Tour operation involves organizing package tours that combine various travel components like transportation, accommodation, meals, and activities. There are several factors that influence tour operators' pricing. Tour operators have limited flexibility to set prices as most costs are set by suppliers. They aim to keep prices low through efficient negotiations and restraining profit margins. Other factors that affect pricing include demand patterns, production costs, competitors' prices, and the prices of other packages offered. Tour operators must determine the right price that is affordable to target customers and competitive in the market while maximizing profits across their product lines.

1. The Business of Tour
Operation
Tour Operation

2. New terms
• 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)

3. Role of the
Tour
Operators

4. The Features of Tour
Operation

5. One of the
riskiest
businesses - the
reasons
• Different currencies in use:
• purchase and sales on different currencies – there is
long period of time between purchase and sales.
• External factors:
• changes in the demand;
• political changes;
• economic changes;
...

6. One of the
riskiest
businesses - the
reasons …cont’
• Special characteristics of packages:
• Intangible – 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.

7. One of the
riskiest
businesses - the
reasons … cont’
• the package is heterogenous: (like the demand):
• holidays 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 inseperability:
• The behavior of each participiant is involved in
the package (driver, porter, guides, …)

8. 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.

9. Why Packages are Popular ?

10. There are benefits of packages both for
consumers and for participating businesses

11. Benefits of package’s/package
tours’ for the consumers
• Ability to budget for trips:
• packages include most of the
components what a consumer needs
during travel/stay and should pay for
them;
• the consumers pay in one amount in
advance, so they have a good idea of
the total cost of the stay.

12. Benefits of package’s/package
tours’ for consumer – cont’
• Price benefits:
• tour operators pass on benefits and discounts
they got from suppliers to final consumer:
• tour operators frequently purchase from
suppliers at wholesale/discounted prices.
• Tour operators calculate in the cost of
packaging and still can provide a competitive
price to the market.
• The cost to the customer is usually more
economical than purchasing the package
components individually.

13. Benefits of package’s/package
tours’ for consumers
• Increased convenience:
• planning and organising trips can be
time consuming and difficult to
arrange individually;
• a package allows a customer to
arrange many components of a trip
with one call and one payment, saving
time and aggravation;
• “no hassle” elements, everything is
arranged for the traveller by
professionals.

14. Benefits of package’s/package
tours’ from consumers – cont’
• Popular activities and programs can be included
• Visitors and travelers are often unfamiliar
with many of the activities and attractions in
an area: a package can help customers find
them easily.

15. Benefits of package’s/package
tours’ from consumers – cont’
• Wide variety of interests might be satisfied
• Packaging provides a unique opportunity to
design components of a package for
specialised interests.
• These "benefit bundles" can include
package components not readily available
to individual customers.

16. Benefits of package’s/package
tours’ for consumers – cont’
• Safety:
• legal framework for the operation;
• strict legislation of the package.

17. Benefits of package’s/package
tours’ for participating businesses
• Improved profitability:
• tour operators can add value to an
existing product;
• and they also can price their product at
a premium (felár):
• by adding special goods and services;
• by creation of limited or exclusive
availabilities (prestige products).

18. Benefits of package’s/package
tours’ for participating
businesses - cont’
• Smoother business patterns:
• tour operators use packaging during
low demand periods to add attractive
features to the business's service or
product, thus generating additional
business;
• other businesses may also be willing to
discount their services during this time:
• adding these services to the
existing product mix may generate
new business.

19. Benefits of package’s/package
tours’ for participating
businesses - cont’
• Joint marketing opportunities for the
businesses:
• by joining to conduct a
marketing/advertising program, costs
can be reduced or a new program can
be started what one could not normally
afford;
• this can be very effective if the
participating businesses have similar
target market.

20. Benefits of package’s/package
tours’ for participating
businesses - cont’
• More effective target marketing
• Packaging can be an effective tool to
tailor tourism and travel products for
specific target market – food tourism,
adventure tourism:

21. Benefits of package’s/package
tours’ for participating
businesses - cont’
• Greater holiday weekend business
• Packaging can be used to highlight
special holiday weekends (Valentine’s
day, mother’s day, national holidays) by
developing approppriate services to the
theme of the weekend

22. Benefits of package’s/package
tours’ for participating
businesses - cont’
• Redirected traffic to lesser-known attractions
• Tour operators can redirect visitors to
overlooked (?) attractions

23. The Economics of Tour
Operators

24. • What it is about?
• Sales patterns/structure
• Pricing/cost structure
• Low return on sales
• Market related impacts

25. Sales patterns
• Bookings of vacation/holiday packages are
made much closer to the date of departure
(6-9 weeks)
• While in the past the majority of bookings
happend 4-6 months before the journey

26. 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)
COST STRUCTURE
OF A
PACKAGE TOUR

27. Low return on sales*
• 1-3 % net
*calculates how efficiently a company is at generating profits from its revenue.

28. Recent Challenges to Tour
Operators

29. • Fast changes in demand
• Politically or economically risky destinations
• Dynamic packaging
• New regulations
• Distribution channels and integration
• LCC’s (Budget airlines))
• Maintaining the market share
• Trend towards independent travel

