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Tour Operators and Operations

Development, Management and Responsibility


Tour Operators and
­Operations
Development, Management
and ­Responsibility

Jacqueline Holland
Newcastle Business School
Northumbria University

and

David Leslie
Freelance Tourism Researcher and Consultant
CABI is a trading name of CAB International
CABI CABI
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© J. Holland and D. Leslie, 2018. All rights reserved. No part of this publication may be
reproduced in any form or by any means, electronically, mechanically, by photocopying,
recording or otherwise, without the prior permission of the copyright owners.

A catalogue record for this book is available from the British Library, London, UK

Library of Congress Cataloging-in-Publication Data

Names: Holland, Jakki, author. | Leslie, David, 1951- author.


Title: Tour operators and operations : development, management and
responsibility / by Jakki Holland and David Leslie.
Description: Wallingford, Oxfordshire ; Boston, MA : CABI, 2017. | Includes
bibliographical references and index.
Identifiers: LCCN 2017022450 (print) | LCCN 2017037506 (ebook) | ISBN
9781780648248 (pdf) | ISBN 9781780648255 (ePub) | ISBN 9781780648231 (pbk.
: alk. paper) | ISBN 9781780648248 (eBook)
Subjects: LCSH: Tourism--Management. | Package tours.
Classification: LCC G155.A1 (ebook) | LCC G155.A1 H646 2017 (print) | DDC
910.68--dc23
LC record available at https://lccn.loc.gov/2017022450

ISBN-13: 978 1 78064 823 1 (pbk)


978 1 78064 824 8 (PDF)
978 1 78064 825 5 (ePub)

Commissioning editor: Claire Parfitt


Associate editor: Alexandra Lainsbury
Production editor: Tim Kapp

Typeset by SPi, Pondicherry, India


Printed and bound in the UK by CPI Group (UK) Ltd, Croydon, CR0 4YY
Contents

Acknowledgementsvii
Selected Supporting Websitesix

1 Introduction1
2 The Package Holiday and the Rise of the Tour Operator11
3 The Operating Environment38
4 Product Development59
5 Small and Medium-sized Tour Operators86
6 Customer Service108
7 Financial Planning: Pricing the Package130
8 Tour Operators and Key Travel Regulations (with David Grant)146
9 Distribution (Place)166
10 Marketing187
11 Human Resources and Managing the Workforce219
12 Crisis Management246
13 Challenges and Issues: A Look Ahead264

Index271

 v
Acknowledgements

No textbook can ever reach fruition without the support of many people and this text
is no different. First, we would like thank CABI for its support in commissioning the
book, and the reviewers of the initial proposal for their invaluable comments. Further-
more, we would like to acknowledge the support and indeed patience of Alex Lains-
bury, Alison Foskett and Claire Parfitt throughout the development and production of
the book.
In developing this text we have been able to draw on the expertise and advice of
many people and we would especially like to acknowledge David Grant for his invalu-
able and major contribution on the law and travel regulations. We also express our
thanks to Anne Helsby, Danielle Muir, Jo Doran, Kate Russell, Kim Jobson, Patrick
‘Paddy’ Boyle, for their support, and finally Susan Leslie for her ready willingness to
review and comment on innumerable draft scripts.

 vii
Selected Supporting Websites

The following websites of organizations and companies provide supplementary links


to themes covered in the chapters and additional support for the discussion questions
and case studies.

abta.com
www.adventuretravel.biz
www.aito.com
www.amadeus.com
www.asta.org
www.chinatourism.ch
earthlingtravels.com
ec.europa.eu/growth/sectors/tourism_en
www.expedia.com
www.greenglobe21.com
www.gstcouncil.org
www.historyofpackagetours.co.uk
www.pata.org
www.responsibletravel.com
www.sabre.com
sustainabletravel.org
www.thetravelfoundation.org.uk
www.toinitiative.org
www.travelmarketreport.com
www.travelocity.com
www.unep.org
www.UNWTO.org
www.wanderlust.co.uk
www.worldtravelawards.com
www.wttc.org
www.wttc.org/tourism-for-tomorrow-awards

 ix
1 Introduction

This book aims to present a substantive following overview of the early develop-
foundation for the study and understanding ment of tourism and tour operators is by
of tour operators and their practice. These default predominantly UK based and to a
organizations operate within the wider lesser extent Eurocentric. This historical
sphere of tourism and thus it is pertinent perspective of early developments in travel
to provide a brief overview on the devel- is remarkably similar to what has subse-
opment of tourism to establish the broader quently happened in other countries, albeit
context within which these organizations more quickly, as tourism demand grew.
primarily operate, which gives rise to the However, first we should clarify two key
emergence and development of tour op- terms central to this book.
erations and their related opportunities
and challenges.
There is no doubt that historically Two Key Terms
within any society there have been some
people who have travelled for one reason First, what do we mean by tourism? While
or another, such as trade or out of curi- there are many interpretations, one that
osity. In earlier civilizations, such as the is particularly appropriate is that presented
Roman Empire, affluent members of society by Przeclawski, who stated that tourism
travelled for recreation and education, ‘in its broad sense, is the sum of the phe-
while other members of society travelled nomena pertaining to spatial mobility,
for the purposes of trade or spiritual ful- connected with a voluntary, temporary
filment (see O’Gorman, 2010). In gen- change of place, the rhythm of life and its
eral, little changed for more than a environment, and involving personal con-
millennium, until the development of tact with the visited environment (natural,
mechanization and what is generally cultural or social)’ (1993, p. 10). A key
termed the Industrial Revolution circa reason to adopt this definition is that this
1780–1880, leading to industrial, eco- conveys that the tourist has a sense of in-
nomic and social transformations. The volvement with the destination, which is
overall impact on society was substantial not just limited to the physical attractive-
and laid the foundations and conditions ness of the locale. The second term we
for the working life patterns of today’s must clarify is that of a ‘tourist’. Within
industrial/post-industrial societies. It was these pages, we are concerned primarily
during that period that the fundamental with those people, i.e. tourists, seeking a
conditions for the development of tourism, temporary change of place for leisure, ra-
as we know it today, were laid. This is ther than tourists whose trip’s purpose is
nowhere more apparent than in the UK, business, and the role of tour operators in
which has long been considered the facilitating such demand. This temporary
cradle of industrialization. Therefore, the change must involve a minimum of 24 hours

© J. Holland and D. Leslie, 2018. Tour Operators and Operations: Development, 1


Management and Responsibility (J. Holland and D. Leslie)
away from home and in the case of inter- primary provision for that most essential
national tourists include at least one destin- of components for tours and subsequently
ation in a country other than their own the development of package holidays.
country of residence. Thus, the trip taken Surprising as it may seem, given its sig-
may be for a few days or an extended nificance, transportation in tourism gained
holiday. remarkably little attention in tourism
studies for many years (see Lumsden and
Page, 2004). In the absence of transport,
Fundamental Conditions tourism would not have developed tem-
porally and spatially in the ways that it
As noted previously, it was during the has, enabling today’s millions of inter-
19th century that the fundamental condi- national leisure tourists to undertake a
tions for tourism demand were founded. holiday at a time and to a place that is
First, employment that does not tie a both suitable and convenient for them.
person to the land for their livelihood. Se-
cond, the income/salary needs to be suffi-
cient to allow for disposable income, Transportation
which is discretionary spending once all
the basic needs have been met. The third The railways were the earliest mass trans-
condition is that of leisure time, i.e. time portation method and enabled the emer-
free from work (or other time-based com- gence of travel agents to facilitate groups
mitment), which must be of a sufficiently of people travelling in relative ease and
long period to enable absence from the safety to tourist destinations. These were
home environment for a minimum of predominantly seaside locations, which
24 hours. These factors are all constraints in comparison with their home environ-
on demand and as these ease then demand ments were perceived to be unspoilt, at-
for tourism in general increases. But the tractive and safe and, depending on the
easing of these constraints of time – prevailing climatic conditions at the time
increased leisure time – and disposable of the visit, to enjoy good weather. Thus,
income together with transportation all we can identify, albeit predominantly in
take time. the UK, the rise of pleasure-seeking holi-
In effect, as the economy of a country days to the rapidly developing seaside re-
develops, invariably through industrializa- sorts of the 19th century for the masses,
tion generating employment and in due pro- and for the leisured classes trips to spas
cess the establishment of holiday pay and on continental Europe, the Rivieras of
rising disposable income, so more people in Italy and France, and by the late 19th
society can participate. As such, what was century, ski trips. It was also during this
once generally restricted to the privileged period and well into the 20th century
members of society and those whose busi- that ships started to play an important
ness required travel becomes over time in- role as a major means of transportation,
creasingly accessible to all members of often integrated with the railways, for
society, the democratization of tourism. international tourists. They could also be
However, for demand to increase and combined to create a ‘package holiday’ as
tourism to develop to any substantial de- exemplified by the emergence of cruise
gree, there is a requirement for some form ships, which were popular among the af-
of efficient mass transportation. This fluent classes in the 19th century. Trans-
came into being with the development of portation has the potential to be an integral
the railways, which for decades were the element of the trip itself, for example rail

2 Chapter 1
travel involving long scenic journeys and/ This pattern of tourism development
or the grandeur of renowned trains such is largely manifest in most countries as
as the Orient Express. their economy grows and develops.
Essentially, as demand gradually in-
creased then so too tourism developed
and with it the emergence of tour oper- Rise of Air Travel
ators, whose products initially often took
the form of guided tours to historical and The next substantive development in tourist
cultural destinations. The oft-cited exem- travel was the availability of air travel,
plar during those early years is Thomas from the 1940s, which was greatly facili-
Cook (UK), which is credited as being the tated by the expansion of commercial air-
first tour operator to create an inter- lines and scheduled flights. This was a
national package tour, involving a trip to significant factor in the development of
Paris from the UK. In effect, the leisured hitherto popular, low-key destinations
classes tended to set the travel trends and, such as Cuba and the Caribbean primarily
as opportunity developed, the professional for the American market, and the southern
and middle classes then imitated the leisured coasts of Spain and France in the case of
classes, followed by the working classes as the European market. As demand grew
their disposable income increased and com- from the early 1950s, subsequently bur-
parative costs declined. geoning in the 1960s as the previously
Other modes of transportation were identified key constraints eased in the
also developing after the 1920s. Travel by major economies of the world, then so
coach provided opportunities for tour op- too tour operators developed and in-
erators to create package trips for organ- creased in number in this rapidly growing,
ized groups predominantly to seaside resorts competitive marketplace. This enabled the
but also other parts of a country. These larger tour operators to operate on a
trips were often based around visiting volume basis, based on high customer
cultural attractions, e.g. Bath and York, numbers and lower prices. Also, the major
but also viewing the countryside, e.g. the players could negotiate block bookings of
Highlands and Islands of Scotland or the accommodation and seats with scheduled
Lake District of England. By the late 1930s, airlines. But airlines retained control of
a clear pattern of tourist travel had availability, choice of destination and sig-
emerged, mainly to well-established resorts nificantly the subsequent pricing of the
served by the railways and via a devel- tour package – factors that catalysed the
oping network of coach operators to ac- introduction of charter flights by tour oper-
cess destinations not served by the train, ators, enabling operators to have greater
such as trips to the countryside as well as flexibility of destinations and, more import-
more urban, cultural destinations. After antly, control of costs. These charter flights
the 1940s, coach tour operations expanded also served to help tour operators get
and experienced their most popular period around bilateral agreements between the
during the late 1960s/1970s, although governing agencies of different countries
coach tours are still very much part of the over agreed routes and thus air travel
tour operating sector in many countries. prices on those routes.
Over the same period, car ownership began In time, major operators sought to
to grow, providing opportunities for more develop partnerships with carriers and
independent travel and in due course be- ultimately incorporate such operations
coming the predominant mode of trans- under their own management. In combin-
port for domestic tourism. ation, these factors generated a mass

Introduction3
tourist market by the 1980s based on policy on promoting tourism (Leslie, 2011).
comparatively low cost, popular destin- Destinations are in competition – more
ations, well developed for tourists and so in today’s increasingly competitive
predominantly comprising ‘sun, sand and marketplace, which catalysed the emer-
sea’ (3S) based package holidays. Such gence of destination marketing and the
holidays were basically passive and in- creation of destination marketing organ-
variably based on one destination. izations (DMOs): exemplars of this are
A significant underpinning to the ‘The Big Apple’ and ‘I love New York’
successful development of this mass slogans of the 1970s. As Kotler et al. ex-
market, and tourist travel arrangements pressed so well 25 years ago, and which is
more generally, is that of ease of access to equally applicable now, if destinations
the destination. want tourists, then ‘Places must learn
how to think more like businesses, devel-
opment of products, markets and customers’
Ease of Access (1993, p. 346). This is perhaps nowhere
more evident today than in the bidding
A key point to note is that of the speed of processes involved in a destination seek-
transportation and thus ease of access in ing to host one of the seemingly ever-­
the creation and development of destin- expanding array of international sporting
ations. In general, tourists do not want to events, e.g. the Olympic Games, World
be spending significant proportions of their Cup Football Tournament, Common-
holiday time or short break accessing their wealth Games, Asia Games, and cultural
destination. Thus, development and ex- events such as the Eurovision Song Con-
pansion of rail and air transportation test. These developments all present add-
have increasingly enabled tourists to be itional opportunities for tour operators.
able to travel further, faster, more cheaply Thus, although the popularity of the 3S
and with relative ease. It may well have package tour may be in decline, alterna-
taken a couple of hours to reach a seaside tive opportunities are increasing and, in
resort in the 1950s by train or car, but by part at least, are facilitated by the in-
the 1970s a similar time could be in- creasing ease of access to the destinations
volved in air travel to the southern coast involved.
of Spain – whether from the UK or nor-
thern/eastern areas of Europe. This was in
itself a significant factor contributing to Developments and Expansion
growing demand for package holidays on
the north Mediterranean coast. It is also the As the speed of air travel increased and
most influential factor in accounting for the access to airports improved, thereby re-
growth in demand for travel to long-haul ducing travel time, then demand for des-
destinations, for example, UK to Australia tinations further afield grew. This enabled
or Beijing to Vancouver. the expansion of tourism to new destin-
Since the 1950s, government attention ations. The key point here is that as new
to tourism, based on its perceived eco- tourist destinations emerge, often initially
nomic benefits, led to the establishment of promoted by small tour operators oper-
national tourist organizations (NTOs). ating in niche markets, they become more
The main objective of these NTOs was, fashionable and demand increases, so
and is, to maximize demand for their country such destinations become attractive po-
and region respectively, especially so in tential markets for further development
times of recession; witness the EU’s ongoing by the more mainstream operators. For

4 Chapter 1
example, Antarctica, which was once a represent the generation of international
destination for explorers and scientists, is demand. Thus the general pattern over time
now a fashionable tourist destination re- for tourists is to visit destinations within
ceiving thousands of visitors a year, largely their locale, within the country and then to
fuelled by its increasing popularity as a other nearby countries, expanding further
cruise destination (Lück et al., 2010). It is afield as primarily transportation systems
not surprising therefore that over the past have enabled ever further travel in com-
half century we have seen dynamic ex- paratively shorter times. In many ways the
pansion of tourism around the globe. In- pattern of destinations visited reflects ad-
deed, the number of airline passengers vances in technology that have made destin-
has virtually doubled every 15 years since ations further afield more attainable – for
1971, a process that has been greatly fur- example, in aeroplanes that can accommo-
thered by airline deregulation (first in the date more passengers, fly faster and further
USA and then Europe) and cheaper air thereby reaching destinations that much
fares and low-cost airlines (Calder and quicker and without stopovers, or cruise
Lynas, 2005). The dramatic reworking of ships designed to be less susceptible to bad
the traditional airline business model by weather or able to withstand polar condi-
these low-cost airlines brought new op- tions, or the ambient conditions created in
portunities to consumers, with their low hotels for the general comfort of their
prices and convenient regional departure guests.
points, along with a frequency of service One of the truisms in tourist demand
never seen before. They have enabled is that where the few went yesterday, the
consumers to enjoy experiences that they majority will follow, evidenced in the sea-
previously could or would not have done; side resorts of the 19th century, the north
for instance, UK residents jetting off to Mediterranean coast of the 1970s, Florida,
European cities for ‘hen’ and ‘stag’ par- the Caribbean or Africa, and Thailand and
ties. Indeed, statistical evidence indicates Malaysia thereafter. For example, Kenya,
that the increasing numbers of air passen- Belize and the Maldives all doubled their
gers shows no sign of slowing down but tourist numbers between 1981 and 1989
rather substantial and continued growth; (Cater, 1993). This international travel
for example, it has been forecast that was dominated then, and largely still is,
there will be 7 billion passengers by 2034 by the major generators of international
(IATA, 2016). Overall, greater free time, tourists, namely Europe and North
access to credit, the internet and low-cost America. But such dominance propor-
airlines have all combined to produce tionally has declined over the last 25
today’s ‘wherever – whenever’ consumer years as other countries have developed,
societies. e.g. Taiwan generated 1.6 million inter-
national travellers in 1988 but by 1995
that figure had risen to 5.32 million
International Tourist Flows (Swarbrooke and Horner, 1999), while
Asia, Eastern Europe, Russia and Africa
The ever-expanding distances travelled have all demonstrated strong and growing
by tourists can be compared with the rip- markets (IOTP, 2011). The pattern of eco-
ples caused by a stone dropped into a still nomic development and growth leading
pond. The strongest ripples are close to to increasing propensity to generate tourist
the epicentre and may be considered to activity is further demonstrated by major
represent domestic tourism demand, while emergent economies such as India, Brazil
as those ripples expand and weaken they and China over the last 30 years. Not

Introduction5
surprisingly, such increasing affluence has continuing to fuel tourism demand and
fuelled tourism demand in those coun- facilitating access to, and the develop-
tries; initially, this is largely evident in the ment of, destinations, which may then
growth of domestic tourism, but also in a expand at an ever more rapid rate to ever
substantial increase in demand for inter- more remote areas of the planet.
national travel.
Since 1990, China has developed re-
markably rapidly to become the second Tourist Resorts Come
largest economy in the world, generating Under Scrutiny
1186 million international trips in 2015,
with a total estimated spend of US$1260 As the popular resorts of the 1970s and
billion (UNWTO, 2016). The majority of 1980s around the Mediterranean Sea ex-
those trips were to nearby places, such as panded and new resorts developed fur-
Hong Kong, Japan and Thailand, with ther afield, largely through the influence
long-haul trips to Europe accounting for of tour operators, they came under scru-
10% and Russia notably demonstrating tiny (see Chapter 2, this volume). First in
growing demand. terms of the impact on the destination’s
Worldwide tourism activity continues physical environment, which to some ex-
its inexorable growth as evidenced by the tent was recognized in the early 1960s,
doubling of international tourist arrivals for example, by the International Union
between 1990 and 2010 to a projected of Overseas Tour Operators (now the
1.4 billion by 2020 (UNWTO, 2016). World Tourism Organization of the
This dynamic growth in international de- United Nations) (Leslie, 2012). However,
mand has catalysed diversification of the it might be more accurate to argue that it
tourism offering, away from the renowned was the possible negative effect arising
traditional ‘Sun, Sand and Sea’ packages from degradation of the physical envir-
of the latter quarter of the 20th century onment on potential tourism demand for
towards offerings that are increasingly a locality/destination that was the cause of
differentiated, specialized and located in concern rather than any degradation of
ever more remote locations (see Chapter 2, the environment itself. Such criticism
this volume). This is a substantial shift of tourism was (and continues to be) largely
that evidences changing patterns in the based on the negative impacts arising from
consumption of tourism as tourists seek the development of tourist resorts, pre-
out new activities and experiences. dominantly the traditional package holiday
Overall, there is no doubt that today market destinations, which became known
international tourism is a global system. as mass tourism destinations. The impli-
Its expansion both reflects and follows cation was that it is mass tourism which
national/international development fur- is largely to blame for any degradation of
thered through internationalization and the environment and for other negative im-
globalization (see Friedman, 2005). As pacts such as economic leakages of tourism
Schivelbusch stated some 30 years ago, revenues from destinations because of the
and is all the more germane today: ‘For involvement of overseas companies, not-
the twentieth century tourist, the world ably tour operators.
has become one large department store of However, the increased attention fo-
countrysides and cities’ (1986; cited in cusing on reducing the negative impacts
Urry, 2001, p. 237). Of further note on of mass tourism stimulated companies, in
globalization is that it also leads to hom- particular entrepreneurs (see Chapter 5,
ogenization of markets and places, while this volume), to create and promote

6 Chapter 1
alternatives to the mass tourism product. the orientation is more on tourism enter-
This led to the emergence of new forms of prises involved in primary aspects of the
tourism differentiated from mass tourism delivery of services to meet the needs of
(Mowforth and Munt, 2009). These new tourists, i.e. hospitality operations. Yet
forms of tourism, with their plethora of for many of those operations the tour op-
terminology and definitions (Frey and erator can be and often is a major source
George, 2010), may also be seen as a of custom.
means of target marketing for tour oper- How this paucity of attention to tour
ators to lure new custom from ‘environ- operators has come to pass is a matter of
mentally and socially conscious’ tourists debate. Certainly, a contributing factor is
who are seeking an alternative to ‘mass’ the evident lack of attention given to the
tourism (Warnken et al., 2005). actual business enterprises and their op-
erational management within the tourism
sector on the part of those involved in the
A Lack of Attention to Tour development of tourism, be that pro-
Operators grammes, courses or more widely within
the context of academia. That this has
Although tour operators are key role continued over the decades is all the more
players in facilitating tourist demand and surprising when one stops to consider the
in tourism destination development, they importance of tour operators (past and
have rarely been the focus of research present) in the development of tourism in
(Holland, 2015); not surprising perhaps, many localities, which has been substan-
given that tourism enterprises themselves tial and continues to be so, despite the
have received comparatively little atten- perception in some quarters that the days
tion in the body of tourism research of ‘mass’ tourism – of the package tour –
(Leslie, 2015). Indeed, one of the most re- are over.
markable outcomes of any comprehen- In light of the above, the continuing
sive analysis of the myriad books absence of a fundamental book for stu-
published in the field of tourism over the dents of tourism, whether at a foundation
last 30 years is the evident absence of a level, undergraduate or MSc programmes
book that is directly focused on tour op- on tourism, is all the more inexplicable. It
erators (although to be precise there is is in recognition of such paucity of atten-
one exception, namely Yale’s 1995 book tion to tour operators and their manage-
The Business of Tour Operations). This is ment and operations that this book has
further reinforced through examination been designed, to redress this significant
of an extensive array of tourism books absence in the current tourism literature.
that are designed for tourism courses but
that on close analysis give remarkably
little attention to tour operators. To some Chapter Outline
degree the reasons why they gain such
limited attention is understandable be- The book has been carefully arranged
cause of the main focus on the more gen- based on 13 chapters, which collectively
eral, widely applicable discourses or are designed to provide a comprehensive
issue-based themes, which tend to be study of the management and develop-
within the domain of academic journals. ment of tour operators and their prac-
Within this context, the actual providers tices. Following on from the introductory
involved in supply invariably gain little chapter, Chapter 2 discusses the rise of
attention (see Leslie, 2015). Even then, tour operators and the development of

Introduction7
the standardized package holiday in what changes in legislation in the Far East dir-
is seen as a highly competitive and dynamic ectly relating to tour operators. Chapter 9
marketplace. This leads on to consider- provides an overview of how operators
ation of demand and global developments, distribute their products and summarizes
which gave rise to new opportunities and the role of agents and the importance of
encouraged diversification on the part of the brochure to both organizer and re-
both tour operators and in the range of tailer. Marketing is further explored in
holiday packages produced. Significantly, Chapter 10, which addresses the prob-
and albeit briefly, attention is drawn lems faced in marketing tourism prod-
to the importance of tour operators in ucts, in particular packages. The chapter
tourism development and as key role summarizes the need to clearly identify
players in the development of tourist des- target markets, first examined in Chapter 5,
tinations and resorts. Chapter 3 presents and the application of the promotional
strategic concepts and tools that can be mix to attract potential customers. The
used to examine the operating environ- importance of employees to the success
ment within which tour operators work. of the tour operator is addressed in
The chapter then examines the structure Chapter 11, which summarizes the main
of the sector and recent changes to distri- challenges and key tasks of manpower
bution and opportunities for product de- planning. The chapter reviews the pro-
velopment to achieve growth. Chapter 4 cess from identifying the need for new re-
builds on this strategic overview and cruits, the application and evaluation
examines how tour packages are devel- process, and concludes with managing
oped or adapted by major tour operators. performance.
The chapter offers a framework for de- The penultimate chapter, Chapter 12,
veloping new products and each stage is introduces the need to plan for incidents
examined in depth by presenting both by evaluating likelihood and severity
strategic and operational considerations. using a risk assessment. More serious in-
In recognizing the predominance of small/ cidents are planned for using a Crisis
medium enterprises in the sector, Chapter 5 Management Plan and the production of
presents an overview of how niche oper- this plan is summarized at the end of the
ators may create new products and iden- chapter. Finally, Chapter 13 considers the
tifies challenges for them, specifically the current environment for tour operators
effects of varied itineraries and the use of and raises the challenges and issues that
local suppliers. they may face in the coming years. In the
A key approach for successful tour process, questions for further debate are
operators is to differentiate themselves raised.
from competitors. In this, quality and
customer service are considered major
factors, as discussed in Chapter 6. The fi- Chapter Structure
nancial considerations of an operator are
critical to their success and tour operators Each chapter is designed to contain the
face many challenges, such as variable essential information for students to
exchange rates and the need to price understand the business of tour oper-
products a considerable time before they ations. While each chapter provides a
are purchased and consumed. These chal- stand-alone overview of the topic, the
lenges are examined in Chapter 7. chapters are interwoven and linked to en-
Chapter 8 addresses key regulations for able students to appreciate the interdis-
tour operators based in the EU and recent ciplinary nature of the sector. In order to

8 Chapter 1
facilitate the understanding of the topic, On early environmentalism:
chapters mainly follow a similar format, McCormick, J. (1989) Reclaiming Paradise.
commencing with a set of learning ob- Indiana University Press, Bloomington,
jectives. At the end of each chapter, dis- ­Indiana.
cussion questions are provided, which
cover the main points raised and can be
used to develop classroom discussion
References
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to interact with the sector by analysing a threat to the planet? The Independent on
specific aspect of a company. Chapters Sunday 19 June, 2.
also include a mini case study, describing Cater, E. (1993) Ecotourism in the third
a company situation or example that can world: problems for sustainable tourism
be used to illustrate how the content of development. Tourism Management
the chapter relates to companies and 14(2), 85–90.
practice, and a further and more compre- Frey, N. and George, R. (2010) Responsible
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tions that can be used either for class between business owners’ attitudes and
behaviour in Cape Town tourism ­industry.
discussion or for student directed
Tourism Management 31, 621–628.
learning. A glossary of key terms is also Friedman, T. (2005) The World is Flat: A Brief
presented. The information provided is History of the Globalised World in the 21st
supported by selected recommended Century. Allen Lane, London.
reading. Selected websites have been col- Holland, J. (2015) The understanding and
lated and are presented in the prelim- implementation of responsible tourism
­
inary pages, which provide links to for adventure tour operators. Unpublished
company web pages and also organiza- dissertation, Northumbria University,
tions that relate to chapter content. Newcastle, UK.
IATA (2016) IATA air passenger forecast
shows dip in long-term demand. Available
at: http://www.iata.org/pressroom/pr/
Key Term Pages/2015-11-26-01.aspx, accessed
2 May 2017.
●● Globalization: Primarily this describes IOTP (2011) Travel and Tourism 2011 – Meas­
the process whereby business oper- ured Analysis and Focused Response.
ations and capital increasingly tran- International Council of Tourism Partners,
scend national boundaries encouraged Hawaii.
by deregulation. Kotler, P., Haider, D.H. and Rein, H. (1993)
Marketing Places: Attracting Investment,
Industry and Tourism to Cities, States and
Nations. Free Press, New York.
Recommended Reading Leslie, D. (2011) The European Union, sus-
tainable tourism policy and rural Europe.
For a contemporary, comprehensive and In: Macleod, D.V.L. and Gillespie, S.A.
lively discourse on tourism, both the good (eds) Sustainable Tourism in Rural
Europe – Approaches to Development.
and the bad, as a global phenomenon:
Routledge, New York, pp. 43–60.
Becker, E. (2013) Overbooked. The Explo­ Leslie, D. (ed.) (2012) Responsible Tourism:
ding Business of Travel and Tourism. Concepts, Theory and Practice. CAB
Simon & Schuster, New York. International, Wallingford, UK.

Introduction9
Leslie, D. (2015) Tourism Enterprise – Devel­ and Butler, R. (eds) Tourism Research: Cri­
opments, Management and Sustainability. tiques and Challenges. Routledge, London.
CAB International, Wallingford, UK. Swarbrooke, J. and Horner, S. (1999) Con­
Lück, M., Maher, P.T. and Stewart, E.J. (2010) sumer Behaviour in Tourism, 2nd edn.
Cruise Tourism in Polar Regions: Pro­ Butterworth-Heinemann, Oxford, UK.
moting Environment and Social Sustain­ UNWTO (2016) UNWTO Tourism Highlights.
ability. Earthscan, London. Available at: http://www.e-unwto.org/doi/
Lumsden, L. and Page, S.J. (2004) Tourism pdf/10.18111/9789284418145, accessed
and Transport: Issues and Agenda for the 9 February 2017.
New Millennium. Elsevier, Amsterdam. Urry, J. (2001) Transports of delight. Leisure
Mowforth, M. and Munt, I. (2009) Tourism Studies 20, 237–245.
and Sustainability – Development and Warnken, J., Bradley, M. and Guilding, C. (2005)
New Tourism in the Third World. Routledge, Eco-resorts vs. mainstream accommodation
Abingdon, UK. providers: an investigation into the viability of
O’Gorman, K.D. (2010) The Origins of Hospi­ bench marking environmental performance.
tality and Tourism. Goodfellow, Oxford, UK. Tourism Management 26, 367–379.
Przeclawski, K. (1993) Tourism as the subject Yale, P. (1995) The Business of Tour Oper­
of interdisciplinary research. In: Pearce, D. ators. Longman, Harlow, UK.

10 Chapter 1
2 The Package Holiday and the
Rise of the Tour Operator

Learning Objectives how, in contrast to most of the 20th cen-


tury, tour operations have expanded
After studying this chapter, you should be comparatively quickly in emerging econ-
able to: omies because of economic growth and
development.
●● Appreciate the factors that have en-
Discussion centres on the growth of
abled the growth of package tourism.
the traditional package holiday, as we
●● Understand the increased standard-
know it today, based on sand, sun and sea
ization of tourism packages.
(3S). Attention is drawn to the develop-
●● Appreciate the terminology used
ment of what we may rightly describe as
within the tour operating sector.
the standardization of the traditional
●● Identify the different categories of
‘package holiday’ and the significance to
tour operators.
its success of convenience and associated
●● Explain the impacts of tour operations
key attributes such as safety and comfort.
in the context of tourist destinations.
This leads to consideration of how this
expanding marketplace and shifts in de-
mand generated opportunities for diver-
Introduction sification in tour operations and their
products, as illustrated by the classifica-
The objective of this chapter is to examine tion of package tours. The correlating de-
the development of the package holiday velopment of the tour operating sector and
and the rise of tour operators. It is without major expansion, catalysed by growing
doubt that economic growth creates the demand, leading to an increasingly com-
conditions that lead to the demand for petitive market, is then highlighted. In re-
tourism. This provides the opportunities sponse, tour operators developed varied
for the launch of entrepreneurial tour op- management strategies to increase turnover,
erators and their potential for growth market share and further international
and expansion. The chapter first focuses expansion, but in the process some oper-
on the emergence of tour operations in ators overextended their position, leading
the 19th century, which gradually ex- to market failure.
panded temporally and spatially across Following on, the chapter highlights
Europe and North America as oppor- the potential influence of tour operators
tunity grew and demand increased. This on tourist flows and destinations and
overview of the rise of the tour operator the continuing opportunities both for
is therefore primarily UK-centric. How- companies and entrepreneurs, supported
ever, just as tourism has expanded inter- by sustained demand for package holi-
nationally, so too does the scope of our days as well as through diversification.
examination, in the process highlighting Their importance as key players in tourist

© J. Holland and D. Leslie, 2018. Tour Operators and Operations: Development, 11
Management and Responsibility (J. Holland and D. Leslie)
destination development is recognized, their own vacation plans via a travel
noting that such developments have not agent who could, depending on the des-
been without their critics. This situation tination, not only arrange their travel
has brought into contention the view that requirements but also accommodation,
tour operators have a responsibility both providing them with the necessary
for a resort’s environment and to the in- tickets and accommodation vouchers for
digenous population. their trip. In effect, the more entrepre-
neurial travel agents began to see the po-
tential for arranging a ‘total package’ and
Early Developments thus the concept of the package holiday
was born and with it the practice of
During the early development of travel tour operators.
and tourism in the mid-1800s, we can The typical package holiday gener-
discern the emergence of the retail travel ally consists of transport to and from the
agent (more commonly termed travel destination and accommodation, which
agent) who recognized an opportunity to are provided by companies, referred to as
profit through helping to arrange the ‘principals’. In addition, a package will
travel of customers (initially in groups) include transfers (e.g. between arrival air-
through the sale of train tickets bought port and accommodation), and, as ap-
in bulk at lower prices, and subsequently propriate or required, activities at/within
began also arranging accommodation. the destination. Thus, the role of the tour
These were generally arranged and sold operator is to create convenient packages
as separate services and not as a ‘package’. to meet demand by bundling two or more
The early leaders in retail travel recog- of these principals into a single package,
nized the potential of facilitating inter- in the process making them appealing to
national travel, which was aided by two consumers. They are thus producers and
key factors. First, a growing knowledge wholesalers as these packages are then
and expertise of destinations overseas distributed through the intermediaries
and second, their ability in being able to of the time, namely travel agents (see
manage foreign exchange transactions, Chapters 3 and 9, this volume). The holiday
travel documents and so forth; a combin- packages are then readily available to
ation which at the time was beyond the ­potential customers at an attractive price,
ability of the general public. It was not which, in most cases, they would not
long before these agents saw the potential have been able to obtain. However, as we
to develop a complete package for tours. generally know it today, the traditional
For example, Thomas Cook staged its package holiday involving international
first tour of America in 1866, Henry travel, accommodation and ancillary
Lunn founded its tour operation business services did not really start until the
­
in 1893 and pioneered skiing holidays in 20th century. According to the archives
Switzerland, while American Express of Thomas Cook, the first travel package
and the renowned company Cox & Kings to include an air flight took place in 1908,
became synonymous with the travel but the forerunner of what is termed
business in the USA (Burkart and Medlik, the ‘package holiday’ did not occur until
1981). The 19th century therefore saw the end of the 1940s. After the Second
the emergence of two key players in the World War, a combination of factors such
holiday market – the travel agent and as increasing prosperity, paid holiday
the tour operator, that is, the retailer leave and the growth of media such as radio
and the organizer. Customers could make and television encouraged the demand

12 Chapter 2
for international travel. The first flight- markets fuelled by determinants of de-
inclusive package was arranged by Vlad- mand such as improved holiday allow-
imir Raitz, who set up Horizon Holidays ances and greater prosperity. While
and operated his first overseas package to tourists with limited experience of inter-
Corsica in 1949, at a cost of £32 10s., national travel were generally buying
which included a return charter flight, packages to established resorts, their
tented accommodation on the beach, more experienced and more affluent
meals and ‘as much wine as you could counterparts were seeking destinations
put away’ (Anon, 2010, p. 27). further afield. That is, generally away
Tour operators continued to develop from the now increasingly popularized
through the early 1950s, by which time resorts of the 1960s/1970s to find some-
air travel was beginning to play an in- thing different and better in terms of
creasing part in international tourism, quality and experience. Thus, we can
consequently creating opportunities for identify the first major indications of de-
tour operators to expand. Thus, by the mand for longer-haul tourist destinations
1960s the travel sector was well posi- seen to be more ‘exotic’ and also signs of
tioned to take advantage of the growing a trend for independent holidays, al-
demand for holidays and the ongoing ex- lowing more flexibility in configuration
pansion of tourism. and choice of destination(s). This devel-
opment reflects that tourism products,
like general consumer goods, are invari-
ably first taken up by the elite in society
The Rise of the Package and then gradually by wider society. This
Holiday is well illustrated in the statistics that in
1994 over 27 million holidays were taken
In the 1960s, tour operators sought to ex- by UK citizens, 56% of which were
ploit the growing market demand for the package holidays (Baxter, 2013).
package holiday. The most successful op- Tourist demand had become a mass
erators in terms of market share devel- market, one that was not difficult for the
oped an approach that enabled them to entrepreneur to enter (see Bray and Raitz,
replicate their offering to create a degree 2001). However, the competition was
of standardization. In effect, the aim of strong and profit margins limited, because
mainstream tour operators was/is to pre- major operators generally based their busi-
sent a package to the consumer that is ness strategy on high volume/low margin
standardized, reproducible, consistent operations offering standardized pack-
and, above all, safe. In developing this ap- ages. As Ritzer and Laska so cogently
proach, operators in the major holiday expressed: ‘What people really want is
markets based their operations on the vacations that are highly predictable, highly
product type (e.g. summer sun) rather efficient, highly calculable and highly
than specific destination. As an indicator controlled’ (1997, p. 99). This approach
of their success, package holiday demand contributed to the substantial growth of
in the UK quadrupled between 1963 and tourism in Europe and North America
1971 (Burkart and Medlik, 1981) and throughout the latter part of the 20th
continued to rise in the major markets of century, in what Vladimir Raitz (founder
Europe and North America. of Horizon Holidays in the late 1940s
In the early 1970s, the growth of and now part of TUI) referred to as the
international holidays in post-industrial ‘package holiday revolution’ (Bray and
countries was aided by changes in major Raitz, 2001, p. 21).

