THE TRAVEL TRADE 8 TH COURSE

THE TOURISM PRODUCT MARKET Travel packages = organized trips following predetermined and detailed programs involving several tourism services Preliminary organization - tourism products are developed and established well before client demand is actually expressed Variety of services provided Fixed prices - the price of the product is set in advance and usually payment is settled before the journey begins – credit payment

Classification of tourism packages The all inclusive package - traditional package -> the operator provides all the services: Full-board holidays return travel arrangements, transfers, accommodation and all meals provided by hotels, resorts, holiday clubs recently - variations Organized tours usually combine accommodation with excursions Cruises all inclusive packages The mixed formula transport to and from destination with other services Fly and drive Flight + hotel packages Specialized packages: sport holidays, cultural tours, health and spa holidays, adventure travel, incentive and conference travel

Economic characteristics of tourism products Inelasticity they do not adapt well to changes in short and long term demand cannot be stocked - perishable long term fluctuations - affect the composition of the product and its selling price dependent on existing superstructures at destinations Complementarity tourism product - composed of several complementary sub-products Heterogeneity it is virtually impossible to produce two identical tourism services certain amount of substitution within the different sub-products

TRAVEL INTERMEDIARIES Tour Wholesalers designs, prepares, promotes, and executes the sale of tour packages, buying large volumes of products from a variety of travel suppliers (air travel, accommodations, meals, entertainment, ground transportation, sightseeing tours, attractions) Role of Wholesaler purchasing in bulk increases their buying power ability to negotiate discounts - cost savings passed to the consumer provide financial security to the suppliers - advance sales commitments develop and make available an array of tour packages to satisfy different travel customer tastes and income levels

Types of Wholesalers inbound wholesaler outbound wholesaler domestic wholesaler airline wholesaler subsidiary selling the seats of a particular airline a wholesale business that has formed a brokerage relationship with an airline. specialty wholesaler wholesale travel agent travel agent who puts together customized versions of tour packages to satisfy the needs of market niches within their customer base American Express Travel Related Services; Thomas Cook Travel - retail and wholesaler roles at the same time. the wholesaler may sometimes act as a travel agent by operating retail outlets. travel clubs and incentive travel companies arrange travel packages in ways similar to the wholesalers the packages are only offered to their individual members.

Economics of Wholesalers generate their gross profits using a 20-25% markup applied only in the ground services portion of the tour air transport – almost 50% of the total price of the package - generates profits that go to the travel agent in the form of commission 3% percent before-tax profit out of the total price of an all-inclusive tour. strong sales required in order to reach the average break-even point of the industry before it starts generating a profit, a wholesaler must sell as much as 85% of its packages low return-on-sales favorable return-on-equity ratio - low requirements in initial investment cash flow benefit – float Risks changing preferences, unfavorable weather conditions, safety concerns, or political upheavals advance reservations with a supplier - a sales contract for which he is bonded

Trends affecting wholesalers deregulation of the airline industry changes in consumer tastes consumers - better educated and aware of their rights – lawsuits false advertising changes in the scheduled flights or the prices of packages or hotel rooms impact of the communication revolution in the travel industry.

Tour Operators ground operator - tour wholesaler with a smaller scale of operations tour operator offers his services only at the destination itself - land arrangements: hotel transfers, accommodations, sightseeing, prepaid admissions, and other special arrangements In contrast to a wholesaler who designs and offers a large number of tours, the tour operator can offer only a limited number of tours on a yearly basis. trend towards specialization

The Travel Agent the retailer final link in the consumption process the visible intermediary in the distribution chain a commissioned “agent” or an authorized representative who is approved to sell the products of a company in a certain geographic area. Travel Agents as Counselors a specialist who has developed an expertise in researching and collecting large amounts of appropriate and reliable information in very little time. Travel Agents as Sales Representatives 3 basic elements that facilitate the suppliers’ business: a location where information can be obtained for the suppliers’ products, an outlet where a potential customer can purchase those products, a place were payments can be collected.