30. Fast changing
demand

31. Tendency of the demand
changes
• Increased interest in exclusive tourism
experiences
• consumers are increasingly searching for
unique, exclusive products and services
• Increasing demand for authenticity
• travellers are looking for real
experiences in non-traditional
destinations (meaningful, life-enhancing
experiences)
• More demand for customised travel
• Customers want to control the process
of selecting and composing a holiday
and demand greater flexibility, as they
are more experienced

32. Tendency of the demand
changes – cont’
• More specialised holidays instead of mass
products
• adventure tourism, cycling and
diving,community based tourism,cultural
tourism, nature tourism,wellnes tourism,
wildlife tourism
• Rise of new target groups
• ageing population, changes in the
composition of households, singles, single
parents, disabled travellers, gay and
lesbian travellers, young travellers (15-29
years old), families with older children
(12-18)
• Emergence of peer-to-peer travel
• consumers offer private accommodation
or dining arrangements through online
platforms to other consumers around the
world (Airbnb)

33. Tendency of the demand changes
– cont’
• High-end segment remains a stable market:
• For consumers with high discretional
incomes long haul travel remains
attractive
• Social media is an integral part of travel
planning
• key sources for travel information
purposes before, during and after a trip
• very useful tool for customer relationship
management

34. Tendency of the demand changes –
cont’
• “Mobile ready”
• extensive use of mobile devices to
obtain information
• Blogging as a marketing tool
• create awareness, build an image and
reach new target groups
• Increasing concerns for sustainability
• looking for more sustainable products,
especially in Northern and Western
European countries, so tour operators
expect suppliers to at least implement
sustainable practices
• Increased liability concerns
• European travellers are increasingly
being protected under central EU
legislation

35. Politically or economically risky
destinations
• The traditionally most popular
destinations sometimes face to
difficulties.

36. Dynamic packaging
• Travellers use the internet to
research their holidays and make
their own travel arrangements
direct with suppliers
• greater flexibility
• less expensive offerings
38

37. New regulations in the
EU
• They have a profound impact on
the way in which travel is sold
across Europe.
• The regulation is extended to the
online businesses as well.

38. Distribution channels
and integration
• Traditional vs online.
• Travel companies become
integrated:
• vertical integration;
• horizontal integration.
• New distribution methods:
• dis-intermediation;
• re-intermediation;
• cyber-mediation.
40

39. LCC - Low cost carriers
(Budget airlines)
• Greater variety of destinations at
reduced prices.
• Travellers are using the LCCs in their own
holidays by-passing the need for a tour
operator’s services.
41

40. Maintaining market
share
• Through mergers and takeovers
(integration).
• By reducing prices.
• By increasing promotion.
• By improving quality.
• By training the staff.
42

41. Tour Operators’ Pricing – in
general

42. Highly competitive industry
with limited flexibility to set
prices
• There are no self-produced elements
included in the packages.
• The prices 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.

43. • 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:
• to differ from the competitors (USP is
the key point of differentiation).

44. • 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 relationships related ones:
• clubs;
• personal mailings;
• well established follow ups.
• Pricing tactics:
• discounts.

45. What is the right price?
• Must be right for the target market:
• the customers who we would like to satisfy
with the products can afford those products!
• Must be right in comparison to the competitors’
prices:
• price and value relation 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.

46. How Tour Operators Can
Keep their Prices Low ?
• By efficient negotiaton with the suppliers for
lower prices:
• volume buying (good projection is needed);
• creative payment strategy.
• By restraining profit:
• markup ratio reduction.
• By changing the cost structures:
• finding the most efficient way of product
creation and sales;
• operational costs cut.

47. Factors determining the
price setting of the
packages

48. Factors
determining
the pricing in
general
Demand
Production costs
Competitors’ prices
Product line

49. Demand
• Product’s life cycle
• 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.
.
• competitors start to attract the
market with very similar
offerings;
• products become more
profitable ;
• spendings on advertisements
are high ;
• market share tends to stabilise.
• those products that survive the earlier stages
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.
• 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

50. Production costs
• Indirect costs
• operational costs of the company.
• Direct (product) costs of the
packages
• fixed costs;
• variable costs.

51. • 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

52. • 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

53.  Break-even price:
the price per unit for a given volume of
output, at which total revenue is exactly equal
to total costs.
• the minimum price required to earn profit
can be set by good projection of direct and
indirect costs.

54. Competitors’ prices
• What other products on your market
compete most directly with your offering(s).
• Tools for being competitive :
• cut the price;
• offer another / new destination on the
same/lower price (for the same or similar
target market);
• employ market leader pricing policy;
• make the same product more unique.

55. Your other products’
prices
• The objective:
• to maximise profit across your
entire product line

56. Additional factors that affect
the pricing of tour operators
• Seasonal effects
• ROE (HERE: Rate of Exchange)
• Promotional campaigns (early booking
reward, last minute)