The Package Holiday and the Rise of the Tour Operator 13


However, by the 1990s many con- The Convenience
sumers were no longer naïve and inex- of Package Holidays
perienced tourists as they gained more
experience of travelling to foreign destin- Basically, the primary principle underpin-
ations and of other cultures. This shift in ning a ‘package’ holiday is convenience.
demand, coupled with growing interest That is convenience for the purchaser –
for alternative offerings, generated new the prospective tourist – and this encom-
opportunities and further diversification passes a range of wants. First, that it is
within the marketplace. New destin- convenient to the customer in terms of
ations emerged packaged for the ‘sun, home departure point, travel time, fitness
sand and sea’ (3S) market as well as new for purpose and cost. As Hanefors and
products orientated to specific market Mossberg (1999) argued, packages are
segments, many of which are the fore- perceived as being effective and less ex-
runners of today’s highly diversified pensive in comparison with buying flights
products presented by a myriad of oper- and hotels separately. Second, safety and
ators. This also led to the attractiveness security are fundamental influences on
of ‘special interest’ holidays. In mar- the customer’s choice of package, as is
keting terms, such a package is described often demonstrated by the sudden drop
as a ‘positional good’, built on the idea of in demand for a destination or region
‘ego-tripping’ whereby the customer seeks after some type of crisis. Indeed, the per-
to gain status among his/her peers in terms ceived safety of package holidays in Europe
of the ‘wow’ factor; for example, the has become an area of intense scrutiny
tour operator Black Tomato specializes over the last few years, primarily due to
in what they consider to be extraordinary terrorist events that have affected destin-
activities in extraordinary destinations, ations. Third, comfort, which is considered
such as motorbike safaris in the Namib to include such factors as the language,
Desert. type/style of food and wider culture of
Overall, this largely accounts for the the destination. Hence the trend in tourist
situation where the overall market grew resort development in popularized des-
by almost 65% during the 1990s, al- tinations was to be attuned to the tastes
though the proportion of packages sold of predominant generating markets; in
had declined by 10% by 2000. Although effect, the creation of an ‘eco-bubble’,
in mature markets the number of package which is still very much in evidence today,
holidays purchased may have declined, for example in the all-inclusive package
they are still a dominant form of holiday and the cruise market.
taken by consumers, predominantly to These factors become more influen-
short-haul destinations accounting for tial in times of trouble, such as witnessed
some 50% of the market for package in major popular destinations around the
holidays (Mintel, 2016). For northern eastern and southern coastal areas of the
Europeans, these tend towards destin- Mediterranean Sea in the 2010s, which
ations around the Mediterranean Sea or saw a decline in visitor numbers. Con-
off the northeast coast of Africa, e.g. The versely, alternative short-haul destin-
Canaries. Similar tourists from the USA ations may often benefit as a result of
favour countries with close proximity to such negative events; for example, tour-
North America, with Mexico and the ists with previous experience and a de-
Caribbean being the most popular with gree of familiarity may opt for such
over 32.5 million American tourists in potential alternative resorts. This is well
2013 (Mintel, 2014). illustrated by the resurgence in demand

14 Chapter 2
for the Balearic Islands in the Mediterra- UK’s major tour operators and aimed to
nean Sea in the summer of 2016, which ‘improve conditions for holidaymakers’
was largely attributed to terrorism and (Yale, 1995, p. 248) (note: the Inter-
political upheaval across a swathe of national Federation of Tour Operators
North African and Middle Eastern coun- represented European operations). More
tries on the Mediterranean Sea. representative of small tour operators
In combination, these influential fac- was the formation of the Association of
tors largely explain the consistent de- Independent Tour Operators (AITO) in
mand for the ‘3S’ holiday package from the 1970s, which at the time comprised
tourists living in temperate climes, in some 120 operators.
which the attraction of warm, coastal re- It was through ABTA, and the FTO,
sorts is the product type and, as such, not that the practice of ‘bonding’ was intro-
place-specific. However, these package duced in the early 1970s (subsequently
holidays from their early development becoming a legal requirement), whereby
had a significant weakness in terms of operators commit to contributing a per-
consumer protection, primarily in terms centage of their turnover to an independent
of what happened if their tour operator’s fund, basically to provide for rescuing
business collapsed and second, as regards customers left stranded by the collapse of
redress if some aspect of their package their tour operator (see Chapter 8, this
holiday was not as it should be. volume). This initiative was supported by
AITO, which also established their own
bond arrangements. This development
Customer Protection was very much influenced by the first fi-
nancial crash of a major tour operator,
In the early days of the package holiday, namely Court Line in 1974 (see Yale, 1995).
customers had all too little protection (see With a background of rising oil prices
Grant and Mason, 2012) and operating and the onset of recession in the UK, the
practices often left much to be desired Court Line holiday company went bank-
in what was then a largely unregulated rupt, along with several other smaller op-
sector with little representation outside erators, leaving thousands of package
of the International Union of Official holidaymakers stranded overseas, while
Tour Operators (IUOTO), established in others who had already booked and paid
the 1940s. The first real signs of recogni- for a forthcoming holiday with those op-
tion of problems were heralded by the erators faced losing their money. As a re-
formation of the Association of British sult, there was a loss of confidence in the
Travel Agents (ABTA) in 1955 as a first holiday market by consumers, although
step towards professional representation the Air Travel Organizers’ Licence (ATOL)
at a national level, and the introduction system had been launched in 1972, so there
of the Air Transport Licensing Board was some financial protection in place
(subsequently the Civil Aviation Au- and the stranded tourists were brought
thority), which became responsible for home. The UK Government consequently
the approval and issue of the Air Trans- set up the Air Travel Reserve Fund, which
port Organizers Licence (ATOL). Both of was funded by £5 million from the
these organizations are widely recognized Treasury, and a levy equivalent to 2% of
today (see Chapter 8, this volume). In the a tour operator’s turnover was intro-
late 1960s, the Federation of Tour Oper- duced to reimburse the Treasury. The full
ators (FTO) was established, which pri- value of bonding arrangements is illus-
marily represented the interests of the trated by the collapse of the International

The Package Holiday and the Rise of the Tour Operator 15


Leisure Group in 1991 (see Yale, 1995). It t­ ogether with high standardization
should be recognized that these bonding (­Aguiló and Juaneda, 2000; Claver-Cortés
arrangements were the only major direct et  al., 2007). However, during the late
consumer protection regulations for UK 1990s, as noted above, within Western
tourists at the time, outside of which cus- Europe this traditional high-volume, low-
tomers had very little protection beyond priced operating model came under threat
general legislation and regulations, which as changes in demand led to a growth of
often failed to protect them adequately. more differentiated products, while alter-
That remained the case until the intro- native distribution channels created new
duction of the EU’s Package Travel Dir- opportunities.
ective in December 1992 (see Chapter 8, Certainly, in make-up these ‘new’ pack-
this volume). A further point on bonding ages may have changed from the trad-
is that it is potentially a barrier to an entre- itional ‘3S’ of the latter part of the 20th
preneur seeking to set up as a tour oper- century familiar to many in the ‘western
ator in that s/he is required to provide for world’. Although they have declined in
the necessary bond funds in advance of terms of proportion of market share, we
any tour. have seen a marked development in the
diversification of the package holiday
market creating opportunities and fuel-
Global Developments ling differentiation between tour oper-
ators (see Chapter 4, this volume). This
In summary, historically Europe is the shift in composition involves more be-
cradle of the international holiday spoke packages, including the trio of eco/
package, both in terms of demand and nature/adventure tours and myriad niche
the rise of tour operators. Thus, it is not products – a composite that certainly
surprising that within Europe the tourism lends itself to Urquhart’s (2006) argu-
sector is highly competitive and is charac- ment that the ‘package’ is a mere literal
terized by the dominance of the mass description, incorporating a wide variety
market model; that is, the production and of products and therefore experiences,
consumption of tourism ‘en masse’. The which is well illustrated by the classifica-
mass tourism product here has been de- tion of package holidays (see below).
fined as ‘the sum of industrial and com- Over the last quarter century, much
mercial activities that produce goods and has been said on the death of package
services wholly or mainly for tourist con- travel and the growth of independent,
sumption’ (Weaver and Lawton, 2006, ‘build it yourself’ packages. Certainly, the
p. 47). These product offerings have trad- development of low-cost airlines has
itionally tended to be ‘3S’ holidays to made independent travel more accessible
popular destinations. Tour operators in and attractive due to the low prices, but
this market base their business on regular package holidays will still be important
departures to well-known destinations for many customers worldwide. Today,
and developed resorts. They achieve profit and even allowing for information com-
through the mass production of stand- munication technologies, arranging such
ardized holidays by buying components trips independently might otherwise be
in bulk, which allows them to negotiate time-consuming and in some cases diffi-
favourable rates and sell at low prices – an cult to organize if also seeking to obtain
approach that could be described as the equivalent or better overall cost. Fur-
a Fordist production model character- thermore, there is a significant risk in loss
ized by a lack of product differentiation of consumer protection (see Chapter 8,

16 Chapter 2
this volume) as well as the value attached fluent in Mandarin. Furthermore, although
in terms of security through booking a group travel is still the most popular
holiday with a well-recognized company. tourism product purchased by Chinese
It is therefore understandable why the residents, there is a growing market in in-
package holiday or short break designed dependent travel mirroring that of the
by tour operators was, and still is, a very European and USA markets.
attractive product.
In part, these developments, as dis-
cussed above, have balanced the decline Classification of Package
over the last 30 years in the more trad- Holidays
itional package-style holidays. Further-
more, those very factors that underpinned Today, such is the diversity, it is difficult
the successful development of the trad- to categorize ‘the package holiday/break’
itional package holiday also largely ac- beyond rather broad general terms, which
count for the rise in popularity over the last often relate to climatic conditions (e.g.
20 years of cruising and the ‘all-inclusive’ tropical, arctic) and seasonal variations
resort package, and new resorts based on (such as winter skiing and summer sun).
artificial environments such as the Disn- There will also be potential variations to
eyland theme parks around the world, such broad categories, according to the
Las Vegas (USA), Sun City (South Africa) main determinants of demand arising in a
or Nusa Dua (Bali). Furthermore, such tour operator’s home market and country.
new tourist resorts/attractions can now Packages can also be classified based on
be created in a much shorter time, as seen accommodation type and by mode of
in Dubai, particularly its underwater transportation throughout the trip (e.g.
hotel complex, the Hydropolis (see www. coach, rail, bicycle). Alternatively, cat-
dubaiunderwaterhotel.net). egorization could be based on the main
New markets in the major emergent activity involved, which is more complex
economies of the world have developed, than first appears. This is well illustrated
encouraged by international operators as by AITO, whose members collectively
well as local companies and entrepre- offer well over 100 different forms of pack-
neurs, none bigger than China. Indeed, aged adventure holidays – this is a category
the 1978 open door policy (see Chapter that has developed from the camping
8, this volume) and changes to the ap- trips and outdoor activities, targeted at
proved country listing resulted in many young people, by PGL Travel Ltd (USA)
more countries being added to the Chinese dating from the 1950s. Today, ‘adventure
Government’s list of acceptable destin- tourism’ is a major market, which itself
ations. China has become the major tourist- can first be divided into ‘hard’ or ‘soft’
generating region in the world and the and involves myriad activities, that has
world’s top spender since 2012 (UNWTO, seen substantial growth and expansion
2015) as a result of a booming economy since the early 2000s (Holland, 2015).
and growing middle class. This situation Thus, we begin to discern the poten-
was recognized comparatively early by tial complexity of classification. In an
TUI, which established the China Travel attempt to overcome this, classification is
Company in 2003, the first joint venture usually made on the type of operation
with an overseas company in tourism. and services provided. The nature of these
This is also demonstrated in the estab- packages can be divided into whether
lishment of the tour operator Biewei 55 they are consumed in one destination
in the UK, which employs local guides (static) or several destinations (a tour).

The Package Holiday and the Rise of the Tour Operator 17


Even then, within each category there are adults as a potential market segment.
types of products that are too numerous A notable example was the launch of
to mention, though what follows seeks to Club Mediterranean, which established
provide a range of insights. the potential of the 18–30-year-old market
group, the success of which was notably
copied by other tour operators, e.g.
Static Intasun’s Club 18–30, but which by the
1990s became more of an 18–21-year-old
Static holidays, or single-destination holi- group, renowned for excessive partying in
days, as the name suggests, take place in destinations such as Faliraki.
a single fixed location, for example a
beach resort, an increasingly popular
form of which is the all-inclusive holiday. Multicentre
There are different levels of all-inclusive,
from those that include only the meals A multicentre holiday combines two or
(which echo holidays of yesteryear, when more destinations into one trip; for ex-
hotels often offered ‘full-board’), those ample, a city break followed by a beach
that include meals, local drinks and escape. This type of holiday product al-
snacks, to those that include all food and lows tourists to see more than one place.
beverages, sporting activities and enter- Mass market operators offer twin-centre
tainment. The level of all-inclusiveness holidays that may involve several days
depends on the company brand and target spent visiting cultural sites and other days
market. They are seen by customers as relaxing on a beach.
being less of a risk and far more trans-
parent as to the total cost of the holiday.
All-inclusive holidays are not new, but
Tours
have seen a tremendous growth in the
market within Europe in the 2010s, par-
Tours in general can be considered in two
tially due to tourists’ concern about ex-
categories:
change rates, recession and because they
enable customers to plan and budget for ●● An escorted tour: a prearranged
their holiday spending. Operators also travel programme escorted by a tour
recognized the attraction of all-inclusive manager or a tour leader who com-
packages, which not only meet such cri- monly provides a wide variety of ser-
teria as security, comfort and attractive vices and information throughout
destinations, but also well-defined prices. the tour. Coach tours, adventure and
For example, in the mid-1990s First Choice activity packages often use a tour
was promoting all-inclusive tours, not- manager. These types of tours may
ably in Cancun, Mexico, and now all of include additional guides with par-
their holiday packages are all-inclusive, ticular expertise on the localities/re-
as are those of Starwood Hotels and Re- gion involved. More recently, the
sorts. As Tibbott opined, ‘The all-inclusive term tour is being replaced by ‘guided
resort and cruise has become the perfect vacations’ as some operators believe
product for the cash-rich and time-poor that the term tour has negative con-
who, above all else, want to minimize notations (Baran, 2012).
risk’ (2001, p. 15). ●● Guided tour hosted packages. These
Also illustrating diversification within offer travellers the opportunity to
this category is the recognition of younger travel independently but also receive

18 Chapter 2
guidance and assistance from a host Cruising
based in the tourist destination(s).
The host is a representative of the Cruise holiday packages have shown a
tour company, or a ground handling remarkable increase in popularity over
agent, who provides meet and greet the last decade, albeit based on the repack-
services and assists tour participants aging of long-standing products. Cruise
with the planning and organization ships, as noted earlier, have long been
of their activities, including arran- popular, but were very much associated
ging transfers and entry tickets. They with the more affluent in society and seen
may also serve as an information spe- in some quarters as old fashioned as well
cialist facilitating other needs, such as expensive. In the 1970s, Carnival Cruise
as arranging guides. Lines of the USA sought to make cruising
more attractive to a wider market, cre-
ating a livelier approach. However, it was
Independent not until the 1990s that cruising gained
substantial popularity, and was noted as
An independent tour is a package de- the most rapidly growing type of tourism
signed for independent tourists. These in the Caribbean (Duval, 2004). Today it
participants travel independently without is arguably the most globalized of all
a group, for example on ‘fly-drive’ tours forms of tourism.
or self-guided walking or rail holidays
where tourists visit multiple destinations
but follow a predefined route. These holi- A Competitive Operating
days are designed by selecting specific Environment
destinations, type of accommodation,
transport and may include other services The rapidly growing market of the
such as sports, cultural events or excur- 1960s/1970s not only enabled established
sions. The tour includes air tickets, hotel operators to expand but also became an
bookings, transfers and additional ser- attractive opportunity for entrepreneurs
vices (if requested by the customer). to set up their own tour operations,
leading to an increasingly highly com-
petitive market. As Yale (1995) demon-
Tailor-made packages strates, this was a period of not only the
rise of tour operators but also one of flux
Tailor-made itineraries involve deciding in the sector, with takeovers and market
all aspects of a holiday to meet the cus- failures. Some operators, in order to com-
tomer’s needs on an individual basis ra- pete, cut costs and adopted poor prac-
ther than selling ready-assembled holidays. tices and/or overstretched their capacity,
This category may also include custom leading to business failings and often to
tours or independent tours. These pack- the cost of their customers. This is not
ages are termed tailor-made because they surprising, given that
are designed to fit the requirements of the
For many tour operators during the
customer and as a result may be expen- 1960s and 1970s, a major share of their
sive compared with pre-packaged itiner- profits was attributable to how they
aries. Many tour operators offer this form managed their cash flows, currency
of package and have specialist staff de- fluctuations and additional ‘offers’
signing the itineraries, for example Aud- rather than from the actual price of the
ley Travel and Travelbag. tour itself. However, by the 1980s such

The Package Holiday and the Rise of the Tour Operator 19


opportunities were becoming limited retention of profits, but also greater con-
which led to a shift in emphasis on trol over the quality of the various service
making the tour package in itself more offerings. It is largely because of successful
profitable. (Goodman, 1984, p. 7) adoption of such strategies that even today
Small profit margins also meant that many major transnational operators are
companies might lack the necessary re- based in North America or Europe and
sources to cope with extraneous factors; are extensively vertically integrated; as
for example, a decline in demand such as such, they draw on their own resources
witnessed in the early 1970s due to a hike and chains of supply in the destinations
in the price of oil, a rise in interest rates they operate. This situation has implica-
or price increases as a result of an un- tions for the development of tourism in
favourable major shift in currency ex- many places, not least due to the eco-
change rates (see Chapters 3 and 12, this nomic leakages that arise through using
volume). their own companies rather than destina-
In the face of increased competition tion-based independent suppliers (see
from entrepreneurs, as well as other tour Chapters 5 and 10, this volume).
operators, established market leaders Further, the more directly a tour op-
realized that, although they may have erator is involved in the delivery of the
had considerable buying power enabling various components of the package, the
block bookings of airline seats, accom- more susceptible it is to sudden changes
modation and services, at the destination in demand. This is well highlighted by
they were still paying their principals for major conflicts arising in destination re-
those services. Thus, they adopted various gions, as in the case of the Gulf War of
strategies to increase their market share 1991, which is considered a major factor
and/or improve their financial perform- in the collapse of the tour operator Leisure
ance (see Chapter 3, this volume). In par- International. Also terrorism, the bane of
ticular, and as Coles identified, ‘Strategies tourism in the 21st century, can cause
of horizontal, vertical and even diagonal major shifts in demand for destinations.
integration among major, transnational Thomas Cook announced a warning to
TOs allied to the rationalisation of oper- investors that profits would be down in
ations have been pursued as a means of the summer of 2016 due to loss of book-
developing market share, enhancing price ings attributed to the state of flux around
and competitiveness and responding to the Mediterranean Sea, which led to a
global market imperatives’ (2004, p. drop in their share price at the time of
238). An established tour operator could approximately 20% (a decline in the
adopt the strategy of vertical integration value of the company of £260 million).
involving merging with or taking over a In terms of the business sector more
travel agency and/or purchasing or devel- widely, major successful tour operators
oping a chain of hotels in their most also became potentially attractive to ex-
popular resorts. A comparatively recent ternal investors, as evidenced by those
example is that of TUI Travel, which companies with a stock market listing.
owns approximately 150 aeroplanes, over Comparatively smaller companies are
3500 retail shops and hotel chains like also potential targets for external in-
Grecotel, Iberotel and Rui-hotels (Mosse- vestors, as illustrated recently in the cases
laer et  al., 2012, pp. 74–75). The oper- of specialist tour operators. A particu-
ator therefore has not only guaranteed larly noteworthy example in this context
air flight seats and accommodation, more is that of Audley Travel, a comparatively
control over the costs of provision and large upmarket operator with a turnover

20 Chapter 2
of approximately £150 million and 350 banking crisis. This led many tour oper-
employees. They started as Asian Jour- ators and travel agencies across Europe
neys in the 1990s, specialising in bespoke to fail, but by 2015 the total number of
holiday packages to destinations in India, these businesses had returned to pre-
Thailand, Botswana and Kathmandu, be- 2008 levels (Hayhurst, 2016). This resur-
fore expanding their operations in America gence may well have been justifiably
in the early 2010s (Armstrong, 2015). expected because over time tour oper-
Also, small successful operators in niche ators have demonstrated a remarkable
markets gaining in popularity are poten- resilience to challenging issues and changes
tial targets for takeovers. As their success in demand. Not all operators survive:
grows, the market risk declines and the as Cavlek so succinctly expressed, those
enterprise can then become attractive to a ‘who are not successful in adapting to
major tour operator as an opportunity to change are wiped out of the market’
maintain market share and/or diversify (2013, p. 3).
its portfolio (or reduce competition!). Further fuelling the development and
Overall, a combination of factors expansion of tour operators is the rising
ensured the continued growth and devel- demand in emergent and developing
opment of tour operators, fuelled by sus- economies across the world. This brings
tained demand in traditional markets. new opportunities and new destinations,
Even so, it should be recognized that leading to increasing diversification not
during the substantial expansion of tour only in terms of product offering but also
operators and their operations since the within the tour operating sector itself.
1960s, there have invariably been periods
of difficult trading conditions often due
to falls in demand. However, demand has Types of Tour Operator
always recovered and subsequently in-
creased. To date, probably the most sus- Tour operators are traditionally divided
tained difficult period of trading arose into three major categories comprising
due to the wide-scale recession that began five main types of operations, as illus-
in 2008 as a result of the international trated in Fig. 2.1.

Tour
operators

Outbound Domestic Inbound

Mass Ground
Specialist handling Domestic
market
agent - operator
handling - operates
inbound within the
foreign boundary of
tourists the home
country for
domestic
tourists Fig. 2.1.  Types of
tour operator

The Package Holiday and the Rise of the Tour Operator 21


Domestic tour operators outside of their client’s home country.
These operators are traditionally subdiv-
Domestic tour operators are those who ided into either mass market (undifferen-
assemble and combine components into tiated, major markets) or specialist/niche/
inclusive tours/packages designed and tailor-made. The main differences be-
promoted to the domestic market, i.e. resi- tween these categories are summarized in
dents within their own country, either as Table 2.1.
part of a package or a tailor-made itin- Mass market operators usually offer
erary. They tend to focus on very specific a wide range of destinations and prod-
markets, such as the grey or youth market ucts and concentrate on volume of sales
segments, offering city breaks, coach rather than profit. These operators focus
holidays or short breaks. It is very diffi- on mainstream popular destinations. For
cult to estimate the size of the sector be- example, within Europe these large oper-
cause within many countries data are often ators focus on destinations around the
not collected or collated on domestic Mediterranean. TUI UK Ltd, the largest
tourism. Additionally, it is often difficult operator in the UK, has an ATOL licence
to differentiate between domestic tourists, allowing them to sell over 5 million pack-
international tourists and day visitors in ages (CAA, 2017).
popular localities. Specialist tour operators offer prod-
In the mature markets of post-indus- ucts that are generally considered not
trialized countries, domestic tour oper- within the mainstream market. That is,
ators are a relatively small sector because from a westernized perspective, package
it is increasingly easy for customers to holidays that are not based around the
package their own holidays using the 3S. However, the differences between
Internet – a benefit that is aided by the mainstream packages and the specialist
fact that there is no issue with language. tour operators are becoming ever more
The prospective tourist can purchase air, blurred as the mass market operators in-
train or coach tickets with relative ease creasingly develop their portfolios and
and book directly with accommodation offer specialized products.
suppliers and often directly with attrac-
tions and other services.
By way of contrast, many developing Inbound tour operators
destinations have domestic tour operators
that work alongside international tour Inbound tour operators devise and coord-
operators and facilitate their tours in the inate travel arrangements on behalf of
destination on behalf of the overseas tour international/overseas tour operators or
operator. In this context, they are often travel organizers (see Chapter 5, this
referred to as ground handling agents volume) and, as noted above, may also
(see Chapter 5, this volume). operate within their own domestic market.
Further to the above types of tour op-
erator, we can also identify sub-categories
Outbound tour operators based on the types of package they offer,
characterized by:
Outbound operators package together
accommodation and transport and usu- ●● Mode of transport. The transport ele-
ally include transfers in the traditional ment of the package holiday may in-
inclusive tour format for destinations clude air travel, but also may involve

22 Chapter 2
Table 2.1.  Summary of tour operators by market. (Adapted from Laws, 1997, p. 139, with
permission from Cengage Learning (EMEA).)

Market sector

Holiday element Mass market Exclusive/tailor made Specialist/independent

Accommodation Large, member of a High star rating/as Small, local style


chain/operator customers require
owned or
contracted
Airline Charter Business class/as Scheduled/occasional use
customers require of charter
Departure Local airports Regional/as Regional/major
airport customers require
Transfers Group coach, Individual taxi/limo/as Group coach (dependent
multi-drop customers require on size of group)/taxi
Journey ‘Market days’ Any day Ad hoc/determined by
schedule destination and duration
Duration Seven-day multiples As requested Determined by holiday
and activity
Excursions General interest by Individual excursions Key element of the
coach as requested holiday, specific to each
holiday
Cost Low price Premium price Varies
Ethos Relaxation, Exclusive, personal High degree of contact
informal, group recognition of with local hosts. Focus
activities individual clients on individual interest
and involvement in
activities

ships (such as ferries, cruises, char- ●● Demographics of target market.


tered yacht), rail, coach, bicycle and Some operators choose to focus on
car (such as self-drive holidays and fly specific demographics. For example,
drive). SAGA Holidays focuses on those
●● Mode of accommodation. The accom- over 50 (also termed the grey market),
modation component of the package whereas Solo Holidays offers pack-
holiday may be based on specific ages for single travellers.
serviced accommodation (e.g. hotel ●● Inclusive services. Operators may dif-
room, guest house, bed-and-breakfast) ferentiate themselves by the services
or non-serviced accommodation (e.g. offered; for example, all-inclusive holi-
self-catering apartments, tents and days (where meals, drinks, activities
static caravans). and entertainment are all included) or
●● Location of destination. Categoriza- self-catering.
tion is based on operators that offer ●● Length of holiday. The length of
products to specific destinations, holiday package offered can differen-
e.g. Greece (Olympic) or China (Wendy tiate tour operators: from the trad-
Wu), or a region, e.g. South America itional mass market operators offering
(Journey Latin America). 7 or 14 nights to operators offering

The Package Holiday and the Rise of the Tour Operator 23


more flexible periods. Such packages long-term economic effects, tourism in
may vary from a short break (1–3 nights; some quarters has been considered to
e.g. a city break), to those offering ex- hold a strategic economic benefit, such
tended trips of several months (over- that ‘It is increasingly seen as part of the
land trips) or extended stay winter-sun solution and a key sector to help the world
holidays. avoid a jobless recovery’ (IOTP, 2011,
●● Location of client base. The source p.  1). This is a view apparently widely
market differentiates many com- held by international organizations such
panies, which can be advantageous as the United Nations World Tourism Or-
to operators. For example, multi- ganization (UNWTO) and the Organization
national companies maintain indi- for Economic and Cultural Development
vidual brands specialising in specific (OECD), in addition to many profes-
tourist-generating regions: TUI own sional bodies representing the interests of
and operate Marmara for Dutch tourism businesses. As Lipman argued, in
tourists and Fritidsresor for the Scan- relation to the recession of the late 2000s,
dinavian market. there was a need to facilitate ‘building
●● Distance from the originating market. new opportunities for small entrepre-
The majority of package holidays neurs and community development’ and
take place intra-regionally and are to recognize ‘that travel and tourism is
considered to be short, that is up to an important driver of inclusive/shared
4 hours’ flight time, but some operators economic growth, rapid job creation,
specialize in the long-haul market service exports, happiness/well-being of
with flights over 7 hours. individuals and communities, and social
●● Activities or specialisms. Experiential development and, as such, that there is a
holiday products are growing in both massive social good embedded in the sus-
demand and specialism. These can in- tainable development of the sector’
clude holiday-specific activities, such (2011, p. 2). To varying degrees, this is
as sport, trekking or water sports, or understandable given claims that tourism
could be event-based (e.g. weddings is the largest global ‘industry’ accounting
and honeymoons). for billions of international travellers
and their associated spending. In this,
tour operators are a major role player.
Influence of Tour Operators However, one of the remarkable out-
comes of any study into tour operators is
Tourism is a catalyst of change (see McK- the lack of available statistics that could
ercher, 1993) and although it has diverse be utilized to provide insights into the
impacts on the destination and the host’s significance of these enterprises in tourism.
environment, it has been more readily One set of data, however, is particularly
recognized for its potential economic useful in that it conveys the limited size of
benefits, notably at the macro-level, for this category of tourism enterprise com-
foreign exchange earnings and contribu- pared with the other main categories,
tion to the balance of payments. At the while also drawing attention to the sub-
regional and local levels, it is generally stantially greater share of gross tourism
considered to create jobs, especially in the revenues attributable to tour operations
hospitality sector and more broadly as a (see Table 2.2).
tool for regional development (see Leslie, There is no doubting that tour oper-
1991). Indeed, following the dramatic fi- ators are still influential. As Mosselaer
nancial upheavals of 2008 and subsequent et al. stated, ‘Although the tourism sector

24 Chapter 2
Table 2.2.  Gross share of tourism by category of tourism enterprise within the EU. (Derived
from Leidner, 2004, p. III.)

Share of supply (%) Share of turnover (%)

Hotels and other accommodation 15 22


Restaurants, cafés, catering 82 49
Travel agents and tour operators 3 29

includes many actors, to date tour oper- a relatively small percentage of total
ators still have significant power in se- tourist travel involves trips across na-
lecting and assembling suppliers in a tional borders and many of the latter are
holiday package, as well as in influencing attributable to business activities. Fur-
consumers’ choices with respect to des- thermore, tourism itself is considered by
tinations, accommodations and add- some commentators as a major force in
itional services’ (2012, p. 74/5). This goes globalization, yet such arguments are
some way to explaining why, despite often based on the scale of tourism as
market developments suggesting other- indicated by the number of international
wise, there is still growing tour operator arrivals. This is potentially misleading
activity (see Cavlek, 2013; Hayhurst, as most international arrivals are ac-
2016). The package tour is still a key counted for by intrastate movements,
component of the tourism sector. For ex- e.g. Europe, given the number of coun-
ample, in the UK it is considered to ac- tries in close geographic proximity. Even
count for some 30% of all international allowing for such intrastate tourist
travel, which equated to 14.4 million flows, domestic tourism still accounts
package holidays in 2010 (Mintel, 2010) for the major share of tourism demand,
and is similar to the mid-1990s (KPMG, while North America, Europe and
2012). Such a level of demand has gener- Northeast Asia account for most travel
ally been maintained and indeed, con- and tourism activity (Aramberri, 2009).
trary to underlying trends, increased in Thus, tourist flows from the major gen-
the mid-2000s by approximately 10%, erators to less developed regions of the
partly due to rising concerns over security world perhaps account for less than
(Smith, 2015). These market trends were 10% of international leisure-based tour-
recognized in 2012 by TUI, which an- ists. Certainly, the propensity of coun-
nounced that it had strong profits after a tries in Asia, South America and the
change in business strategy, and heralded Pacific to generate international tourists
the resurgence of the package holiday. will continue to increase over the coming
years, with a correspondingly propor-
tional decline in share on the part of
Opportunities Continue North America and Europe, although
to Increase total international arrivals will also con-
tinue to increase. This expansion has
If we base our perceptions of the scale of been, and to an extent still is, dominated
tourism on gross tourist data, then it by operators based in Europe and the
would be quite rational to perceive it as USA, which clearly has implications for
an international sector of substantial the host destination, not least in terms of
global significance. However, such a limiting the potential economic benefits
basis is potentially misleading given that to the destination locality.

The Package Holiday and the Rise of the Tour Operator 25


Key Role Players Benidorm and Ibiza were once sleepy vil-
lages, frequented by a privileged few who
Over the last 50 years, this substantial thought they were in on a secret’ (Anon,
short-term annual migration of tourists 2008, p. 13). This is well illustrated by the
to destinations near and far from their WTTC et al. (2002):
home environment has spawned a major
●● The Balearic Islands were the poorest
business sector comprising a substantial
province in Spain in the early 1950s,
array of tourism enterprises promoting
but by the year 2000 they had become
diverse products and services. The major
one of the richest.
players in this market for decades have
●● The Maldives by 2001 was no longer
been, and continue to be, tour oper-
classified as a ‘lesser developed
ators. It is their presence in the market-
country’.
place that has not only provided for and
●● Cancun, Mexico, was once a poor
encouraged consumers in their desire
area of perhaps 600 people, but
for a holiday, but also largely contrib-
by the early 2000s, primarily due
uted through the success of their oper-
to tourism, it had substantially
ations to the development of past,
changed with a population of over
present and emerging tourist destin-
0.5 million.
ations into what have become generally
●● In the case of Turkey, 30% of com-
considered tourist resorts. These popular
modity revenues in 2000 were attrib-
resorts, for example, around the Medi-
uted to tourism.
terranean, the Caribbean or in Thailand,
are highly dependent on tour operators In effect, the development of any des-
to sustain their supply of tourists. As tination/region is invariably incremental
Carey et al. (1997) noted, it is not just from small beginnings of little noticeable
their influence on destinations but also impact, e.g. ‘alternative tourism’ (Smith
their ability to influence market trends and Eadington, 1992), to renowned re-
and demand for new areas, arguing that sorts. This is well illustrated by Whin-
they hold more influence than the mar- ney’s (1996) discourse on the Alternative
keting efforts of a destination. For ex- Travel Group’s early experience in
ample, major tour operators in the early Turkey. They were very successful and as
1990s recognized the potential of word spread so others followed. ‘Tourism
Turkey as a major tourist destination, began to grow insidiously’ (1996, p. 223),
resulting in visitor numbers increasing degrading their culture and leading to
from 7 million in 1995 to 40 million by conflict between locals and tourist com-
2014 (Anon, 2016). As a result, tour op- panies. More renowned destinations bear
erators are often major stakeholders in witness to similar tourist development,
many destinations and hold substantial but on a more substantive scale; for ex-
influence in their development and ample, the village of Kuta on Bali or Goa,
growth to become destinations where India, which were very popular with
tourism can be a dominant, transforming backpackers in the 1960s and by 1990
vector of the economy. had become major tourist destinations.
In many such cases, tourism devel- More recently, tourism development and
oped from a low-impact, low-key activity economic growth have expanded with
(i.e. what would now be termed alterna- the rise in popularity of East Africa and
tive tourism) and then expanded as de- Nepal in the 1990s, along with Thailand
mand grew and supply increased. As has and the development of Pattaya and
been argued, ‘Even monster resorts like Phuket as tourist destinations.

26 Chapter 2
Major Players in New places can become commodified as high
Destination Developments prices act as a barrier to access, poten-
tially limiting demand to the affluent in
A new destination today can develop in society. But what is fashionable now will
popularity largely due to promotion on in time become passé, as is so often seen
the part of major tour operators, espe- with tourism demand.
cially with the favourable support of the
destination’s national and local govern-
ments. This can also take place over a much The Obverse Perspective
shorter time than was the case many
years ago; witness the growth and devel- As the popular tourist resorts developed
opment of Dubai (www.visitdubai.com/ and expanded in the 1960s and beyond,
en-uk/). However, it is not the case that so too did the impacts of tourism devel-
tour companies operate in isolation; there opment on the environment become in-
are other role players and stakeholders creasingly recognized. An early indication
involved, not the least of which is govern- of this was flagged up by the International
ment. For tourism to expand to any sig- Union of Official Tour Operators, which
nificant extent, there needs to be in 1960 encouraged ‘all IUOTO member
government support, which, albeit rarely, countries to exercise increased vigilance
might seek to constrain tourism develop- regarding the attacks on their natural
ment and consequently reduce the influ- tourist resources’ (Jenner and Smith,
ence of transnational tour operators. For 1992; cited in Leslie, 1999, p. 181). Such
example, the Dominican Republic was a view heralded the beginnings of the de-
considered to be an alternative tourism bate over the following years on the nega-
destination and was constrained in its tive impacts of tourist resort developments
early tourist development by government on the environment. This gathered pace
policy and a strong bias on local enter- through to the 1980s, subsequently gaining
prise (Weaver, 1992). However, that was impetus following the Brundtland Report
in the 1980s and much has changed since of 1987 and more so in the wake of the
then due to a shift in government policy UN’s World Congresses on Sustainable
and constraints on external investment: Development in Rio de Janeiro in 1992
now it is a major tourist destination fea- (the ‘Earth Summit’; see Hunter and Green,
turing in the products of a raft of tour 1995) and in Johannesburg in 2002. Al-
operators. In similar ways, the tourism though tourism gained substantive atten-
policy of the Government of Bhutan tion over that period as regards its impact
seeks to limit tourism development and on the environment, comparatively little
the involvement of external investors, as attention was given to tour operations,
well as limiting the number of foreign vis- despite a general theme of much of that
itors (especially from the ‘west’) allowed attention being that mass tourism was,
each year, a condition leading to low-­ and is, to blame for the ills of tourism de-
volume, high-value tourists. Ironic as it velopment. Indeed, it was widely con-
may seem, to confine tourism develop- sidered that alternative tourism was and
ment to low-key, low-scale may increase is more in tune with sustainable develop-
the attraction of the place and status as a ment, as is made clear in recurrent themes
positional good, meaning comparatively in much of the tourism literature (see
high prices and thus more favourable Leslie, 2009). Consequently, mass tourism
opportunities for tour operators. Such a is seen as less sustainable than smaller
situation to some degree illustrates how scale activities, such as those implied, for

The Package Holiday and the Rise of the Tour Operator 27


example, by eco/green/ethical tourism of- villages of Italy (e.g. Manarola, Vernayza):
ferings (see Leslie, 2012). This critique is during the cruise season they are inun-
debatable, especially if one considers dated with passengers from cruise ships
some of the ills arising from what are calling in to the nearby port of La Spezia.
considered as alternative forms of tourism The capacity of the port has been ex-
(see Leslie, 2012). For example, Seabrook panded, largely due to the significance
argued that ‘Adventure tourism scatters given to the economic benefits attributed
debris and waste in formerly inaccessible to the cruise sector by regional and na-
places on the earth; pristine mountain tional government, fuelling further in-
slopes, ice-floes and high plateaux receive creases in visitor numbers and adding to
their quota of mementos from the unquiet congestion.
visitations of people avid for sensation
and novelty’ (2007, p. 14). Conversely,
adventure tour operators may be com-
paratively far more attuned to the precepts Box 2.1.  Venice and Cruise
of responsible tourism (see Holland, 2015) Ships
with notable major international players During peak season, approximately
in this market such as Intrepid, (Mel- 30,000 tourists disembark from cruise
bourne), Southern Sea Ventures (Queens- ships every day in the port of Venice,
land) and World Expeditions (Sydney) all with around 22 million visiting each
based in Australia (see Buckley, 2012). year. The number of tourists visiting
However, it is inescapable that such low-­ Venice has led locals to protest about
impact tourism can do harm by attracting the damage to the environment and the
the attention of the big operators, as increase in prices that affects the local
Whinney well-illustrated (see above). community, resulting in many inhabit-
ants moving out of the city. Venice is a
It is not surprising that, away from
UNESCO World Heritage site and it
the renowned tourist resorts, other places has threatened to add Venice to the list
of the world, comparatively all the more of endangered heritage sites if Italy fails
accessible today, have gained nicknames to ban cruise ships from the lagoon.
such as the ‘Coca Cola Trails’ of the Peru-
vian Andes or the ‘Toilet Paper Trails’ of
Nepal. Latterly the Chinese Government
has decried the graffiti scrawled on monu- As noted, the major tour operators in
ments and signs around Everest, and in the holiday mass tour market are in a po-
2016 vowed to publicize the names of tentially powerful position to influence
anyone identified. Meanwhile, the oceans the development of resorts and, in the
around popular tourist regions are the process, encourage wider distribution of
playground of cruise ships, which gen- the perceived benefits and ameliorate nega-
erate substantial air pollution and waste tive impacts associated with such develop-
(Johns and Leslie, 2008), although The ment. They, more than any other tourism
International Council of Cruise Lines agent, through creating and delivering
(ICCL) promotes responsible manage- holiday packages, hold substantial poten-
ment practices. Cruise ships also gained tial to influence a responsible approach
attention for their impact on destinations on the part of the other enterprises in-
for reasons including the little economic volved in their tours and thus the import-
gain (see Duval, 2004) arising from pas- ance of supply chain management is stressed
sengers’ short day-visits and overcrowding, (see TOI, 2005). Also, due to their poten-
as in the case of the Cinque Terre coastal tial lobbying power to influence government,

28 Chapter 2
they can support/advocate for the protec- branded as Travel Life, while their airline
tion of the environment and through their business was the first tour operator to
supply chains can encourage the intro- achieve ISO 14001 for its approach to
duction of best environmental manage- environmental management. Similarly,
ment and socially responsible practices TUI has introduced environmental pol-
(Leslie, 2015). But they can also use their icies both within their own tour oper-
influence to counter government policies ations and along their company-owned
favouring positive action such as conser- supply chain. But the promotion of such
vation-based initiatives. Witness the outcry initiatives can be counterproductive, as
from concerned operators when the Bale- Hudson and Miller argued: ‘Communica-
arics (Spain) first mooted a tourism tax in tion of an environmental message can
the 2000s and more recently in September achieve many potential benefits including
2015, when again proposed by govern- increased custom and better, more motiv-
ment, with the suggestion of 2 Euros per ated employees, yet the possible cost of a
day per visitor, which has largely been de- raised profile is increased attention from
rided by the major tour operators with groups seeking to ensure the message is
operations in that area. This proposal is matched by action’ (2005, p. 394). Be
by no means unique in Spain; for ex- that as it may, tour operators generally
ample, Barcelona, which already had a are reluctant to accept responsibility for
tourist tax, sought to extend this in the the environments in which their operations
spring of 2016 to include day-trippers. are based, though it should be recognized
International professional organiza- that this is certainly less applicable to
tions representing major role players in small enterprises and notably less in the
tourism, including tour operators, such case of adventure tour operators (see Hol-
as the World Travel and Tourism Council land, 2015). As Ioannides (2008, p. 57)
and the Travel Foundation, have been argued, the overriding priority of mem-
promoting what is generally termed ‘sus- bers of the International Federation of
tainable tourism’ or ‘responsible tourism’. Tour Operators (IFTO) is maintaining
This has largely arisen in the wake of the the appeal of their products, and thus their
Brundtland Report and the UN Earth focus is invariably on the short term. But,
Summits of 1992 and 2002, and the cor- and rather contrary to the foregoing,
relating promotion of the agenda for sus- Richard Branson of Virgin Enterprises
tainable development and subsequently has not only argued for all his operations
that of climate change (see Leslie, 2012), to be environmental leaders in their fields,
rather than any clear demand from tour- but more generally that ‘We need to ad-
ists or indigenous populations. dress the environmental issues, both
Certainly, broadly speaking, tour op- those created by travel and those gener-
erators, large and small, are seeking to ated at the destinations themselves, be-
improve their environmental perform- fore others do it for us’ (2006, p. 3).
ance; for example, encouraging environ-
mental management and corporate social
responsibility practices (see Cavlek, 2002; Summary
Mosselaer et al., 2012). To some extent,
this is exemplified by their establishment The growth and development of tour op-
of the Travel Foundation. International erations has been driven by entrepreneurs
operators such as Thomas Cook have em- and this entrepreneurial spirit is still very
braced ABTA and the Dutch ANVR travel obvious today. This is most evident in
association’s environmental programme, the comparatively recently d ­eveloped

The Package Holiday and the Rise of the Tour Operator 29


economies of the world, such as India tour operators are a significant factor in a
and China, a situation which reflects the tourist destination’s economic develop-
correlation between economic develop- ment. However, such influence has not
ment and demand for tourism as well as been without criticism, initially arising
in combination engendering opportun- over concerns on the impact of tourism
ities for tour operators. These opportun- on the physical environment and subse-
ities have been facilitated, and indeed quently in relation to perceived disbene-
furthered, through developments in fits to the local/regional economy and
transportation as well as by the expan- peoples, criticisms which gained impetus
sion of the infrastructure and superstruc- under the umbrella of the agendas of sus-
ture at and within destinations. Thus, as tainable development and climate change.
demand for tourism worldwide has Hence tour operators, be they the myriad
grown, so too has the competitive envir- of small companies operating in niche
onment within which tour companies markets or major international com-
operate. A combination of demand and panies, are being encouraged to adopt the
supply has led over time to a growing di- policies and associated practices pro-
versity in the types of tour operator as moted under the umbrella of ‘responsible
well as in their product offerings aligned tourism’ by a host of international agen-
with the continuing success of the package cies and non-governmental organizations
holiday. The sector has expanded and new and by professional organizations within
operators have entered the marketplace, tourism. How effective they are is very
which is still highly competitive. This is much a matter of debate, a debate that
manifest in takeovers and mergers as may be more academic than practical
well as in the collapse of some tour op- given the evident lack of customer demand.
erators, both large and small, witnessed But then, what little demand there is
since the 1960s, which well illustrate the opens up potential opportunities for tour
dynamic nature of the increasingly chal- operators to develop holiday packages
lenging market within which tour oper- tailored to that specific, target market!
ators operate. Overall, this discussion of the devel-
Indeed, the challenges continue and opment of the package holiday and cor-
in general people are travelling more and relating rise and growth of tour operations
are increasingly arranging their own holi- serves as a background and foundation
days, facilitated by the availability of the to the different facets of managerial prac-
internet and the ever-growing array of tices in and issues relating to tour oper-
supporting consumer advisory websites ators, which are discussed in the following
and ‘apps’ (see Chapter 12, this volume). chapters.
Even so, the long-term trend in mature
holiday markets is shifting away from the
standard package of yesterday. Discussion Questions
Reflecting on the rise and growth of
tour operators, their operations and the 1. When considering the history of tourism,
development of tourist resorts over the what are the key factors that have enabled
last 50 years leads to identifying the sig- the growth of tour operators?
nificance of their role in influencing 2. Why did 3S tourism products become
tourist demand and the ongoing develop- the dominant product in the marketplace?
ment of their favoured resorts over time, 3. When reviewing the role of travel
which might be termed ‘tourisurbaniza- agents and tour operators, what are their
tion’. As such, and to varying degrees, commonalities and where do they differ?

30 Chapter 2
4 . How have the major European ●● Integration: A combination of busi-
tour  operators remained successful, nesses that are at the same or dif-
despite the growth of specialist oper- ferent stages of the distribution
ators? channel.
5. What roles do national tourism organ- ●● Intermediaries: Companies or indi-
izations have when working with tour viduals who act as brokers, or go-­
operators? betweens, between the tourist and
6. Why have specialist tour operators the supplier, e.g. travel agent, tour
offering niche products grown in im- operator.
portance within the sector? ●● Positional good: An object that is es-
7. Are tour operators responsible for pecially valued by the possessor be-
the impacts of their products on a cause it is not possessed by others
destination? and so is considered a status symbol,
such as a particularly high-status and
desirable holiday destination.
Key Terms ●● Responsible tourism: Tourism that
‘emphasises the principles of conser-
●● Brundtland Report: The United Na- vation, creating and maintaining a
tions Report Our Common Future balance of tourism and preservation
(1987) by the World Commission on of the local culture and environment,
Environment and Development that and balances the interests of all stake-
was chaired by Gro Harlem Brundt- holders, including the tourists, rather
land. The Report is most widely than solely reducing or limiting the
known for establishing the concept numbers of tourists’ (Holland, 2015).
of sustainable development. ●● Social responsibility: The International
●● Commodified: The transformation of Standards Organization defines s­ ocial
goods, services, ideas and people into responsibility as: ‘The responsibility
commodities, or objects of commer- of an organization for the impacts of
cial use; for example, using a destina- its decisions and activities on society
tion’s culture to make profit or support and the environment, through trans-
the economy. parent and ethical behaviour that
●● Domestic tourism: Tourism activity contributes to sustainable develop-
that is generated by residents of a ment, health and the welfare of society;
country taking trips/holidaying within takes into account the expectations
their own country. of stakeholders; is in compliance with
●● Environmental management: Man- applicable law and consistent with
aging an organisation’s activities international norms of behaviour;
‘that give rise to impacts upon the en- and is integrated throughout the or-
vironment . . . and essentially there- ganization and practiced in its rela-
fore . . . the interaction between the tionships’ (see Dodds and Kuehnel,
organisation and the environment . . .  2010, p. 222).
It is the environmental aspects (as ●● Sustainable tourism: Tourism ‘which
opposed to the financial or quality is economically viable but does not
aspects) of an organisation’s activ- destroy the resources on which the
ities, products and services that are future of tourism will depend, not-
subject to management’ (Sheldon ably the physical environment and
and Toxon, 1999, p. 2). For example, social fabric of the host community’
BS7750, EMAS or ISO 14001. (Swarbrooke, 1999, p. 13).

