
• Make the same product more unique
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57. 4. Your other products
• The objective is
• to maximise profit across your
entire product line
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58. 5. The additional factors that affect
the pricing of tour operators
• Seasonal effects
• ROE (HERE: Rate of Exchange)
• Differences in discretionary income
level (buying power) of different
market segments
• Promotional campaigns (early
booking reward, last minute)

59. Cost types of the packages
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60. • Fixed costs (of the packages!):
• DO NOT vary, they stay the same no matter how
many rooms/seats you let or tourists you carry
• Price of the services contracted with
guarantee
• Price of the chartered transportation
facilities
• Tour leader’s cost
• Special coach’s costs….
• Total fixed costs do not increase if the number
of sold packages increase
• Per unit fixed costs are high at low number of
packages and decline as number of packages
expands
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61. • Variable costs (of the packages!):
• they are dependent on how many
rooms/seats you let or tourists you carry.
• Rooms,
• F&b services
• Tickets
• Regular transportation, etc
• Total variable costs increase as the number
of sold packages increases