Chapter 12 Travel Intermediaries - Middlemen

This Lecture will give you Familiarity with the nature and structures of intermediation and the arguments for and against dis-intermediation of distribution channels in tourism; An awareness of ‘online’ developments and the increasing consolidation and concentration of tourism intermediaries; Familiarity with the operating characteristics, roles and functions of retail travel agents and tour operators; An understanding of the process of distribution; and An awareness of the financial constraints on the operation of intermediaries.

  Intermediaries Middlemen are intermediaries between consumers and suppliers. Customer (tourist) – middlemen – supplier Using middlemen has many advantages for both customers & suppliers Tourism industry has been traditionally characterised by its use of intermediaries.

Figure 12.1 Structure of distribution channels

  Intermediaries Various middlemen that are included in the travel and tourism industry are; Travel agencies, Tour Operators Travel clubs, Hotel marketing and booking schemes, incentive travel organizations, Sales representatives, Computerised reservation system (CRS), global distribution system (GDS) etc.

Functions of Intermediaries Provide info about tourism products Contact current & potential customers Make reservations & other arrangements Assemble services to meet customer needs Prepare tix & make confirmations  

Functions of Intermediaries Provide databases on customer behavior Reduce cost of acquiring new customers Market excess or distressed inventories Take risks by buying (or reserving) products  & then reselling them to individuals or groups  

The Nature of Intermediation Benefits Producers are able to sell in bulk and so transfer risk to intermediaries Producers can reduce promotion costs by focusing on the travel trade, rather than consumer promotion, which is more expensive Consumers can avoid search and transactions costs Consumers can benefit from the specialist knowledge of intermediaries, their market power and the resulting lower cost of products Destinations can benefit from the marketing, and international marketing, network of many intermediaries

The Nature of Intermediation Disadvantages Use of intermediaries by producers will result in the loss of margins and their degree of marketing control and influence over the process of distribution

Travel Agencies Travel agent = person Travel agency = company Provide important info & sales links Links between: tourists & tourism suppliers Using TA, one of most common (popular) ways to buy tourism products\services Many tourists now use Internet travel agencies: Travelocity, Expedia, & Orbitz  

Travel Agencies Via websites & e-mails TA compete with each other regardless of their physical location Do not own products they sell, so they have little or no inventory or cost of goods sold As commissions dwindle, markups increase Large volume agencies often earn override commissions (above the normal percentage) Destinations experts; make recommendations  

The Role of the Retail Agent Travel counsellor Principal role is to supply the public with travel products and services (such as insurance and foreign exchange) Income is predominantly earned via commissions Retail location and choice of reservation systems are key decisions Impartiality (neutrality)?

Receptive Service Operators    RSO are part of tourism distribution channel AKA receptive tour operator, ground handler & inbound operator RSO: a local company that  specializes in handling needs of groups traveling to it destination  

Consolidators & Travel Clubs Are combinations of wholesalers & retailers They perform a unique function within tourism distribution channels Consolidators buy excess inventory of air tix, then resell them at reduced prices via TA or directly to travelers

Tourist Information Sources Travelers need info before, during, & after a trip about tourism product benefits, prices, & availability Marketing communications provides this via: Advertising, public relations, & personal selling Information is available from national tourist offices (NTOs), convention & visitor bureaus (CVBs), and chambers of commerce These sources have tool-free phone numbers,  websites, & welcome centers/TICs

Table 12.1 Some developments and trends in the marketplace affecting travel agencies

Table 12.2 Arguments for and against the dis-intermediation of travel agencies

Table 12.2 Arguments for and against the dis-intermediation of travel agencies (cont’d)

Table 12.3 Arguments for and against the dis-intermediation of tour operators

Table 12.3 Arguments for and against the dis-intermediation of tour operators (cont’d)

Table 12.5 Major global travel conglomerates

Online Travel Drivers of growth Growth of Internet usage and electronic commerce Success of global distribution systems (GDSs) Sabre Worldspan Galileo Amadeus Phenomenon of ‘no frills’ airlines Role of commissions in ‘traditional’ channels of distribution

Global Distribution Systems  Majority of TA business is done via GDS GDS provide extensive data on suppliers: Schedules Rates & fares Space availability GDS can also: Make reservations Print itineraries, tix, & invoices

Computer Reservation Systems Travel Agencies are linked on-line via one or more computer reservation systems (CRS) built & operated by airlines CRS make airline reservations,& serve as databases for tourism suppliers

Internet vs. Travel Agents Consumers have choice in buying travel products Increases scope & reach of options Open 24/7 But requires more work & knowledge by consumers TravelAgencies have expertise & human touch Can save clients time, money, & energy Can manage entire trip & its details

Figure 12.4 Conceptual model of the process and factors influencing agents’ destinations recommendations

Tour Operators TO: business organizations engaged in planning, arranging, marketing, & operating vacation packages TO work with all sectors of tourism industry They perform many functions: Planning , Sales and reservations , Representatives /guides They organise and put together package trips and holidays.  

Tour Operators 1. Convenience 2. One-stop shopping 3. Cost savings Reasons to Buy Tour Package  1. Convenience 2. One-stop shopping 3. Cost savings 4. Special treatment 5. Worry-free  

Tour Operators TO are unregulated Very susceptible to perishability   Tour Operators Risks  TO are unregulated Very susceptible to perishability Must commit to place, products, & prices in advance  Currency fluctuations: Natural disasters: Changing consumer tastes: Security & Safety Concerns

The Role of the Tour Operator / Wholesaler Principal stages of the tour operating process Research Capacity planning Financial evaluation Marketing Administration Tour management

Price structure of a 14-night inclusive tour Table 12.8 Price structure of a 14-night inclusive tour Source: Trade information

Conclusion Increasing consolidation, integration and concentration Pressure from ‘virtual’ players Changing patterns of booking behaviour Pressure on cost structures and commission rates New market entrants Branding