The Package Holiday and the Rise of the Tour Operator 31


Internet Exercise
Using data from UNWTO Tourism Highlights, 2016 Edition (available at www.e-
unwto.org/doi/pdf/10.18111/9789284418145), compare the international arrivals for
Europe and Asia and the Pacific.

Questions
● Why is the average annual growth in international tourism in Asia and the
Pacific almost double that of Europe?
● UNWTO suggest that by 2030 the dominance of Europe as a tourist generating
region will decline. What evidence is there to support this statement?

Case Study
The following two articles illustrate the differing opinions about the future of package
holidays.
The first article by Lueck, is taken from 2005, and predicts a very pessimistic view
of the future of the sector:

Sunset for the package holiday


In the 1950s only 1% of Brits had ever travelled abroad on holiday, but with the growth
of air travel and post war prosperity millions of us were soon travelling to the sun on
all-inclusive deals. Package deals revolutionized the travel industry.
By the 1970s, Spain was a favourite destination and resorts like Lloret de Mar on
the Costas were full of Brits on seven or 14 night package deals. Holiday companies
such as Thomson grew big as people escaped to the sun.
The 1990s heralded a big change in travel as the internet expanded and low cost
carriers offered new ways to travel. Low cost carriers like Easyjet and Ryanair offered
flights to the sun for less than their competitors and they allowed customers the oppor-
tunity to travel when they wanted.
Massive savings

In the last few years the growth of the internet has meant that many people have now
become travel agents in their own home, doing away with the need for agents’ shops
on the high street. Many travellers shop around for cheap deals.
Some independent travellers think they can get a better deal on the web. Julia
Gerrard from Barnsley reckons she can save £800 on a holiday by booking it herself.
‘I gave up on the package because I knew they were never going to be any cheaper,’
she says.
For the first time ever, more of us are choosing to book our holidays independently
and fears are being expressed for the future of the big holidays firms. Household names
like Thomsons are seeing their core package holiday product suffer a dramatic loss in
market share. The travel industry is growing by around 12% a year. The package how-
ever is stagnating and on the Spanish Costas it’s in decline.
Continued

32 Chapter 2
Case Study.  Continued.
Brits buying abroad

Another threat to the traditional Spanish package holiday is the number of British
people buying property abroad. So far over half a million own a foreign property and
Spain is growing in popularity. New developments are spreading and this means a very
real threat to the package holiday companies. Now people will no longer need a holiday
to Spain, just a cheap flight. (Lueck, 2005)

Questions
1. Why did people buy package holidays?
2. Why are tourists no longer buying package holidays?
3. What has enabled them to arrange their own holidays?
4. What type of holidays do you think people arrange for themselves?

The second article, by A. Lusher from the Independent newspaper (5 August 2015),
presents a contrasting view about the package holiday sector.

A history of package holidays: rising numbers indicate a renaissance


with an updated and classier holiday experience
It was supposed to have gone into terminal decline sometime after 2003. The great
British all-inclusive flights-and-accommodation package holiday – first pioneered in the
Mediterranean in 1950 – was, we were told, being killed off by the budget airline and
the internet; both tempting us to find our own cheap fares and board without needing a
tour operator.
A smidgen of snobbery from the independent traveller crowd, a healthy dose of
revulsion at boozed-up Brits abroad, and an unmourned demise was guaranteed. Now,
however, the Office for National Statistics (ONS) has revealed that the death of the
package has been greatly exaggerated. Figures – released, as luck would have it, on
the 65th anniversary of the first Mediterranean package holiday – have shown that the
number of Britons taking package holidays abroad is rising again, from 15.3 million in
2013 to 15.9 million last year. And additional research by the travel association ABTA
suggests that more than half of UK holidaymakers (51 per cent) going abroad last year
booked a package.
Compare that with 2008 (when the proportion of us choosing the option had
slumped to just 37 per cent) and it seems that, as it celebrates its 65th birthday, the
British package holiday is looking not so much at retirement as renaissance. True,
ABTA’s Sean Tipton thinks that the cause may lie in post-2008 austerity – after all, with
operators’ economies of scale, they can be cheaper and easier than web-based
DIY – but taking another look at packages has allowed us to discover an updated,
classier, more flexible holiday experience.
‘The package holiday has become a different animal since the decline,’ says Tip-
ton. ‘Customers now understand it offers huge variety, including complicated itineraries,
but with all the old positives like convenience.’ Banish any thought of the bucket-spade-
and-sun-lounger fortnight in a hotel, then, and forget the rep: ‘You can go on your own
tailor-made safari, just you and the guide. You can have a yachting holiday in the Med.
Continued

The Package Holiday and the Rise of the Tour Operator 33


Case Study.  Continued.
So long as it’s sold at an all-inclusive price, with transport and another service (which
will be accommodation 99.9 per cent of the time) then it’s a package.’ As for the old
fixed-period formula: ‘It used to be, that’s what you get. Seven nights or 14, and such
inflexibility used to be a real weakness. Now you can go for as long or short as you like.’
(Lusher, 2015)

Questions
1. Why are we seeing an increase in the purchase of package holidays?
2. What advantages do package holidays have over independent travel?
3. What has changed from the traditional packages of the 1970s/80s to those in the
2010s?
4. What has happened in the interval between the first article (2005) and that of the
second article (2015) that may account for the apparently very different opinions?

Recommended Reading Tribe, J. (2011) The Economics of Recre-


ation, Leisure and Tourism. Routledge,
For an overview of the growth of the London.
package holiday that is both informative On the subject of responsibility and tour
and entertaining: operators:
Richardson, D. (2016) Let’s Go: A History of Harmon, L. (2007) The Final Call – In Search
Package Holidays and Escorted Tours. of the True Cost of Our Holidays. Transworld,
Amberley, Stroud, UK. London.
Leslie, D. (2015) Sustainable supply chain
For a global picture on tourism developments:
management. In: Tourism Enterprise: De-
Boniface, B., Cooper, R. and Cooper, C. velopments, Management and Sustain-
(2016) Worldwide Destinations: The Geog- ability. CABI, Wallingford, UK, Chapter 2.
raphy of Travel and Tourism. Routledge,
London.

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The Package Holiday and the Rise of the Tour Operator 37


3 The Operating Environment

Learning Objectives In total, this is effectively a tour operator’s


channel of distribution. Here we consider
After studying this chapter, you should be the general chain of distribution and the
able to: possibilities for a tour operator to be-
come more directly involved, for example
●● Understand the structure and distri-
taking over a travel agency, thereby redu-
bution of tour operator products.
cing the role of other companies in their
●● Explain the importance of integration.
chain of distribution. Although not dis-
●● Appreciate the impacts on tour oper-
cussed here, it should be recognized that
ators of the macro environment.
the channels of distribution for tour oper-
●● Describe and use the PESTEL frame-
ators have changed substantially since the
work relevant for tour operators.
1990s (see Chapter 9, this volume).
●● Appreciate the micro environment.
No company can afford to stand still
in today’s changing times and the tour
operator needs to be aware of external
Introduction
influences on its operating environment
and the opportunities for and threats to
As with any business, tour operators must
its business operations that may arise as
work within their environment and re-
a result. This is considered below in the
spond, as necessary and appropriately, to
broad context of the external operating
changes in that environment. However, in
environment. Being well prepared is good
this their situation is different from gen-
for the company and its future, but this
eral business. This is because their activ-
also requires the development of a man-
ities are not only subject to or influenced
agement strategy to guide the company
by the prevailing forces and events in the
forward while recognizing the competi-
country within which they are based, but
tion and potential opportunities for
also of those destinations with which they
growth. Therefore, our attention turns to
are involved; for example, differing regu-
appropriate frameworks that can be ap-
lations or significant events (see Chapters 8
plied by tour operators in developing
and 12, this volume). To develop and prosper
their management strategy.
they need to be both attuned to market
demand within their home country and the
market in other countries as well as poten-
tial opportunities in new destinations. External Operating
A  primary consideration is how to reach ­Environment
the actual and potential markets and thus
we need to examine the distribution pro- For any organization to be successful or
cess and the intermediaries between the tour to maintain success, it is important that
operator and their potential ­ customers. the organization understands the current

38© J. Holland and D. Leslie, 2018. Tour Operators and Operations: Development,
Management and Responsibility (J. Holland and D. Leslie)
operating environment and is aware of well as the potential markets in their home
developing and potential future trends in country. Further adding complication is
the wider, i.e. macro, environment (some- the need to take into consideration dif-
times referred to as the broader or ex- ferent levels of government and regula-
ternal environment). Further it must be tion, i.e. international, intraregional (such
able to react to changes that may influ- as the EU), national and local levels of
ence the operations of the company. The government.
operating environment can be analysed
at two different levels – the macro envir- political  The political environment is
onment and the micro environment. that which is under direct control or in-
fluence by government. This may include
legislation and regulation (e.g. airport re-
Macro environment gulations and tourism policies), economic
policy (e.g. exchange rate stabilization,
The assessment of the environment out- control of inflation, taxation, trade tariffs)
side an organization’s control is termed and governmental international policy.
macro environment analysis. Although the Political acts such as war and terrorism
macro environment is beyond a compa- can have devastating impacts on destin-
ny’s influence, it can have a significant im- ations and their tourism sector. Terrorist
pact on a company’s operations and thus attacks, such as those in Paris, Bali, N
­ airobi,
overall performance. As the tour o ­ perating Madrid, London and New York, have im-
sector operates in an ‘extremely volatile mediate impacts on the destinations in-
and dynamic external environment’ (Dale, volved through a reduction of tourist
2000, p. 361), it is susceptible to changes numbers. However, it should be recog-
in both consumer demand and the envir- nized that such acts tend to switch de-
onment. Therefore, the ability not only to mand to other localities. Political risk
recognize but also to appreciate the poten- must also be considered and therefore
tial significance of such changes enables companies must assess the political situ-
operators to adapt their activities. The ations of and within countries, particu-
most frequently used model to analyse the larly those in less stable areas such as
macro environment is the framework sub-Saharan Africa, parts of the Middle
known by the acronym PESTEL. East and South America.

economic  Economic analysis can include


PESTEL the price of oil, fuel costs, exchange rates,
interest rates, minimum working wages
PESTEL, generally considered to be the and inflation – all factors that indirectly
simplest tool, is a useful framework that may impact negatively on disposable in-
enables an organization to appreciate the come and thus demand for tourism and/or
macro environment, identify potential on the expenditure of tourists as well as
issues that may have an implication for the costs of tour operators. An overview is
the organization and consider such issues required of how these may affect patterns
in terms of whether they present oppor- of consumption, potential market growth
tunities or threats to the organization. In and/or construction of the market. For
the context of tour operators, the appli- example, the global recession after 2007
cation of macro analysis needs to consider saw a decrease in the number of UK resi-
issues that arise according to the different dents taking international package holi-
countries within which they ­ operate as days, while domestic holidays increased

The Operating Environment 39


(Davidson, 2015). Changes in exchange operate. The emergence of online travel
rates can a­ ffect an operator’s profit margins agents (OTAs) has proved to be a funda-
considerably and many tour operators mental change to how holidays are
forward buy currency to try and minimize bought and sold. Trends such as dynamic
the i­mpact of exchange rate fluctuations packaging (the ability of agents to build
(see Chapter 7, this volume). A destination a customer’s own choice of flights, ac-
may introduce a higher value added tax commodation and car rental instead of
rate for food/accommodation or introduce purchasing a pre-defined package) have
an airport tax on departing passengers, enabled travel agents to react to consumer
which will not only affect demand for a demands in a more effective way, using a
destination but will also impact on the range of communication tools such as a
operator’s pricing strategy. For example, computer, tablets and phone applications.
in 2016 the Balearic Islands introduced a
Sustainable Tourism Tax with the aim of environmental  Environmental issues can
improving and maintaining the quality of involve climate change, the reduction of
tourism on the islands, which could add natural resources and pollution and po-
up to £80 to the price of a two-week tentially therefore the response of na-
holiday for a family of four. tional and international government
agencies, which may directly or indirectly
sociocultural  Sociocultural influences in- affect tour operations.
clude demographics, e.g. population statis- Environmental factors can be con-
tics and profiles, lifestyle, education, sidered to comprise two distinct cat-
holiday entitlement and workforce changes. egories. First, disasters caused by natural
A demographic trend in post-­ industrial events, e.g. hurricanes, floods, earth-
countries is marrying later in life and quakes. The tsunami in 2004 affected a
having fewer children and, of particular large number of countries, including Thai-
significance, when compared with earlier land, Sri Lanka, Indonesia and notably
generations in such societies, people are the tourism-dependent Maldives. Cer-
living longer and are fitter and more af- tainly, such disasters are unpredictable.
fluent. This is a growing market segment, However, this does not mean an operator
often referred to as the ‘grey market’ or should not have plans in place addressing
‘silver panthers’. They are also more ex- how they would cope in such an eventu-
perienced travellers and more likely to seek ality (see Chapter 12, this volume). The
alternative experiences. Consideration also second category encompasses diverse
needs to be given to the composition of issues such as initiatives arising from the
families, which leads to market opportun- promotion of sustainable development –
ities such as family adventure holidays or ‘sustainability’ – by international and
grandparent/grandchildren holidays. ­national agencies; ­similarly, reactions to
climate change. The ­ responses to such
technological  The travel sector has al- issues are diverse and more policy based.
ways been at the forefront of new tech- Promotion of best practices may herald
nologies; for example, computer reservation subsequent and significant legislation, as
systems/global distribution systems (CRS/ in the introduction of a carbon or sulphur
GDS). Technological changes, such as in- tax which indirectly affects operators
novations in reservation systems and yield through its effects on fuel costs.
management (see Chapter 7, this volume),
the internet and web 2.0 capabilities, have legal  This includes the legislation and
all influenced change in the way businesses regulation of companies, which is usually

40 Chapter 3
under the control of the government. Le- focused on that information which is
gislation covering employment, consumer highly relevant to the organization’s cir-
protection, contracts and taxation will be cumstances. Indeed, such analysis could
set by the government. For example, the result in contradictory information and,
Monopolies and Mergers Commission in due to the dynamic nature of the sector,
the UK allows the government to inter- the information identified could become
vene on mergers, markets and regulation out of date relatively quickly. Therefore,
to ensure fair competition for the benefit managers should be aware of the limita-
of companies, customers and the economy. tions of such a scan and constantly update
Tour operators must be attentive to de- it, particularly when new sources of infor-
velopments in this field in all the coun- mation are found. As such, it needs to be
tries within which they operate, e.g. the recognized that environmental scanning is
USA has legislation on fair trade practices very much an ongoing process.
and employment that potentially impinge While PESTEL provides a very useful
on operational practices. tool to aid recognition of the importance
Table 3.1 presents an outline of a of attention to, and a better understand­
PESTEL analysis by category and associ- ing of, the macro environment, that is
ated implications. only half the picture. To complement this,
PESTEL’s simplified framework can ­organizations need to have a thorough
be used to identify and sort the pertinent understanding of their competition and
information drawn from what in practice the marketplace. This brings into focus
is termed ‘environmental scanning’. This the competitive environment.
involves searching and reviewing the wider
environment for indicators of change that
may hold implications for the ongoing op- Micro environment
erations of the company, which can then
be further considered in terms of oppor- An analysis of the micro environment in-
tunities or threats. When conducting such volves an assessment of the environment
a scan, it is important that the ­analysis is within which the business operates and

Table 3.1.  Illustration of PESTEL analysis.

Factors Example Implication

Political Increase in minimum wages Increasing costs


Increasing air passenger duty Impact on cost of packages
Economic Increase in interest rates Less disposable income
Changes in exchange rates May affect cost of holiday and profit
Social Demand for experiential holidays May need to introduce a new range of
products
Technological Growth of internet distribution Reduction in ‘bricks and mortar’ travel
agents
Environmental Drought Less water available for the
maintenance of golf courses
Legal Changes to the EU Package Unknown until implemented
Directive
Introduction of the Disability Need for accessible facilities
Discrimination Act e.g. transport access,
accommodation provision

The Operating Environment 41


interacts, e.g. suppliers, customers and competitive environment and developed
competitors. The simplest tool is a SWOT from analysis of the macro environment
(Strengths, Weaknesses, Opportunities as identified through the PESTEL frame-
and Threats) analysis, which can be used work. It is important to remember that
to audit the organization and its environ- Porter’s Five Forces framework is d ­ esigned
ment. Strengths and weaknesses are in- to facilitate analysis of the ­industry within
ternal factors, whereas opportunities and which the company operates. If the or-
threats are external factors. Ideally, a ganization has a diverse portfolio of prod-
company would look to improve weak- ucts and services, then separate models
nesses and turn them into strengths, and should be created for each of them. To be
to turn threats into opportunities. For ex- effective, it must be borne in mind that
ample, an operator may consider one of the outcomes of utilizing this framework
their strengths to be an innovative and provide only a snapshot of the market at
specialist product, but they may consider that moment in time. Therefore, without
their lack of marketing skills to be a regularly reviewing the operating envir-
weakness. Opportunities may include im- onment, knowledge gained from using
proving their website or attracting new Porter’s Five Forces may become out of
markets, whereas threats could be the date quite quickly. These forces, as illus-
introduction of a new competitor with a trated in Fig.  3.1 and discussed below,
similar product or a competitor that has are:
access to superior distribution channels.
There are several key elements within ●● Industry rivalry.
a business environment that affect the ●● Suppliers’ bargaining power.
level of competition for any organization. ●● Buyers’ bargaining power.
Therefore, it is important that organiza- ●● Threat of new entrants.
tions not only recognize this but are also ●● Threat of substitutes.
aware of and react appropriately, ideally
swiftly, to changes in this competitive en- industry rivalry  One of the key factors
vironment. According to Porter (1980), for success in any business is the ability to
there are five major forces within a com- understand the competitors, in particular
petitive environment that represent strong their marketing strategies and product.
threats to a company’s success. Collect- A  competitor analysis will enable oper-
ively, these forces can provide valuable ators to understand the extent and nature
insights into most organizations, destin- of the products on offer and specifically
ations or attractions (Evans, 2015). the differentiation of such products. Evans
(2015) suggests that competition can ei-
ther take place on a price or a non-price
Porter’s Five Forces basis; that is, price competition involves
undercutting competitors, whereas non-­
Porter’s Five Forces framework is a price competition is based on a range of
popular technique that provides an easy- activities, such as branding, advertising,
to-use model that can be used to analyse promotion, product innovation and cus-
the tour operating sector and help ex- tomer service. In highly competitive mar-
plain the need for horizontal and vertical kets, price changes may be necessary to
integration. It is widely viewed as an ap- match a significant competitor in order to
proach that is complementary to a SWOT maintain sales. Within the overall market,
analysis, i.e. the opportunities and threats, factors that need to be considered include
informed by an understanding of the the degree of concentration of competitors,

42 Chapter 3
Potential entrants
(Threat of
mobility)

Suppliers Industry Buyers


(Supplier power) rivalry (Buyer power)

Substitutes
(Threat of
substitutes)

Fig. 3.1.  Porter’s Five Forces.

including the number and relative size. the UK’s All Leisure Group at the start of
Furthermore, it is imperative to assess the 2017, which operated cruise lines Swan
growth potential of the market. Hellenic and Voyages of Discovery.
If the market is dominated by one or An appreciation of supply in relation
two organizations, new entrants are likely to demand and the characteristics of that
to encounter difficulties in sustaining their demand means that in markets that are
operations because larger organizations mature, the competition is likely to be
may be able to stop or limit the growth of more intense than in those markets that
smaller competitors. For example, the are developing. In a mature market, com-
mass market product of beach holidays in panies will only be able to gain market
Europe is dominated by two major verti- share by taking customers from existing
cally integrated tour operators and be- competitors. Therefore, such factors as
cause of their marketing power and pricing customer service and customer loyalty be-
strategies it is difficult for new entrants to come all the more significant. Clearly, it is
compete against them. In sectors where more difficult to attract customers away
there are high fixed costs, such as cruising from competitors with high levels of repeat
due to the investment in purchasing cruise custom. However, traditionally the tour
ships, the ability of new entrants to com- operating sector has low levels of loyalty
pete is often limited. In addition, high cost (Richard and Zhang, 2012) due to low
entry barriers (sunk costs) mean poten- switching costs and numerous a­ lternatives
tially significant problems later if a com- available, although i­ ndependent specialist
pany encounters financial difficulties; for operators tend to have high levels of re-
example, once a company has invested in peat custom (see Holland, 2012). In contrast,
cruise ships, they cannot use them for developing markets present new oppor-
other purposes. Witness the collapse of tunities where sales can be increased

The Operating Environment 43


without taking customers from existing where appropriate, it is important to build
operators. relationships over time that should en-
In sectors where differentiation is courage the loyalty of their suppliers.
greater, there is less likely to be high levels
of rivalry; for example, operators working buyers’ bargaining power  The bargaining
in specific destinations or with specific power of buyers translates in the case of
activities usually encounter less competi- tour operators to the demand for their
tion, such as Wendy Wu, which is the products by tourists. Clearly, this has an
UK’s leading China holiday specialist, or impact on the price that can be charged
Intrepid, an Australian company special- by operators. Generally speaking, the
izing in small group adventure holidays. more power buyers have, the lower the
In summary, the intensity of com- price of the product. That said, the power
petitor rivalry increases with: is dependent on the number of customers
and the volume of their purchases. In ef-
●● large number of firms in the market; fect, customers can have significant bar-
●● number and relative size of competi- gaining power when it is easy and cheap
tors within the industry; for them to substitute their chosen product
●● slow market growth; for a very similar alternative, as is the
●● high fixed costs; case with the typical 3S package. In eco-
●● low switching costs; nomic terms, this is referred to as price
●● low levels of product differentiation; elasticity. In this case, the traditional 3S
and package holiday is generally seen to be
●● high exit barriers. price elastic, whereas a specific tour in-
volving a particularly special destination
suppliers’ bargaining power  The bargaining would be considered as price ­inelastic.
power of suppliers relates to the supply Operators are generally reliant on re-
side of the sector. Operators often rely on tailers to promote and sell their products,
third-party suppliers and therefore the thus retailers can exercise a level of power
uniqueness and scarcity of potential sup- over tour operators due to their potentially
pliers will dictate the level of bargaining large customer base. Therefore, when there
power of the tour operator. The company are many tour operators trying to place
that is offering differentiated products with their products in travel agencies, agencies
reliance on a small number of suppliers may limit the number of operators with
means suppliers hold significant power whom they work. In the case of vertically
over the operator regarding provision of integrated tour operators, through their
supply and costs. Conversely, if the destin- own retailers they have a secure distribu-
ation can be easily substituted for an alter- tion channel and can guarantee that those
native one, then suppliers have less power. retailers will sell their product. Conversely,
For example, a tour operator such as In- non-integrated operators are reliant on
trepid offering specific tour itineraries that encouraging retailers to promote their
­
include Everest base camp is reliant on the products through the practice of offering
suppliers to provide mountain guides and commission and other incentives.
tented accommodation. If that supplier In addition, tour operators and re-
were to be offered better rates by a dif- tailers can be viewed as buyers and have
ferent tour operator, then they may readily substantial influence on their suppliers.
switch their allegiance to that operator. Large operators purchase elements of the
In some cases, switching between suppliers package from selected principals, e.g. ac-
may be costly for operators, therefore, commodation, and when purchasing in

44 Chapter 3
large numbers they can achieve very com- potential opportunity for new entrants
petitive rates from those suppliers, which increases.
may not be in the suppliers’ best interest.
For example, destination ­accommodation threat of substitutes  The tour operator
suppliers are reliant on tour operators to sector is very susceptible to substitute
use their accommodation and thus may products due to the large number of op-
accept a reduced price for a guarantee erators’ products in existence that are
that the rooms will be sold (see Buhalis, readily available to potential customers,
2000). whether through retailers or the internet.
In this instance, a substitute product is a
threat of new entrants  The threat of po- package that basically meets the same
tential new entrants to the market varies customer needs as other packages. As a
according to the ease or difficulty in- result, this can limit the opportunity for
volved on the part of new operators seek- companies to raise prices.
ing to enter the market. If the market has Substitute products could include:
little brand awareness and loyalty and is
●● replacing one destination/country for
one where distribution channels are easy
another;
to access, then there is greater likelihood
●● independent travel instead of a
that new rivals may enter the market.
package;
In  general, the tour operator sector has
●● all-inclusive instead of self-catering;
traditionally been relatively easy to enter
●● adventure holidays instead of beach
as there are very few barriers to entry.
holidays;
There is easy access to principals, related
●● short breaks instead of longer holi-
services and retailers and relatively little
days; and
in the way of start-up costs.
●● one company’s product for another.
As a result of the ease of entrance to
the market, tour operating companies often The extent to which alternatives may
need to grow or specialize to maintain their form a threat depends on two factors: the
market share. Horizontal integration (by closeness of the substitute in terms of
the purchasing of other operators) or ver- price and performance and/or the will-
tical integration (establishing a retail dis- ingness of buyers to switch. Within tour
tribution centre) provide quick ways to operations, many products can be easily
achieve this – for example, the purchas­ replaced/substituted for others because
ing of many independent adventure tour many companies offer similar products,
­operators by First Choice (prior to the while consumers are increasingly looking
merger with TUI) enabled the company towards new experiences. Horizontal in-
to introduce specialist products to a fo- tegration has allowed many operators to
cused market. diversify and introduce ‘substitute’ prod-
Companies that achieve significant ucts, thereby offering new experiences to
economies of scale, or have substantial ex- help retain their customers. For example,
perience and can achieve lower operating TUI operates an adventure section, Peak
costs, will have an advantage over new en- Travel, to meet the recognized demand
trants. Furthermore, a high level of brand for adventure holidays.
awareness and customer loyalty could Overall, the threat of substitutes is high
hamper any new entrants to the market. when consumer switching costs are low
However, given the general low levels and the substitute product may be cheaper
of  customer loyalty, which is certainly a and/or better quality than the original.
weakness factor for many operators, the Conversely, the threat of substitutes is

The Operating Environment 45


slow when switching costs are high and/ used to determine the strategic direction
or the product is more expensive and/or the company may take. Porter suggests
considered as inferior in quality and service. that the way to build sustainable com-
It is important to note that there has petitive advantage and market domin-
been substantial research that either sup- ance over rivals is to develop a strategy
ports, revises or complements Porter’s that best fits the organization’s competi-
basic model (see Andriotis, 2004). In par- tive environment (Porter, 1985). Porter’s
ticular, it is noted that the model does not Generic Strategies (see Fig. 3.2) suggests
acknowledge some of the monumental three possible competitive stances:
changes that have affected the sector over ●● differentiation;
the last 30 years. For example, change is ●● cost leadership; and
more rapid and the model does not con-
●● focus.
sider nonmarket forces such as technology
and the impact of government regulation. Each of these generic strategies has a
There is no doubt that information tech- different approach to achieving competi-
nology offers new opportunities to im- tive advantage, based on the characteris-
prove communication with customers, tics of the product mix and the company’s
and technology provides information sys- ability to create and distribute the
tems that change the way operators work product.
and the way customers can purchase the
holiday (see Chapter 9, this volume). differentiation  A differentiation strategy,
Government involvement in tourism is while it can be applied in different ways,
wide in scale, from activities encouraging is often based on creating and informing
tourism development to the control and consumers that their product is superior
regulation of airlines, and therefore must or different from that of their competi-
also be considered as an additional force tors. This focus on premium product
(Andriotis, 2004). ­features, which are specifically targeted
to the needs of customers or to create
­customer perception that the product is
Porter’s Generic Strategies ­substantially better than that of the com-
petition, may be achieved through adver-
Once operators understand their com- tising and promotional campaigns. This
petitor analysis, this information can be strategy invariably involves offering a

Advantage
Target scope
Low cost Product uniqueness

Broad Cost leadership Differentiation


(Industry wide) strategy strategy

Focus Focus
Narrow
strategy strategy
(Market segment)
(low cost) (differentiation) Fig. 3.2.  Porter’s Generic
Strategies.

46 Chapter 3
s­ uperior (exceptional) level of service and the aircraft, high bargaining power over
the use of selective distribution channels suppliers and subsequent economies of
with the aim of developing a strong brand scale, combined with low operating costs
name and image coupled with loyalty through standardization and high-­volume
programmes and a distinctive product. sales.
This approach achieves a competitive ad- However, the cost leadership model
vantage because operators will be able to appears to be losing its attraction within
command premium prices, and customers mature markets because tourists are in-
will be willing to pay the additional fee, creasingly able and confident enough to
resulting in higher profit margins. organize their own holidays and are de-
Differentiation strategies rely on in- manding more experiential and personal-
novation, research and development, and ized holidays.
can create customer loyalty, which is gen-
erally considered rare within the tour focus  A focus strategy, either using dif-
­operating sector. ferentiation or cost leadership, is aimed
at a specific segment of the market, a niche,
cost leadership  Cost leadership is a that may be identified on the base of
strategy based on reducing costs, thus demographics, location or interests and/
­enabling lower selling prices to achieve or specializing in a particular geographic
increased demand. Cost leadership does destination (see Chapter 10, this volume).
not focus on creating a new product but A focus strategy is most likely to be
rather replicating an existing product adopted by small or medium-sized enter-
while utilizing less-expensive resources. prises (SME) as a way of competing in the
Economies of scale are achieved by high-­ sector by concentrating on specific target
volume purchasing from principals and group(s) and providing a product de-
locating the holidays in destinations signed to meet their needs (see Chapter 5,
where costs are comparatively low to this volume). For example, The Aurora
­reduce the overall price. The key to this Zone specializes in holidays to see the
strategy is standardization. Northern Lights, while the Family Ad-
Basically, this strategy aims to achieve venture Company creates family activity-­
the lowest production costs or service based holidays.
within the sector. This can allow com- While SMEs adopt this strategy to sur-
panies to achieve high profits if they can vive in a complex marketplace, some of the
produce their products more cheaply larger tour operators within Europe have
than their competitors, leading to lower purchased small operators to provide niche
prices and increased sales and market products. For example, TUI own and op-
share. Adopting this approach for the erate a number of activity-­based companies
introduction of new products can mean that target specific segments of the market,
that operators offer these new products such as Marco Polo, which specializes in
at lower prices than their competitors, long-haul tailor-­made holidays. Thus they
gaining market share and sales. Such tac- operate two different strategies for the dif-
tics can produce barriers to entry (see ferent brands within the company. Within a
Porter’s Five Forces) and is appropriate in focus strategy, in this instance the company
a market where customers are price sensi- charges a premium price for a particularly
tive. An example in the European mass special holiday package and also offers the
market are the holiday companies Thomas lowest priced package in the mass market
Cook and Thomson (part of TUI), in sector (one reason for retaining the brand
which there is high capacity utilization of of a company taken over).

The Operating Environment 47


Porter suggests that organizations levels of price and perceived value (see
that fail to clarify their strategic stance are Evans, 2015).
in danger of being ‘stuck in the middle’. A complementary approach to the
Essentially, such companies are a little of preceding frameworks of PESTEL and
both – a differentiator and a cost leader – Porter, which we can draw from the
and as a result rather ‘sit in the middle of ­successful manager’s toolbox, is that of
the road’ with a lack of focus. Thus they Ansoff’s Matrix (1987) to aid decision
are unlikely to achieve substantial market making as regards opportunities for growth.
growth and are liable to be subject in
terms of success to the influence and ac-
tions of their competitors, achieving little Opportunities for growth
in moving forward beyond what may well
be perceived by potential customers as ra- One of the most commonly applied models
ther standard fare. To sustain the busi- for assessing the possible growth of an
ness, organizations must decide whether organization is Ansoff’s Matrix. This is a
to gain competitive advantage by: basic framework to guide examination of
products and markets to identify oppor-
●● differentiating the products and ser-
tunities for growth. The framework com-
vices and achieving higher prices (or
prises four main types of strategy that
differentially charging average price
organizations can implement: market pene-
to gain market share) or
tration; product development; market de-
●● producing its products and services
velopment and diversification (see Fig. 3.3).
at lower costs than its competitors.
In addition, organizations must de- market penetration  Market penetration
cide whether to target a large section of covers an operator’s products currently
the market or a specific narrow section in the marketplace. If the market evi-
(segment) of the market. As such, the tour dences growth potential for a specific
operator logically either operates in a product offering, e.g. due to the collapse
niche market or the general market. This of a major competitor, there are oppor-
largely explains why a major player in tunities for the organization to take ad-
the marketplace would seek to buy a small vantage of their experience and reputation
tour operator specializing in a niche market in the marketplace to grow their cus-
and retain that operator’s name; e.g. TUI tomer base. This means that the product
owns and has retained the names of Marco does not need to be changed, but can be
Polo, Crystal Ski holidays and Exodus. exploited further through the use of pro-
It should be noted that Porter’s Gen- motions such as pricing and advertising
eric Strategies model is not without criti- and/or finding new ways to distribute the
cism (Garau, 2007), with suggestions that product, thereby reaching potential new
cost leadership does not in itself sell prod- customers. Market penetration usually
ucts and differentiation strategies can be involves the least risk, because there is an
used to increase sales rather than price. established base of customers and the op-
Despite such limitations, this model pro- portunity to attract customers from oper-
vides a useful framework enabling man- ators who have ceased trading. However,
agers to focus on assessing where their if the reason that an operator has with-
advantage lies. Indeed, Porter’s original drawn from the market is because it is de-
model has been adapted by Bowman and clining, then the company should rethink
Faulkner (1997) to include eight ­different and perhaps focus on growing other
strategies that can be evaluated at varying products and alternative markets.

48 Chapter 3
Product

Present New
Present

Market Product
penetration development
Market

Market
New

Diversification
development

Fig. 3.3.  Ansoff’s Matrix.

product development  In the product devel- a­ irports in Germany. Product development


opment growth strategy, new products are may also be a reactionary strategy if the
introduced to existing markets or existing competition has already launched new
products are modified in some appropriate products. It should be noted, however, that
way. The aim is to increase the level of pur- product development has a higher risk than
chase by existing customers and thereby in- market penetration because the modified
crease market share, rather than primarily products may fail to take off.
to attract new customers. In terms of
product development, tour operators may market development  Market development
develop their product offerings by identi- focuses on the entry to a new market, which
fying additional destinations, e.g. ‘City is also sometimes referred to as market ex-
Break’ packages now include new destin- tension. By adopting this strategy, a tour
ations such as Bilbao in Spain or Chang operator sells its existing products to
Mai in Thailand, rather than the expected new markets, which could be a potentially
capital cities. This may be due to customers’ new target market segment or targeting a new
preferences changing or the emergence of geographical source of ­potential customers
new opportunities, such as creating pack- or adopting new methods of distribution.
ages to ­destinations that have only just be- For instance, a company that has tradition-
come easily accessible to the source market, ally sold their products domestically may
perhaps as an outcome of the development look to find distributors overseas; e.g. Ex-
of a new airport, or have become more plore Worldwide have a range of distributors
stable politically (e.g. Myanmar). This is in the USA and Canada. Market develop-
well illustrated in the case of the German ment works on the assumption that the cur-
division of Thomas Cook, which added an rent market has been fully exploited, hence
additional 21 flights to Bulgaria for the the need to move into new markets. This
summer of 2016 as demand for holidays strategy has more risk than market penetra-
near the Black Sea increased. Additional tion because the new market may not re-
capacity on flights was acquired through spond to the product as well as anticipated.
obtaining seats on charter flights provided
by G­ ermania, Sun ­ Express and Air Via, diversification The final strategy is that of
and increasing the number of departure diversification. This requires the o­ perator

The Operating Environment 49


to identify new products and new markets also provide ways of thinking about stra-
concurrently and is recognized as the tegic direction. The next section will build
riskiest of these strategic options because it on these ideas and concentrate on some
involves two unknowns. Therefore, this of the actual activities organizations in
strategy should only be adopted if the tour the tourism sector might have to under-
operator is confident that they understand take in order to become and/or remain
the new market and that they have created competitive. To do this we will utilize the
a product that specifically meets the needs concept of the chain of distribution.
of that target market. Operators can diver-
sify in two ways, e­ ither into products that
are unrelated to the market they work in or, Chain of distribution
and the more likely, they diversify within
the same market (diagonal diversification). Tourism products primarily consist of
While diversification clearly has common- transport, accommodation and ancillary
ality with vertical and horizontal integra- services, which are traditionally referred
tion, integration usually involves a takeover to as principals in the tourism chain of
or merger with a competitor, whereby the distribution. These include transport pro-
latter is integrated into the existing organ- viders, such as airlines, railways, cruise
ization, whereas diversification involves ships; accommodation suppliers, such as
­developing internally or integrating a com- hotels, guesthouses; and finally, ancillary
petitor through joint developments. services, which may be visitor attractions,
There are some instances where or- conference venues or entertainment. Often
ganizations may implement a strategy of the principals promote their own products/
withdrawal from the product or market. services directly to potential customers.
This strategy may be a result of a number However, in the case of the holiday
of factors, such as a decline in the size of package created by a tour operator, the
the market, more effective and successful chain of distribution, sometimes called
competition, poor performance, utilizing channel of distribution, is used to illus-
resources for different products or a deci- trate how products and services are cre-
sion that the product is no longer benefi- ated and distributed. This illustrates how
cial to the company’s strategic direction. different segments of the travel and tourism
This strategy of consolidation may be sector work together to create and dis-
chosen and can be implemented in a tribute package holidays. The tourism
number of ways, such as a reduction in package therefore comprises a number of
the range of products offered or the services provided by principals that are
number of market segments targeted, bundled together and presented to cus-
which may be a result of the strategic de- tomers as a single product. The traditional
cision for the business to maintain market chain of distribution shows that products
share but not increase it. For example, in are distributed through a number of
2015 Kuoni Group sold its European tour intermediaries, who are considered either
operating business to DER Touristik so wholesalers or retailers (see Fig. 3.4).
that it could concentrate on its core busi- Wholesalers are companies that buy
nesses, Global Travel Distribution, Global large quantities of products and services
Travel Services and VFS Global. from suppliers, package them together
The analysis so far allows us to have and then sell them on an individual basis
a picture of the macro (external) and to consumers: as such, tour operators can
micro (competitive) environment. Porter’s be seen as wholesalers. Although tour op-
Generic Strategies and Ansoff’s Matrix erators may be seen as wholesalers, they

50 Chapter 3
Accomodation providers, e.g. Holiday Inn
Attractions, e.g. Hong Kong Disneyland
Transport, e.g. airlines
Principals Ancillary services, e.g. Hertz car hire
Direct
Tour operators such as mass market, e.g. Tui, inbound, e.g. China
Travel Service or specialist, e.g. Explore
Wholesalers Brokers and consolidators

Travel agents, e.g. Thomas Cook


Online travel agents, e.g. Trivago
Retailers Call centres, e.g. Broadway Travel

Business
Leisure
Visiting friends and relatives
Consumers Other

Fig. 3.4.  Chain of distribution.

are also producers of new products in that who work with charter aircraft oper-
they create a single product from an amal- ators, enabling airlines to sell unsold
gamation of components. For example, a stock.
package of accommodation and transport
Retailers are customer facing and the
in a beach resort is a different product
final link in the chain, selling either pack-
from accommodation and transport com-
ages created by the wholesalers or prod-
bined as part of a tour visiting many cities.
ucts on behalf of the principals.
Tour operators are not the only whole-
There are generally considered to be
salers; there are also brokers and consoli-
two different levels to distribution:
dators who can also be considered as
wholesalers. ●● Level one distribution, also called direct
distribution, is the simplest form of
●● Brokers usually operate in the airline distribution because there is no inter-
industry, but may also offer accom- mediary and tour operators sell direct
modation or other services. They to the customers. This is predomin-
purchase in bulk and sell on to tour antly through a sales team based in
operators or travel agents, either in- the company or through websites.
dividually or in larger amounts. As Benefits of selling directly to cus-
brokers purchase large numbers of tomers include the ability to control
airline seats or hotel rooms, they are the quality of the information being
able to acquire these at low prices given to potential customers and the
and make a profit, while allowing the opportunity to sell additional prod-
agent or tour operator to add their ucts or upgrades. As there are no inter-
own price mark-up. mediaries involved, no commission is
●● Consolidators are specific brokers given to agents acting on behalf of
working in the airline industry who the company, which reduces costs and
purchase tickets directly from air- potentially means greater profit for
lines, enabling them to resell to travel the supplier.
agents or consumers at discounted ●● Level two distribution involves an
rates. There are specialist consolidators intermediary such as a travel agent

The Operating Environment 51


selling products on behalf of the tour c­ ampaigns. An obvious benefit is that of
operator for which a commission is increased market share, either through
paid to the agent. expansion or diversification of the prod-
ucts available. Furthermore, the takeover
The structure of the tour operating
of or merger with another tour operator
sector is very dynamic. Major changes
reduces competition. The 1980s were not-
within the distribution chain, such as the
able for companies across Europe under-
internet, and difficulties with the economy,
taking horizontal integration (Yale, 1995).
such as a recession, have led many com-
More recent examples of horizontal inte-
panies within the chain of distribution to
gration include Carnival (USA), the leading
consolidate and forge alliances or mergers
operator in the cruise business, which
to control costs of production and distri-
bought Cunard Cruises and P&O Cruise
bution. In addition, this can be a way of
operations while maintaining their brand
growing the business as well as surviving
(Buhalis and Ujma, 2006); the merger of
in an increasingly competitive sector. There
First Choice with TUI in 2007; and The
are many benefits to working closely or
Co-operative Travel’s merger with Thomas
merging with other organizations, and this
Cook in 2011. An example of integration
process is known as integration, which
at principal level is EasyJet’s purchase of
Cooper describes as ‘an economic concept
the airline Go from British Airways.
to describe formal linking arrangements
In many instances, tour operators
between one organization and another’
may decide to retain the brand name of
(2012, p. 206). The tourism sector in nor-
the purchased company and so consumers
thern Europe is reaching maturity, with
may not be aware that it is part of a bigger
tourism organizations integrating, concen-
company. TUI, for example, own spe-
trating, forming alliances and investing in
cialist holiday companies such as Crystal
mass distribution techniques; as yet, this is
Ski and Headwater Holidays that main-
not replicated in developing markets such
tain their own brand. Alternatively, inte-
as Korea and India, where distribution is
gration may occur between companies
more fragmented and suppliers remain
offering complementary products at the
independent (Sharda and Pearce, 2006).
same level on the chain of distribution,
such as a coach company purchasing a
small hotel group, e.g. Shearings and the
Horizontal integration Coach Holiday Group merged and now
own over 200 coaches and 52 hotels.
This occurs when companies buy or merge Such mergers or acquisitions are less fre-
with other companies at the same level in quent today, though the purchase of Star-
the chain of distribution. The most usual wood by Marriott International in 2016
form of integration is between companies is a notable example. Integration at prin-
offering similar products, for example, a cipal level tends to take place in the form
travel agency chain purchases another of alliances between airlines, such as the
travel agency chain, or a tour ­ operator merger of British Airways with Iberia to
purchasing or merging with ­another tour create the International Airlines Group.
operator. The benefit of horizontal integra-
tion for tour operators is that by increasing
their demand from suppliers, e.g. accom- Vertical integration
modation, they gain further economies of
scale through bulk purchasing as well as This occurs when a company develops its
integrated marketing and awareness own operations or takes over or merges