PACKAGING THE TOURISM PRODUCT 3 main stages : Market research - to understand and analyze the key elements associated with a particular market and its environment - questionnaire Negotiation designing products that match the demand of the target market: Good knowledge of the market The best quality-price ratio creating “packages” by negotiating the required services with suppliers of each of the elements making up the product -> to reach the best competitive price for a satisfactory quality-price ratio. finalizing contracts with suppliers - catalog prices, which are calculated on an 80-90% take-up rate. Commercialization of the tourism product

Negotiation of the travel package Designing the product - knowledge of the market: clientele – segmentation by age, professional category, area, income bracket, lifestyle, usual holiday preference competition –elements to differentiate the final product from that of competitors; necessary promotion and publicity superstructure available to reach the target clientele tourism resources at the destination area – natural resources, cultural resources, superstructure and services, entertainment and excursions the best quality-price ratio Strategy - three aspects: competitiveness – range of products catering to different market segments. product range – extending the product range strategy – competitiveness of prices and the efficiency of management – flexible product-range strategy. Negotiating the package aim - to reach the best competitive price for a satisfactory quality-price ratio. selling price - includes commissions to travel agents or other distributors, marketing costs, administration costs and the risk cost of falling short of the forecasted sales volume for the product. Finalizing international contracts - allocate responsibilities to spread the commercial risk agency contracts with travel agencies at the destination countries; contracts with hotels; charter agreements. risk is built into catalog prices, which are calculated on an 80-90% take-up rate.

The travel distribution systems Direct Distribution System advantages: Time Savings - direct communication Increased Profits - Suppliers are not required to pay commission Flexibility - option to make possible changes in the itinerary. Greater Control - feeling of comfort and security in the transaction disadvantages: high cost to maintain a permanent sales force possible reaction of the dissatisfied intermediary supplier - risks losing an opportunity to increase its revenues by selling to travelers who prefer to use an intermediary

The travel distribution systems Indirect Distribution System: benefits for the consumer: professional consultation. The travel agent - personalized guidance, advice, and expertise. greater variety - wider array of product options lower price - travel intermediaries are able to negotiate lower rates single payment - customer is charged in advance benefits of the supplier: savings from not having to hire sales personnel collection of sales revenues is also facilitated with the presence of middlemen specialty channeler - meeting and convention planners, corporate travel offices, incentive travel agents, and hotel representatives. : easier flow of information, the provision of customized service a favorable price of the package

MARKETING THE TOURISM PRODUCT the brochure - main marketing tool used to sell tourism packages represents the tangible evidence of a service that will be consumed in the future. largest tour operators print over 1 million copies of their brochures distributed through travel agencies and their own retail outlets. the lead time necessary to bring a product to the market can be between six months and a year price list separately from their main brochure Marketing by travel agents transport sales and the marketing of tourism packages. ticketing - IATA Marketing and advertising campaigns are often undertaken by different organizations whose interests are complementary: governmental tourism organizations from destination countries - responsible for general information and promotion of the destination tour operators and travel agencies - marketing campaigns to sell their products

THE TREND TOWARDS CONSOLIDATION Europe- vertical integration to better control the various links in the chain of distribution the domination of Germany and the United Kingdom - 5 largest European groups account for more than 67% of total tour operator sales, estimated at US$30 billion. the race to consolidate continues TUI, Thomas Cook, Rewe

THE TREND TOWARDS CONSOLIDATION

US – fewer vertically integrated groups dominance of the airlines Strategies involving the electronic distribution network are of crucial importance in the United States - the market has reached maturity faster than anywhere else in the world several major European tour operators have attempted to penetrate the U.S. market Asia-Pacific market extremely fragmented explosion in the number of independent agencies - China

Impacts of consolidation in the distribution network large integrated groups: Economies of scale Increased visibility Market presence Controlling distribution and monitoring the competition independent agencies Differentiation strategies Price wars opportunities for the distribution sector diversification of product and services networking

Wholesaler: - travel firm which assembles various travel services - producer of all inclusive package tour - contracts with service suppliers aircraft seats, hotel beds, ground services - buys services “in bulk”, thus receiving reduced rates - prepares prearranged tour packages according to expected demand - pays in advance to service suppliers - has stocks before the actual demand arises - its earning – profit Tour Operator (local, ground TO): - prepares land arrangements; - provides destination tourism services as a package to the TO; - handles the tourists from arrival to departure; - operates the local services; - organizes familiarization and information tours; - gives advice to FTO on locally available services; - controls the services; - contracts to buy local services. Travel agency: - operates on behalf of the travel service supplier - sells tourism services under an agency contract its revenue – commission - an intermediary – a subcontractor - provides services when a demand arises - retailer – does not have stocks - does not work with profit margin – can occasionally charge a “handling fee” - a travel agent’ stock – information and brochures