The travel industry is vast and often the word travel agent is used to describe a number of different categories within the sector. There are four main categories that have the time travel agent applied to them and they are as follows:
- Travel agent
- Tour operator
- Business Travel Management
This blog article will help you understand the difference between each of the above.
A Travel Agent essentially works on behalf of someone else. In the United Kingdom selling travel is a heavily regulated activity. Fundamentally, anyone selling a flight inclusive holiday to a member of the public must have an ATOL license. A travel agent does not need an ATOL license because they will sell on behalf of a principal or wholesaler that does have an ATOL license. The contract is between the customer and the principal and the travel agent earns a commission from the principal. Most principals have set up their wholesale businesses to allow travel agents to create itineraries and set their own markups. The principal will then issue a booking confirmation to the consumer in line with the selling price set by the travel agent. The difference between the net price and the sell price is paid to the travel agent as commission.
A tour operator will either sell directly to the public, sell through travel agents or both. Tour operators that sell to both the public and through travel agents will generally operate what is known in the industry is price parity i.e. they will not sell directly to the public at a price less than the agent is able to sell the same product for. This ensures that the travel agent can still earn a commission without fear of being undercut by the wholesaler they are selling on behalf of.
A tour operator must have an ATOL license which is regulated by the civil aviation authority. The CAA is a government department which monitors the financial position of its license holders on a monthly basis. The CAA insures that its members have well capitalised balance sheets and maintain a high level of financial liquidity to avoid the risk of insolvency and financial failure. In the event that an ATOL license holder does fail financially, the CAA will refund any customer of the ATOL holder thereby guaranteeing financial protection for consumers. Selling a flight inclusive holiday without an ATOL a license is illegal and can lead to criminal prosecution and even a jail sentence.
The tour operator will negotiate rates with hotels, airlines, cruise lines, car-rental providers and other travel service providers. Some tour operators will even buy rooms at hotels and seats on flights in advance to guarantee themselves a minimum level of inventory to sell at a fixed purchase cost. When it gets close to departure date if a tour operator has unsold packages it will sell them at a massive discount to avoid the seat going empty or the hotel room remaining unused. A travel agent will still earn commission when selling these last minute distress packages.
Business Travel Management
Larger companies work exclusively with a single travel management company. These companies negotiate corporate rates with key hotels and airlines that their corporate client uses most frequently. A travel management company will then organise travel for the employees of their client and build them on a monthly basis for the services. Travel management companies do not charge a mark up on the travel products they sell but rather a service fee for their time. They will also get commission from some suppliers like hotels and car rental operators. These companies will also get override incentives from airlines and hotels who will pay them an extra commission based on the amount of revenue they generate.
Specialists can comprise tour operators and travel agents. This is the segment of leisure travel that is most profitable. By specialising in a specific segment of travel such as religious tourism, health and wellness, diving holidays or hiking tours you can target a niche segment of the market and charge a significant premium. Firstly, you will be able to negotiate exclusive rates with individual hotels, cruise lines and other product suppliers that you intend to promote and drive business to. In addition, you will use your specialist knowledge to create complex bespoke itineraries that incorporate the value savings that you know about and that are not readily accessible. You could even accompany your own group tours.
I have chosen to be a specialist as I can earn up to 30% margins on the bookings I do. With group tours that I escort, I earn as much as 45%. I have always loved diving and am a certified instructor. When I got in to the travel industry I decided to specialise in diving holidays. My leads come from my extended network of dive acquaintances and recently I have been arranging a number of school groups. For people who need a little bit more hand holding, I escort group tours to the Caribbean, Indian Ocean, Red Sea and even as far as Australia. I will typically take between 18-25 people with me and typically earn £1,000 per person on these groups.