52 Chapter 3
with another component at a different level branded as Thomas Cook. It also entered
within the chain of distribution. An example into a joint venture with The Co-opera-
would be a travel agent introducing their tive Travel in 2011, which enables it to
own tours (e.g. Thomas Cook in its early promote its own products and maximize
days) or purchasing a tour o ­ perator, or a revenue streams.
tour operator purchasing a charter airline Forward vertical integration enables
or accommodation. As demonstrated by tour operators to secure a direct source of
Thomas Cook, whose portfolio includes customers, for example those loyal to the
accommodation operations, travel agents, travel agency, and gain better control
tour operators; each of these deal in a dif- over the distribution of their own pack-
ferent part of the distribution chain. The re- ages. Also, the aim is to promote their
verse scenario of a tour operator buying out own products in preference to those of
a travel agent is equally applicable. For ex- competitors by virtue of owning that re-
ample, Airtours developed from the pur- tailing operation. This is termed ‘direc-
chase of two small travel agencies in the tional selling’ and can account for up to
early 1970s to become one of the leading 80% of an agency’s bookings. It may also
UK-based tour operators by the mid-1980s reduce the cost of sales through reduced
and through a dynamic approach to both marketing effort, which may ultimately
vertical and horizontal integration, in- have an impact on pricing.
cluding the takeover of other leading oper-
●● Backward vertical integration
ators in other European countries, developed
into MyTravel plc in 2002 – one of the Backward (upstream) vertical integration
largest operators in Europe at the time. occurs when the original company merges
Vertical integration provides a com- or acquires another company earlier in the
petitive advantage for a company by ensur- distribution chain. For example, a travel
ing that they have control over supply and agency merging with a tour operator or
standardization of service quality through a tour operator purchasing an airline,
alignment of service values and competen- which is unusual as they are more likely
cies (Theuvsen, 2004). This approach can to set up their own charter airline. This is
enable global or regional expansion; for advantageous because they are not then
example, a small travel agent may pos- dependent on scheduled providers or
ition themselves in a niche market by part- chartering flights for the provision of
nering with hotels that have golf courses seats. In addition, operators can maintain
or spas. As such, these expansions may airport slots, which is particularly im-
create barriers for new entrants to the portant at congested, high-demand airports.
market by gaining significant market base Backward integration secures the
and a reduction in costs and potential fi- supply of a product/service, such as hotel
nancial gains from economies of scale. rooms and transport, at a lower cost and
There are two types of vertical inte- ensures guaranteed access to that compo-
gration – forward or backward: nent of the package. For example, in 2013
Canada-based travel company Sunwing
●● Forward vertical integration
Travel announced a US$250 million
Forward (downstream) vertical integra- ­investment to develop a 1250-room re-
tion is when a tour operator is involved in sort in Mexico, while the Spain-based
the later stages of production, such as the travel company Grupo Piñero also an-
distribution of the products. For example, nounced a US$250 million investment in
Thomas Cook is a large UK tour oper- 2012 for seven resorts under its Bahía
ator and has a collection of travel agents Príncip brand in the Dominican Republic

The Operating Environment 53


and Mexico. These hotel groups also Saga, the UK’s largest tour operator tar-
planned further expansion initiatives in geting the over 50s market, offers travel
new destinations in the Caribbean, Cen- insurance and vehicle insurance which
tral America and Latin America. can be purchased at the same time as the
Both backward and forward vertical holiday package; TUI owns a car rental
integration ensure control over supply and company in Mallorca. This form of inte-
pricing and enable operators to ensure a gration is also known as ‘related diversifi-
consistent level of customer service. This is cation’, whereas ‘unrelated diversification’
particularly significant to tour operators (see Ansoff, 1987) is when the travel
based within the EU abiding by the business enters a new market that is unre-
Package Travel Regulations (see Chapter 8, lated to the core business, as illustrated
this volume) for whom it is very important by Virgin plc, which is highly diversified
to be able to control the quality of the and whose brand extends across a range
package and services provided therein. of businesses, including media, banking
Owning the chain of distribution enables and credit cards. There are many risks in-
operators to control service delivery at volved in pursuing strategies such as this,
every stage, from initial contact at a travel not only in terms of success but also the
agency (or online) to their clients’ return impact on the brand image.
at the end of a holiday. A further benefit is Although integration appears to
that the quality management of the service offer substantial benefits, there are disad-
experience can lead to an enhanced image vantages.
and increased brand loyalty.
Vertical integration, both forward and
backward, provides tour operators with Disadvantages of integration
the opportunities to reduce transaction
costs and gain economies of scale because There have been numerous reports (Laf-
the buying power of integrated companies ferty and Van Fossen, 2001; Theuvsen,
means they can achieve advantageous 2004) considering the impact of integra-
rates from principals with which they are tion, primarily raising concerns that it
not integrated. This approach also helps may restrict consumer choice, and that
minimize the costs of distribution and many consumers are unaware of the own-
ensure increased awareness of the product ership of the brands. For example, seem-
through merchandising and advertising. ingly independent brands such as Exodus
Integration may also enable a continuous and Crystal Ski Holidays are part of TUI.
supply of both transport and accommoda- Vertical integration has had a s­ erious ef-
tion. In combination, this leads to gaining fect on independent travel agents because
competitive advantage over non-integrated operators can control the amount of com-
competitors (Theuvsen, 2004). In addition, mission that agents receive from them,
vertically integrated companies may achieve potentially reducing their income streams.
overall profitability even if one compo- A further factor is the element of choice
nent of the chain is operating at marginal limitation on the part of travel agents
or sub-marginal profit. owned by tour operators, because the
agent’s staff direct customers to own-
brand products. In addition, operators and
Diagonal integration airlines selling their products directly to
customers, in particular through the
Diagonal integration occurs when a travel internet, are reducing income streams for
business enters into a related service. agents (see Chapter 11, this volume).

54 Chapter 3
Also of consideration for those tour the operator to identify the core competen-
operators extensively integrated and cies, and Ansoff’s Matrix, which helps
­operating on a basis of high-volume, low-­ identify opportunities for growth. Through
price and thus low profit margins per sale is such methods, the tour operator is then
that they are more exposed to risk. They are better placed to address their chain of
potentially less able to cope in the event of supply, to consider integration or indeed
sudden decline in market ­demand – witness disintegration. All of this will be subject to
the collapses of Clarkston (the UK’s largest the scale of the tour operator and the pre-
tour operator at the time) in 1974 and the vailing (and forecast) financial position.
International Leisure Group in 1991.

Discussion Questions
Summary
1. Select a travel operator and conduct a
This chapter provides an overview of the macro environmental scan. What factors
structure of the tour operating sector, in impact on the operations of the business?
particular the integration of the chain of 2. Using a tour operator as an example,
distribution, which is clearly evident among apply Porter’s Five Forces to analyse the
many of the large tour operators. As such, competitive environment.
the chapter provides a fundamental basis 3. Conduct a PESTEL analysis for TUI.
to the business management of the tour op- 4. Develop a SWOT matrix for an organ-
erator that will contribute to a more com- ization of your choice.
prehensive understanding of the operations 5. What are travel and tourism inter-
of, and decisions made by, tour operators mediaries? What role and function do
discussed in subsequent chapters. they perform and are they likely to be
Irrespective of the size of a tour oper- placed under increased pressure because
ator, they all need to develop a compre- of the internet?
hensive understanding of the marketplace, 6. Using examples, explain what is meant
the customer and the competition. Such by integration in the context of mass market
knowledge is so important in guiding the European tour operators? Suggest impli-
successful development of the operation cations for suppliers, consumers and small
and should be maintained through on- and medium-sized enterprises.
going environmental scanning to keep 7. Examine why a significant number of
abreast of consumer trends and develop- tour operators, both large and small, have
ments, particularly in relation to what is collapsed. What might be done to reduce
happening elsewhere that may impinge the risks of business failure on the part of
on the operation, be that in other destin- those experiencing difficult times?
ations or among competitors. 8. Discuss the circumstances under which
As discussed, this knowledge can be disintermediation occurs in the tourism
used to full effect in tandem with manage- chain of distribution. Explain why this
ment tools developed to aid assessment of may be perceived as both an opportunity
the macro environment, in particular the and a threat by tour operators.
utilization of a SWOT analysis drawing on 9. Is there a future for tour operators?
PESTEL and Porter’s Five Forces, which 10. With reference to a country of your
facilitates identifying threats and oppor- choice, examine the structure, organization
tunities within their portfolio. Such an ap- and operation of travel and tourism inter-
proach lays a foundation for the application mediaries. What are the main problems
of Porter’s Generic Strategies, which helps that these businesses face?

The Operating Environment 55


11. Do you consider that tour operators ●● Diagonal diversification: Diversifica-
face a significant threat as a result of tion of the company into offering
global agreements on climate change that products and services that are related
aim to reduce air pollution? to their core offerings, usually by tar-
geting their existing customers. Diag-
onal diversification may be related or
Key Terms unrelated.
●● Directional selling: This is when a travel
●● 3S: Standardized pre-packaged holiday agent promotes the products of the op-
to a beach destination, termed ‘sun, erator that owns them and then pro-
sand and sea’ destination. motes services by a ‘preferred supplier’.
●● Brokers: An individual or company that ●● Economies of scale: Usually refers to
bulk-buys tourist products and sells the reduction in cost associated with
them in smaller quantities. Online inter- increasing the scale of the operations
mediaries such as ebookers and Opodo for the production of a single product.
are examples of modern brokers. ●● Price elasticity: The measurement of
●● Consolidators: A form of broker that consumer demand for a product and
specializes in airline capacity, by how such demand responds to changes
buying unsold charter aircraft seats in price; if the demand is affected by
and selling them through intermedi- price, then demand is elastic.
aries, enabling the airline to offload ●● Product differentiation: Making a
surplus capacity. product, in this case a package, that
●● CRS/GDS: A computer reservation is different from other competitors.
system/global distribution system, ●● Yield management: Control and allo-
which operates worldwide and offers cation of the services of a tourism
information, reservations, ticketing provider by offering these to travel-
for airlines, hotels, car rental com- lers at different price levels to maxi-
panies and other services. mize income.

Internet Exercises
Access Travelmole.com and adjust the settings to your local region (Asian/Pacific,
United Kingdom, USA). By looking at the news, in particular tour operator news, reflect
on the number of different operators that are being merged, bought or sold.

Questions
●● Why is the tour operating sector so changeable?
●● What are the trends in integration?

The Specialist Holiday Group (SHG) is a wholly-owned subsidiary of TUI. SHG is a col-
lection of niche holiday brands operating in 23 different markets. Each of the busi-
nesses are run independently. (www.specialistholidays.com/about-us/)

Question
●● Why do TUI not unite these products under a single brand, e.g. TUI?

56 Chapter 3
Mini Case Study
Using travel press and consumer reports, e.g. Mintel, identify changes in demographics
and lifestyles that may influence opportunities for new products. For example, increase
in holidays from work, increase in the middle classes in China and India, transportation
improvements (e.g. high-speed rail links).

Major Case Study


The Aurora Zone
The Aurora Zone is an independent tour operator company based in the north-east of
England, which specializes in holidays to see the Aurora Borealis, also known as the
Northern Lights. The Northern Lights are a spectacular natural light show created by
the interaction of electrically charged particles in the atmosphere.
The Aurora is most frequently visible in northern Scandinavia within a certain lati-
tude, which may increase depending on geomagnetic activity, but usually localized to
an area just above the Arctic Circle. In order to have the best chance of seeing it,
viewers need to be as far removed as possible from any significant light pollution, such
as cities, and there has to be limited cloud cover. The best time of year to visit is during
the winter months due to the long dark nights, but also because heavy snowfall p ­ rovides
lots of opportunity for sledding during the day.
Seeing the Northern Lights has become a ‘bucket list’ trip, i.e. one of the ultimate
travel holidays to do in a lifetime along with activities such as whale watching, swim-
ming with dolphins and seeing the Grand Canyon. The problems of offering trips of a
lifetime is that once a passenger has been on the trip, then there is no reason for them
to repeat book. Furthermore, such trips are often expensive and the Aurora Zone is no
exception due to the remoteness of the destination, the activities involved and the
equipment necessary.

Questions
●● Using the Aurora Zone (or a similar product), how can the company expand
to  take advantage of their current market and create a product that would
­encourage repeat bookings?
●● What information would you need to review to aid the decision?

Recommended Reading
For an analysis of the growth and struc-
For comprehensive coverage of the fun- ture of the UK tour operating industry
damental strategic management prin- which draws on several of the strategic
ciples in tourism, hospitality and events: management tools mentioned:
Evans, N. (2015) Strategic Management for Dale, C. (2000) The UK tour operating in-
Tourism, Hospitality and Events, 2nd edn. dustry: a competitive analysis. Journal of
Routledge, Abingdon, UK. Vacation Marketing 6, 357–367.

The Operating Environment 57


To consider Porter’s Five Forces model in Telegraph. Available at: http://www.telegraph.
­further depth, in this case applied in an co.uk/finance/newsbysector/retailandcon-
examination of the travel and tourism sumer/leisure/11396195/The-rise-of-the-stay-
sector specifically in Greece: cation-more-Brits-holidaying-at-home.
html, accessed 12 February 2017.
Andriotis, K. (2004) Revising Porter’s five Evans, N. (2015) Strategic Management for
forces model for application in the travel Tourism, Hospitality and Events, 2nd edn.
and tourism industry. Tourism Today 4, Routledge, Abingdon, UK.
131–145. Garau, C. (2007) Porter’s generic strategies:
a re-interpretation from a relationship mar-
keting perspective. The Marketing Review
References 7, 369–383.
Holland, J. (2012) Adventure tours: respon-
Andriotis, K. (2004) Revising Porter’s five sible tourism in practice. In: Leslie, D. (ed.)
forces model for application in the travel Responsible Tourism: Concepts, Theory
and tourism industry. Tourism Today 4, and Practice. CAB International, Walling-
131–145. ford, UK, pp. 119–129.
Ansoff, I. (1987) Corporate Strategy. Penguin, Lafferty, G. and Van Fossen, A. (2001) Inte-
London. grating the tourism industry: problems
Bowman, C. and Faulkner, D. (1997) Com- and strategies. Tourism Management 22,
petitive and Corporate Strategy. Irwin, 11–19.
London. Porter, M. (1980) Competitive Strategy: Tech-
Buhalis, D. (2000) Relationships in the distri- niques for Analysing Industries and Com-
bution channel of tourism. Conflicts be- petitors. The Free Press, New York.
tween hoteliers and tour operators in the Porter, M. (1985) Competitive Advantage:
Mediterranean region. International Journal Creating and Sustaining Superior Per-
of Hospitality and Tourism Administration formance. The Free Press, New York.
1, 113–139. Richard, J.E. and Zhang, A. (2012) Corporate
Buhalis, D. and Ujma, D. (2006) Intermedi- image, loyalty, and the commitment in the
aries: travel agencies and tour operators. consumer travel industry. Journal of Mar-
In: Buhalis, D. and Costa, C. (eds) Tourism keting Management 28, 568–593.
Business Frontiers: Consumers, Prod- Sharda, S. and Pearce, D.G. (2006) Distribu-
ucts and Industry. Elsevier Butterworth-­ tion in emerging tourism markets: the
Heinemann, Oxford, UK, pp. 171–180. case of Indian travel to New Zealand.
Cooper, C. (2012) Essentials of Tourism. Asia-­Pacific Journal of Tourism Research
Pearson Education, Harlow, UK. 11, 339–353.
Dale, C. (2000) The UK tour operating in- Theuvsen, L. (2004) Vertical integration in the
dustry: a competitive analysis. Journal of European package tour business. Annals
Vacation Marketing 6, 357–367. of Tourism Research 31, 475–478.
Davidson, L. (2015) The rise of the stayca- Yale, P. (1995) The Business of Tour Operations.
tion:  more Brits holidaying at home. The Addison Wesley Longman, Harlow, UK.

58 Chapter 3
4 Product Development

Learning Objectives package, which could be, for example, a


holiday in Cancun, Mexico or a week’s
After studying this chapter, you should be skiing in Whistler, Canada. The key consid-
able to: erations involved in this process are dis-
cussed, although it should be recognized
●● Explain the need for itinerary planning.
that each company will follow their own
●● Appreciate the complexities of de-
procedures for product development or
signing itineraries.
review and amendments to their current
●● Understand the basic stages involved
products, as ‘each season the entire product
in creating a package.
range is repriced, repackaged and re-
●● Explain the different contracts avail-
launched’ (Riley, 1983). The development
able for accommodation, flight com-
of other types of tour package, such as
ponents and ancillary services.
adventure tours, is discussed in the context
of small and medium-sized enterprises in
Chapter 5 (this volume).
Introduction

Tour operators are pivotal in their role Itinerary Development


of  acting as wholesalers and packaging (or Review)
together transport to the destination, trans-
fers, accommodation and ancillary ser- Planning a new itinerary is a complex pro-
vices. However, a successful tour operator cedure and is obviously critical to the suc-
has to ensure that the selected destin- cess of the company because an operator
ations are attractive and the products needs to provide maximum satisfaction
offered can be sold at prices that are ac- for customers at a price that appeals to the
ceptable to customers. Furthermore, market while remaining profitable. When
given the highly competitive marketplace planning an itinerary, the operator must
within which they operate, all tour oper- not only ascertain the principal compo-
ators need to invigorate their portfolio to nents of the package, i.e. accommodation
remain competitive. Despite their wide var- and transport, but must also consider
iety in terms of size and scope, they largely the logistics at the destination, transport
follow a similar process in the planning between destinations, activities, excur-
and development of a package. sions and suppliers.
This chapter therefore aims to provide Tour operators design new packages
an overview of how a tour operator cre- but also review current offerings and make
ates a static itinerary, i.e. a holiday package changes to their itineraries. Such changes
to a single destination as part of a charter to packages may be small, such as changing

© J. Holland and D. Leslie, 2018. Tour Operators and Operations: Development, 59
Management and Responsibility (J. Holland and D. Leslie)
hotels, levels of service or the introduction Stages in Product
of new excursions, or more substantive, Development
including the introduction of new destin-
ations or products to attract a different Essentially, there are nine stages in product
market. Changes may be the result of cus- development when planning an inclusive
tomer feedback or the need to diversify to tour programme, commencing with review,
maintain a competitive advantage after research and planning. These stages are
reviewing sales and forecast planning or presented in Table 4.2 and discussed below.
to address seasonality. For instance, mass
­market operators achieve most of their
revenues during the high season (usually 1. Review, research and planning
summer), which may result in cash flow
problems during the off-season, thus a Review company strategy
‘summer sun’ operator may look to intro- and objectives, profitability
duce a winter programme as another source and performance
of income during low season. For the
purpose of this chapter, we will illustrate The planning and development of a
the process by way of using a flight inclu- package originates from the strategic dir-
sive, single destination (i.e. resort) pre-­ ection of the company and their business
packaged holiday, for example, a 3S beach objectives (see Chapters 3 and 10, this
holiday. volume). Therefore, the creation of new
packages should meet the needs of the
longer term business objectives as laid out
in the company’s strategy, such as increased
Planning a Packaged Holiday market share. The objectives and strategy
of the company are frequently presented
The production of a tour package will take in terms of a Mission Statement and Com-
on average 18 months to develop, from pany Values, i.e. the aim of the company
product conception to marketing the and how they plan to achieve it. The prin-
product, and then a period of lead time cipal short-term objective of most com-
before the holiday operates. The time frame panies is to stay in business and make a
may vary between 12 months to three profit for the owners (or shareholders).
years for a standardized 3S packaged tour, However, how companies plan to achieve
considering the need to market and pro- this depends on their size and scale. For
mote the tour, as illustrated in Table 4.1. example, small tour operators may focus
In contrast, a small, specialist tour op- on specialist operations distributing a
erator may be able to create an itinerary niche product, whereas larger tour oper-
in a much shorter development time. How- ators may focus on increasing their market
ever, the construction of all packages needs share at the expense of their competitors.
to follow a similar process as regards the Prior to any product being devel-
planning stages involved, irrespective of oped, it is essential that the tour operator
the time factor and type of tour operator. conducts research to determine the des-
This product development process does tinations, prices, capacity and type of
not happen in isolation, and should holiday to be offered. Research should
be  all-encompassing, drawing on staff not only include a review of the company’s
­expertise throughout the company, e.g. performance within the context of the
product, marketing, operations, human company’s objectives, but also identifying
­resources and finance departments. changes/trends in demand (the macro

60 Chapter 4
Table 4.1.  Typical timeframe for planning a package holiday. (From Holloway and Humphreys,
2012, p. 583, with permission from Pearson Education Limited. © Pearson Education Limited
2012.)

Stage Time Period Activities

September/ Second stage of research


December In-depth comparison of alternative
destinations
Year 2 January Determine destinations, hotels and capacity,
duration of tours, departure dates
Make policy decisions on size and design of
brochure, numbers of brochures to print,
date for completion of print
Negotiation February/March Tenders put out for the design, production
and printing of brochures
Negotiate the charter flights with the airlines
Negotiate with hotels, transfer services,
optional excursion operators
April/May Typesetting and printing space booked with
printer, copies of the text commissioned
Illustrations commissioned or borrowed
Early artwork and text under development at
design studio, layout suggestions
Contracts completed with hotels and airlines,
transfer services, etc.
June Production of brochures starts
Administration July Determine exchange rate
Estimate selling price based on inflation, etc.
Galley proofs to printer, corrections made
Any necessary reservation staff recruited
and trained
August Final tour priced
Brochures printed and reservation systems
established
Marketing September/ Brochure on market, distribution to agents
October Initial agency sales promotion, including
launch
First public media advertising, and trade
publicity through press, etc.
Year 3 January/March Peak advertising and promotion to trade
and public
February/April Recruitment and training of resort
representatives, etc.
May First tour departs

e­nvironment), sales data and customer Customer preferences vary and as such,
feedback (see Chapter 3, this volume). holiday destinations may be attractive to
A review of the market trends and different market segments over time (see
opportunities for growth should be ana- Chapter 10, this volume). Identification of
lysed and changes in consumer demand trends specific to a tour operator’s spe-
and global tourist flows should be reviewed. cialism is key to developing new products

Product Development 61
Table 4.2.  Stages in planning an inclusive tour.

Stage Activity

Review, research and •  Evaluation of company performance


planning • Market research, including changes in demand and
identification of trends
•  Competitor analysis
Second stage of research • Evaluation of alternatives, including basic feasibility and
capacity predictions
• Identification of new product possibilities
Product planning • Itinerary planning, including destinations, grade of
holiday, capacity and departures
•  Initial costing which may result in reviewing itineraries
•  Marketing materials production
Contracting •  Negotiate with airlines and accommodation suppliers
• Negotiate contracts with ancillary services e.g.
transfers, excursions
Brochure production and •  Commission designers and printers
website design •  Finalize contracts
Finalize sales and marketing •  Design and implement marketing strategy
plan •  Preparation of administrative support
•  Sales training agents and staff development
Operations and administration • Recruit staff – this may be for overseas, such as resort
training reps, tour managers, drivers etc.
Recruit specialist staff
Product launch and • Review sales and introduce recovery tactics if sales are
subsequent evaluation of poor
sales
Product review and post tour •  Review product and plan changes necessary
management •  Quality review and implement changes

or amending current offerings. As Cal- ●● Transport The accessibility of the


laghan et al. (1994) proposed, there are destination will impact on the type
five areas of trends that should be con- of holiday that can be offered. For ex-
sidered: ample, destinations with international
airports and good road infrastructure
●● Destination While many traditional encourage the growth of mass market
European destinations remain popular, products, whereas destinations that
such as Spain, France and Greece, are more remote and may involve
other popular destinations, such as substantial transfer distances will at-
Turkey and Tunisia have suffered a tract a different type of market and
decline in numbers due to political thus product offering.
instability. In Asia, destinations that ●● Accommodation The type of accom-
are considered good value for money modation, such as star rating (or
remain popular. A destination’s popu- grading standard) and hospitality
larity is constantly affected by external packages, varies in attractiveness to
influences (see the section on PESTEL, different markets. The growth of all-­
Chapter 3, this volume). inclusive packages is testament to this.

62 Chapter 4
●● Duration The traditional 7- or 14-day with media reports, such as TV
package holiday offered in Europe is travel programmes and social media
today less popular given the oppor- commentators (e.g. bloggers), poten-
tunities for alternative time periods. tial new destinations may be identi-
That said, packages such as cruises, fied and/or destinations declining in
adventure holidays and tours all must popularity.
be planned with a specific duration. ●● Customer satisfaction and feedback
●● Holiday type The traditional Euro- Most tour operators conduct customer
pean beach holiday, although still satisfaction audits using question-
popular, is being challenged by des- naires, which often include questions
tinations that were once considered about future destinations, repeat vis-
inaccessible. Due to technological itation and areas for improvements.
changes, such as improved aircraft, Questionnaires can be extremely
destinations further afield are more useful in providing substantive data
readily accessible, as can be witnessed extremely quickly, which can identify
by the growth of package holidays potential new products or destinations.
from Europe to South Africa, Goa
The product strategy is derived from
(India) and the Maldives.
analysis of the research. Although re-
An analysis of the company’s existing search identifies the needs of clients based
product(s) and competitive position is es- on products currently on offer, if used
sential to evaluate its current product of- alone it can be retrospective rather than
ferings and gaps in the market (see identifying new opportunities. Thus part
Chapter 10, this volume), a process that of the strategy is to assess the existing
involves drawing on the following key products and identify if there are oppor-
sources of information: tunities for improvement, either in terms
of component provision and/or customer
●● Internal sales data An examination and
service.
detailed analysis of previous years’
sales performance will ascertain con-
sumer trends for the company’s prod-
ucts. Also, comparing predicted sales Review current portfolio
with actual sales from the previous
year will identify destinations and In the case of major tour operators, it is
products that are exceeding expect- likely that they offer a range of products
ation and those products that fail to aimed at different markets and this is
meet targets (see Product Life Cycle termed their portfolio. Established tour
and BMG Matrix below). operators will have most of their offer-
●● External sales data and competitor ings fixed and will be confident that the
analysis By examining the perform- destinations they already market will be
ance of competitors, tour operators successful, although there may be changes
can identify trends in the provision made to the products such as introducing
for similar market segments. new hotels or new resorts in established
●● Market research reports and media destinations. A company with a broad port-
Articles about upcoming destinations folio means that they offer many prod-
are frequently included in the travel ucts to different market groups, whereas
sections of national newspapers and a narrow portfolio implies that the tour
consumer magazines. In conjunction operator focuses on few, even one, market

Product Development 63
segment. Broad portfolios spread the risk products on offer and compares market
of a downturn in one destination’s attract- share and market growth (see Fig. 4.1).
iveness or demand, but also may be per- This helps companies focus and allocate
ceived as the company lacking in focus. their resources more effectively and in the
Tour operators offering a narrow portfolio process identify new opportunities or
of products run the risk of being suscep- products that should be culled. Market
tible if there is a change in the market; share is the measurement relative to com-
for  example, following terrorist attacks petitors and market growth relates to the
in the summer of 2016, Anatolian Sky growing markets where there is an expect-
Holidays, which specializes in holidays ation that these will continue to grow.
to Turkey, ceased trading due to subsequent
●● Cash cow: products with high market
low demand for holidays. Major oper-
share, but low market growth; usu-
ators are also not immune; for example,
ally mature products needing little
TUI witnessed a drop in demand of 40%
amendment or investment. These are
for their tours in Turkey as demand from
normally profitable and generate high
Russia declined because of Moscow im-
sales numbers benefiting from econ-
posing sanctions and cancelling flights
omies of scale, although they do
(Rodionova, 2016).
not have an indefinite lifespan. These
Evidently, a company needs to manage
profitable products can finance growth
its portfolio effectively. To aid this pro-
of other products. Examples of cash
cess there are differing management tools
cows include 18–30 age group prod-
that can be used to assess and analyse cur-
ucts, summer sun packages and city
rent portfolio offerings, for example the
breaks.
Boston Consulting Group Matrix and the
●● Dogs: products with low market
Product Life Cycle.
share and little opportunity for growth,
e.g. packages that were once popular
boston consulting group matrix (bcg matrix)  but are no longer achieving the quan-
The BCG Matrix is a useful, a­lbeit sim- tity of sales previously achieved. These
plistic, tool in examining the portfolio of packages may require major rethinking

Relative market
High share Low

High Problem
Star child

Market
growth

Cash cow Dog

Low

Fig. 4.1.  The Boston Consulting Group Matrix.

64 Chapter 4
and rejuvenating or may be best de- for products from their introduction to
leted from the portfolio. For example, their decline (see Fig. 4.2). The PLC is
the decline in UK coaching holidays based on the premise that products, in
may suggest that these are dogs, but this case holiday packages, have a limited
some itineraries may be more suc- life and that product sales pass through
cessful than others. Therefore, each distinct stages, each of which hold impli-
coach operator could apply this matrix cations for marketing in that products
to each of their different products and at different stages of the life cycle require
thereby identify overall which may be different strategies. As a result, profits
cash cows and which one(s) may benefit from products at different stages in the
from investment or differentiation. life cycle will vary.
●● Stars: products with high market share The BCG and PLC can be important
in a rapidly growing market. It is prob- for the marketing plan (see Chapter 10,
able that these products, although sell- this volume) by enabling the operator to
ing well, require substantial investment make decisions as to which product to
to continue, for example continuing promote to increase market share or sales,
or increasing spend on advertising those that they need to maintain market
and promotion. The long-term desire share or to exploit for immediate cash
is for these stars to become cash cows, returns and those that they need to with-
although there is a risk that if the draw from the market.
market share is lost they will become Essentially the tour operator needs to
a dog. The larger tour operators’ stars decide if the product is practical and viable
may be new products, such as spa and if there is sufficient market demand.
breaks and other niche products, Other considerations include whether the
introduced in direct competition with operator has specialist knowledge of the
other smaller companies’ offerings. type of product and has the resources to
●● Question marks: products of uncer- support any new offerings; for instance, if
tain future. The matrix demonstrates the operator is looking to diversify and
that they have high market growth develop packages in new destinations or
but low market share; for example, a incorporate specialist activities. In such
new product that has seen good sales cases, the operator needs to evaluate
but is not dominant in the market and whether they have the skills in-house
if not managed correctly could become or whether they will need to recruit spe-
a dog. Tour operators may consider cialist staff to develop further the initial
trying to increase the market share of product plan.
these packages through investment or
advertising, although this is a high-risk
strategy because it means investment 2. Second stage of research
in a product that may not recoup the
spend. Once a shortlist of destinations and prod-
ucts has been identified, the company will
product life cycle Another tool that op- evaluate the available options. Identifica-
erators can use to review their current tion as to whether a destination is suit-
product offerings is that of the Product able requires a feasibility study to assess
Life Cycle (PLC) Model. This is perhaps the facilities available in the destination,
one of the most famous theoretical models whether the superstructure is available to
in marketing and strategic planning. The support tourism (such as accommodation
PLC curve describes the growth trajectory suppliers) and the accessibility of the

Product Development 65
Maturity Decline

Strong growth slows Sales of the holiday


down and competition start to decline. This
starts to offer similar could be an opportunity
products. Marketing to reinvigorate the
Growth tactics are defensive. product.
Building a brand
presence for the
product and increasing PRODUCT
the market share. EXTENSION
SALES

Introduction
The company builds
product awareness and
develops a market for
the product.

INTRODUCTION GROWTH MATURITY DECLINE

Fig. 4.2.  The product life cycle.

destination (infrastructure such as relative size of plane proposed and the fees and
locality of airport). For example, a spe- charges made by the airport.
cific destination may be identified, but if Mass market operators are looking
there is insufficient accommodation it is for destinations that are sustainable, i.e.
unlikely that an operator will continue to they will be attractive on a long-term basis
investigate that destination. Alternatively, and will look to grow the destination.
if the destination is proving popular with Small operators will invest less in the
other tour operators, then there may be a destination and may be able to switch
shortage of accommodation and the op- destinations if the product fails to sell or
erator must decide whether they wish to they encounter operational difficulties.
pay more for the accommodation, which Once the tour operator has identified a
will in turn put the package price up, or suitable destination, then analysis of the
reconsider the destination. A review of product development opportunities can
exchange rates is also necessary to assess begin. Further research may be necessary
the stability of the currency because this to ensure the attractiveness and viability
may affect the costing of the package. This of the proposed product.
also applies to contracting, i.e. whether
the payments to suppliers are made in the
tour operator’s home currency or the cur- 3. Product planning
rency of the destination (or, as applicable,
in US$). An appraisal of the airport may Once the final decision about new products
be necessary to ensure that the facilities is established, specific decisions need to be
can handle the number of proposed pas- made about the itineraries, including accom-
sengers, the runway is sufficient for the modation, capacity and departure dates.

66 Chapter 4
Itinerary planning whether there are penalties for single
occupancy.
When planning a new tourism product or ●● Transfer from the airport to the ac-
itinerary, it is useful to consider Kotler’s commodation and return. Transfers
(2000) analysis of products, comprising from airport to hotel are usually com-
the following three elements. pleted by coach with potentially each
coach offloading passengers at several
●● The core: this is what is being offered: hotels, which means some passengers
for example, a beach holiday or a city may experience lengthy transfers.
break. This is often the cause of many com-
●● The tangible product: the physical plaints. Ski tour operators, due to the
elements, such as core elements of a location of ski resorts, will operate
package tour, the flight and accom- longer transfers, but this is accepted
modation. by the clients because of the nature of
●● The augmented product: extra fea- the activity.
tures the supplier of the product adds ●● Ancillary services, such as the need
to be competitive, such as guides, free for a representative or manager, avail-
transfers. ability of car hire, equipment hire, ex-
In terms of planning, the tangible elem- cursions and local attractions.
ents, such as the identification of suitable Additional components include gra-
accommodation, are key. For example, tuities, baggage handling, service charges,
operators need to assess the accommoda- taxes, ski lift passes, etc. Some packages
tion available in terms of location, health may also include promotional gifts or
and safety provision, quality and service. complimentary drinks at a welcome event
Essentially this applies to all elements of or reception.
the tour package:

●● Transport from the generating area


to the destination – for example, flights. Costing
Operators need to ensure that flights
are available to the destination, poten- An initial cost base analysis will be com-
tially introducing flights from regional pleted to identify the approximate price
airports, and that the holiday locality of the package, which as Table 4.3 illus-
is accessible within a reasonable time trates through three similar tour pack-
of landing. ages, is complex. It is at this stage that
●● Accommodation at the destination. Is operators may review the proposed
there sufficient accommodation avail- package and compare it with competitors
able at the destination and is this offering similar packages and identify
of  the appropriate quality/grading? whether the price will be attractive to
Accommodation may be hotel or the market. Tour operators may try to
apartment (self-catering), and graded keep their prices low by negotiating low
by quality rating, type and board basis. prices from suppliers, reducing profit
Local accommodation, such as pen- margins or attempting to cut their cost
sion, auberge, chalet, may be offered. structures, for example using their own
Decisions about board basis need charter flights.
to  be made; for example, bed-and-­ As noted previously, an inclusive
breakfast, half-board or all-inclusive, package will include transport, accommo-
and availability of single rooms and dation and ancillary services (which may

Product Development 67
Table 4.3.  Cost base analysis for a tour package: illustrative examples. (Source: T. Barnett, 2017, unpublished data; T. Barnett, Hemel
68

Hempstead, 2017, personal communication.)

Stage 1 – Inputs for cost base analysis. May include:

May
Sat 7 night August September
Half Term Family 14 night Family 7 night Adult
Hotel Holiday Differentiated Comments

a Flight costs (Sterling) 300 370 280 Vertically integrated tour operator cost flexed
to reflect seasonality
Operator using external airline, rate flexed to
reflect anticipated market rate
b Hotel costs (Euros) 350 800 400 Rates will vary based on board basis,
seasonality, terms of contract, level of
differentiation (e.g. kids clubs), cost
structure (e.g. child reductions, price per
room or price per person)
c Commission 8% 8% 8% Commissions may vary based on holiday
type, e.g. cruise, package, flight seat
d Foreign exchange rate 70% @ 1.2 Euros 70% @ 1.2 Euros 70% @ 1.2 Euros May be supported by sensitivity analysis to
assumptions and to Pound to Pound to Pound validate level of risk
hedging position
e Fuel assumptions and 80% 80% 80% May be supported by sensitivity analysis to
hedging validate level of risk
Stage 2 – Assumptions for cost base analysis. May include:
a Volume assumptions by 80% of holidays 55% of holidays 70% of holidays Hotel costs dependent on assumptions
duration sold for 7 nights sold for 14 sold for 7 nights
nights
b Volume assumptions by 30 passengers 40 passengers 20 passengers Assumptions used to review analysis at an
hotel aggregated level
Chapter 4

c Volume assumptions by 60% basic, 40% 60% basic, 40% 60% basic, 40% Hotel costs dependent on assumptions
room type superior superior superior
Product Development

d Volume assumptions by 24 passengers 22 passengers 14 passengers Assumptions used to review analysis at an


departure date aggregated level
e Party size assumptions 2.8 2.9 2.1 Hotel and flight costs dependent on
assumptions
Stage 3 – Pricing policies/strategy. May include:
a Tactical offers, e.g. free Free child place May be ‘part funded’ by supplier (e.g. terms in
child places, 8 nights for hotel contract), may be implemented as a
7, group discounts, single tactical pricing lever. Where deployed, must
parent offers be accounted for when evaluating
estimated margins
b Board upgrade pricing 40% All Inclusive May be ‘part funded’ by supplier (e.g. terms in
supplement for hotel contract), may be implemented as a
adults, 20% for tactical pricing lever. Where deployed, must
children be accounted for when evaluating
estimated margins
c Child pricing May be ‘part funded’ by supplier (e.g. terms in
hotel contract), may be implemented as a
tactical pricing lever. Where deployed, must
be accounted for when evaluating
estimated margins
d 3rd adult reductions 3rd adult reduction May be ‘part funded’ by supplier (e.g. terms in
hotel contract), may be implemented as a
tactical pricing lever. Where deployed, must
be accounted for when evaluating
estimated margins
e Flight supplements £80 – 7 night Priced to reflect fluctuations in cost between
Saturday flights different UK airports, variations in
vs £40 for 14 seasonality (e.g. supplements for Scottish
night Saturday flights may be higher at beginning of July
flights to reflect school holiday periods)
Continued
69
Table 4.3.  Continued.
70

May
Sat 7 night August September
Half Term Family 14 night Family 7 night Adult
Hotel Holiday Differentiated Comments

Stage 4 – Target margins and seasonality: Based on above costs, what margin (+ve or −ve) want to achieve based on:
a Different resorts Popular family
destinations
with shorter
flight times may
be able to
command a
higher price than
less family-
friendly resorts
b Different product types Destinations like
Greece and Italy
that are popular
with couples may
be able to
command a
higher margin
than a more
family-focused
destination, e.g.
Menorca
c Different durations Longer durations
will be able to
command a
Chapter 4

higher margin
in August than
they would in
June
Product Development

d Different departure dates £100 £180 £120 Taking all of above into account, sample
margins that holidays could be priced to
achieve
Stage 5 – Validation of prices, whereby any of stages 1–4 may be reviewed Historical performance and trends may
support this analysis, prices sense
checked for anomalies/errors, exceptions
reviewed (holidays with highest estimated
margins/lowest estimated margins),
margins reviewed vs initial targets,
year-on-year variances assessed)
Stage 6 – Programme goes on sale. Prices are then optimized up until departure date using yield Sales trends are monitored compared to
management technology and processes previous year performance and sales
plans. Costs may fluctuate (e.g. hotelier
may provide a reduced rate), and prices
will be regularly increased/decreased
based on such circumstances
71
include a resort representative, car hire Under capacity is when a tour oper-
etc.), which all need to be considered along- ator has fewer holidays to supply than
side fixed costs (company office expenses), market demand, which means that cus-
distribution costs, marketing costs and tomers will have been unable to buy the
additional expenses (see Chapter 7, this product they want and may look for alter-
volume). Reviewing the pricing strategy of natives such as different operators and so
the company provides information about the operator loses the sale and possibly
how customers will perceive the products. future repeat bookings. Adding capacity
If products are frequently discounted to can be problematic, particularly if destin-
fill late availability, then there is a disparity ations or hotels are proving popular and
between the perception of the product by there is no additional bed space. Smaller
the management and perception of the operators may be able to negotiate add-
product by the customer. This tactical late itional last-minute beds and flights, but
price discounting to fill unused stock has a these will not necessarily be at the same
detrimental effect on the company brand. discounted price and additional costs have
to be passed on to the customer.

Capacity
Marketing materials
Planning the capacity refers to the number
of holidays the tour operator can supply A provisional plan for marketing materials
in the marketplace, which is frequently will be costed. This may be as straightfor-
decided 12–18 months ahead of the holiday ward as additional pages in a brochure and
season, and target capacity figures are on the web, or it may involve a specialist
confirmed 12 months prior to departure marketing campaign. For example, the
date. Although it is complex trying to pre- launch of a new product may involve a
dict demand for the purchase of holidays, national TV campaign in conjunction with
it is a critical part of the planning process website updates, promotional material
because poorly planned capacity predic- made available to travel agents, advertise-
tions can lead to overcapacity or under ments on social media and websites, direct
capacity. mail and brochure production. At this
Overcapacity occurs when a tour op- stage, initial tenders for design, produc-
erator contracts to provide more pack- tion and printing of brochures will be ob-
ages than there is demand for. Essentially, tained from suppliers, and copy text and
over supply will result in either the can- illustrations commissioned.
cellation of departures, consolidation of
flights or discounting. While discounting
is an effective method of encouraging 4. Contracting
sales and attractive to customers, for
tour operators it can be costly, because An important element of designing an
any reduction in price will affect the inclusive holiday package is negotiating
profit margins. Due to overcapacity and with principals and subsequently con-
subsequent cancellation of departures, tracting the components. This is generally
tour operators may still need to pay for carried out by senior members of staff be-
components such as accommodation cause it requires an in-depth knowledge
that will not be used, thus effectively of the company’s background, financial
making a loss on that departure, again standing, long-term goals and objectives.
affecting profit margins. If the contracts manager fails to supply

72 Chapter 4
sufficient capacity in terms of transport, World Travel Market or staff working
accommodation and ancillary services with in  the destination. Initially, contracting
the appropriate quality of provision, then accommodation is usually conducted in
the company is unlikely to achieve the the destination and will be negotiated dir-
market share expected and maintaining ectly with the owners/managers involved,
customer loyalty may be problematic. although tour operators may utilize the
Key decisions need to be made about experience and knowledge of a local agent
suppliers providing components of the to operate on their behalf. Established
holiday product and therefore contracting operators working in the same destin-
suppliers requires good communication ations will renew contracts with accom-
and negotiating skills. Large tour operators modation suppliers based on capacity
have specialist departments dealing with predictions. Operators need to contract
contracting because this involves specialist sufficient beds to match the number of
knowledge of both the operator’s home flight seats available on their flights. Large
country and overseas legislation. Larger tour operators can secure the cheapest rates
tour operators may have contracting de- from accommodation suppliers, given
partments based overseas that will work their buying power and predicted sales.
with all the accommodation suppliers in Smaller tour operators do not have the
the region. For example, a tour operator leverage to gain substantial discounts and
based in the UK but operating throughout therefore will not be able to secure the
Europe may have regional offices that cheapest price. As contracting is often
liaise directly with the hotels. Small tour carried out 12 months in advance, there
operators do not usually have a specific are risks associated with exchange rate
department and contracting will often be fluctuations (see Chapter 7, this volume).
part of the operations team’s role. It should be noted that popular destin-
Contracting for existing products can ations are not usually generating region
often be done relatively quickly by using specific, meaning there is very little des-
previous suppliers if they have maintained tination loyalty and therefore operators
their quality and minimal price increase. will be in competition with other oper-
Difficulties always arise in acquiring new ators from different countries. Thus, if a
components, for example flight seats to hotel is in such a competitive situation
new destinations, new accommodation their tariffs may increase, which will af-
suppliers in existing destinations or new fect consumers and the price they pay.
suppliers in new destinations, which may For an operator, it is beneficial to secure
involve competing with rival companies exclusive contracts for a hotel, which
for limited supply, because this can enable means it can control the client group and
suppliers to increase rates and tariffs. avoid conflict between different market
segments, for example the youth market
versus the family market, although this
Accommodation may not be practical for many large ho-
tels (e.g. 100 rooms or more). Conversely,
The fundamental decision that needs to be hoteliers may prefer to spread their rooms
made by an operator is the number of across competing companies to reduce
rooms that they plan to offer, or need to the risk of being reliant on one company.
achieve the planned capacity, to ensure
there is sufficient supply. Potential accom- types of contract  Beds are usually con-
modation suppliers are identified through tracted in three different ways, based on
site visits, promotional events such as the the level of risk and predicted sales.

Product Development 73
Commitment.  A commitment contract ­ nsold beds are less expensive than un-
u
is when a tour operator agrees to buy a sold flight seats. It is also important that
predefined number of beds for the season, full utilization of beds is planned in ad-
regardless of the number it sells, for ex- vance to avoid the conflict between mar-
ample 200 bed nights for a season lasting kets, such as elderly couples being placed
six months. The operator will pay for in a hotel full of young adults.
these beds whether they are used or not
and the higher number of committed beds, Allocation (also called allotment).  A
the lower the price from the hotelier, and second option of contracting is that of
the contract may stipulate that the ho- ­allocation. This is also seen as a ‘sale or
telier may not be able to offer the beds to return’ option. The tour operator will
another operator. For the tour operator, agree with the hotel a defined number of
this can be very profitable if all beds are rooms, which they will use. Allocation
sold, although there is a level of risk if contracts can be used for a specific period,
there are changes in market demand and such as the whole season or specific dates.
the destination proves unpopular or suf- Allocation is often used by small and
fers from negative publicity (e.g. health medium-sized tour operators, because they
scare; terrorist threat) and beds remain may be less certain that itineraries are going
unsold. to run or maximum numbers achieved,
At the beginning of the season, the and by larger operators wishing to top up
operator will pay a non-refundable deposit, their commitment accommodation. These
and if the destination proves unpopular blocks of rooms will be available to the
there will be a substantial cancellation tour operator until a predefined release
charge imposed by the hotelier if the op- date, when the rooms revert to the ho-
erator decides to withdraw the holidays. telier if they are unsold. Although release
The rates charged by accommodation sup- dates are usually 4–6 weeks in advance of
pliers can vary throughout the seasons with the holiday date, companies with stronger
low-season prices approximately 20% buying power may be able to negotiate
lower than high-season prices, so even a later dates. This method of contracting re-
commitment contract may have variable duces the financial risk for operators, but
pricing. Large tour operators may nego- is usually considerably more expensive
tiate to contract the whole hotel or facility, than a commitment contract. For example,
such as a chalet for skiing holidays, which an activity-based tour operator with a
enables the operator to control the market multi-destination itinerary may confirm
for which the accommodation will be used. the dates of the tour for the hotel as being
Long-term contracts may be used in destin- for the season, but confirm the actual
ations that are already popular; for ex- number of rooms needed 2–3 weeks be-
ample, five-year contracts are not unusual, fore they are required. This is more labour-­
but frequently involve renegotiation mid- intensive for the tour operator because
term due to fluctuations in exchange rates. they must contact hotels in advance and
This type of contracting offers very confirm numbers.
little flexibility and is usually used by For hoteliers, this is riskier than com-
operators in well-established destinations mitment contracting because they run the
in a mass market. Over supply of accom- risk of beds being unsold and returned to
modation enables mass market operators the hotelier for sale. Thus, beds contracted
to sell packages such as ‘allocation on using this approach will be more expen-
arrival’ to use up additional contracted sive than those contracted through a com-
beds, although it should be noted that mitment. Hoteliers may be tempted to

74 Chapter 4
double-book rooms if they are unsure of may also be able to request free accom-
the numbers, although tour operators may modation for the resort representative.
introduce a penalty clause in the contract
to prevent such actions. However, if a
hotel is double booked, the immediate Transport
pressure is to find accommodation for
those customers. The contracting of transport is crucial to
the success and profitability of any tour. In
Ad hoc.  Ad hoc contracting is the cost- this example, the package includes flights.
liest method of buying rooms. However,
there is no risk to the tour operator. Ad flights  As flights usually account for ap-
hoc arrangements involve buying rooms proximately 40% of the overall package
when needed and for this reason this con- holiday price, unsold seats may result in
tracting method is used by organizers of- significant loss to the company. Aircraft
fering tailor-made itineraries and specialist seats can be contracted in different ways.
operators. As rooms are only paid for when As noted in earlier chapters, companies
they are used, there is no risk involved for that are vertically integrated and have
the tour operator. Operators may also have their own aircraft need to focus on the
to use this method of contracting rooms maximization of the aircraft. The aim is to
when there is overbooking. The use of on- keep the aeroplanes in the air as much as
line bed retailers such as hotelbeds.com possible. If operators fail to fill their own
means that travel agents and operators can chartered airlines, then they may offer to
compare accommodation prices quickly sell blocks of seats to other operators.
and buy easily to incorporate into a package. Charter aircraft are usually single-class
layout with low seat pitch (the distance
Large tour operators may use a mix of between each row of seats) to maximize
contracts, using allocation to top up their the number of customers who can be fit-
bed supply contracted through commitment, ted into the cabin. As an example, sched-
whereby most accommodation is booked uled operators offer seat pitches between
on commitment throughout the season, but 30 and 32 inches, whereas charter craft
additional beds contracted on allocation offer 28 inches, although pre-booking or
during shoulder periods when the operator upgrading can enable bigger pitches. To
may be uncertain of the level of demand. maximize capacity, charter airlines tend
The contract needs to specify the exact to reduce the number of toilets, storage
requirements of the operator, including and galley space (in-flight catering tends
the number of rooms, the beds (single, to be basic). Charter airlines work on a
twins, triple/family rooms), balconies, sea load factor of 85% or more, compared
views and facilities. The contract will also with short-haul scheduled airlines that
need to stipulate the board basis (room work on 50–75%. The cost savings include
only, bed-and-breakfast, half- or full-board the utilization of regional airports, where
and all-inclusive) and how additional ser- fees are cheaper, and off-peak flying, which
vices will be paid for by the guest. Further reduces airport costs. That said, some of
additions to the contracts may be included, the larger tour operators such as TUI and
such as porterage fees, provision of inclu- Thomsonfly have reconfigured their air-
sive meals (e.g. expected vegetarian dishes, craft to increase the seat pitch to 33 inches
local food, halal), fire safety provision and in economy for long-haul destinations be-
access to communal areas for resort rep- cause customer expectations have changed.
resentative briefing sessions. Operators The traditional tiny aisle screens have

Product Development 75
been replaced by seatback televisions, and the tour operator and their experience in
pre-ordering food and beverages enables using chartered aircraft, with those oper-
operators to maximize revenue and reduce ators who have used the charter supplier
waste. previously receiving preferential pricing.
However, the majority of tour oper-
ators do not own their own aircraft and Whole season/time series chartering. 
therefore they need to reserve seats either Time series charter is where a tour oper-
on scheduled airlines or on charter craft ator charters a whole aircraft for a specific
operated by other companies. Packages period, which may be for one day, occa-
involving scheduled aircraft are usually sional weeks or for the whole season (or
more expensive and therefore tend to longer) and is a usual method of working
be utilized by specialist tour operators or in Europe and North America. Charter
agents offering tailor-made itineraries, or flights do not operate according to pub-
on long-haul packages. Seats on charter lished schedules but are planned in such a
aircraft are comparatively cheaper and way that their air time is maximized. As
therefore tour operators have various the tour operator is responsible for the
options: full utilization of the aircraft, it is essen-
tial that they maximize the craft in the
charter period. For example, a tour oper-
Whole season chartering
ator will plan flights between differing
●● Part (or split) chartering – booking
departure and arrival airports, often de-
a  block of seats on specific flights
scribed as a W flight pattern (see Fig. 4.3).
(usually with other tour operators).
Such intensive flight patterns can be
●● Ad hoc chartering – an arrangement
problematic. If a flight is delayed at one
for single return-trip (rotation).
of the destinations or there are technical
●● Time series chartering – a contract for
problems, the delay will affect all other
a regular sequence of flights and the
subsequent flights using that plane.
exclusive use of an aircraft throughout
Chartering an aircraft is an expensive
the season.
and potentially high-risk strategy because
For operators considering chartering the tour operator is responsible for selling
their own aircraft from suppliers, the prices all the seats. Some operators may offer
may vary according to the reputation of ‘seat-­only’ sales on charter flights to ensure

Stansted
Depart 07.00
Clavi
Arrive 10.10
Depart 11.20

Bristol
Arrive 12.20
Depart 13.20

Alicante
Arrive 17.35
Depart 18.35

Stansted
Arrive 21.40

Fig. 4.3.  Series charter.

76 Chapter 4
that they fill all the seats on the flight when destinations around the Mediterranean,
they do not have capacity in tour sales to lake resorts in Eastern Europe and some
fill the aircraft. According to Doganis Alpine destinations. By targeting these
(2009), this trend was led by the German established destinations, low-cost airlines
charter airlines in order to obtain lower are challenging the role of charter airlines,
seat/kilometre costs – approximately 20% as they are both budget alternatives to
of total capacity would be seat only. scheduled airlines. LCC are more flexible
Although it is a high-risk strategy, the than charter airlines because they have
chartering of air services provides for a greater levels of differential pricing, which
low cost per seat and operators have a de- can be applied to the air component of a
gree of flexibility in terms of destinations package holiday, but also allow passen-
and departure points. If an operator has gers to book flight components independ-
chartered an aircraft, then they have the ently of the destination operations. As
option of subcontracting the plane to the choice of airline route and availability
other operators, either on a daily basis or has expanded, enabling customers to
even a return flight on a specified day. For build their own travel experiences, it has
example, the operator that charters the also facilitated the growth in dynamic
plane may not wish to offer night flights packaging for tour operators and travel
but can subcontract the plane out to an- agents.
other operator who is happy to have night-­ The traditional view of LCC was that
time departures or arrivals. they provided a poor experience, but their
When a company owns or charters its popularity increased due to their price.
own plane, it has greater control over the Some LCC have started to differentiate
service provided by the airline, although their products, offering what is termed a
it also bears the risk if seats or holiday hybrid model attracting both business
packages have not been sold. and leisure and the ability to upgrade,
such as buying additional luggage allow-
Part charter. Some operators will not ance, pre-book meals, purchase extra leg-
want to contract the whole aircraft as they room or priority seating and priority
predict that they have insufficient sales and boarding. LCC are not necessarily about
may opt for a part charter instead. The the traditional costing models (prices
contract will determine whether the oper- increase as departure date gets closer),
ator part charters for specific days but ul- but use demand-driven pricing using so-
timately the operator is responsible for phisticated yield management systems (see
selling those seats. As mentioned above, if Chapter 7, this volume) and aggressive
a company charters aircraft and they have marketing strategies.
excess capacity they may part charter their LCC such as Germanwings are making
seats directly to other tour operators or use available block sales to tour operators,
an airline broker to dispose of the additional thus allowing operators to purchase the
seats, often selling them on to small oper- airline component of a package cheaper
ators. Part chartering reduces the financial than an incumbent airline. Further devel-
risk, although they still are responsible for opments such as the increased number of
the flight plan and the initial seat cost. low-cost airlines available globally will
increase the number of destinations; for
Low-cost carriers. Low-cost carriers example, the Ministry of Transport in
(LCC) in Europe have impacted on the Russia has recently adapted legislation to
inclusive holiday market by launching encourage the development of LCC. A
scheduled services to traditional holiday greater number of LCC are moving into

Product Development 77
the medium- and long-haul markets, which an operator will need to contract additional
will provide greater opportunities for op- services such as transfers from the airport
erators to provide competitively priced to the accommodation, excursion trans-
offerings in more remote locations. port and, where necessary, public trans-
port such as trains and taxis.
Scheduled flights. Scheduled air ser-
Transfers.  Many companies use coaches
vices tend to be used by long-haul oper-
for the transfer of passengers between
ators and specialist/tailor-made organizers,
airport and accommodation and for op-
because they provide fixed itineraries or
tional excursions. Vertically integrated
‘scheduled departures’ and operate re-
companies such as TUI have their own
gardless of the number of passengers on
coaches, which are scheduled to move
board. Their use of scheduled flights in
passengers efficiently from the airport as
holiday packages allows greater flexibility
quickly as possible. Smaller companies,
because tickets can be booked to arrive in
those that are not vertically integrated,
one destination and depart from another,
will need to negotiate with local trans-
known as ‘open jaw’ tickets. However,
port companies to provide such transfers,
mass market package operators to main-
either on an allocation or ad hoc basis.
stream destinations are more likely to use
charter aircraft because of the price. The
Car hire.  If the holiday packages involve
increase in long-haul destinations and
car hire, such as fly-drive holidays, which
availability of numerous carriers flying to
are popular for tourists in the USA, then
destinations has made the utilization of
they need to contract vehicle hire through
scheduled aircraft more accessible. For ex-
a car hire company such as Europcar or
ample, it may be more cost effective for a
Hertz, although making arrangements
UK-based operator to contract seats on a
with local companies invariably will be
scheduled airline to Sri Lanka rather than
cheaper. In the case of fly-drive holidays,
attempt to charter a craft for a package
the expectation is that the car will be
holiday to Sri Lanka.
available at the airport on arrival.
In general, the operator would nor-
mally contract a specific number of seats
on dates that would be sold at a Special
Inclusive Tour by Excursion (ITX) fare or a Ancillary products and services
Special Group Inclusive Tour (SGTI) fare.
The fare would not be shown on the ticket, These products and services include tickets
as with other scheduled services. Seats that to events, guides, and the availability of
are not sold would be released back to private transfer services. Operators may
the airline by an agreed date (usually one work with local companies to provide ex-
month before the departure). cursions and guides, and these will have
This sale-or-return system is particu- to be contracted for the season, or on an
larly attractive to operators introducing allocation basis allowing the operator to
new untested destinations because it re- cancel if the itinerary does not operate.
duces the risk. They are particularly useful
for one-off, tailor-made or specialist pack-
ages, but are generally too expensive for 5. Brochure production
mass market operations.
Brochure production and e-brochure pro-
Land-based transport. Although con- duction are key elements of the promo-
tracting beds and flight seats is important, tional materials and take time to prepare

78 Chapter 4
and produce because of the need to check that provide information about the com-
and recheck information. This, and a pany, the products and information about
company’s website, are discussed in detail destinations, activities and other holiday-­
under the umbrella of marketing (see specific information. For example, Saga
Chapter 10, this volume). Travel launched an online training pro-
gram in December 2015 to create Saga
Experts, and some companies, such as the
6. Finalize sales and marketing plan cruise company MSC Cruises North
America, hold major conferences for travel
Finalizing the sales and marketing plan agents. Agents that are knowledgeable
involves finalizing and implementing the about specific products and companies are
marketing strategy (see Chapter 10, this more likely to recommend those products
volume). But, and significantly, it also re- to customers because thorough product
quires ensuring staff involved in sales are knowledge is a powerful sales tool. Infor-
as well prepared as possible. Thus, compre- mation that will aid sales includes:
hensive staff training is a requisite if the
●● Departure airports and the oppor-
company is to be efficient and effective.
tunity to use regional-based airports.
●● Information about alternative methods
of transport; for example, train or
Sales staff training
coach.
●● Transfer times to hotels or resorts.
Sales training may be conducted for both
●● Product-specific information such as
in-house sales staff and also for travel
variety of accommodation, their fa-
agencies retailing the products. Training
cilities and their appropriateness for
for in-house sales staff is easier to manage
different market segments.
logistically because the staff may be in the
headquarters or within a specialist telesales Recently the use of ‘webinars’ for
department. Operators recognize the im- training has become very popular as a way
portance of product knowledge when of training sales staff over large geographic
selling tours and packages, and training regions. Webinars may be recorded and
sessions are arranged so that staff who watched later, but in order to encourage
have visited the destination can share their interactivity between the travel agents
experiences with the sales team. Larger and the operator, operators encourage
operators may send out sales staff to the live attendees by offering exclusive offers
resort so that they can experience the or competitions. Lists of webinars can be
destination. Promotional tactics to en- found on travel industry magazine web-
courage sales, in addition to commission, sites such as Travel Weekly and can be fil-
can include cash bonuses, competitions tered by destination, activity and market
and incentives. segment.
Working with travel agents may be Other methods of encouraging sales
more problematic if they are not part include the familiarization trip (fam trip),
of  the same company. To promote new sometimes termed educational, which
destinations, representatives (or trained historically was always seen as a perk of
agents) may visit travel agents to promote being a travel agent. These fam trips may be
brochures and advise on details of the sponsored by the tour operator, equally
new products on offer. they may be sponsored by national or re-
More recent innovations include on- gional tourism organizations, cruise lines
line training programs for travel agents or several companies working together,

Product Development 79
such as a National Tourist Office, airline discussion of the role and responsibil-
and hotels. A typical fam trip will be for ities of representatives can be found in
10–30 travel agents and a representative of Chapter 11, this volume). For operators
the sponsor organization. A fam itinerary providing reps, the immediate decision is
will usually include visiting many hotels whether to employ representatives from
and resorts as well as briefings about the the generating region or to use home-
destination, activities and excursions avail- based staff. Clearly, the benefit of using
able. These trips may be free or heavily representatives from the generating region
subsidized and are frequently used to is that they understand the culture and
encourage travel agency loyalty and/or language of the customers. Conversely,
for high-performing agencies. a local representative will have a better
insight into the destination and have
contacts that will enable problems to be
7. Operations and administrative resolved quickly. There is also a cost im-
staff training plication for the tour operators in that
recruiting staff from within the destin-
Operations staff training ation may be less expensive.

Briefings will be held to ensure that all op-


erational staff are aware of the new 8. Product launch and subsequent
product, the staff involved and any antici- evaluation of sales
pated issues. Reservation systems and
procedures are confirmed and finalized. Once the product is in operation, the
Confirmation is made with suppliers to company will need to deal with any issues
ensure all components are ready, which arising at the destination. This is usually
will also include confirmation about pay- handled through the resort reps. Most
ment dates to suppliers. problems will occur at the start of the
season and it is usual to put an experi-
enced member of staff in the destination
Administrative staff training to handle any incidents. Immediate review
of customer feedback is essential because
All major operators utilize computerized customers may identify areas for im-
systems, so the inclusion of a new package provement, some of which may be able to
is unlikely to require much staff training. be implemented immediately. In this era
The company may require additional of hyper-communication, it is essential
staff to cope with anticipated demand that operators include a review of user-­
and thus training will take place as part generated content sites such as Trip Ad-
of the recruitment and induction process visor or Trust Pilot, where customers give
(see Chapter 11, this volume). feedback on their experiences.
Although each product is different,
it is important to review sales against tar-
Recruit specialist staff gets. Therefore, a well-organized tracking
system, usually computer-based, will en-
The traditional mass market product able operators to review bookings in-
relies on carrying many passengers to stantaneously.
established destinations and in many As the season commences, operators
cases these operators still provide resort may face a number of challenges, such as
representatives (reps) (a comprehensive lack of sales. In this instance, operators

80 Chapter 4
must make decisions about how to increase potential price reductions if sales were
sales to achieve forecasted figures. One of low, or potentially price increases if de-
the most frequent methods of disposing mand exceeded supply. It may be neces-
of surplus offering is the use of ‘allocation sary to amend the product if there have
on arrival’. Allocation on arrival is fre- been repetitive difficulties and to relaunch
quently used by operators to increase sales the holiday in the next brochure.
of low-selling products; for example, the
customer will buy the package with a
known departure date and duration, Summary
but the hotel, and even the resort, will be
allocated on arrival. For the customer, This chapter has provided a general over-
there is a higher degree of risk, but the view of the processes tour operators em-
discounted price compensates for the lack ploy when creating or adapting a package
of certainty and increased risk of the holiday. Although the key procedures
transaction. are identified, it should be noted that
Tour operators may also look to re- operators will have their own practices,
launch their brochures, which enables depending on the generating and re-
operators to consolidate flights from air- ceiving regions, target market and size of
ports, react to the pricing strategies of company.
competitors and, if sales are particularly However, a common factor for all
bad, to delist the hotel or even the resorts tour operators is that the success of a
that are failing to sell. Other opportun- package holiday primarily depends on
ities include introducing cheaper hotels at the attractiveness of the destination and
popular resorts or, if sales are good and the provision of services to ensure the
there is capacity in the destination, oper- smooth transit of the customer from the
ators may look to increase the number of home locality to the accommodation in
holiday products available. the destination. On superficial consider-
ation, this may appear to present little
difficulty. As the foregoing stages in the
9. Product review and post planning and development of a package
tour management, including holiday demonstrate, this is not the case.
quality review Indeed, managing current products effect-
ively and efficiently in the first place is
Towards the end of the season, it is essen- not such an easy task, nor is the ongoing
tial to review the performance of the need to review those products to ensure
company’s products. This will involve they continue to meet target market ex-
comparing predicted sales with achieved pectations and identify potential new op-
sales and reflecting on any discounting or portunities. Furthermore, to achieve such
additional promotion that was necessary, objectives within a highly competitive en-
enabling operators to make decisions vironment on a scale sufficient to achieve
about capacity for the next season. profit margins becomes more complex,
Where possible, sales data should requiring careful and detailed planning,
also include market share, enabling man- which itself is time consuming and to an
agers to assess how the holiday package extent largely dependent on the skills and
is performing in relation to those offered knowledge, not to mention ability to ne-
by competitors. Informed decisions may be gotiate, of the personnel involved. To
made about advertising spend and invest- varying degrees, this is equally applicable
ment in promoting the product, including to all tour operators, whether they are

Product Development 81
micro/small enterprises (see Chapter 5, 7. What are the risks in using the alloca-
this volume) or multi-national businesses tion method to contract accommodation?
with a stock market listing. The key diffe- 8. In terms of responsibility, should tour
rence is the scale of the operation(s) in- operators be required to meet the guide-
volved thus a tour operator may develop lines for best practice in sustainable supply
from a small office of three or four people chain management when developing their
to a leading player in the market, with a product(s)?
substantial workforce (see Chapter 13, this
volume). As the enterprise develops, so
too does the scope of marketing research, Key Terms
product review and the potential options
available in each of these nine stages in
●● Capacity: This refers to the maximum
the product development, and therefore
number of passengers.
the degree of complexity involved.
●● Itinerary: This is the travel arrange-
ments made including all the activities
that will take place e.g. changing
Discussion Questions hotels, transfers etc.
●● Open jaw: This is an airline return
1. What are the risks involved in devel- ticket where the destination and/or
oping a product that diversifies from the the origin are not the same in both
tour operator’s core market? directions.
2. What are the risks in withdrawing ●● Segments: Submarkets of consumers
products from the market due to unex- who have been chosen as the target
pected incidents? groups and are marketed to specif-
3. Should operators continue to pro- ically.
mote products in medium- or high-risk ●● Webinars: Short for web-based sem-
destinations? inar. Can include presentations, lec-
4. Identify a selection of countries or re- tures or workshops transferred over
gions that are rarely included in mass tour the web using video conferencing
operators’ brochures. Discuss the reasons software.
why they fail to be promoted. ●● World Travel Market: Global event
5. Why are mass tour operators less loyal for the travel industry which enables
to destinations? operators to network with industry
6. How relevant is the product life cycle suppliers, and for suppliers to pro-
to a tour operator’s products? mote their offerings.

Internet Exercise
All-inclusive packages are growing in popularity because of the fixed costs that enable
customers to plan their budgets. In the UK, First Choice markets all their products as
all-inclusive.
Review the Tourism Concern website: www.tourismconcern.org.uk/all-inclusives/
and read their research report: http://www.iuf.org/w/sites/default/files/WorkingConditions
inHotels.pdf
Continued

82 Chapter 4
Internet Exercise.  Continued.

Questions
● What are the benefits for tour operators of offering all-inclusive?
● What are the benefits for customers?
● Are all-inclusive packages fair for the host communities?
● What can tour operators do to try to ensure that destination-based organizations
can benefit from tourism in their locality?

Mini Case Study


Much has been made of the impacts of climate change and their effects on the tourism
sector, none more so than that of snow-based tour operators. Examine what tour oper-
ators are doing to improve the sustainability of their product.

Questions
● How are tour operators adapting their products?
● What is the future of ski tourism?

Major Case Study


Product development
In the days of the boom in Mediterranean beach holidays during the 1980s, tour
­operators were constantly looking to develop and grow their market share by product
differentiation. One major tour operator from the UK, Thomson Holidays, attempted to
do this by conducting intensive research drawing on their family customer base in order
to determine the elements of their package holiday considered most important by the
market.
The results of the survey revealed the following aspects of the holiday were high
on customers’ list of priorities:
● Entertainment – both daytime and evening.
● Food – customers didn’t want lack-lustre buffets with no variety and overcooked
vegetables.
● Accommodation – customers wanted ‘home from home’ comforts, not electrical
sockets positioned away from mirrors, coarse lavatory paper or rough bathroom
towels.
Consequently, the Product Development Department compiled a 300-point speci-
fication, which was the focus of changes. To make these changes, it was important to
gain the suppliers’ commitment to implement the proposed changes, especially the
hoteliers. Hotels in family resorts such as Santa Eulalia (Ibiza) and Sa Coma (Majorca)
and on Rhodes and Cyprus were singled out for the newly designed products.
Continued

Product Development 83
Major Case Study.  Continued.
The ­hoteliers bought into the concept and the new product was underway. In agreeing
to make the changes, the hoteliers were guaranteed beds would be filled, staff training,
increased bar takings (as a result of a professional entertainments programme) and
improved quality ratings (as a result of improved customer satisfaction).
Refurbishment began in the hotels and the catering staff attended an intensive five-
day programme. The programme offered breakfast suggestions, lunch and dinner menus –
all especially selected to appeal to the tastes of British holidaymakers. The chefs were
shown how to cook vegetables ‘al dente’ and were given the opportunity to practise their
newfound skills. Patisserie and dessert making sessions were included. The training was
well received by all.
Recruitment of entertainment representatives was advertised via The Stage
magazine (a UK-based magazine for the arts and entertainment industry) and appli-
cants were invited to attend auditions as opposed to interviews. A professional team
of consultants was enlisted for the selection and training process. The training lasted
three weeks pre-season, during which time new recruits were put through their paces.
Microphone and compering skills were emphasized. Specialists were brought in to
teach them how to run daytime activities such as aquafit. The finale consisted of an
all-singing, all-dancing show, which had been professionally scripted and choreo-
graphed.
On-going training and monthly quality reports ensured that all staff were fully in-
formed of their progress and that any initial teething problems could be ironed out.
The new programme was hugely popular with staff, suppliers and the customers.
Hoteliers were recognized by the Gold Award system and today you can see their
awards displayed in reception (just like a pop star would display their gold discs).

Questions
● Why was it necessary to professionalize the provision in the destination by
­improving quality and provision?
● How difficult is it to manage the suppliers, e.g. hoteliers, and ensure that they
provide the quality expected?
● How have customer expectations changed since the case study?

Recommended Reading References

A substantial range of cases on, or re- Callaghan, P., Long, P. and Robinson, M.
lating to, product development: (1994) Travel and Tourism, 2nd edn.
Business Education Publishers, Sunder-
Horner, S. and Swarbrooke, J. (2004) Inter- land, UK.
national Cases in Tourism Management. Doganis, R. (2009) Flying Off Course: The
Elsevier, Oxford, UK. Economics of International Airlines, 4th
A suitable text to further the study of edn. Routledge, London.
product development in the broader con- Holloway, C. and Humphreys, C. (2012) The
Business of Tourism, 9th edn. Pearson
text of marketing:
Education Limited, Harlow, UK.
Kotler, P., Bowen, J. and Makens, J. (2014) Kotler, P. (2000) Marketing Management.
Marketing for Hospitality and Tourism. Prentice Hall, Englewood Cliffs, New
Pearson Education Limited, Harlow, UK. Jersey.

84 Chapter 4
Riley, C. (1983) New product development Available at: http://www.independent.
in Thomson Holidays UK. Tourism Man- co.uk/news/­business/news/turkey-holiday-
agement 4, 23–25. bookings-drop-40-over-terrorism-fears-tui-
Rodionova, Z. (2016) Turkey holiday bookings says-a6862961.html, accessed 9 September
dropped 40% over terrorism fears, TUI says. 2016.

Product Development 85
5 Small and Medium-sized
Tour Operators

Learning Objectives growth in the number of businesses since


the 1990s, which has been facilitated by
After studying this chapter, you should be the rapid development of information
able to: technology and changes in consumer
preferences. This is well illustrated in the
●● Demonstrate an appreciation of the
UK, where in 2015 there were 1920 tour
significance of small and medium-sized
operators (an increase of approximately
tour operators.
12% on 2004; Keynote, 2015), in total
●● Explain the terminology used for
employing 22,215 people and with a
suppliers based in the destination
combined turnover of £13.3 million
country.
(Hayhurst, 2016).
●● Analyse the role ground handling
Today there are many small tour op-
agents play in the creation of tourism
erators that offer specialist products that
packages.
do not compete directly with the mass
●● Understand how to cost a tour package.
market products of the major players. In
effect, there has been an increase in the
provision of more segmented, specialized
Introduction and sophisticated products that may be
loosely considered under the umbrella of
The general holiday tour market, i.e. the special-interest tourism (Nylander and
3S type of international package in many Hall, 2005). It should be noted that this
post-industrial countries, is largely dom- does not mean that the larger companies
inated by a small number of major, verti- do not offer these products, because
cally integrated international companies. many of the vertically integrated tour op-
This can be considered an oligopolistic erators own sub-brands that specialize in
business market. Despite such domin- those markets. Even so, their modus op-
ation, most tour operators are small and erandi will differ, not least due to the size
medium-sized enterprises (SMEs) offering and scope of their business operations.
specialist products, ‘enterprises which This chapter examines the role of
employ fewer than 250 persons and which small and medium-sized tour operators
have an annual turnover not exceeding and explores the use of destination-based
€50 million and/or an annual balance suppliers who are particularly significant
sheet total not exceeding €43 million’ to the operations of the smaller tour com-
(Enterprise and Industry Publications, panies in that they play a key role in the
2005, p. 3). On this basis, the majority of creation/delivery of the tourism product.
these SMEs are in the small category, em- These suppliers handle activities and op-
ploying fewer than 50 people. It is this erations in the destination country on
category that has seen a continuous behalf of an international tour operator

86© J. Holland and D. Leslie, 2018. Tour Operators and Operations: Development,
Management and Responsibility (J. Holland and D. Leslie)
(in effect a form of partnership), for ex- or region and are generally referred to as
ample arranging boat trips, tours and ac- inbound operators. These inbound tour
commodation. They have many different operators create and retail products and
names, such as ground operators, in- services directly to overseas customers by
bound agents, local service providers or packaging and providing itineraries for
more generally ground handling agents independent travellers, for example or-
(GHAs). It is this latter term that we will ganizing a tour in India based around
use here. They can be considered repre- New Delhi and visiting cities such as
sentatives of the international tour oper- Agra and Jaipur, having liaised directly
ator at destination level and are engaged with the customer. In addition, they also
in a range of different activities generally may run their own tours and market
known as trade services, the extent of them directly to potential customers. In
them depending on the contract with the contrast, a GHA provides travel services
tour operator. and destination-based activities on behalf
Many of these GHAs are very small of a tour operator based in another country
companies, often owner-operated, and which that operator then includes in their
they may further subcontract some activ- packages. In this context, the GHA may
ities to other agencies or suppliers, such be considered a domestic tour operator,
as self-employed guides and drivers. Ac- albeit offering domestic tours for inter-
cording to Buhalis (2001), GHAs are the national passengers, and usually does not
least well-known element of the tour op- sell these products directly to overseas
erators’ supply chain and because of their customers. Basically, a GHA undertakes
involvement bring varying degrees of ‘all commissionable jobs at a destination,
complexity to their operations. Thus, our [including] identification, negotiation,
first consideration is to establish the gen- contract and reservation of appropriate
eral role and function of GHAs and in the tourism products [and] acting as legal
process to illustrate the potential com- representatives’ (Buhalis, 2001, p. 27).
plexities arising from their role(s) in the The GHA will act as the tour opera-
supply chain. To further our consideration tor’s representative in the destination and
of small and medium-sized tour operators potentially be involved in diverse activ-
and their operational strategies, we will ities in supplying specific components of
focus on three different categories of tour a package trip, from basics such as con-
drawn from within the niche tourism tracting accommodation and transporta-
sector, specifically adventure tourism, tion to identifying possible new itineraries,
tailor-made and all-inclusive. purchasing admission tickets for visitor
attractions, arranging tickets for public
transport, and where necessary organ-
Ground Handling Agents izing any equipment requirements for
tours such as boats, jeeps, porters. Fur-
The first step is to differentiate the role of ther, and as required, they will liaise with
GHAs from inbound operators as they local service providers for specific activ-
may, on the surface, appear to offer similar ities such as guided tours, sightseeing bus
services in that they not only retail prod- trips, diving trips, or contract transport
ucts on behalf of principals but also pro- such as required for desert safari exped-
vide tour packages at the destination level. itions. The potential extent of their in-
To clarify, an inbound travel agency volvement and the scope of expertise
or tour operator provides services for required leads to some GHAs developing
tourists coming from outside the country a range of strategic partnerships with

Small and Medium-sized Tour Operators 87


international operators from different and/or activities. Therefore, to illustrate
countries to maximize revenue streams both the role of these operators and the
and spread the risk, i.e. they are not re- complexities involved in their operations,
liant on one source market. Contracts for we can examine them in the context of
agreed services vary between the operators special interest tourism through three
but generally are based on an annual, sea- specific categories, as discussed below.
sonal or ad hoc basis. The contracts may
include payments for handling fees,
which is a per passenger fee paid for each Niche Tourism
departure.
Externally based tour operators may Niche tourism, also known as special
operate with different supply chain struc- interest tourism, is seen as an alternative
tures in different locations depending on to mainstream, general market offerings
the number and type of tours, the experi- and provides more specialized and unique
ence of the company operating in that products. According to Robinson and
destination and local legislation, which Novelli (2005), niche tourism has the fol-
may involve fully subcontracting pack- lowing characteristics:
ages to a GHA. In this case, the GHA
●● It is the counterpart to undifferenti-
could arrange the accommodation, trans-
ated mass tourism.
port and activities on behalf of the tour
●● It refers to specific tourism products
operator. As such, the company is essen-
focused to meet the needs of par-
tially buying places on the local opera-
ticular market segments.
tor’s itinerary, whereby the groups
●● Niche products may be considered
comprise passengers that have purchased
on a continuum from macro niches
their product through a variety of inter-
operating in large markets, e.g. city
national tour operators or direct sales by
breaks, to micro niches, e.g. battle-
the GHA. At the other end of the scale,
field tours.
the operator may independently contract
directly with accommodation suppliers, Basically, niche tourism is a com-
transport agencies and activity providers paratively small specialized sector of
on an individual basis. Thus the external tourism that meets the needs of a corres-
operator generally has three options: pondingly specialized market segment.
These distinct products allow tour oper-
●● Purchase places on a package offered
ators to differentiate themselves from other
by a GHA; the customers are there-
operators and provide a unique experi-
fore part of a bigger group not aligned
ence. Needless to say, there is a potentially
to a single operator.
endless list of such niche products, as is
●● Purchase a package offered by a
conveyed in the main and sub-­categories
GHA but that is supplied only for the
presented in Fig. 5.1.
passengers of that international tour
Within Fig. 5.1 there are several
operator.
broad categories that might be considered
●● Work with a GHA to produce a
as macro niche sectors, given the overall
package designed by, or in conjunc-
demand for the type of product offering
tion with, the international tour op-
that could be included within that cat-
erator.
egory, e.g. Urban (see Robinson and
As noted, small tour operators gener- Novelli, 2005). Conversely, micro niche
ally target their products to segments of tourism products provide a more focused,
the market based on specific interests highly individualized experience, driven

88 Chapter 5
Niche tourism

Culture Urban Environment Specialist Transport

Heritage Adventure
Architecture Nature
Religious Volunteer Coach tours
City breaks Wildlife inc. safaris
Gastronomy Dark Train
Conference Skiing
Art Photographic Small cruise
Exhibitions Coastal
Wine Medical Overland trips
Business Diving
Educational Health

Fig. 5.1.  Major categories of niche tourism. (Derived from Robinson and Novelli, 2005, p. 9.)

by the growing demand for tailored ex- of ‘hard’ or ‘soft’ adventure, which com-
periences creating further opportunities monly relates to the level of risk involved
for SMEs to play a key role in providing in the activity. Not surprisingly, soft ad-
products and services to meet the specific venture tours, i.e. low difficulty products
interests of their customers (Holland, for unskilled clients (Buckley, 2006) that
2012). Many niche tourism companies’ carry little risk for the clients, represent
products can be placed in the initial stage most offerings in this sector and have re-
of the product life cycle (see Chapter 3, ceived relatively little attention to date, spe-
this volume) and as their product life cifically research relating to operational
cycle evolves and reaches maturity, suc- aspects. As with so many ‘new’ contem-
cessful companies need to reinvent their porary tourism product offerings, the ad-
offerings to reinvigorate the market. This venture sector is not a new market but
results in a constantly changing portfolio stems from the 1960s ‘hippy trails’, with
of products on offer to consumers, essen- overland journeys from Europe to Asia
tially leading to more refined and increas- via places such as Kathmandu, Goa and
ingly specialized products. often on to the Far East. It is from these
roots that many of the UK adventure op-
erators developed, often with ex-tour leaders
Adventure Tourism Products and in some cases customers setting up
their own companies (Holland, 2015).
Adventure tourism is one of the fastest
growing types of tourism. According to
one tour operator, the offerings are ap- Operations
pealing to ‘more families, older travellers,
more women. We are now on the cusp of The complex supply chain that SMEs in
adventure travel becoming more main- the adventure tour market need to nego-
stream’ (Mintel, 2010, p. 3). The types of tiate is well illustrated by Fig. 5.2, which
adventure products available are wide is based on a small UK company, and
ranging, vary in destination and the activ- each of the suppliers indicated will need
ities involved, the market segments and to be contracted for the tour. The link-
level of experience of customers. The most ages between these destination-based
accepted typology of adventure tourism is suppliers and the UK-based tour oper-
based on classifying the activity in terms ator will vary according to the itinerary

Small and Medium-sized Tour Operators 89


Airline UK-based tour operator

Local ground
Local context handling agent

Transport Excursion Tour


Accommodation
supplier organizer manager

Local transport
Sub-
- mules, taxis
contracted
specialist
transport -
Local
felucca, gulet
accommodation
- village houses,
tents

Fig. 5.2.  Illustration of UK adventure tour supply chain.

and destination. Further complicating Accommodation


matters is that operators may use dif-
fering sub-contractual agreements in dif- Specialist adventure tour operators such
ferent locations. Also, the extent of as The Family Adventure Company (UK)
involvement of GHAs in any tour will and Intrepid (Australia) identify the use
depend on several variables, for example, of locally owned accommodation as a
the legal regulations within some coun- key component of their product because
tries may enforce the use of an agent, their chosen destinations are often re-
such as in Morocco, whereas in countries mote and the availability of major hotels
such as China the inclusion of a local is unlikely. Accommodation can include
guide is compulsory. standard hotels, guesthouses, village houses
Operators design a series of tours that and lodges. Where little or no accommo-
will run back-to-back. Well-established dation is available, home stays or camping
itineraries and popular destinations may (wild, bush or basic) will be used. Ideally,
be offered year-round, and it is not un- the accommodation is chosen to reflect
usual for a season of tours to last eight the style of the tour, for example sleeping
months. Where possible, this will be man- on a felucca on the Nile or in village
aged by the same member of staff, thus houses in the Atlas Mountains, which all
reducing the costs (e.g. air flights) in- need to be arranged by the tour company
volved as a result of changing the staff. directly or by GHAs.

90 Chapter 5
Transport passion for and knowledge of their cul-
ture and heritage enhance the tourist ex-
One of the key operational aspects of perience (Holland, 2012). However, this
adventure tours is that they are multi- is limited by the availability of suitably
destination and, as such, rely heavily on qualified staff such as mountaineers or
transport between destinations. As these dive masters.
tour companies promote the use of small
groups, the transport tends to take the
form of minibuses, jeeps and, in some in- Itinerary
stances, local public transport. This may
involve such diverse transport as over- Designing an itinerary for an adventure
night or high speed trains, local taxis or, package is complex and requires a good
on occasion, auto or cycle rickshaws, even knowledge of the customer segment and
camels. For example, one tour offered by creativity. Due to the number of destin-
a leading adventure operator includes 14 ations visited, itinerary planning requires
different types of transportation, from an excellent understanding of the practical
the usual bus, jeep and train to the more implications of such a tour and timings –
unusual services of mules, camels and for example, distances travelled during the
water taxis. For trips that cover extensive day, departure times for flights, length of
distances, flights are often used; for ex- time necessary in each destination and
ample, trips visiting several destinations places to visit on the way. Many of the de-
in China may make use of several internal cisions involved in establishing the itinerary
flights to maximize the time spent at des- require further consideration than just
tinations rather than on transfers. Other place and time, as illustrated in Table 5.1.
specialist operators may use the method While these considerations are im-
of transport as the focus of the package, portant in themselves, they also need to
e.g. trains such as the Trans-Siberian Ex- follow the philosophy of the company
press and Orient Express or boats such as and their marketing strategy and recog-
caique cruises in Greece and Turkey or nize the potential cost implications of
houseboats in Kerala. what may or may not be included, particu-
larly for accommodation and land-­based
transportation. These considerations are
Adventure tour managers and guides pertinent not only to adventure tour oper-
ators but also to all operators offering multi-­
Pre-packaged adventure itineraries are destination tours (see the following sections
usually accompanied by tour guides or on coach tours and tailor-made packages).
tour leaders/managers, who play a crucial To further our analysis of itinerary
role in adventure tour operations. The planning, let us consider a nine-day tour
importance and value placed on the starting in Cairo, Egypt, which involves
quality of the tour leader is often demon- six nights of hotel accommodation in dif-
strated by inclusion of leader profiles ferent towns, an overnight on a train and
within the brochure and on their web a felucca, entrance to architectural sites,
pages. The general practice is for leaders and finishing in a beach resort on the Red
to be from the home region combined Sea. The accommodation is comfortable
with destination-based staff, though the but not luxury. Tours such as these are
trend is towards engaging local leaders available flight-inclusive (in this instance,
and thereby providing local employment the departure point is the UK), but are
opportunities. Also, local leaders with a available as land-only for people arranging

Small and Medium-sized Tour Operators 91


Table 5.1.  Illustration of factors to consider in designing an adventure tour. (Adapted from Mancini, 2012.)
92

Demand Issues Considerations Examples

Market What are the customers’ Specific activities such as birdwatching, Some trekking destinations may be inaccessible for
segment needs, expectations heritage, trekking parts of the year
and interests? Consideration of energy levels How active do the tourists need to be? Does the tour
require previous experience, e.g. mountaineering?
Theme of Good titles make tours Intriguing and effective titles and images ‘A trip round Japan’ is less attractive than ‘A visit to the
the trip attractive to potential generate more sales land of the Rising Sun’ or ‘Trail of the Shogun’
customers Tours incorporating specific events should Specific itineraries could include ‘Sapporo Snow
include the event name in the title Festival’ or ‘Toubkal Ascent’
Time of Is the destination or Birdwatching tours will only be available Viewing migratory birds depends on when they arrive
year attraction seasonal? during the appropriate season in and leave the destination and this will dictate the
Is the market targeted Snow-based itineraries will be dictated best time to operate these tours
only likely to travel by snow availability
during holiday periods? Weather conditions
Flight availability
Departure Midweek or weekend Midweek flights are usually less attractive Certain calendar dates, like Christmas Eve or
day flights because customers have to take more Christmas Day, New Year’s Eve and New Year’s
time off work Day, are less attractive
Length of Seven or nine days A trip leaving on a Friday evening and This means that tours may overlap, i.e. all departures
trip 14 days or longer returning on a Sunday evening means on Friday for a nine-day trip
customers only have to take five days of
annual leave
Type of Circle itinerary Circle itineraries start in the same city and Return flights to and from the same destination are
itinerary depart from the same city often cheaper and essential for charter flights
This may be a hub airport that is used for many
tours, with each group then embarking on their
own itinerary
One-way itinerary Tourists arrive at one airport and depart The so-called ‘open-jaw’ itineraries
Chapter 5

from another
Small and Medium-sized Tour Operators

Suppliers Availability and quality of The quality and availability of Lack of suitable accommodation able to cope with
suppliers accommodation, local transport, the maximum number of passengers on a tour may
attractions and guides may dictate the limit potential destinations
ability to operate In Greece some ferry services stop during the winter
months
Flights Availability of flights Some scheduled flights and charter If flights are not available throughout the year, this will
itineraries may not be available all year dictate when the itinerary can operate. Seasonal
round flight itineraries may result in an inability to secure
seats on these planes, e.g. flights to Lapland over
the Christmas season due to the number of
operators offering Santa Claus trips
Flight schedule Using early morning flights means If there are no direct flights and the trip involves
passengers may have connections connecting flights, if the initial flight is delayed this
requiring overnight accommodation or may result in missing the connection, problems
risk connection failure with luggage, etc.
Arrival and Suitability of gateway Passengers often enjoy free time towards A tourist’s arrival and departure can strongly
departure airport destination the end of the holiday to relax, so the influence their perceptions of their holiday
city departure airport destination needs to Including welcome meetings and interesting
provide suitable attractions and attractions can improve tourist satisfaction
opportunities for relaxation
Schedule The number of Passengers may dislike packing and Logical planning of the tour to enable tourists to see
destinations and unpacking every day, so it is always each destination and incorporating free time
attractions visited worth considering spending two or Unless the tour is promoted as one that moves on,
three nights in the same destination. It for example trekking or camping trips
is often best to avoid one-night stays It is often easier to plan trips where tourists stay in
during the trip one city and take day trips to other destinations
(hub-and-spoke itineraries)
Split The option of dividing the This may involve some passengers taking In golfing holidays, some partners may not play golf
itineraries group in two part in certain activities while alternative and may wish to take part in other activities such
activity options are provided for the as shopping or sightseeing
other members of the group
Continued
93
94

Table 5.1.  Continued.

Demand Issues Considerations Examples

Activities The number of sites and While providing many activities there also A trip to Aswan, Egypt is very interesting but some
activities available should be optional activities available passengers may wish to take additional excursions
for those who wish to do more to Abu Simbel
Too many activities may limit the Incorporating free time in destinations will allow
opportunities for passengers to explore passengers to have a later wake up or free time to
the destination themselves shop and relax
Distances The distance travelled Tourists do not want to spend a long time Planning transfers between destinations is important.
covered between each on transfer transport, so it is important Considerations include how long the transfer will
destination to balance the time in transfer with time take and whether there are any interesting sights to
at the destination be seen along the way. What provision is available
for food and toilet breaks?
Chapter 5
their own flights or non-UK passengers. ● ● Arrange and pay horse-drawn
An overview of the itinerary is mapped carriage.
out in Table 5.2. ●● Arrange and pay donkey excursion.
This itinerary involves the following
Adventure operators often note that
contract main suppliers:
itineraries may change following feed-
●● Four different hotels. back from past travellers and seasonal
●● Full day on a boat. changes of transport. For example, the
●● Overnight on a felucca. felucca trip is on board a sailing boat
with no engine and therefore is reliant on
Many of the overnight stays in hotels currents and winds; flight timings can
also include dinner. While this reduces also change.
the additional expenses for passengers, it
limits the opportunities to try local res-
taurants. There are many reasons why
this may be included, but often it is a de- Costing
mand made by the accommodation sup-
plier to guarantee the accommodation Costing tours is complex in comparison
reservation, as they are therefore guaran- with single-destination mass market holi-
teed additional income. The suppliers days because there are many individual
may be contracted directly with the tour components to be included, as evidenced
operator or by the GHA, which will: above and illustrated in Table 5.3. The
use of GHAs means that rather than con-
●● Confirm accommodation bookings tracting each component individually,
and numbers. these are subcontracted to the GHAs,
●● Arrange half-day sightseeing trip in who in turn coordinate and contract with
Cairo. the individual suppliers. These individual
●● Book tickets for train and sleeping suppliers (service providers) may be
berth. micro-enterprises, such as individual
●● Arrange transfers when using guides or small groups, such as in this in-
coaches. stance the owners of feluccas. The com-
●● Liaise with felucca operators. plexity of costing means that the use of
●● Reserve boat and transfers to port. tour operations costing software is very
●● Arrange optional excursions, such as popular because it enables costing to be
Treasures and Tut, flights to Abu managed more efficiently and effectively.
Simbel. The profitability of tours varies ac-
Optional excursions are provided cording to the number of people taking
but are not included in the price because part in the trip and the costs incurred.
this ensures that the brochure price re- Usually, one of the most expensive costs
mains low. Optional excursions are usu- on tours are the charges for ground trans-
ally paid locally. port such as a coach. In the case of adven-
The tour leader will play a funda- ture tours, these involve the use of
mental role in the operations of the tour, minibuses with a seating capacity of eight
being required to: persons. Therefore the tour will be at its
most profitable when they have eight or
●● Arrange and pay taxis. 16 passengers (two minibuses). If the tour
●● Pay entrance fees and local guide has ten passengers, then two minibuses
(e.g. Valley of the Kings, Museum, will be needed but they will not be full, so
Sphinx/Pyramids). the cost of the minibuses is split between

Small and Medium-sized Tour Operators 95


96

Table 5.2.  Itinerary overview of adventure tour.

Overnight Included excursions Optional excursions


Day accommodation Transport (paid) (additional cost)a Included meals

1 Arrival in Cairo Flight to Cairo (if UK departure) Sound and light show at
Transfer to hotel (if UK pyramids (EGP 100)
departure) Treasures and Tut (GBP 46)
2 Overnight train Coach (tour) Half day sightseeing trip – Breakfast (hotel)
(two-bed berth) Coach/taxi to train station Giza (pyramids/sphinx) Dinner (train)
and Cairo Museum
3 Aswan Taxi to hotel (on arrival) Camel ride Breakfast (train)
Visit to obelisk
Philae Temple (EGP 60)
4 Nile felucca Walk to felucca departure point Abu Simbel (short flight) Breakfast (hotel)
(luggage transferred by taxi) Lunch (felucca)
Dinner (felucca)
5 Luxor Taxi to Luxor hotel on arrival Kom Ombo Sound and light show Breakfast (felucca)
6 Luxor Taxi to Valley of the Kings Valley of the Kings Hot air balloon ride Breakfast (hotel)
donkey ride Hatshepsut Tomb, Karnak Tutankhamun tomb
Temple (EGP 100)
7 Red Sea Horse-drawn carriage Karnak Breakfast (hotel)
(Hurghada) Bus to Red Sea
8 Red Sea Bus to port (return) Boat trip Breakfast (hotel)
(Hurghada) Lunch (boat)
9 Departure Bus to airport Breakfast (hotel)
Flight (if UK departure)
a
GBP: UK Pounds; EGP: Egyptian Pounds. Costs noted in EGP are paid in local currency.
Chapter 5
Small and Medium-sized Tour Operators

Table 5.3.  Overview of basic costing for an adventure tour.

Cost per Total net Total net Total gross Gross profit
Service suppliers Currencya Ex-rate person Pax Mark-up (%) cost Forex cost (GBP) sell (GBP) subtotal (GBP)

GHA1 USD 1.3 1,345 4 40 5,380 4,138 5,794 1,655


GHA2 THB 55 5,450 4 35 21,800 396 555 159
SS3 USD 1.3 765 4 50 3,060 2,354 3,295 942
Domestic flight in destination GBP 1 325 4 20 1,300 1,300 1,820 520
Airlines ex UK GBP 1 280 4 15 1,120 1,120 1,568 448
1 4 0 0 0 0 0
UK departure tax GBP 1 20 4 15 80 80 112 32
Other flight taxes GBP 1 6 4 15 24 24 34 10
Visa fees GBP 1 50 4 35 200 200 280 80

Financial analysis
Total revenue £13,458
Total gross profit £3,845
Travel agent commission £1,346
a
GBP: UK Pounds; USD: US Dollar; THB: Thai Bhat.
97
the ten passengers, meaning the cost per The potential passenger can stipulate
head is higher. It is for reasons like this style of accommodation, type of trans-
that operators push sales for departures portation, the destinations and any ex-
that are not at capacity or have yet to cursions. Itineraries such as these can be
achieve maximum profitability and may time-consuming to create, involving sub-
close sales of tours if they will not achieve stantial negotiations with the client. These
the best possible numbers. Thus, unlike products can be designed by travel agents,
mass market operators that seek to adopting a tour operator role, or pro-
achieve 3–5% profit per sale, adventure vided by specialist tour operators who li-
operators may achieve between 10% and aise directly with the client, e.g. the UK
35% profit, varying according to the tour operator Audley Travel or the inter-
number of passengers and the cost of the national operator Tucan Travel.
variable components. Organizers of these tours need to
It is often easy to make many mis- have excellent in-depth knowledge of the
takes when costing a tour. For example, destination so that they can make recom-
Lubbe (2000) cites common failings are mendations about the best time of year to
forgetting room costs will be divided by travel and advise on attractions and
two to achieve a per person rate and accommodations based on the client’s
wrongly counting the number of nights’ interest and budget. Tailor-made itiner-
accommodation required, e.g. a seven-day aries can also be offered for small private
tour will spend only six nights in a hotel; groups, school groups or groups with a
also if porterage fees are included then specific interest such as photography.
the fee involved will be double because Operators that specialize in these
baggage transfer involves both into and products will often have example itiner-
out of the accommodation. aries on offer that can then be customized
in conjunction with the client. Usually
these tailor-made itineraries are not ac-
companied by a tour manager, but local
Tailor-Made Itineraries guides can be arranged in advance and
costed into the itinerary.
Demand for tailor-made itineraries has
increased globally and this type of
product delivers high levels of repeat
Operations
business (Mintel, 2015) but relies heavily
on the knowledge and experiences of the
These types of tours rely heavily on
organizer (Buckley and Mossaz, 2016).
GHAs because they are designed indi-
A tailor-made programme is a bespoke
vidually and accommodation and ser-
itinerary created for the customer(s) and
vices are booked on an ad hoc basis. Due
therefore may vary in timing, length and
to the lack of forward planning, accom-
contents and often be flexible and modi-
modation suppliers cannot be contracted
fiable. Tailor-made itineraries are de-
using the usual allocation or commitment
signed specifically for the client and can
contracting and thus will be more expen-
vary according to:
sive (see Chapter 4, this volume). That
●● Group size. said, operators have access to discounted
●● Departure date. prices, which are not available to the gen-
●● Guide or tour manager. eral consumer or may have a contract
●● Accommodation. with the accommodation provider to re-
●● Included activities. ceive special rates.

98 Chapter 5
Costing and the close proximity of the passengers,
companies are amending itineraries to
It is obviously critical that every compo- give more free time in destinations, op-
nent included in the tour is costed. Each tional excursions, and focusing on travel-
component of the package is priced based ling with like-minded people rather than
on contracts with suppliers and prices ac- strangers. Indeed, coach tours have long
cessible to operators. Once each compo- been held as an attractive option for
nent is agreed, then a mark-up is added. older, single people, providing opportun-
This mark-up covers company costs and ities to meet others with similar interests.
overheads such as marketing, premises However, since the 1990s cruise trips have
and wages. A simplified overview of how become increasingly attractive to such a
a costing can be produced manually is market, especially given the general
presented in Table 5.4. However, it is un- quality of the accommodation, the excur-
usual to do this manually because there sion options and the fact that there are no
are many computer programs designed changes in overnight accommodation
specifically for SME operators that en- during the trip, which partly accounts for
able the construction of a package and the decline in UK demand for coach tours.
costing. Even so, scheduled coach travel throughout
Europe is increasing; for example, in Ger-
many coach travel is very popular when
Coach Tours accessing Alpine resorts due to the lack of
alternative transport.
Coaches are predominantly used as part Coach tours offer a number of at-
of the touring package, whereby holidays tractions to passengers:
include visiting a variety of destinations
●● Low prices.
as part of one itinerary, e.g. tours throughout
●● Convenience of door-to-door travel.
China, USA or Turkey. The line between
●● No baggage or transfer problems.
coaching and other types of escorted tour
●● Assistance from tour manager, which
holiday is becoming increasingly blurred
makes travelling to and throughout
as coach tour operators may offer other
an unknown destination easier, par-
types of holiday, e.g. rail or escorted cruise
ticularly if there are language barriers.
tours. Some companies position themselves
●● No problems of language and hand-
specifically as escorted tour companies
ling documentation, e.g. visas.
rather than coach operators (Mintel, 2014),
●● Companionship.
because in some countries the term ‘coach
●● Security of feeling part of the group.
tour’ appears to have negative associ-
ations largely dating back to the mid/late Traditionally, within Europe it is gen-
20th century. However, there has been a erally considered as a product for third
noticeable transition from the large-scale age customers with domestic or trans-­
mainstream coach holiday to smaller European itineraries, a market that may
group sizes and upmarket accommoda- well increase as the number of fit, over
tion specifically targeting the luxury end 75-year-olds doubles in the next 20 years
of the market. Also there has been a (Mintel, 2014). Further stimulating con-
growth in all-inclusive coaching holidays temporary demand are developments in
that provide passengers with the reassur- the coaches themselves. Coach operators
ance that all the costs are included. Al- are continually adapting their products
though coaches may be seen as restrictive to meet changing consumer needs and
due to the lack of flexibility in itineraries expectations, such as coaches with air

Small and Medium-sized Tour Operators 99


100

Table 5.4.  Basic tailor-made tour costing model.

Reference: 1234 CB Visa fees in the UK included?


Version: A SR Taxes included for UK originating flights?
Number of Pax: 4 CB Are the ex-rates correct and up to date?
Travel Agents Comm: 12.0% SR Are your quotes based on per person rates or totals for the couple/group?
Specialist Comm & Bonding: 3.0% CB Correct markups used/is it an agency sale?

Total Net Total Net Total Gross Gross Profit


Service Suppliers Currency Ex-Rate Cost PP Pax Markup Cost Forex Cost £££s Sell £££s Subtotal ££s
Fastour USD 1.51 1345 4 40% 5380 £3,563 £4,988 £677
Journey Planner THB 59 5450 4 35% 21800 £369 £499 £55
Exotissimo USD 1.51 765 4 50% 3060 £2,026 £3,040 £557
Thai Intl UK GBP 1 325 4 20% 1300 £1,300 £1,560 £26
Malaysia Airlines UK GBP 1 280 4 15% 1120 £1,120 £1,288 –£25
1 4 0% 0 £0 £0 £0
UK Departure tax GBP 1 20 4 15% 80 £80 £92 –£2
Other flight taxes GBP 1 6 4 15% 24 £24 £28 –£1
Visa fees GBP 1 50 4 35% 200 £200 £270 £30
£8,683 £11,764 £1,317
Financial Analysis
Total Revenue £11.764
Total Gross Profit £1,317
Travel Agents Commission £1,418
Sales Person
£355
Comm & Bond
%age Gross Profit 11.2%

Notes:
Chapter 5

Exotissimo quote includes Vietnam visa auth charges


Journey Planner quote based on Baan Boran as cheaper Dusit fully booked
conditioning, toilets and Wi-Fi access these operators usually work on smaller
coupled with more comfortable seating, group sizes. We can also identify a number
better external visibility and entertainment of relatively new developments, for ex-
systems such that the latest models begin ample, the rise of international fly–coach
to copy airline travel. Many operators have products, which reduces the need to access
reconfigured the large coaches of 53–57 the destination by coach, such as on offer
seats to accommodate fewer seats (40). to Canada, China or Italy – as mapped
This reduction in maximum passenger out in Table 5.5.
numbers means that each passenger has While coach tours appear synonymous
additional window space and more room with older clients because of their ease
for luggage and high-deck motor coaches of access, there are several brands (e.g.
have become the expectation. Contiki) that target the youth market,
Many adventure and specialist oper- offering more adventurous trips such
ators utilize coaches (for example, histor- as high-energy tours (focusing on night-
ical tours, budget travellers and those life), camping (for longer low-cost trips)
seeking a multi-destination package), but and other non-coach-related itineraries.

Table 5.5.  All-inclusive coach luxury tour.

Overnight Included excursions/


Day accommodation Transport activities Meals included

1 Arrival in Rome Coach transfer Welcome dinner and wine


2 Rome Coach VIP entrance to Vatican Breakfast
Museum including local Dinner in local
guide, Sistine Chapel, restaurant
St Peter’s Basilica,
Forum and Coliseum
3 Island of Capri Coach, Guided tour of Pompeii
hydrofoil, taxi
4 Capri Cruise ship Guided tour by boat Breakfast
(small) Dinner – choice of
local restaurants
5 Perugia Hydrofoil, Guided tour of Perugia Breakfast
coach Dinner
6 Mugello Valley Coach Wine tasting in Chianti Breakfast
(near Florence) hills, artisan ice cream Dinner
parlour
7 Mugello Valley Coach Museum with guide Breakfast
(near Florence) Dinner in local
restaurant
8 Rapallo Coach Guide at Pisa and Lucca Breakfast
Dinner
9 Rapallo Coach, train Excursion by train to Breakfast
Portofino Dinner
10 Venice Coach Breakfast
11 Venice Cruise ship Guided tour, evening Breakfast
(small) cruise to Burano Dinner
12 Transfers to Coach transfer Breakfast
airport

Small and Medium-sized Tour Operators 101


Another growth area in the coaching hotels, luggage transfer from coach to the
market is the polar opposite of the luxury rooms (and reverse) without customer in-
market, the budget coach tour aimed at volvement, provide information about
young adults with a limited budget (e.g. the destination, deal with customer com-
‘hop on–hop off’ coach travel throughout plaints and queries and liaise with local
Europe) giving passengers the flexibility suppliers such as guides. Tour managers
to design their own itinerary. Specialist are usually contracted for a tour, but
coach tours are also growing in both pro- some companies may offer seasonal con-
vision and customer numbers. For ex- tracts whereby a tour manager will be ex-
ample, there are specialist tours visiting pected to run back-to-back tours in the
destinations made famous in films and same or different locations. Within Europe,
television programmes, historical sites drivers are constrained by the number of
from the First and Second World Wars and hours that they can drive. They may not
culinary-themed trips. drive for more than nine hours in one day
Many well-known coach tour com- (extended to ten hours twice a week) or
panies are operated by The Travel Corpor- drive for more than 56 hours in a week
ation, which has 24 travel brands, operates (90 in any two consecutive weeks), and
in over 60 countries with 35 offices world- they must have a break of 45 hours after
wide and has annual sales involving over six consecutive days of work. These regu-
2 million customers. The brands are inde- lations limit the distances the drivers can
pendently managed and target specific mar- cover and so on many longer trips there
kets, and include well-known brands such may be two drivers working, or on occa-
as Evan Evans tours, Haggis Adventures, sional days local drivers will be used.
Insight Vacations, Trafalgar Tours, and Cre-
ative Holidays. It also operates boutique
hotels under the Red Carnation brand Costing
and cruises through its Uniworld brand.
Costing a coach tour is comparable with
generic tour market products in that they
Operations also work on a load factor; for instance, a
70% load factor means that ideally at
Best practice today for many coach oper- least 28 seats of a 40-seater coach need to
ators is to offer door-to-door itineraries, be sold, although the per person costs will
which means passengers are collected increase, as rooms, baggage and entrance
from their home or local collection depot fees (e.g. for attractions) would multiply if
and taken on feeder buses to interchanges all seats are sold. An illustration of a tour
where passengers join their coach tour. costing is presented in Table 5.6, which
For example, Shearings (UK) have over 650 shows the major costings that need to be
joining points nationwide and operate included. Obviously, any additional ac-
from a number of interchanges (Shear- tivities included will need to be added as
ings, 2016). This hub-and-spoke system necessary.
is similar to many scheduled airlines. One of the biggest expenses that
Escorted coach tours include the ser- coach operators need to give particularly
vices of a tour manager (also called tour careful attention to is that of fuel because
director) in addition to the driver(s). Tour fluctuations in fuel prices, for example,
managers play a key role in ensuring that due to a rise in oil price or currency ex-
the tours run smoothly. For example, they change rates, will have a substantial im-
ensure fast and efficient group check in at pact on profitability.

102 Chapter 5
Table 5.6.  Costing for a 9-day coach tour (ex London).
Small and Medium-sized Tour Operators

Destination Cost Currency GBP total cost

Hotels
Brussels hotel Bed-and-breakfast (double occ) 40 GBP 280.00 280.00
Berlin hotel Three nights: evening meal, bed-and-breakfast (double occ) 45 GBP 315.00 315.00
Dresden hotel Two nights: evening meal, bed-and-breakfast (double occ) 40 GBP 280.00 280.00
Kassel Hotel One night: evening meal, bed and breakfast (double occ) 40 GBP 280.00 280.00
Brussels hotel One night: evening meal, bed and breakfast (double occ) 45 GBP 315.00 315.00
Excursions Berlin bus tour (invoiced direct to HQ) GBP 100.00 100.00
1 EUR = GBP 0.86 Berlin guide (direct payment) 135 Euro 135.00 114.75
City guide (direct payment) 150 Euro 150.00 127.50
Leipzig guide 105 Euro 105.00 89.25
Dresden guide (direct payment) 95 Euro 95.00 80.75
Erfurt guide (direct payment) 70 Euro 70.00 59.50
Entrance fees Leipzig Church entrance (p/p) 1.2 Euro 16.80 14.28
Colditz entrance (p/p) 7.5 Euro 105.00 89.25
Welcome drink Day 2 Berlin hotel (p/p) (paid direct by tour manager) 3 GBP 42.00 42.00
Day 5 Dresden hotel (p/p) (paid direct by tour manager) 3 GBP 42.00 42.00
Baggage handling Five hotels × 2 = 10 2 GBP 28.00 28.00
Ferry costs 850.00
Fuel 3000.00 3000.00
Drivers costs Wages GBP 450.00 450.00
Accommodation (often gratis)
Tour manager costs Wages 9 × £60/day GBP 540.00 540.00
Accommodation (often gratis)
Total costs 7097.28
Mark-up (30%) 2129.18
VAT on mark-up (20%) 425.83
TOTAL 9652.29
Cost per person 690.00a
SELLING PRICE 745.00b
103

a
Rounded figure; bincluding 8% commission.
Summary However, these SMEs are not only
evident in the broad markets of adven-
In general, all tour operators start out ture and nature, but also, as Fig. 5.1 ex-
as a micro-enterprise (less than ten em- emplifies, in a host of other areas, which
ployees). From such a base, the successful even then can be further subdivided. But
operator will grow and develop into a each in their own way still require the
sustainable enterprise and potentially support of service providers on the
into a major international company with ground. The extent of their reliance on
a stock market listing. However, in nu- such suppliers clearly varies with the
merical terms the latter are relatively few operator, as illustrated by coach tours.
among the myriad of tour operators. Ob- This market could be considered to have
viously, there are many steps in between had its day between the 1930s and
as well as different growth strategies (see 1970s, subsequently surpassed by inter-
Chapter 3, this volume). But, as success national air travel packages and car
of operators has been evident and de- ownership. Today it is a macro-niche
mand sustained, then so too have the op- market evidently providing further
portunities for entrepreneurs to enter the opportunities for small/medium-sized
marketplace, often through identifying a operators tuned into new itineraries,
niche market or presenting an offering new style coaches with more attention
that differentiates that operator’s package to customer comfort and interests, albeit
from similar packages available. Hence it their major source markets have and
is not surprising that, in the developed continue to be attracted to cruising. An
economies of the world, we can identify alternative strategy for an SME in the
the presence of a remarkable number and tour operating marketplace is to build
range of small and medium-sized tour ‘in-house’ expertise to create packages
operators. for customers seeking their own experi-
A significant factor about these small ence but who do not have the time and/
operators is that they are neither vertically or expertise to organize such a trip
nor horizontally integrated (though there themselves. Hence the appearance in the
are exceptions) and therefore they require sector of tailor-made packages, devel-
the support of ground handling agents oped according to customer require-
and often other similar-sized principals in ments by agents with the requisite
their package destinations to provide the knowledge and skills to create their cus-
key services, e.g. transfers, accommoda- tomized trip.
tion, activities. As such, they are arguably Overall, it is the SMEs that com-
contributing more directly to a destina- prise the bedrock of the sector. Obvi-
tion’s locality and economy. This is not ously, some will fail while others will
only because of their size and therefore grow and prosper, developing into a
capacity to operate tours, but also due to major business potentially to be taken
operating predominantly in the niche over by a larger operator seeking to ex-
tourism market, away from the macro-­ pand and/or diversify its own product
niche end of the spectrum in localities portfolio. However, some of these spe-
more attuned to their tours, e.g. adven- cialist operators, especially in the ad-
ture, nature. This adds to the complexity venture/nature sector, will continue to
of their tours and thereby means costing a operate as a SME presenting quality
package is often more complex, more de- products, attuned to their customers’
tailed and fraught with potential errors. interests and requirements.

104 Chapter 5
Discussion Questions 5. Are small tour operators offering
low-key, small group tours more in
1. What are the typical problems faced keeping with the concept of responsible
by small to medium-sized tour operators? tourism and sustainability than inter-
Illustrate your answer with specific national operators offering 3S-style
examples. package holidays?
2. Tourism and entrepreneurship are in-
trinsically linked – without entrepreneurial
skills any tourism business will fail. Examine Key Terms
the validity of this contention with specific
reference to small-sized tour operators. ●● Niche: A niche means a segment is
3. Examine the problems faced in estab- very small and specialized.
lishing a tour operator business and the ●● Oligopoly (oligopolistic): An oli-
extent to which they need to develop gopoly is a market structure that is
niche products. dominated by a few firms and is said
4. With reference to two notable tourism to be highly concentrated.
entrepreneurs, examine the problems ● ● SME: Small and medium-sized en-
they faced establishing the business, the terprises. (Medium = less than 250
extent to which they developed niche employees; small = less than 50
products and the impact of larger tourism employees; micro = less than ten
organizations on the ventures. employees.)

Internet Exercise
UNWTO have produced a Global Report on Adventure Tourism: cf.cdn.unwto.org/sites/
all/files/pdf/final_1global_report_on_adventure_tourism.pdf

Questions
●● Discuss the benefits of adventure tourism to local economies.
●● What problems do these companies face in commodifying adventure?

Mini Case Study


Read ‘Capturing the Asian millennial traveller’, available from www.yoursingapore.com/
content/dam/MICE/Global/bulletin-board/travel-rave-repor ts/Capturing-the-
Asian-Millennial-Traveller.pdf

Questions
●● What are the issues in trying to attract these customers?
●● What type of products could you design to encourage potential customers to
book package holidays rather than create their own?

Small and Medium-sized Tour Operators 105


Major Case Study
Overland tours
Overland tours are long road trips using self-reliant vehicles usually for a maximum
number of 22 passengers (see Intrepid, Oasis Overland, Dragoman), often termed ex-
pedition tours. The principal goal of these tours is to cover large distances using road
routes rather than flights, often visiting places where the infrastructure is poor and lo-
cations are remote. For example, an 84-day trip from Kathmandu to Singapore via New
Delhi, Bhutan, Myanmar, Vietnam, Cambodia and Malaysia, or a central Asia overland
trip starting in Tehran, Iran and finishing in Kazakhstan taking 40 days.
The majority of these tours use tented camping or local hostels and guesthouses
for accommodation. The quality of the accommodation will vary due to the remoteness
of the stopping point. Food is cooked on equipment carried on board. Packages usually
include breakfast and an evening meal, with lunch being bought along the way.
Specialist expedition vehicles are used because of the types of roads encoun-
tered. These trucks are basic but comfortable and are equipped for mechanical break-
down (e.g. toolkits and spares) or getting stuck (e.g. sand mats, ropes, shovels and
pickaxes). In addition, they carry substantial amounts of water and are equipped with
cooking facilities, solar showers and toilet tents for bush camping.
The tours are usually operated by two expedition leaders/drivers who need to be
trained as garage mechanics as well as cooks. These leaders are not guides but will be
knowledgeable about the route and attractions. Passengers are expected to work to-
gether as part of a team, including daily shopping, cooking, cleaning and disposing of
rubbish. Other jobs such as collecting water and firewood, managing the food stores
and loading luggage are allocated on a rota basis to team members.

Questions
●● What are the difficulties in organizing and operating overland trips?
●● What type of passenger would purchase such expeditions?

Recommended Reading Font, X., Tapper, R., Schwartz, K. and


Kornilaki, M. (2008) Sustainable supply
An excellent overview of the breadth of chain management in tourism. Business
Strategy and the Environment 17, 260–271.
adventure holidays on offer is presented in:
Buckley, R. (2006) Adventure Tourism. CAB
International, Wallingford, UK. References
Interesting coverage of a niche product Buckley, R. (2006) Adventure Tourism. CAB
with growing support can be found in: International, Wallingford, UK.
Dickinson, J. and Lumsden, L. (2010) Slow Buckley, R. and Mossaz, A.C. (2016)
Travel and Tourism. Routledge, London. Decision-making by specialist luxury
travel agents. Tourism Management 55,
As many small operators are reliant on third- 133–138.
party suppliers, integrating sustainability Buhalis, D. (2001) Tourism distribution channels:
into their supply chains is important. See: practices and processes. In: Buhalis, D.

106 Chapter 5
and Laws, E. (eds) Tourism Distribution Mancini, M. (2012) Conducting Tours:
Channels. Continuum, London, pp. 7–32. A Practical Guide. Thomson Learning,
Enterprise and Industry Publications (2005) New York.
The New SME Definition: User Guide Mintel (2010) Activity Holidays – UK. Avail-
Model Declaration 2005. Publications able at: http://academic.mintel.com/dis-
­Office, European Commission, Luxembourg. play/508054, accessed 2 August 2016.
Hayhurst, L. (2016) Number of agents and Mintel (2014) Coach Holidays UK. Available
tour operators return to pre-recession at: http://academic.mintel.com/display/
levels. Travel Weekly 26 February, 2. 679817/, accessed 24 July 2016.
Holland, J. (2012) Adventure tours: respon- Mintel (2015) Luxury Travel – UK November.
sible tourism in practice. In: Leslie, D. (ed.) Available at: http://academic.mintel.com/
Responsible Tourism: Concepts, Theory display/756040/, accessed 10 July 2016.
and Practice. CAB International, Walling- Nylander, M. and Hall, D. (2005) Rural tourism
ford, UK, pp. 119–129. policy: European perspectives. In: Hall, D.,
Holland, J. (2015) The understanding and im- Kirkpatrick, I. and Mitchell, M. (eds) Rural
plementation of responsible tourism for Tourism and Sustainable Business.
adventure tour operators. Doctorate of Channel View, Bristol, UK, pp. 17–40.
Business Administration, Northumbria Robinson, M. and Novelli, M. (2005) Niche
University, Newcastle, UK. tourism: an introduction. In: Novelli, M.M.
Keynote (2015) Tour Operator Activities. (ed.) Niche Tourism: Contemporary Issues,
Available at: https://www.keynote.co.uk/ Trends and Cases. Routledge, Oxford,
market-digest/travel-leisure/tour-operator- UK, pp. 1–14.
activities-0, accessed 5 January 2016. Shearings (2016) Interchanges. Shearings
Lubbe, B. (2000) Tourism Distribution: Man- Holidays. Available at: http://www.shearings.
aging the Travel Intermediary. Juta & Co. com/about-us/our-interchanges, accessed
Ltd, Kenwyn, South Africa. 26 July 2016.

Small and Medium-sized Tour Operators 107


6 Customer Service

Learning Objectives co-create the tourist experience with the


customer. Positive interactions with staff
After studying this chapter, you should can add value and delight to the consumer
be able to: experience and are frequently the focus of
training. Therefore, it is important that op-
●● Understand the importance of cus-
erators recognize it is not only the manage-
tomer service.
ment of their own components of a tour
●● Appreciate the importance of service
that will contribute to success. It is also
quality.
about managing service, managing the ex-
●● Understand methods of measuring
perience and managing customer expect-
service quality.
ations if such success is to be sustained.
●● Understand the importance of man-
Thus, the overall importance of customer
aging service encounters efficiently and
service and service quality cannot be over-
effectively.
stated. Furthermore, service quality has
●● Understand the role of customer
been identified as providing opportunities
­satisfaction.
for long-term competitive advantage.
●● Examine customer loyalty.
The focus of this chapter is therefore
●● Examine the impacts of service failure
on customer service and how tour oper-
and recovery.
ators can improve service quality, which
is not just a matter of managing the cus-
tomer/provider interface but also how
Introduction
service quality may be assessed. This leads
on to addressing customer satisfaction and
Tour operators’ products encompass many
loyalty and ways in which the tour oper-
individual components and while some
ator can seek to improve their own per-
may be owned by the tour operator, many
formance. The key matter of managing
components of the holiday experienced by
service recovery in the event of adverse
a tourist are not under their direct control.
incidents concludes the chapter.
For example, the airline the passengers
travel with, the hotel they stay in and the
hospitality enterprises or attractions they
visit may be operated by other companies. Customer Service
This is particularly pertinent in the tour and ­Satisfaction
operating sector, which has unique charac-
teristics (see Chapter 10, this volume), and In an age of hyper-competition, simply
wherein the interactions between cus- meeting the requirements of the customer
tomers and staff play a fundamental role in by providing quality products is no longer
the holiday experience. This is because it is sufficient to maintain market share and
a service-based sector that relies on staff to market position. As service capabilities

108© J. Holland and D. Leslie, 2018. Tour Operators and Operations: Development,
Management and Responsibility (J. Holland and D. Leslie)
increase and tourist expectations are more ●● Basic factors: These are the minimum
demanding, value-added services and requirements that are expected of a
­customer-focused strategies are necessary product – the basic attributes of the
for survival. Not surprisingly, therefore, service – to prevent the customer
customer service has been promoted as from being dissatisfied. They do not
being a method of achieving sustainable necessarily cause satisfaction, but
competitive advantage (see Chapter 3, this lead to dissatisfaction if absent.
volume) by adding value to the tourist ex- ●● Performance factors: These are the
perience. This is well encapsulated by Lucas, factors, such as reliability and friend-
in what is arguably the most comprehen- liness, that lead to satisfaction if ful-
sive definition of customer service: ‘the filled or dissatisfaction if not fulfilled.
ability of knowledgeable, capable, and en- ●● Excitement factors: These are factors
thusiastic employees to deliver products that increase customer satisfaction if
and services to their internal and external fulfilled, but do not cause dissatisfac-
customers in a manner that satisfies iden- tion if not fulfilled.
tified and unidentified needs and ultim-
In other words, tour operators need
ately results in positive word-of-mouth
to ensure that the basics of their package
publicity and return business’ (2014, p. 7).
are in place to meet the essential elements
This definition clearly reinforces the im-
of the holiday and that these are delivered
portance of the role of staff in de-
throughout the holiday at an acceptable
livering quality service. It is unequivocal
standard at the very minimum. However,
that positive experiences lead to customer
given the level of competition, this in
satisfaction, which in turn engenders loy-
itself may be considered unsatisfactory
­
alty and potential repurchase (Brunner
and tour operators should be aiming to
et  al., 2008), and also ‘word-of-mouth’
achieve outstanding customer service.
(WOM) and ‘e word-of-mouth’ (eWOM)
Thus the whole process of delivery needs
recommendations that can differentiate
to be set in a context of striving to achieve
the tour operator from competitors.
service excellence. As Cronin and Taylor
Customer satisfaction, in effect, is a
(1992) argued, outstanding customer ser-
feeling of pleasure that results from com-
vice has been seen to be one of the most
paring a product or service’s perceived
effective and least expensive ways to pro-
performance or outcome with expectations
mote a business. Companies that recog-
(Kotler et al., 2009). As Pearce (2005) ob-
nize the importance of this may also be
serves, satisfaction is a post-experience at-
particularly attractive in terms of being
titude based on evaluating the experience
a good employer. As McCarthy stated,
once it is complete, which will then inform
‘whenever you find a company whose
future purchases. Satisfaction is linked to
customers report an exceptionally high
the customer’s expectation (level of fulfil-
level of satisfaction, almost invariably
ment) and can be considered a long-term
that company also has high levels of em-
evaluation, whereas quality is linked to
ployee satisfaction’ (1997, p. 4).
consumption and is evaluated invariably
within the context of a single event inter-
action (see below). The relationship be-
tween satisfaction and service quality is Service quality
key to understanding customer satisfaction.
Matzler and Sauerwein (2002) suggest that One of the main elements determining
the factors affecting customer satisfaction customer satisfaction is the customer’s
can be considered in three ­categories: perception of service quality. In general,

Customer Service 109


a customer’s perceptions of service quality manufacturing industry. As Berry et al.
arise from comparison of their expect- (1988) argued, service quality has become
ations before they receive a service with a significant differentiator and the most
their actual experience of that service. powerful competitive weapon which is
However, tourists judge the satisfaction manifest in leading service organizations
of tourism products based on the quality and is set as the key operational goal in
of their experience, and interactions many organizations (Foster, 2014).
within the complex tourist system, in In summary, excellent service quality
comparison with their expectations. Thus delivers the outcomes that tour operators
tourists have initial expectations (formed look to achieve, that is customer satisfac-
through advertisements, brochures, mass tion, repeat purchases, customer loyalty
media and internet searches, information and positive promotion of the company,
from friends and relatives) about the type which can lead to lower marketing costs,
and quality of products and services opportunities for premium pricing and
offered by the tour operator and at the ultimately increased profitability.
tourist destination. To meet and exceed
those expectations it is important to
understand what expectations tourists Managing the Service
have and how tour operators can seek to ­Encounter
ensure satisfaction, which is an important
antecedent of loyalty. Outstanding service The service encounter can be defined as
(or service excellence) is therefore about the interaction between the tourist and a
managing customer perceptions and ex- representative of the tour operator, essen-
pectations such that the customer feels tially front-line staff or subcontracted em-
that their experience has fulfilled their ex- ployees. The outcomes of the service depend
pectations. Ideally, the aim of the tour op- on the knowledge, personality, b ­ ehaviour
erator is therefore not only to satisfy the and performance of these e­ mployees and
tourist’s expectations as a minimum but when implemented successfully will lead
to exceed them. to positive outcomes: satisfaction, loyalty
Significantly, the provision of a high-­ and positive reviews. Thus, it is important
quality experience ultimately falls on the that tour operators understand how to
front-line staff and therefore tour oper- manage these interactions. Furthermore,
ators must promote a customer-­focused as service quality is a nebulous concept,
approach, ensuring that not only do their with each customer assessing the product
products meet the expectations of their or service from his/her own perspective, it
customers but also that the service de- is essential to try to understand what cus-
livery is of the highest standard. Indeed, tomers are looking for and what they
a quality experience can only exist to the consider to be quality services. As such,
extent that the operator’s product and tour operators must manage service
service meets the needs and expectations quality based on the expectations of the
of the customer. In effect, that the cus- tourist, that is they should make the cus-
tomers receive the service they envisaged tomer/the tourist the focal point, in what
and ideally it surpasses their expectations. is termed a ‘customer centric’ rather than
Thus as Berry and Parasuraman suggest, a ‘product centric approach’ (Kandampully,
‘the proof of service [quality] is in flaw- 2006).
less performance’ (1991, p. 15), which In the case of tour operators, the po-
has its roots in ‘zero defects’ of total tential customer may have dealings with
quality management, a tool used in the different organizations before they have

110 Chapter 6
any interaction with the holiday operator. hospitality staff. Customer service, in
Further, once on holiday, they will have particular the role of the resort represen-
service encounters with other suppliers, tative, is the most frequently complained
thus the experience is gauged not by the about facet of a package holiday. It is
separate elements but the totality of ex- ironic therefore that the majority of
periences. This is made even more com- front-line staff who deal with customers
plex because of the length of duration of are often the youngest employees and
the holiday, the numerous service providers that despite the gradual move to tech-
and geographical locations where the ser- nology, e.g. self-check in, off-line sales,
vice takes place. However, throughout this they still provide the key feature of the
delivery process the tour operator should package holiday, yet they are more than
recognize that there are many extraneous likely to be the least trained staff and fre-
factors that can affect tourist satisfaction, quently receive low pay.
in particular stress. Stress caused by any
aspect of the trip can lead to dissatisfac-
tion with the holiday product, as Moments of Truth
Swarbrooke and Horner (2016) illustrate
in the following examples: Service encounters are the interactions
between customer and service delivery,
●● Difficulties over money.
which may be a brief encounter or form a
●● Transport delays.
key component of the holiday and will
●● Unfamiliar customs and food.
vary according to the employee’s role. Jan
●● Performance of service staff.
Carlzon, the former CEO of Scandi-
●● Failure of accommodation services.
navian Air Systems (SAS) (Carlzon, 2001)
●● Relationships with other tourists.
coined the concept ‘Moments of Truth’,
●● Personal safety and health.
referring to all the interactions that the
●● Unforeseen incidents.
customer, or even potential customer, will
●● Problems with foreign languages.
have with an organization. But, as Baum
For escorted packages and those that (2002) argued in the case of tourism, each
include the services of a tour manager Moment of Truth is not equal, as each
and/or a resort representative, the per- interaction does not have the same inten-
formance of the staff is critical to achieving sity as far as the customer is concerned,
customer satisfaction. The staff are the yet delivering a quality experience is cen-
ones who sell the next package because tral to managing each such moment.
their performance affects not only the sat- These encounters may be remote (no direct
isfaction of the tourist, but also the com- contact between the customer and the
pany image and reputation. Therefore, the service provider, e.g. automated services),
interaction between tour operators’ rep- by telephone, or face-to-face; for ex-
resentatives (tour manager or resort rep) ample, Disney claim up to 74 encounters
is critical to the success of both the per visit.
package and the operator. As Carlzon (2001) argued, the first
Managing the tourist–employee en- ‘15 golden seconds’ during which an or-
counter is perhaps one of the most diffi- ganization is assessed by the guest are the
cult aspects for tour operator managers most critical. In the instance of package
and critically important because many holidays, that first 15 seconds is not ne-
of the employees involved in service en- cessarily under the control of the tour
counters will not be in the employment operator; for example, purchasing the
­
of the tour operator, e.g. airline and holiday from an independent travel agent

Customer Service 111


Pax arrives at Luggage
Pax meets Pax allocated
destination removed from
representative to bus transfer
airport bus

Pax Pax listens to Pax takes


Pax checks in
disembarks commentary luggage to
to hotel
bus by rep room

Fig. 6.1.  Arrival at destination and transfer to resort; indicative interactions.

or interactions with cabin crew on a greater number of experiences to compare


scheduled flight. The frequency and number with when evaluating whether the product
of service encounters and therefore po- has met their expectations. According to
tential opportunities for failings can be Voss et al., service quality is defined from
extensive, as illustrated in the sequence of the provider’s perspective in terms of ‘the
stages presented in Fig. 6.1. For many ability of the provider to consistently meet
customers, a call centre or email exchange customers’ requirements’ (2004, p. 213)
may be the first interaction with the com- and therefore it becomes critical that cus-
pany, and these are frequently the focus tomers’ opinions are sought and service
of many customer concerns. delivery is monitored.
The varying degrees in interaction in- There are many ways to collect data
tensity between the tourists and the em- on customers, which largely depends on
ployees all contribute to constructing an the type of information required and its
impression of the company, the destination purpose. In general, data collection is usu-
and the holiday. High levels of interaction ally divided into two different approaches:
at the pre-travel stage will vary depending qualitative methods, which collect data in
on whether the customer visits a travel the tourists’ own words and quantitative
agent, engages in online negotiations with methods, which usually generate numer-
a tailor-made operator or simply visits ical data. Table 6.1 illustrates some of the
the website. Lower levels of interaction different research methods (further ex-
may take place between the airline and plored below) that can be applied to col-
the passenger, with the customer being a lect information that can then be used to
­passive recipient of the experience. That aid analysis of service quality.
said, unacceptable experiences on the out­
bound flight may negatively impact on
the customer’s perception of the whole Qualitative Data Collection
holiday. As Ryan (2002) argues, whilst
tourists gauge each individual element of ●● Customer interviews. Interviews can
their holiday experience, they base their be used to obtain detailed informa-
evaluation of the holiday on their overall tion directly from customers. Due
experience. to the time-consuming nature of this
method, in terms of time for the inter-
view and transcribing the recording
Measuring Service Quality and then analysing the data, it is not
a frequently used approach. This
Today’s tourist has become more discrim- ­approach is usually used only when
inating and discerning. Tourists are more responding to comments made on
­
likely to be well-travelled and have a customer service questionnaires.

112 Chapter 6
Table 6.1.  Illustration of customer-based research.

Survey method Qualitative Quantitative

Customers Customer interviews Customer service questionnaires


Focus groups Internet and email surveys
Complaint monitoring Customer comment cards
Critical incident technique Online reviews
Customer service questionnaires –
open-ended questions
Travel agent Mystery shopper
Suppliers Critical incident technique
Incident logs
Tour guides/ Tour reports
managers Incident logs

●● Focus groups. This is a time-consum- ●● Mystery shopper. This method of data


ing method of collecting data but the collection is used by many organiza-
information generated can be par-
­ tions, e.g. airlines, hotel chains, res-
ticularly informative as a way of gen- taurants, bars and in particular travel
erating new ideas and comparing agents. Mystery shopper services
experiences. interact in different ways, including
●● Complaint monitoring. Monitoring visits in person, in writing, over the
complaints and sources of dissatis- telephone and by email. Travel Weekly,
faction can help organizations iden- a UK travel industry newspaper,
tify trends, facilities or behaviours that regularly reports mystery shopper
are consistently causing complaint. experiences. The feedback from mys-
Traditionally complaints focus on the tery shoppers is frequently used to
facilities used, specifically the quality identify training needs and bench-
of the facilities and services, food and mark company operations against
beverages and dissatisfaction with competitors. In order to increase the
the description of provision in com- reliability of the results, organiza-
parison with the actual provision. tions provide set standards to the
This will enable operators to make mystery shopper, which they can use
decisions such as changing accom- to assess service; e.g. did the em-
modation suppliers, requesting add- ployee acknowledge you with a
itional provision and even working smile; what were the first impressions
with accommodation suppliers to im- of the shop; and was the information
prove menus. provided accurate?
●● Critical incident technique. This is a ●● Incident logs. These logs record spe-
useful technique for studying service cific incidents that happen during the
quality questions and assessing tour- holiday. They may be related to
ists’ perspectives of service (Chen and health and safety or specific incidents
Hsu, 2012). It can be used to analyse such as loss of personal items.
data collected in several ways, in- ●● Tour reports. These reports are com-
cluding interviews, focus groups and pleted by tour managers/leaders at
questionnaires, by classifying it into the end of each tour. They are used to
categories such as transportation, ac- analyse the level of service and provi-
commodation and experiences. sion by suppliers. These are not the

Customer Service 113


same as accident report forms, which will garner details about the customer’s
are additional documents. Tour man- actual holiday experience, but they do
agers/leaders are in the unique pos- not address the expectations the customer
ition where they can interact with the had prior to the holiday. There has been
customer as front-line staff. much debate about the relevance of ques-
●● Online reviews. These reviews are tionnaires, but they are still a useful tool
posted by customers and are available for large tour operators to identify pos-
to potential customers (see Chapter 10, sible potential issues. The benefits of col-
this volume). lecting and analysing information about
service delivery are numerous, ranging
from the identification of frequent causes
Quantitative Methods of complaints, areas where improvements
of Data Collection could be made, identification of provision
that is not included and feedback about
The most usual method for collecting the accuracy of marketing materials. This
quantitative data is customer service is illustrated in Box 6.1.
questionnaires. These are sometimes re- There are several tools utilizing cus-
ferred to as exit surveys, designed to tomer service questionnaires that have
evaluate the performance of the holiday. been developed to assess customer satis-
Open-ended questions or comment boxes faction and quality. In this text, we con-
allow passengers to provide extra detail sider two of the most widely recognized
about their experiences. They are usually tools. The first is Importance Performance
devised by each company with the aim of Analysis (IPA) (Martilla and James, 1977).
obtaining qualitative and quantitative IPA shows the importance of various at-
data that can be analysed easily, particu- tributes and the performance of the com-
larly if online data collection methods are pany, identifying areas for service quality
used. A customer service questionnaire improvements (see Hudson and Shephard,

Box 6.1.  Customer service questionnaires – Exodus


Exodus, a UK adventure tour operator, use customer service questionnaires, which
they refer to as holiday evaluation forms (HEF), as part of their customer feedback pro-
cess, which is implemented via email. After customers return from their holiday each
customer is emailed a unique personal link to the HEF. Customers who did not book
directly with Exodus may request the link to be sent to them.
The survey has 23 questions addressing the booking process, the trip experience,
specific parts of the trip and additional information. Most questions use a Likert scale,
although there are several Yes/No questions and all have comment boxes for additional
feedback. In order to encourage completion, the tour leader gives passengers reminder
cards and also enters them into monthly voucher competitions. Currently the overall
response rate is approximately 48%. Two weeks after the trip, the returned information
is consolidated into a single trip report (STR) for that departure. The information is re-
viewed internally and comments are sent to any ground handling agents and tour
leaders involved (see Chapter 5, this volume). The STR provides an overview of the
feedback, identifying where problems have occurred, using a traffic light system, green
meaning no problems, amber needs reviewing and improving and red meaning imme-
diate action needs to be taken.

114 Chapter 6
1998). In effect, IPA assesses importance ●● Low priority: This quadrant includes
and performance information related to a attributes that receive low scores for
customer’s experience. It  is a popular both the importance and perform-
method for measuring the significance ance scales. The tourist views these
placed on various attributes and their attributes as being low in importance
perceived performance. IPA can be used and therefore these attributes require
to measure both the extent to which tour- little attention.
ists are satisfied and also how important
IPA identifies attributes performing
certain attributes are by rating on a Li-
at a satisfactory level and attributes that
kert scale. The importance-performance
require attention. For the tour operator,
attributes are analysed and placed in a
it  enables better identification of cus-
matrix based on their perceived import-
tomer products and services that need to
ance and performance to the customers
be improved, where high importance and
(see Fig. 6.2).
low performance attributes are identified.
The four quadrants can be summar-
The second tool to consider is that of
ized as follows:
SERVQUAL (Parasuraman et al., 1985).
●● Keep up the good work. This quad- SERVQUAL is a model that aims to measure
rant contains attributes that tourists the gap between consumer expectations
think are important and that perform of the service and perceptions of the ac-
highly. Attributes should remain in tual service received. An overall service
this quadrant. quality score can be assessed based on
●● Concentrate here: This quadrant in- five dimensions: tangibles, reliability, re-
cludes attributes that are important sponsiveness, assurance and empathy
to the tourist but for which perform- (see Table 6.2). Expectations and per-
ance is low. Attributes in this quad- formance can be measured using pairs
rant require the most attention. of  questions, for example questions to
●● Possible overkill: This quadrant con- measure expectations could be presented
tains attributes that received low im- as ‘­organization X should be dependable’,
portance ratings and high performance whereas questions to measure perform-
ratings, indicating that resources should ance could be presented as ‘organization
be reallocated. X is dependable.’

High

Concentrate Keep up the


here good work

Importance

Possible
Low priority
overkill

Low Fig. 6.2.  Importance performance


analysis matrix. (From Chen et al.,
Low Performance High 2012, p. 49.)

Customer Service 115


Table 6.2.  The dimensions used in SERVQUAL. (Derived from Hudson et al., 2004; Cheyne
et al., 2006; Wirtz et al., 2012.)

Dimension of
service quality Definition Tour operator illustration

Tangibles The appearance of physical Quality of the brochure, website.


facilities, equipment, personnel Attractiveness of accommodation,
and communication material representative appearance
Reliability Ability to perform the promised Confidence in the product
service dependably and purchased, that the package
accurately bought is what will be received
Responsiveness Willingness to help customers and Speed at which problems are
provide prompt service resolved
Assurance
Credibility Trustworthiness, believability, Honest and helpful information
honesty provided by sales teams,
knowledge and experience,
specialist staff. Reputation of
the tour operator
Security Freedom from risk, danger or Confident about payment security,
doubt safety of facilities, e.g.
accommodation, safety of
destination. Insurance policy.
Provision of guide or
representative to help if
something goes wrong
Competence Possession of skills and knowledge Product knowledge and ability to
required to perform the service answer questions
Courtesy Politeness, respect, consideration Interpersonal skills by all staff
and friendliness interacted with, e.g. demeanour,
politeness and consideration
Empathy
Accessibility Approachability and ease of Approachability of staff or operator,
contact e.g. phone number. Location of
accommodation. Access to
attractions
Communication Listening to customers and Keeping customers informed if
keeping them informed in a there are issues. Providing
language they understand guidance and information in a
suitable language
Understanding Making the effort to know Adapting products to meet
the customer customers and their needs customer needs, e.g. flexible
itineraries, upgrades, optional
excursion provision

The results for each of the five di- Both tools are not without criticism.
mensions of the customer service can be Buttle (1996) summarizes several theor-
analysed using data analysis packages etical and operational criticisms, com-
such as IBM SPSS Statistics or Excel to menting that SERVQUAL is based on a
identify areas where customers’ expect- disconfirmation paradigm (meaning that
ations are not being met. the customer either agrees or disagrees)

116 Chapter 6
rather than an attitudinal paradigm, that develop employees rather than addressing
the five dimensions are not necessarily deficiencies is key to attracting pro-
applicable to all service encounters and spective employees and thus recruitment,
that the administration of two separate retention, engagement and innovation
surveys (expectation questions and per- (see Chapter 11, this volume).
formance questions) for collecting data is
confusing.
Customer Loyalty
Improving Service Quality Customer loyalty is important to all busi-
nesses. It is the feeling of attachment for a
Clearly the key to managing customer company, the product or service, and the
service and demonstrating service quality commitment to re-patronize that company
is to know what the customer wants and in the future despite alternatives being
to develop the right products and services available. Developing and maintaining
to support their expectations. customer loyalty, that is creating long-term
There are many ways in which tour relationships with customers, is key to an
operators have tried to manage service operator’s growth and success. Loyalty
encounters, such as providing standard- can be both behavioural, that is when a
ized information, staff training, adopting consumer repurchases the same brand
a customer-centric culture and recruiting without considering others, and/or emo-
new staff with customer service experi- tional, that is a psychological preference
ence who appreciate the company’s cus- and an attachment to a brand. C ­ ustomer
tomer service values. Staff are particularly loyalty is not to be confused with customer
important because they represent the face satisfaction. The latter is an indication of
of the company. There are many chal- how well a customer’s expectations have
lenges that tour operators and their staff been met, whereas c­ ustomer loyalty indi-
face in their multi-dimensional role; for cates how likely c­ustomers are to repur-
example, not only completing their oper- chase. Loyalty is achieved when a customer
ational tasks but also problem solving, feels that the company best meets their
health and safety matters and ‘up selling’. needs in comparison with the competition
Therefore, as Mill (2002) argues, an em- to the point that they exclude other com-
phasis on training is crucial to an organ- panies from their consideration.
ization. However, management too often There are many ways through which
see training as an expense rather than an companies can encourage loyalty. ­According
investment and yet it is an essential tool to Wirtz et al. (2012), these i­nclude:
for not only providing service quality but
also enhancing employee motivation. ●● Managing service encounters.
­Although many benefits of training are ●● Providing customer incentives.
hard to measure due to their intangible na- ●● Offering enhanced services to loyal
ture, there is a raft of evidence to support customers.
the theory that comprehensive training ●● Developing pricing strategies to en-
leads to a higher level of return on invest- courage repeat purchase, e.g. discounts.
ment. Training staff provides the employee ●● Maintaining up-to-date information
with the competence to do the job, which about customer purchase history and
leads to job satisfaction, which in turn can preferences.
improve productivity and ultimately prof- ●● Communicating with customers indi-
itability. Furthermore, p­ ositive t­raining to vidually.

Customer Service 117


While marketing generally focuses or giving some form of information
on attracting new customers, it is much to enable the operator to contact
more cost-effective to seek to retain cus- them. They are people who may turn
tomers. In the highly competitive market- into customers.
place of tour operators, it is not surprising ●● Customer: this is someone who has
therefore to find that the emphasis of bought a product and therefore should
their marketing strategies has shifted be more important to the company in
from customer acquisition to customer comparison with a prospect who has
retention; that is, gaining and keeping yet to buy.
loyal customers. One of the most fre- ●● Client: once at this stage, these cus-
quently used models to demonstrate cus- tomers have developed a degree of
tomer loyalty is the Customer Loyalty trust in the company and like the
Ladder, which characterizes customers in products on offer. Research suggests
the context of loyalty (see Fig. 6.3). customers who make more than two
This model is a simple construct sug- purchases are ten times more likely
gesting that companies should convert to purchase another one in com-
suspects into prospects and so forth. parison with those who purchase just
one. Logically, these types of cus-
●● Suspect: this relates to when cus-
tomers particularly deserve attention.
tomers have heard about the holi-
●● Advocate: this is a customer who has
days from advertising or from a
not only purchased an operator’s
brochure; they may or may not be
product but actively engages in WOM/
interested in the product.
eWOM promotion. This may be to
●● Prospect: these are suspects who
friends and family but also includes
have taken some form of action such
participation in consumer review sites
as visiting the tour operator’s web-
such as Trip Advisor, travel blogs or
site, subscribing to their newsletter
comments on company websites.
Several authors (see Blanchard and
Bowles, 2011; Kazanjian, 2013) have sug-
Partner gested that there is a further rung on the
loyalty ladder, the ‘Partner’, sometimes re-
Advocate
ferred to as ‘Raving Fan’, which can only
be attributed to 5% of customers or less.
These are the most valuable customers in
Client that they automatically choose the same
tour operator for their holidays and are
likely to remain loyal if the product con-
Customer tinues to meet their expectations.

Prospect Maintaining Loyalty

Undoubtedly customer loyalty helps


Suspect achieve higher profits for companies, in-
creased employee satisfaction and greater
potential growth for the company. That
Fig. 6.3.  Customer loyalty ladder. said, the relationship between satisfac-
(From Christopher et al., 1991, p. 48.) tion and loyalty is not linear because

118 Chapter 6
there are many influences on loyalty. Customer Relationship
Therefore, tour operators need to under- ­Management
stand the needs of their target market and
critically what influences satisfaction and Developing a relationship with existing cus-
loyalty. This will vary by type of product tomers invariably will lead to repeat busi-
and the targeted market. For example, ness as well as the promotion of the company
for operators offering premium products, through positive WOM/eWOM. Therefore,
the quality of the accommodation will good customer service and quality, which
have a high customer priority, whereas itself is a key part of a company’s strategy,
speed and efficiency may be the critical is a primary objective and should not be
attributes for other customers. understated. Trust and commitment are
Loyalty schemes exist and are ex- key to developing a relationship with cus-
tremely popular for many principal com- tomers, and for customers to feel com-
ponents of the holiday product, such as mitted to an organization it is likely that
accommodation suppliers, and for many they will have shared values. That is, they
airlines who reward passengers with on-­ feel the company represents their interests
board credit, premium upgrades, VIP air- and they trust the company to deliver what
port access and waived supplements. Some they expect, which is primarily achieved
tour operators, such as the Australian ad- through marketing communications.
venture holiday company Intrepid, have These important facets of customer
recognized the value of loyal customers relationships develop over time and ideally
and introduced loyalty schemes to en- lead to a long-term relationship. The
courage repeat bookings. These schemes maintenance of such relationships aligned
often involve discounts on subsequent with encouraging repeat purchasing will
purchases, and/or a discount for referrals, ultimately increase the customer lifetime
e.g. introducing a friend who makes a value (CLV) of the customer to the busi-
purchase. It is surprising that more, par- ness, which brings into focus customer
ticularly the mainstream tour operators, ­relationship management (CRM) (see
currently do not have such loyalty schemes. Fig.  6.4). This is the ‘ability to identify
Loyalty schemes do not only exist and establish, maintain and enhance and,
for tourists, but also for distributors of when ­ necessary, terminate relationships
their holiday products (B2B – Business to with customers and other stakeholders,
Business loyalty schemes). Most leading so that the objective of all parties in-
travel companies offer exclusive schemes volved are met; and that this is done by
that recognize top-performing agencies mutual exchange and fulfilment of prom-
and can include black-tie events and ex- ises’ (Grönroos, 1997, p. 407).
clusive insider training programmes that
help agents stay ahead of the competi-
tion. By offering agents discounted travel, Customer
free travel and/or a points-based shop- service
ping catalogue of merchandise, gift cards
Relationship Service
and other prizes, operators (or brands) management quality
are hoping to increase agent loyalty.
There are many small and medium-sized
tour operators (or sub-brands) that offer Marketing
loyalty schemes to travel agents to en-
courage agents to promote and sell their Fig. 6.4.  Customer relationship
packages. ­management.

Customer Service 119


CRM is integral to the marketing tourist’s holiday experience and their im-
strategy and often part of a promotional pressions of the tour operator. In fact,
campaign. For example, when a tourist many of the problems that do arise are
views a tour operator’s website, they may unforeseen and/or uncontrollable. But for
enter their email details to receive add- the customer, the problem needs to be re-
itional information and most certainly if solved and they will turn to the staff that
s/he proceeds to make a reservation. The they see regardless of where the problem
data gained can then be used to send in- originated and therefore not necessarily
formation, newsletters or interaction via the service provider.
social media, about other products that Service recovery is critical to man-
are tailored to their interests. aging customer expectations and reducing
As customers develop a relationship negative WOM/eWOM commentaries.
with the company, they usually expect Dealing with problems swiftly can prevent
some form of recognition. The introduc- a small complaint becoming a larger issue
tion of CRM software and integrating and going from ‘in-house’ to the public
this into booking systems will enable domain via social media. A brief review
companies to track and monitor repeat of posts on TripAdvisor will provide suf-
customers, which could then be used to ficient evidence to see how quickly nega-
automatically reward them. Such an ap- tive posts and comments can spread and
proach has been adopted by TUI. Their how frequently comments are more about
CRM system includes a comprehensive how a complaint was handled rather than
loyalty scheme facilitating the offer of the complaint itself. Therefore, it is essen-
free excursions, room upgrades and pos- tial that tour operators deal with problems
sibly VIP invitations for cocktail parties, as quickly as possible and in the process
most of which will be provided by their handle complaints either face-to-face or
suppliers and therefore have little cost online swiftly and effectively to a positive
to TUI. In addition, TUI are looking to resolution for the customer. Furthermore,
­incentivize customers to book their next the attention of EU-based tour operators
holiday while still on their current holiday. to customer complaints is encompassed
Cliff Hudson, the Head of CRM at TUI within the EU’s Package Travel Directive
UK, stated that ‘effective CRM is less to (see Chapter 8, this volume), which sets
do with the automation of systems and out specific processes and timelines for
more to do with the integration of customer- dealing with such matters. Many tour op-
focused learnings so you can target your erators employ staff to deal specifically
clients with a marketing message in an with customer complaints; certainly, the
appropriate manner. It’s not rocket science. large operators have specific departments
It brings together technology, data and dealing with post-holiday customer con-
common sense’ (Travelmole.com, 2002). tact to enable swift resolution.
There are several key techniques for
dealing with customer complaints, in-
Service Recovery cluding:

A service failure is not always the fault of ●● Respond quickly to the customer,
the tour operator or their representatives. thanking them for their contact.
A scheduled flight as part of a package ●● Ensure that clear procedures and
holiday is not controlled by the tour op- timelines are provided to the customer.
erator and yet any unsatisfactory experi- ●● Adopt a patient and empathetic ap-
ence on that flight may impact on the proach in all communications without

120 Chapter 6
apportioning blame and accept con- spite of the fact that there was a problem
structive criticism where appropriate. in the first place.
●● Complete the appropriate research
which may involve requesting reports
from resort representatives, tour man- Customer Satisfaction
agers, suppliers and other third parties. and Profitability
●● Maintain contact with the customer
and involve them in the process by Ensuring customer satisfaction is one of
updating them on a regular basis. the key strategic goals of many organiza-
tions. This is widely recognized as being a
Many customer complaints can be contributory factor to performance out-
dealt with in situ, that is while the cus- comes such as profit. Basically, retaining
tomer is on holiday. Companies such as custom and ensuring repeat purchases is
Thomson and First Choice empower their cost effective because the cost of keeping
resort representatives to make decisions a customer is substantially less than
about dealing with complaints and, if ap- trying to attract new customers through
propriate, decide on the level of compensa- advertising and promotion. There are
tion, working within a framework when several tools tour operators can use to as-
making decisions on service recovery. It is sess customer loyalty and profitability, al-
important to find out what the customer though many of the strategic tools include
values in the service and how the company other variables such as employee satisfac-
can put it right, but any form of compensa- tion and productivity. The tools we con-
tion has to be proportional and appro- sider here are the Service Profit Chain
priate, e.g. giving a guest a bottle of wine and the Balanced Score Card, which are
when s/he does not drink wine is hardly frequently used for evaluating profit-
appropriate. Compensation can include ability and customer loyalty.
free activity sessions or admissions to kids
clubs, which do not necessarily mean an
additional cost to the company yet could The Service Profit Chain
be very acceptable to customers and can
result in positive feedback. Also note- The Service Profit Chain (SPC) was devel-
worthy is the Thomson Travel Buddy oped in the late 1990s and assesses the
scheme, introduced by the tour operator sources of profitability and growth in ser-
Thomson, which provides an online system vice organizations, i.e. those service com-
to deal with customer queries and com- panies in which staffing is both an important
plaints in resorts and enables representa- component of the total cost and capable
tives to swiftly deal with queries and issues. of differentiating the company service
The speed at which problems are re- from competitors. Essentially, the SPC es-
solved to satisfactory outcome is be- tablishes relationships between profitability,
coming necessarily faster as opportunities customer loyalty and employee satisfaction,
to post social media reviews and ratings loyalty and productivity (Heskett et  al.,
have raised the stakes, and thus the cost 1994). The framework establishes that
of a negative experience is possibly higher. profit and growth are stimulated by cus-
Therefore, skilled service recovery in this tomer loyalty, which is a direct result of
age of hyper-media can be used to the customer satisfaction and this is largely in-
benefit of the company as a speedy ser- fluenced by the value of services provided
vice recovery can result in positive WOM/ to the customers. The value is created by
eWOM promotion of the company, in satisfied, loyal and productive employees.

Customer Service 121


Employee satisfaction, in turn, results pri- ­ erformance. In effect, it is a means of
p
marily from high-quality support services translating the operator’s mission into
and strategies that enable employees to more tangible measurable goals, actions
deliver results to customers (see Fig. 6.5). and performance measures (Kaplan and
The SPC implies that the main ob- Norton, 2001). No single performance
jective is to achieve customer loyalty by indicator can capture the complexity of
providing value. There are a number of an organization’s performance and so the
techniques that can be employed to im- BSC helps managers to examine the busi-
prove performance, including: ness from many different perspectives
based on the company’s strategic object-
●● Feedback from customers – using in-
ives (see Fig. 6.6).
struments such as those discussed in
Technically, it is a management
the section above on measuring ser-
system rather than a measurement system
vice quality.
because it is used to set strategic goals
●● Input from employees – feedback
and objectives for an organization by
from front-line staff who deal directly
providing feedback based on internal
with customers and will therefore be
processes and external outcomes (see
aware of problems that are affecting
Evans, 2015). Based on Cooper and Hall
productivity, satisfaction and loyalty.
(2008), the application of the BSC frame-
●● Implementation of interventions –
work provides the answers to four basic
collecting data and identifying issues
questions.
is only part of the solution; companies
need to ensure that they address the ●● How do customers view the company?
issues efficiently and effectively, e.g. (Customer measure)
employee empowerment, training, ●● How do owners/shareholders view the
company? (Financial measure)
●● What must the company do and excel
The Balanced Score Card in to satisfy customers? (Internal pro-
cesses measure)
The Balanced Score Card (BSC) is an ●● How can the company continue to im-
­effective tool that can be applied by tour prove and grow? (Knowledge, educa-
­operators to manage and improve their tion and growth measure)

INTERNAL SERVICE QUALITY SATISFIED AND PRODUCTIVE EMPLOYEES GREATER SERVICE VALUE
• Selection and recruitment • Employee retention • Increased productivity
• Training • Employee productivity • Increased quality
• Rewards and recognition • Job satisfaction • Lower costs
• Job design, e.g. teamwork, empowerment • Lower costs • Increased service quality
• Management role • Reduction in absenteeism • Increased commitment to customer
• Use of technology service
• Appropriate equipment to fulfil job role

SATISFIED AND LOYAL CUSTOMERS INCREASED PRODUCTIVITY AND


• Meets customer expectations PROFITABILITY
• Increased service quality • Lower employee turnover
• Customer satisfaction • Customer retention
• Reduction in customer complaints • eWOM and WOM recommendations
• Customer loyalty
• Repeat custom

Fig. 6.5.  The service profit chain. (Adapted from Heskett et al., 1994.)

122 Chapter 6
•Revenue • Customer satisfaction
• Expenses • Customer retention
• Net income • Market share
•Cash flow • Brand strength
• Asset value

Financial Customer
perspective perspective

Learning
Internal and
process growth
perspective perspective
•Inventory •Employee satisfaction
• Bookings • Employee turnover
•Resource allocation •Employee skills
• Quality control •Employee education

Fig. 6.6.  The balanced score card.

For each of the measures, a tour op- Summary


erator needs to identify key objectives,
stipulate how the objectives will be There is no doubt that the quality of
measured, decide on targets and identify customer service is fundamental to the
­
and introduce initiatives necessary to sustained success of any business. This is
make improvements. In addition, oper- all the more so for tour operators whose
ators may rank the measures according products and related services are so often
to priority. For example, if the operator entwined with staff in the delivery pro-
has identified that reducing customer cess. Indeed, staff are integral to the
complaints made to representatives in a quality of service and therefore tour op-
resort is a key priority, they may look erators should seek to recruit and retain
to  measure results by evaluating the staff with excellent interpersonal skills
number, severity and sources of the com- who are attentive to their personal pres-
plaints and introduce workforce train- entation (see Chapter 11, this volume).
ing initiatives to reduce the complaints Operators not only need to recognize
and empower staff to provide appro- these traits but also actively support and
priate compensation such as free excur- encourage them through training and
sions or a room change. The BSC can personal development. Therefore, it is not
be  applied at different levels of an or- surprising that the staff of those com-
ganization such as individual operation panies who realize this enjoy a compara-
units, e.g. agencies, a resort, or even tively high degree of employee satisfaction.
­individuals. But it not only affects the operator’s own

Customer Service 123


staff; many others may be involved in the choices between similar packages and
delivery process, as illustrated in the dis- prices, thus a customer may opt for a des-
cussion of Moments of Truth. tination not served by that operator. Such
The quality of service clearly cannot factors help to account for the evident
be overstated and is fundamental to lack of customer loyalty generally in the
achieving customer satisfaction. This tour operator sector. Even so, the value of
should be a ­keystone of the operation. loyal customers and thus potential for
How is customer satisfaction assessed? further purchases and positive promotion
As noted, this is rather nebulous when is not to be dismissed.
examined in the context of package holi- The attention given to customer loy-
days in that the service provision for one alty and how to encourage this draws at-
group of customers, or even within the tention to the customer loyalty ladder
same group, potentially will vary ac- and loyalty schemes designed to help
cording to previous experience and ex- maintain and develop positive, ongoing
pectations of the individuals within the customer relationships. All of this is en-
group. There are diverse methods to gain couraged within the context of customer
such feedback, most commonly through relationship management (CRM). But no
customer comment cards and question- matter how good a tour operator is in
naires, which are increasingly being en- terms of customer service and CRM,
couraged via tour operators’ websites. there will be occasions when some aspect
Through such methods, the operator can of service provision fails in some way.
assess the degree to which customers of Tour operators therefore need to develop
any specific package are satisfied and in a service recovery strategy to ensure that
the process, identify areas for improve- such failings are dealt with efficiently and
ment and potentially opportunities for effectively without rancour, irrespective
development. Customer loyalty, as dis- of the cause of the failing.
cussed, is a progression of customer satis- Overall, customer service is not just
faction and is to be encouraged because about achieving excellence in delivery and
this will not only lead to positive WOM/ thereby very satisfied, potentially loyal
eWOM promotion but potentially fur- customers, nor about the standing of the
ther purchases. Thus, loyalty schemes are tour operator in comparison with com-
to be encouraged. However, customer petitors. It is also about sustaining the
loyalty schemes, which are widely ac- continuing success of the business, which
cepted as encouraging repeat business in terms of the operator’s ‘bottom line’ is
(notably so in the retail sector) are some- profit.
thing of a conundrum within the tour op-
erating sector. A tour operator may enjoy
high levels of customer satisfaction but Discussion Questions
not gain repeat purchase because the
choice of holiday was for a particular 1. Why are service encounters so im-
purpose or event and, as such, a ‘one-off’ portant to tour operators?
occurrence. Even so, the importance of 2. Devise a customer service question-
achieving service excellence should not naire for a tour operator of your choice.
be undervalued because such customers You need to identify what information is
may well promote that company through needed and the best way to measure it.
WOM/eWOM. Another factor in this is 3. What is the difference between tourist
that 3S-type packages invariably present satisfaction and service quality?

124 Chapter 6
4. How may a tourist’s nationality affect ●● Customer relationship management
their perception of customer service and (CRM): To select customers and
the way they may complain? maintain relationships with them to
5. Undertake a mystery shopper exercise increase their lifetime value to the
at a travel agency. What are the limita- business.
tions of using a mystery shopper? ●● Customer satisfaction: The extent to
6. Is SERVQUAL a useful tool for tour which a company’s business ethics
operators? matches or exceeds the expectation of
7. Devise a loyalty scheme for an identi- the customer.
fied operator. What challenges do they ●● Importance Performance Analysis (IPA):
face in trying to achieve loyalty and how Technique used to measure service
may the loyalty scheme overcome such quality.
challenges? ●● Moments of Truth: A customer’s inter-
8. How would you devise a relationship action with front-line employees.
marketing strategy for an identified tour ●● Service recovery: Actions taken
operator? that result in a customer being sat-
9. Is the tour operator responsible for the isfied after a service failure has
environmental behaviour of their cus- ­occurred.
tomers? If an operator considers they do ●● Total quality management: An organ-
have some responsibility, how would you, ization-wide process and system of
as their tour manager, handle customers ensuring that all activities carried out
who behave in environmentally inappro- adhere to pre-agreed standards.
priate ways? ●● Value-added: Features and benefits
over and above those presented by the
standard product.
Key Terms ●● Word-of-mouth/eword-of-mouth
(WOM/eWOM): When someone
●● Customer lifetime value (CLV): A view hears about a product or service from
of customer relationships that looks someone else/finding out about a
at the long-term cycle of customer product or service via electronic media
interactions rather than single inter- such as email, chat lines, social media
actions. sites, bloggers.

Internet Exercise
According to the Consumers Association in the UK, the big holiday companies are not
providing satisfactory service experiences for their customers. The Telegraph lists some
of the most amusing complaints: http://www.telegraph.co.uk/travel/galleries/ridiculous-
complaints-made-by-holidaymakers/

Question
●● How can tour operators respond when customers make reasonable com-
plaints?

Customer Service 125


Case Studies
The following scenarios are real examples of complaints received by tour operators.

Case 1
Mr and Mrs Reynolds have been on holiday to Italy, where they booked a superior room
with balcony. The basic cost of the holiday was for a standard room and to get a ­superior
room along with a balcony they had to pay a supplement. On arrival at the hotel, they
were allocated a standard room without a balcony. They complained to the reception
that this was the wrong room but the hotel did not have any superior rooms available for
two nights. The Reynolds accepted the standard room for the first two nights as long as
they were moved for the remainder of their holiday.
Once they had returned home, they contacted guest services and complained
about being given the wrong room.

Questions
●● What could be the guest services’ response to the guests?
●● How could a tour operator prepare for such eventualities?

Case 2
Dear Smartsun,
My husband and I have just been on a holiday organized by you (Smartsun) to Corfu
from 1st June to 8th June. I am writing today to complain about building works going on
in our hotel – the Hotel Kalimera – that meant that we were unable to relax properly
whilst in our room.
You (Smartsun) had already written to us to advise of the building works as follows:
‘We have been advised by the management team that the hotel will undergo some
renovation works between 14th May and 2nd June on some of the hotel rooms. We
have been advised that noise and visual disruption will be kept to a minimum and no
facilities at the Hotel Kalimera have been affected. Hotel management have confirmed
rooms will be allocated away from the work.’
As we were arriving on 1st June we felt that one day of possible disruption would
be acceptable. What we found was that the workmen were conducting building works
throughout our stay on the floor above our room. They [the workmen] arrived at around
7am and left at 7pm. During that time, there was drilling, banging and shouting – all of
which we could hear only too well given that they were on the floor above and not away
from the work at all. Whilst not consistent throughout the day, it meant that such things
as relaxing or reading or even an afternoon nap would be interrupted.
The building works over-ran and continue to over-run the date you (Smartsun) gave
us – we had not been advised of this before we went. We consider the nature and long
hours of building works in the floor above us as unacceptable in a hotel and certainly
not minimal disruption. For these reasons we expect to receive compensation for having
to holiday in a hotel where the management clearly had no regard for their guests.
I look forward to hearing from you.
Continued

126 Chapter 6
Case Studies.  Continued.

Questions
●● How should the tour operator respond?
●● Should the tour operator consider compensating the guests? If so, what would
the compensation be based on?
●● What could the representative of the company based in the resort do to resolve
the problem at the time?

Case 3
Dear Sir/Madam,
I have just returned from my holiday in India and whilst I had a great time once I got
there, the flight was delayed which meant that I missed out on the first day of my holiday
and my overnight hotel. It was really annoying as no-one told us what time the flight
would leave, we didn’t get refreshments, and when we did get to our destination, we
were expected to have a quick freshen up then go on a sightseeing tour. I was too tired
to enjoy this and missed out on the first proper day in India. I believe that you should be
giving me back the cost of the hotel as I didn’t use it.

Question
●● What would be the response from the tour operator?

Case 4
Mr and Mrs Kumar and their two children booked a skiing trip to Austria. When they got
to their hotel the rooms they were given were not adjoining. They had specifically re-
quested rooms together as the children were quite young and adjoining rooms had
been confirmed. The hotel insisted that they had not received this request from the tour
operator and there were no other rooms available. They contacted their resort represen-
tative to explain the situation and their unhappiness with the situation.
The resort rep did have confirmation that the adjoining room had been requested
but the hotel said they didn’t have any rooms like this currently available. Although the
rooms given to Mr and Mrs Kumar were close, they were not adjoining. The Kumars
reluctantly accepted the rooms but said they would be contacting the tour operator once
they got home as they were very disappointed.

Questions
●● Who is responsible for the failure to provide adjoining rooms?
●● Should the tour operator provide compensation?

Recommended Reading quality but considers this in the context


of dive tourism experiences:
The following article is particularly inter- O’Neill, M., Williams, P., MacCarthy, M. and
esting because it not only explores the Groves, R. (2000) Diving into service
measurement and importance of service quality – the dive tour operator perspective.

Customer Service 127


Managing Service Quality: An Inter- Carlzon, J. (2001) Moment of Truth. Ballinger,
national Journal 10(3), 131–140. Cambridge, Massachusetts.
Chen, J., Stanis, S., Barbieri, C. and Xu, S.
For an illustration of using the Balance (2012) An application of Importance-­
Score Card for assessing tour guide per- Performance analysis to recreational storm
formance: chasing. In: Fisher, C.L. and Watts, C.E.
Huang, L. and Kao, P.-H. (2011) How to tell a (eds.) Proceedings of the 2010 North-
good tour guide under different strategic Eastern Recreation Research Symposium.
orientations. African Journal of Business US Forest Service, Newtown Square,
Management 5(27). Pennsylvania, pp. 45–51.
Chen, W.-Y. and Hsu, C.-Y. (2012) Assessing
For a study identifying five of the most travel business partners using the critical
important service quality factors among incident technique and the analytic hier-
seniors from Taiwan and China: archy process. Tourism Economics 18,
295–310.
Wang, K.-C., Ma, A.-P., Hsu, M.-T., Jao, P.-C.
Cheyne, J., Downes, M. and Legg, S. (2006)
and Lin, C.-W. (2013) Seniors’ perceptions
Travel agent internet: what influences travel
of service features on outbound group
consumer choices? Journal of Vacation
package tours. Journal of Business Re-
Marketing 12, 41–57.
search 66, 1021–1027.
Christopher, M., Payne, A. and Ballantyne, D.
A very interesting overview of the diffi- (1991) Relationship Marketing. Butter-
culties involved in managing tour groups worth Heinemann, Oxford, UK.
for a tour leader and an operator: Cooper, C. and Hall, C.M. (2008) Contem-
porary Tourism: An International Approach.
Bowie, D. and Chang, J.C. (2005) Tourist sat- Butterworth Heinemann, Oxford, UK.
isfaction: a view from a mixed international Cronin, J.J. and Taylor, S.A. (1992) Measuring
guided package tour. Journal of Vacation service quality: a re-examination and ex-
Marketing 11, 303–322. tension. Journal of Marketing 56, 33–55.
Evans, N. (2015) Strategic Management for
Tourism, Hospitality and Events, 2nd edn.
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Customer Service 129


7 Financial Planning: Pricing
the Package

Learning Objectives and managing the revenues effectively


in order to achieve the required profit
After studying this chapter, you should be margin and thereby sustain the business.
able to: This is not as simple as might first be con-
●● Understand the importance and role sidered; for example, deposits and the out-
of costing and pricing in achieving standing balance for the holiday package
the overall objectives of the oper- are paid in advance, while payment of the
ating company. principals involved is often towards the
●● Appreciate the major financial issues end of that package holiday season. This
involved in costing packages. necessitates good cash-flow management.
●● Appreciate the relationship between Further, operators invariably have to deal
costing and pricing. in more than one currency and thus cur-
●● Understand the different pricing rency exchange rates can have a significant
techniques used by organizations. influence on the net profit margin. While
these factors all require careful fi ­ nancial
management, there is then a ­further factor
Introduction to take into account, particularly in the
mass market sphere of operations, that
This chapter provides an overview of of the prices of competitors in the same
­financial considerations pertinent to tour market. The pricing of an inclusive holiday
operators and their impact on pricing. is therefore complex because it needs to be
A good understanding of financial man- competitive and profitable (see Chapters 4
agement and accounting is essential for and 5, this volume).
tour operators; however, it is not within For tour operators, the price that is
the remit of this chapter to go into the charged for the holiday is the main source
fundamentals of accounting practices and of income; indeed it is the only element of
performance measurements. This is better the marketing mix that generates turnover
dealt with through the study of accounting for a company and therefore needs to at-
and finance textbooks such as Kotas (2010) tract the customer as well as provide suf-
or Harris and Mongiello (2012). Further, ficient profit for the company. For customers,
it should be noted that it is difficult to the purchase of a holiday package is framed
obtain accurate and current financial in- by considerations such as disposable ­income,
formation about tour operators due to evaluation of alternatives, family situation
confidentiality in this highly competitive and other constraints, but the price is a
sector. critical element in decision-­making. As cus-
Fundamental to a tour operator’s fi- tomers purchase their holidays in advance,
nancial performance is that of establishing the price of the holiday product acts as
the right price for their package holidays a signal of the quality and accessibility.

130© J. Holland and D. Leslie, 2018. Tour Operators and Operations: Development,
Management and Responsibility (J. Holland and D. Leslie)
In  addition to the price charged, the This chapter will examine those principal
package must be attractive to the cus- costs in greater detail.
tomer and must offer benefits that make it
more attractive to them than the possi-
bility of purchasing the individual compo- Operating Costs
nents separately. To establish the price
involves a complex process of planning, Before operators can determine the price
which needs to take into account: for their products, they need to consider
the costs of operating as a business, their
●● Company objectives and positioning expected profit margin and the costs as-
strategies, e.g. increase market share, sociated with distributing their products.
increase profitability (see Chapter 3, Chapters 4 and 5 (this volume) illustrate
this volume). the complexities of costing products due
●● The fixed and variable costs of oper- to the number of components included in
ating the company. packages. The profit margin is then added
●● Operational costs, i.e. the cost of to the actual costs of the offering. In add-
distribution and commissions; also ition to costing the individual compo-
price variation according to season nents of a package, operators must also
and capacity. include contributions to the company’s
●● Cash management and cash flow. fixed and variable costs incurred when
●● Strategic pricing decisions. operating, selling and fulfilling the book-
ings. The actual profit made by operators
In order to understand how operators
is affected by the cost of running the
price their products, it is essential to
company, termed operating costs. These
develop a good understanding of the
­
costs include the following and are illus-
costs involved in producing a package.
trated in Fig. 7.1:
In Chapters 4 and 5 (this volume), the
illustrated packages were costed by in-
­ ●● Fixed costs. Fixed costs do not vary;
cluding a mark-up, i.e. a percentage added they stay the same no matter how
to the cost of the product which will many passengers the company carries.
cover the costs of operating the business. These include annual business costs

Additional Profit, 5
components, 5

Commission, 10

Accommodation, 40

Fixed costs, 10

Transport, 30

Fig. 7.1.  Average tour operator cost (%) breakdown (mass market product)

Financial Planning: Pricing the Package 131


such as advertising and marketing, Load Factor
loans and repayment, energy sup-
pliers, equipment lease and hire, in- Operators do not assume that all seats on
surance, bank charges, membership aeroplanes or accommodation packages
of professional organizations, licences, will be sold. If they did not allow for a
rent or mortgage, stationery and shortfall, then given the generally low
­office supplies, wages and salaries, profit margins involved they would make
vehicles. a loss. Therefore they base the price of a
●● Variable costs. These are costs that package on less than 100% capacity.
vary according to how much busi- They thus work to a load factor, which is
ness is achieved, e.g. sales. The vari- the percentage of flight seats they expect
able costs of holidays include tickets will sell, as a charter aircraft has to be
on scheduled services, ad hoc accom- paid in full regardless of how many seats
modation bookings, temporary and are sold. For example, a flight costing
casual staff, trade events, familiariza- £5000 has 100 seats available; the oper-
tion trips for agents. These costs vary ator assumes a load factor of 90%, i.e.
with the number of passengers be- that 90 seats will be sold. Therefore, the
cause they only have to be paid for cost per seat would be 5000/90 = £55.56
the people who actually travel. per seat. If a low load factor of 80% was
adopted, then the price per seat would
As Fig. 7.1 illustrates, in this example
rise to £62.50. Operators wishing to keep
profit is minimal due to the competitive
prices down therefore work on high load
environment for mass market products.
factors, i.e. high forecasted sales, but this
The higher the operator’s costs, the more
obviously presents a risk if the target
expensive the prices will need to be to
sales are not achieved and the costs may
cover those costs. Clearly, these percent-
not be covered. Conversely, operators
ages will change depending on the type of
who work on low load factors have
tour operator and package on offer, the
higher prices and this can be detrimental
country of origin and destination.
to sales because customers in some mar-
kets are price sensitive. Operators who
sell more holidays than they forecast will
Operational Costs therefore realize higher profits. Overall,
profit margins need to be realistic and
While tour operators can price packages
prices appropriate for the target market,
competitively, there are a number of add-
taking into consideration the prices of
itional costs that need to be included
competitors.
when determining the package price.
The tour operating industry is a very
●● Air Tax: many governments impose low net profit business for mass market
a tax on all passengers flying out of operators, with suggested net profit mar-
the country. In the UK, this is called gins of 1–2%, with net profit of 4–5%
Air Passenger Duty and is considered being considered exceptional for mass
to be the highest passenger tax lev- market products (Cavlek, 2006), margins
ied anywhere in the world (WTTC, that would be considered unacceptable in
2017). Other taxes include d ­ eparture other industries (Fitch, 1987). Profit mar-
tax, landing fees, fuel surcharges and gins for specialist and niche tour oper-
additional accommodation taxes. ators may be considerably higher, because
●● Charges: airport departure and customers will usually pay a premium for
landing fees. these products.

132 Chapter 7
Empty Leg tour operators are more conscious of the
prices of their competitors and introduce
When chartering planes, either part or a pricing strategy. This could mean that
full charter, operators need to factor in holidays in the low season are offered at
additional costs such as ‘empty legs’. For the breakeven point where no actual profit
example, when operating the first package is made, while during the peak season
departure of the season, a plane will be prices are inflated to cover fixed costs,
loaded with passengers from the source agents’ commission and profit. Selling
market and fly to the destination, but as without profit is regarded as better than
there are no passengers to collect in the not selling at all, especially if the tour
destination the plane will return empty. ­operator owns the airlines and hotels in-
At the end of the season, the licensed re- volved. However, reducing prices to a bare
turn flight will involve an empty leg flying minimum can be a risky business. Im-
out to the destination but will return with agine a situation where the tour operator
the last package holiday makers. This has overestimated the number of holidays
will affect the costing of the flight ele- they will sell in a year, and as a conse-
ment of the package, as demonstrated in quence they contract to buy more than
Box 7.1. they need. If they have costed their holiday
The smaller specialist tour operators at the cheapest possible price, there is no
usually cost the basic elements of the margin to offer holidays at a discount if
holiday and then add a mark-up of 20–35% they do not sell. This happened to Inter-
to cover fixed costs, travel agents’ com- national Leisure Group in 1992 and led
mission and profit. The larger mass market to their collapse.

Box 7.1.  Exemplification of costing a charter flight seat.


A tour operator contracts a flight series for a 29 × £15,000 = £435,000
130-seater Boeing 737 every Thursday at a cost
of £15,000 per return flight.
Their season covers 28 weeks, which gives a total of 29 return flights:
The first return flight to the destination will return empty (as no passengers to bring
back) and the last return flight of the season will be empty on the outbound flight and
will return with passengers.

So effectively there will be 28 return flights as a source of income.


The total cost of a return flight with passengers is: £435,000 ÷ 28 = £15,536
The aircraft holds 130 passengers, but a load factor
of 90% would assume only 90% of 130 passengers
would actually fly: 130 × 90 = 11,700 ÷ 100 = 117
Therefore 117 passengers are expected to cover
the cost of the flight.
The cost per person will be: £15,536 ÷ 117 = £132.78
If more than 117 people book, then the extra fares are clear profit for the company.
If less than 117 people book, then no profit, and even a deficit situation may occur. In
this case, a decision may be made to consolidate flights and ask clients to fly at another
time or from another airport.

Financial Planning: Pricing the Package 133


Distribution Costs sales (see Chapter 9, this volume). Some tour
operators introduce a tiered commission
The distribution of the packages is how level, whereby the commission paid to the
the products are made available to the agent increases proportionally to an in-
customer (this is considered in depth in crease in sales; this may be counted on an
Chapter 9, this volume). The utilization income revenue basis or as a passenger
of intermediaries such as travel agents is count. Agents working as part of a consor-
a cost because it is usual practice to pro- tium will be able to consolidate all sales fig-
vide commission. Essentially, if there is ures and achieve higher commission levels.
no commission at an acceptable rate, The payment of commission may be
then it is unlikely that the intermediaries based on net rate (price minus taxes) or
will distribute or promote your product. gross rate (including taxes). It is usual for
cruise liners to adopt a net rate as the
selling price for a package includes sub­
Sales agent commission (e.g. travel stantial taxes. This is referred to as non-­
agent, telesales, online travel agent) commissionable fees. Commission may
also vary according to how the booking
Tour operators pay agents commission to was made with the agent, the destination
encourage sales. Travel agents’ commission (some destinations have different com-
can be examined from two perspectives: mission levels) and whether price match-
the 10% the travel agent receives (which is ing was involved, which will result in a
fairly standard) or the 10% the tour oper- lower commission level. The cost of com-
ator pays, which is illustrated as follows: mission must be factored into the overall
A travel agent usually receives 10% published price, as shown in Box 7.2.
of the selling price: If operators choose to distribute their
product directly to the customer, many op-
Holiday Commission Amount due to
erators reward their sales staff with com-
price (£) earned (£) tour operator
missions (although this is not at the same
652.00 65.20 586.80 rate as those paid to agents) to motivate
724.00 72.40 651.60 and incentivize staff. In some companies
commissions are not paid on the basic
The tour operator pays 10% package that is being sold, but will be paid
­commission: for ‘up-selling’, for example encouraging
the customer to purchase additional excur-
Net revenue Agent’s Holiday price sions, private transfers or a room upgrade.
required (£) commission (£) (nearest £)

139.23 15.47 154.70


(155.00) Seasonality
245.17 28.24 273.41
(274.00)
One of the most common ways of setting
price differentials is to use seasonal
If the travel agent is to receive 10% of banding. In high season, prices may be
the final selling price, this means that the more expensive than low season. Using
tour operator must add another one ninth the example above, the operator may:
(or 11.1%) to the actual cost of the
holiday (before fixed costs are added). This ●● sell the holiday at this price of
is a rather simplistic view of commissions, £399.00 in low season, knowing that
because commission is often paid based on immediate costs would be covered;

134 Chapter 7
Box 7.2.  Illustration of impact of commission on costing a tour [VAT excluded]
The transport cost per person for the flight £210.00
Assume the hotel cost per person per week £90.00
Transfers £17.00
Cost per person £317.00
This £317.00 is required to cover the client’s actual costs and now the operator must
calculate a price at which fixed costs and travel agent’s commission can also be
covered. If the fixed costs are generally marked up at 9%, and the travel agent’s
commission at 10%, then the final price is known as the break-even point.
Costs per person £317.00
Travel agent’s commission £35.22
Mark-up for fixed costs £31.69
Final break-even cost £383.92
The tour operator could then round up the selling price to £399.00, which could be
charged throughout the season. Large tour operators usually cover the cost of travel
agent’s commission and then adjust the price according to the season.

●● raise the price to £499.00 in high price of the holiday. Alternatively, if the
season and £449.00 in the shoulder operator has commitment contracts, then
season. the price of the components, e.g. a hotel
The clients who travel in the high or room, may not fluctuate as a set agreed
shoulder seasons are in effect paying to- price has been contracted. If a tour oper-
wards the fixed costs and profits for the ator chooses to increase the price during
whole year. This is a very simple example, high season, it is not obvious whether their
but it should illustrate the reasoning suppliers have also increased prices or
that could go into producing a price grid whether the tour operator is taking advan-
which varies throughout the season. tage of supply and demand.
When investigating pricing per season,
you will note that some of the cheapest
prices are in the early weeks of the season, Forecasting and Capacity
and the most expensive over holiday Management
periods such as Christmas and New Year
or school holidays. This is because the Accurate forecasting of costs and sales is
operator knows there will be sufficient critical. The first step is to forecast the
people looking for holidays in peak times number of packages that can be supplied
and can increase the prices without fear and ensure that there is sufficient de-
of losing custom. mand. This is problematic and high risk,
Depending on the type of contract as evidenced by the fate of the Inter-
made with suppliers, there may be dif- national Leisure Group (ILG) (Box 7.3).
ferent prices paid for the components de- As this case illustrates, the forecasting
pending on the season. For example, hotels of demand and subsequent pricing of
may charge more during high season and holidays is critical to the success of any
that additional cost is transferred to the holiday company. These anticipated sales

Financial Planning: Pricing the Package 135


Box 7.3.  International Leisure Group.
ILG was the UK’s second largest tour operator and in 1991 collapsed as a result of
changes in buyer behaviour because of the Gulf War and the recession, which led cus-
tomers to delay purchasing holidays. Other smaller tour operators also collapsed,
leaving large numbers of passengers overseas. In 1992 many operators had overesti-
mated the demand for holidays because the forecasting was done 18 months in ad-
vance. Many packages were left unsold at the beginning of the high season, resulting
in substantial discounting and consequently a reduction in profits. By 1993, the Euro-
pean market had stagnated as passengers either forwent their holidays or traded to
cheaper holidays; the UK suffered considerably due to people’s reluctance to spend
much on holidays.

are d­ etermined by historic booking p


­ atterns and aims to increase the net yield or profit
and research in order to predict capacity. through predicting capacity and purchases
As companies frequently plan the number to previously identified market segments at
of holidays on offer months, if not years, an optimum price. Essentially, a very basic
in advance, it is important that they con- yield management system has historically
tinually monitor demand to avoid being been used by the tour o ­ perating sector: re-
left with unsold stock. Further compli- duced prices in off-­season when demand
cating the situation is that customers are is low and high prices in high season
becoming increasingly price conscious when demand is greater. For tour oper-
and will spend time comparing prices and ators, yield management is more complex
products prior to purchase. Since the early than accommodation and airline sales be-
1990s, customers now anticipate the tac- cause it is multidimensional, meaning that
tical discounting practices (Hoeseason and it involves not only flights but could involve
Johns, 1998), resulting in a shift in pur- a number of hotels, each with different
chasing patterns. Rather than book early, contracting arrangements. The adoption of
often with 6–8 months lead time, customers yield management systems enables oper-
are purchasing packages much closer to ators to change prices based on demand
­departure. in an attempt to try to overcome late
Operators have introduced several booking, unsold capacity and achieve the
interventions to help manage cash flow best price for each product; this is illus-
and maximize revenue. The introduction trated in the following examples.
of yield management is one of those inter-
ventions, replicating other sectors of the
travel and tourism sector. Yield manage- Mass market tour operators
ment can be defined as ‘the optimization of
revenue through differentiation of prices’ Mass market tour operators do not expect
(Dwyer and Forsyth, 2006, p.  169); the to sell all of their products at brochure price.
term ‘revenue management’ is often used The mass market tour operating sector fre-
interchangeably and is perhaps a more quently uses price fluctuations, and the
accurate description. Yield management
­ market is used to such changes, particu-
involves the implementation of a variable larly since the price wars and late deals
pricing strategy that anticipates customer offered in the early 1990s. There are three
behaviour during different time periods different strategies that can be adopted.

136 Chapter 7
1. The price increases as the departure date yield management because they need to
comes closer. This is not a strategy that is ensure the passengers paid similar prices
used by most mass market operators be- to avoid dissatisfaction of the customer.
cause there is wide competition and alter- Some markets may be resistant to fluid
natives available. Last-minute bookers or dynamic pricing and expect the price
would be looking for discounts, while early published in the brochure or online to
bookers are usually price sensitive. be the price paid. Rather than adopting
2. Decrease prices closer to departure a  fluid pricing structure, specialists are
date. This tactic was used in the 1990s and more likely to increase capacity with the
creates an expectation from customers price remaining the same. For example,
that the later they book, the cheaper the using the adventure itinerary presented in
holiday will be. This will affect tour oper- Chapter 5 (this volume), the tour can be
ators’ cash flow and sales predictions for run as planned, and in addition the itin-
the destination. erary can be reversed. This will double
3. Prices are optimized every day based capacity and not impact on the tourist
on sales, available capacity and market experience or reduce prices.
conditions. With this option there is no
expectation from the customer as to when
the price will be best, and this allows Bonds, Insurance and
flexibility in pricing. This is best obtained ­Membership Fees
by using a computerized yield manage-
ment system. Within the UK, all tour operators offering
a flight inclusive package need to purchase
The first stage of implementing yield an Air Tour Operators Licence (ATOL)
management systems is to align the price (see Chapter 8, this volume). As ATOL is
with the peaks and troughs in demand, concerned with the flight, this protection
i.e. seasonality. A more complex yield also covers flight-only bookings as well
management system is a lead time differ- as packages. It is a financial protection
entiation, where prices are set in incre- scheme and each holder has a unique
mental stages and operators would allow identifiable number, which enables cus-
a predefined number of holidays to be sold tomers to check that the claim of a licence
at each price. The stages are set through is bona fide. Each operator must con-
the analysis of historical bookings and re- tribute to a protection fund called the Air
view of sales lead times, in addition to the Travel Trust. In 2017 the fee was £2.50
strategic ­objectives of the company: for for every passenger booking an air inclu-
example, if the operator wishes to move sive package.
large numbers of bookings earlier or later The European Package Travel Regu-
in the season, price positioning, online lations (PTR) requires European tour op-
sales and competitive pricing. Incentiv- erators to be able to provide sufficient
izing early sales in addition to low prices evidence of security of monies in case of
may include free child places, free insur- refund or the need to repatriate the cus-
ance and additional free nights. tomer. There are three main ways in
which operators can provide financial
Specialist tour operators protection to customers:
●● Insurance.
Specialist tour operators, particularly those ●● Bonding through organizations such
where tourists spend time as a group, are as ABTA, CPT and ABTOT.
less likely to use dynamic pricing and ●● Trust Account.

Financial Planning: Pricing the Package 137


Operators offering coach holidays can seasonality means that tour operators
join the Bonded Coach Holidays organiza- need to manage their funds carefully. In
tion, which requires members to provide a some cases operators may need to borrow
bond from a bank or major i­nsurance com- from banks to meet their cash require-
pany. The bond is used to r­ efund money ments over short-term periods.
to customers should the company cease The long investment cycles from the
trading. For operators offering cruise time it takes to develop the tour product
holidays including air transfers to the to bringing it to market can be an expen-
­departure port, then an ATOL licence is sive process involving brochure produc-
needed. In addition, a UK tour operator tion, down payments on contracts and
that markets or sells financial products marketing. The risk is also increased
such as insurance will come under the scru- because the operators need to set their
tiny of the Financial Conduct ­Authority, prices at least a year in advance.
although many tour operators forward de-
tails to a company licensed to sell financial
services or become an appointed represen- Additional Sources of Income
tative of an approved company.
In addition to profit mark-up, tour oper-
ators can also raise income from other
sources.
Cash Management and
Cash Flow
Interest
Cash management is concerned with in-
vesting the cash surpluses and financing Interest can be earned on customers’
of cash shortages. Tour operators usually monies because they pay a deposit in ad-
receive full cash payment in advance of vance of the full balance of the cost of the
the product being enjoyed. Further, oper- holiday, although the current trend for
ators usually pay suppliers at the end of late booking has perhaps reduced the im-
the season, which is different from gen- portance of interest on deposits. Full pay-
eral goods that are produced before they ment of the balance happens in advance
can be sold. The management of the cash of the holiday, but operators tend not to
flow within a company is critical and pay the principals until the end of the
poor financial management has been the season, which means that the money is
downfall for many companies. available for short-term investment.
Tour operators’ products are usually
highly seasonal, affected not only by cli-
mate and the destination but also school Cancellation and amendment costs
holidays, festivals and historic travel
patterns. This leads to highly seasonal Tour operators usually charge customers
patterns of cash inflows and outflows. if they cancel their holidays. There is no
Generally, the majority of bookings sector-wide charge and each operator
occur between February and May, while will be able to fix their own charges, with
August–­ October is when they need to some operators charging up to 100%
make payments to suppliers. As a result, cancellation fees, although there is usu-
companies have periods when they have ally a sliding scale based on the date of
large surpluses, while at other times there ­cancellation and the date of departure.
may only be a small amount of money ­Operators defend their right for high can-
­available to pay suppliers or invest. This cellation charges due to the intangibility

138 Chapter 7
of the product and the risks incurred over managed carefully and monitored, both
the whole season. This is a particularly in terms of the value of payments made in
important reason why customers may foreign currencies and payments made to
take out insurance cover through the tour suppliers. For example, a UK-based tour
operator, travel agent or independently. operator may:
A  similar situation occurs when cus-
tomers wish to make amendments to their ●● Receive payment for the holidays in
booking, although it is more usual to have GBP.
a fixed fee, which varies according to type ●● Pay for accommodation in Euros and
of package and requirement, e.g. name other currencies.
change or departure date change. Both ●● Pay for fuel and policing of aircraft
cancellation and amendment charges must in US dollars.
be detailed in the booking conditions. ●● Pay staff in local currency.
The impact of a significant rate change
can be illustrated by a simple example:
Commission on car hire or insurance
In 2016, £1.00 = €1.1975. For a
Operators may earn commission for ser- company purchasing 100 rooms at
vices sold to customers in the resort, e.g. €30 per night for seven nights, the
car hire. Vehicle rental companies often total cost to the company in GBP
give commission to the resort representa- would be £17,536.53.
tive and the tour operator.
In 2017, £1.00 = €1.116. For a
company purchasing 100 rooms at
Excursions or ancillary products €30 per night for seven nights, the
total cost to the company in GBP
Selling excursions operated by a local would be £18,817.20, an additional
ground handling agent or other agent will £1280.67 or £12.81 per room or
also provide a source of income for both £1.83 per night.
the operator and resort representative.
While this may appear to be a small amount,
increases and decreases caused by ex-
Currency Considerations change rate fluctuations can have an enor-
mous impact, particularly for companies
For tour operators working internation- selling millions of holidays a year at low
ally, the impact of exchange rates (FOREX) profit margins.
has a substantial impact on their finances. Substantial payments are usually
Large tour operators are exposed to made in a hard currency, such as US dollar,
substantial risks associated with foreign euro, yen and British pound. These curren-
exchange transactions and this exposure cies are internationally acceptable and freely
may be far greater than for other converted and exchanged without restric-
­industries. tion. Conversely, soft currencies, such as the
This lack of stability increases the Sri Lankan rupee or the Moroccan dirham,
risk for tour operators due to the uncer- are those that are not freely convertible and
tainty of predicting future exchange rates. may have limitations on exchange outside
If it were possible to predict future exchange the country of issue. The impact of exchange
rates, pricing holiday packages would rate fluctuations means that companies
be relatively simple! Such exposure to may need to increase the prices of their
exchange rate movements needs to be
­ holidays, but it is unlikely that companies

Financial Planning: Pricing the Package 139


will pass on short-term additional costs to a multinational company such as TUI can
customers because this will have a nega- develop an American sales subsidiary, and
tive impact on the company’s reputation use customer payments in US dollars to
and the long-term result may be losing pay suppliers in US dollars, thus avoiding
custom. Furthermore, many tour oper- exchange rate fluctuations.
ators stipulate that there they offer ‘no sur-
charge guarantees’, which means that
increased costs due to adverse foreign ex- Forward currency buying
change rates cannot be passed on to the (forward contracts)
customer. Tour operators in the UK that
are members of ABTA and European tour Tour operators by their very nature tend
operators through the EU Package Travel to be international and for that reason are
Directive are required to absorb up to 2% subject to these exchange rate fluctu-
increase in the cost of the holiday. The Dir- ations, but there are a number of options
ective stipulates that a maximum of 10% available to help predict and manage such
can be added, so effectively increases be- fluctuations. Purchasing currency stra-
tween 2% and 10% may be passed on to tegically uses a ‘forward contract’ or a
the customer. If there are any additional ‘stop loss’ order; forward contracts are
costs above 10%, then the passenger has future purchases of the currency at the ex-
the right to cancel the holiday and receive change rate on the day agreed, but the
a full refund (see Chapter 8, this volume). purchaser does not receive the currency
However, it should be noted that these sur- immediately. Such agreements usually last
charges are not the same as price rises; up to two years. This generally involves a
tour operators have the right to increase payment of approximately 10%, and the
prices that may be imposed on customers balance on receipt of the currency, which
after they have paid deposits. should protect operators from adverse
When countries are affected by an in- currency movements because they can
crease in exchange rate, this will force up lock into a favourable exchange rate. For-
the price of the holiday and as a result ward currency buying is particularly
operators may look to remove holidays useful for tour operators in order to main-
offered in that destination and substitute tain their prices offered because the bro-
them with a destination where the ex- chures, which include prices, are typically
change rate is more beneficial. produced a year or more in advance.
There are a number of ways in which A stop loss contract specifies the
tour operators can attempt to manage the maximum rate at which the currency
risks of exchange rate fluctuations, and should be bought or sold. When the
these include methods such as netting agreed exchange rate is achieved, the
and forward currency buying. order for the currency is fulfilled, which
effectively guarantees a minimum rate at
which the currency will be exchanged.
Netting A  stop loss contract can be agreed in
conjunction with a limit order, which
Netting is a management technique used sets a higher target exchange rate. By
by larger companies to manage perform- running both the limit order and the
ance as an opportunity to yield signifi- stop loss order together, the exchange
cant savings. Essentially, netting uses local rate is guaranteed within a given range,
income in the local currency to make giving the tour operator predictable
payments to local suppliers. For example, ­exchange rates.

140 Chapter 7
These are usually only useful to the single rooms are more than half the price
large tour operators because substantial of a double.
amounts of monies are needed to make
these beneficial.
Company Pricing Strategies

Pricing Factors Pricing strategies can be developed for a


company based on the products offered
In addition to the actual cost of produ- and the target market and also on the
cing and distributing the package, there status of the brand in terms of product
are several other factors that need to be life cycle and the strategy of the com-
taken into consideration when pricing pany, for example to gain market share.
the offering, including: Each company needs to assess their pos-
ition in the marketplace and design a
●● Competition – the prices charged by
pricing strategy appropriate for the
competitors.
market. Pricing strategies are informed
●● Demand – products offered by
by the company’s mission statement and
multinational corporations such as
objectives. In essence, what does the
TUI will have different prices in dif-
company want to be and where do they
ferent marketplaces. People will pay
want to position themselves in the
more if there is high demand for a
marketplace? A company wishing to be
destination, similarly people will
one of the biggest operators in the re-
pay less if there is abundance of
gion may choose a low price strategy,
choice.
whereby their product is sold with min-
●● Target market – the willingness of
imal profit with the aim of selling high
the target market to pay the proposed
volume. Conversely, a company may
price.
wish to remain specialist and concen-
●● Seasonality – supply and demand;
trate on limited sales but with high
low demand in low season and higher
profit margins. When devising a pricing
demand in high season.
strategy, the company needs to reflect
Large operators try to dominate the the product offering, market share,
marketplace by increasing their market competition and experience. For ex-
share and this may be implemented at the ample, a company that has a unique
expense of profits by attracting competi- product offering with consistent levels
tors’ customers. Smaller companies in of demand in the sector with limited
general do not have the luxury of being competition would be in a position to
able to reduce prices to increase market charge more for their products. In add-
share and therefore their products appear ition, a company that considers their
more expensive, so to justify the higher service levels superior to their competi-
prices the products must be unique or tors can charge premium prices. Con-
specialist. Whether a large or small oper- versely, a new company or a company
ator, package prices are nearly always offering a new product may be keen to
quoted per person based on two people attract new customers in order to estab-
sharing a twin room. Effectively, each lish the brand and thus may set pricing
person pays for their own flight and at a lower rate initially to create de-
transfer plus half the cost of the room. If mand, as the average customer usually
one person travels alone, then s/he must prefers to buy package tours from
pay the full cost of the room. Usually, known branded operators.

Financial Planning: Pricing the Package 141


Pricing Tactics to stimulate demand. It should be noted
that if promotional strategies are em-
Cost plus pricing (marginal pricing) ployed, it is likely that competitors will
copy them and therefore they may lose
Perhaps the simplest way of costing a their effectiveness. If this strategy of pro-
product is to add the costs of the compo- motional pricing does not work, then it
nents for each holiday and add on a per- may be a waste of resources because the
centage profit. In the 1990s, First Choice company could have invested in a longer,
adopted a cost-plus approach to increase higher impact marketing strategy.
market share in specific resorts and
achieve an overall price advantage. How-
ever, the tour operating sector is now Fluid pricing
much more complicated and pricing
strategies such as these are no longer suit- Fluid prices means that agents are sup-
able. Cost plus pricing takes no account plied with on-screen prices that can change
of the value of the product perceived by by the hour, depending on how well
the customer. A low price for a premium ­holidays are selling. This is similar to the
product would give the wrong message stock market, but it allows agents and
to the customer. Essentially costs are operators to adjust prices depending on
about production, but prices are about availability and demand. Some tour oper-
value and this may be considered in three ators’ brochures note that prices may in-
ways. crease or decrease occasionally using the
term ‘flight supplements’, but concerns
1. Market based pricing. This is based on have been raised about operators using
what the market will pay and then this approach. Fluid pricing makes it dif-
working backwards. It is an exception- ficult for operators to provide prices in
ally delicate and complex approach be- brochures and therefore supports their
cause it involves estimating prices that redundancy.
the competition will charge.
2. Premium pricing. This is used for niche
market products with upmarket images Discount pricing
where high prices are expected to be paid,
but these must be supported with excel- Sometimes referred to as last-minute/
lent service. late-booking pricing. This has been a
3. Promotional pricing. This is similar to common method used by package holiday
discount pricing, but rather than of- operators to fill availability in inventory.
fering low prices towards departure It is better to make some sales than to be
dates, promotional pricing is offered to left with empty transportation seats and
people who purchase holidays in ad- accommodation. Discount pricing does
vance and provides an incentive for cus- come with risks because companies that
tomers to book early. The benefit of frequently discount prices to stimulate
booking early for tour operators is that demand may be perceived by customers
booking trends and popular destinations as low quality or develop a reputation
become evident, which enables oper- whereby customers book as late as pos-
ators to react; for example, if a destin- sible to get the biggest discounts. Last-­
ation is proving unpopular they may minute bookings affect the company’s
look to introduce promotional activities ability to forecast sales and price effectively

142 Chapter 7
and devalue the brand in the long-term. revenue through sales of optional excur-
In order to combat some of the problems sions. For some larger operators, bro-
of reducing the price of holidays, tour chures are produced that show the basic
­operators may add specific conditions to holiday cost without including transfers
discounted prices, such as minimum stay and/or in-flight meals, which allows cus-
or minimum numbers in the booking. tomers to customize their holidays, but
also allows the operator to advertise low
prices.
Seasonal pricing

A company may consider a mix of pri- Summary


cing throughout the year to cover high,
shoulder and low seasons. This is fre- Any tour operator seeking sustainable
quently done to cater for different levels success needs a firm grasp of basic
of demand over the year. For example, ­accountancy practice and financial man-
school holidays and religious holidays agement skills. This essential under-
tend to see substantial price rises, which standing and ability to apply to their
compensate for the reduced income during business the skills of accountancy and
low season. finance are f­undamental to all business
and are best studied in that context.
However, whether small or large, tour
operators need also to u­ nderstand cur-
Competitive pricing rency markets and fluctuations and
manage their cash flows efficiently and
A review of competitors’ pricing is im- effectively. Further, they need to ap-
portant because holiday products are preciate the complexities involved in
price sensitive, and with the ease of pricing package holidays, which as
comparing products using the Internet, ­discussed entails far more than simply
customers often look towards choosing counting all costs of production and de-
the lower priced product. Mass market livery of a good to the point of sale
operators within Europe frequently outlet with an added mark-up to achieve
compete using price as the differenti- the target profit margin. Operators need
ator and if one operator reduces their a clear ­ appreciation of the costs in-
price and undercuts competitors of- volved, including commissions, and how
fering similar products, then they will these might vary with seasonality, which
look towards reducing their prices. As a requires informed, accurate sales fore-
result, mass market operators frequently casts. They also need to recognize the
publish second and third editions of range of factors that will ­influence their
their brochures throughout the season, package holiday prices, i­ncluding the
reacting to the pricing strategies of
­ potential i­mpact of their competitors’
­competitors. different pricing strategies and tactics.
At the same time, they need to appre-
ciate the opportunities that may be
Options pricing available to generate additional revenue
streams, which in terms of the generally
A company may decide to offer packages low profit margins achieved by o ­ perators
with minimal profit, but increase their in the mainstream market may well be

Financial Planning: Pricing the Package 143


s­ignificant to their overall profitability. considering marketing it at a  premium
Finally, throughout this complex pro-
­ price. However, after studying the com-
cess of pricing their package holidays, petition in the package holiday market
tour operators need to manage, as ap- for the area, they identify that their pro-
plicable to their operations, variations in jected price would be 15% higher than its
the value of currencies in which they nearest equivalent. What would you ad-
work and how most effectively to reduce vise them to do?
the impact of unexpected, substantial
change.
Key Terms

Discussion Questions ●● Cash flow: The sum of money being


transferred in and out of the business
1. Review the booking conditions of sev- that affects liquidity.
eral tour operators and compare the costs ●● Gross rate: The price at which the
for the cancellation or amendments made supplier sells the product.
to any bookings. Do you consider these ●● Mark-up: The sum added to the cost
charges to be fair? price of the package to cover over-
2. What measures can a tour operator heads and profit.
put in place to manage the risks arising ●● Net rate: The price of the package
from foreign exchange fluctuations? provided for retailers, without com-
3. Why is cash management critical to mission.
the success of the tour operator? ●● Up-selling: This is a sales technique
4. Why are mass market package holiday where a seller, for example travel
customers price sensitive? agent/tour operator, persuades the
5. What incentives can operators intro- customer to buy more expensive
duce to encourage early booking? items, upgrades or other add-ons in
6. A tour operator has created a new an attempt to make a more profitable
product for Thailand, designed for the en- sale, e.g. car parking, room upgrade,
vironmentally conscious tourist, and is ­excursions.

Internet Exercise 
Low Cost Holiday, a UK company that relocated to Spain, failed in 2016. Review the
news reports from UK newspapers such as The Guardian and The Daily Telegraph and
consider why the holidays were not considered packages and if the Spanish legislation
will enable customers to gain refunds.

Questions
● What implications does this have for customers?
● Do you think that all operators need to be bonded?

144 Chapter 7
Mini Case Study 
The news after the referendum that the UK is to leave the European Union resulted in
a fall in the value of the GB pound. As a result, some tour operators were forced to apply
surcharges to holidays. The PTR allows tour operators to apply surcharges if the cost
of the package has increased due to currency fluctuations, rising fuel costs or higher
taxes, although it must be mentioned in the terms and conditions of booking and be
more than 30 days before the date of departure. In this instance, £1.00 had been worth
€1.30 in June 2016 and by August 2016 it was valued at €1.15.

Questions
● What are the implications of such substantial exchange rate fluctuations?
● What can companies do to minimize the impact of such fluctuations?

Recommended Reading (eds) International Handbook on the


Economics of Tourism. Edward Elgar,
Cheltenham, UK, pp. 155–172.
For good standard texts on accountancy
Dwyer, L. and Forsyth, P. (2006) International
and finance, see: Handbook on the Economics of Tourism.
Collis, J. and Holt, A. (2012) Business Ac- Edward Elgar, Cheltenham, UK.
counting: An Introduction to Financial and Fitch, A. (1987) Tour operators in the UK.
Management Accounting. Palgrave Mac- A  survey of the industry, its market and
millan, Basingstoke, UK. product diversification. Travel and Tourism
Harris, P. and Mongiello, M. (2012) Ac- Analyst March, 29–43.
counting and Financial Management: De- Harris, P. and Mongiello, M. (2012) Accounting
velopments in the International Hospitality and Financial Management: Developments
Industry. Routledge, London. in the International Hospitality Industry.
Routledge, London.
For texts specifically orientated to hospi- Hoeseason, J. and Johns, N. (1998) The
tality and tourism operations, see: numbers game: the role of yield manage-
Kotas, P. (2010) Management Accounting for ment in the tour operations industry. Pro-
Hospitality and Tourism. Cengage Learning, gress in Tourism and Hospitality Research
Andover, UK. 4, 197–206.
Jones, T., Atkinson, H. and Lorenz, A. (2012) Kotas, P. (2010) Management Accounting for
Strategic Managerial Accounting: Hospi- Hospitality and Tourism. Cengage Learning,
tality, Tourism and Events Applications. Andover, UK.
Goodfellow, Oxford, UK. WTTC (2017) Air Passenger Duty. World Travel
and Tourism Council. Available at: https://
www.wttc.org/research/policy-research/
taxes/air-passenger-duty/, accessed 25
References January 2017.

Cavlek, N. (2006) Travel and tourism inter-


mediaries. In: Dwyer, L. and Forsyth, P.

Financial Planning: Pricing the Package 145


8 Tour Operators and Key Travel
Regulations
With David Grant

Learning Objectives terms of operators based in other coun-


tries that are seeking to regulate their
After studying this chapter, you should be travel sector. Even when not adopted by
able to: other countries, the liability provisions
of the PTR will have an impact on sup-
●● Explain the role of the Package Travel pliers in host countries who must comply
Regulations within Europe.
with standards imposed on them by
●● Examine the difficulties and challenges EU-based operators who are required by
in applying package travel regulations
the legislation to accept liability for the
to products.
defaults of their suppliers. However, as
●● Provide an overview of legislation the name suggests, the PTR are con-
pertinent to tour operators in major
cerned solely with the regulation of
markets.
package holidays and not the liability of
●● Understand the importance to cus- hotels, airlines, railways, ferry operators,
tomers of regulations on the tour
coach operators and other travel sector
operating sector.
businesses who sell single travel prod-
ucts. They do not come within the ambit
of the PTR and are not covered here be-
Introduction cause they fall outside the scope of this
chapter.
The aim of this chapter is to present an As with the law generally, legislation
overview of the law relating to tour oper- and regulation change according to de-
ators and the Package Travel Regulations velopments in business practice and con-
(PTR) with some illustrative case law. It sumer protection. Not surprisingly therefore,
does not examine the wider aspects of the the law relating to tour operators and
law of contract or the criminal law that travel agents is currently in a state of
also apply to package travel contracts. transition. Since 1992, UK tour operators
For that you are invited to read standard (as in all member states of the EU) selling
travel law texts (see Saggerson, 2010; package holidays have been subject to
Grant and Mason, 2012). Our focus here strict regulation following the implemen-
is on the PTR in that, albeit Eurocentric, tation of the 1990 Package Travel Dir-
there is little doubt that these regula- ective (PTD1) (Council, 1990) through
tions, or similar, have been or are being the 1992 Package Travel Regulations
gradually adopted by other countries. As (PTR) (Council, 1992). Now, however,
such, it is argued that the PTR serves to there is a new Directive, the 2015 Package
illustrate best practice, whether that is Travel Directive (PTD2) (Council, 2015),
now, as within the EU, or more widely in which must be adopted into UK law by

146© J. Holland and D. Leslie, 2018. Tour Operators and Operations: Development,
Management and Responsibility (J. Holland and D. Leslie)
July 2018. Yet we do not know precisely ‘package’, such as overnight ferry trips to
what the new regulations will say. In the the Continent; business travel; holiday
interim, the travel sector must comply camps and caravan sites; ‘tailor-made’
with the 1992 regulations. In the light of packages put together by travel agents;
this situation, this chapter will discuss the sleeper accommodation on the railways
law as it currently stands with respect to (see para. 17 of the Preamble to the new
the following six aspects of the PTR: PTD); holidays provided by local au-
thority social services departments for
●● The scope of the Regulations.
their pensioners; and activity holidays
●● Pre-departure changes.
provided by schools or local education
●● Post-departure changes.
authorities. This is perhaps evident in the
●● Liability under Regulation 15 for
way the ‘package’ is defined.
non-performance and under Regula-
The Regulations define ‘package’ in
tion 4 for providing misleading infor-
the following manner:
mation.
●● The calculation of damages in the 2(1) ‘Package’ means the pre-arranged
event of a breach of contract by the combination of at least two of the
tour operator. following components when sold or
●● How tour operators must protect offered for sale at an inclusive price and
consumers against their insolvency. when the service covers a period of more
than twenty-four hours or includes
An indication as to what changes overnight accommodation:
tour operators can expect after July 2018
(a) transport;
will also be presented. Following on from
(b) accommodation;
this, the aim is then to provide insight (c) other tourist services not ancillary to
into current differences between the EU transport or a­ ccommodation and
and other countries by way of discussion accounting for a significant proportion
of major aspects of legislation, princi- of the package,
pally relating to Asian Pacific countries, and
which collectively account for an increas- (i) the submission of separate accounts
ingly large proportion of international for different components shall not cause
tourists. the arrangements to be other than a
package;
(ii) the fact that a combination is
The Scope of the Package arranged at the request of the consumer
and in accordance with his specific
Travel Regulations 1992 instructions (whether modified or not)
shall not of itself cause it to be treated as
The purpose of the Regulations is to other than pre-arranged.
regulate conventional package holidays,
be that a typical 3S holiday, a tour of Ra- Thus, for there to be a package there
jasthan, a whale watching cruise or other has to be:
similar arrangements. On this everyone is
agreed, but the scope of the definition of ●● a pre-arranged combination;
a ‘package’ in Regulation 2 is so wide that ●● sold at an inclusive price.
it goes far beyond conventional package These need to consist of two of the following:
holidays. There is an amazing variety of
travel and holiday arrangements over ●● transport;
which unresolved arguments rage re- ●● accommodation;
garding their inclusion in the definition of ●● other tourist services.

Tour Operators and Key Travel Regulations (with David Grant) 147
At the margins, all these terms cause Court of Justice for a ruling on two
difficulties. For instance, is a ‘fly drive’ issues. The first of these was whether ar-
package caught by the Regulations be- rangements put together by a travel agent
cause it is only two forms of transport? at the request of, and according to the
Or what about packages put together by specifications of, a consumer or defined
travel agents? Are they ‘pre-arranged’ group of consumers fell within the defin-
combinations? Does the term ‘other ition of a package. The second was
tourist services’ include services for tour- whether the term ‘pre-arranged combin-
ists travelling on business? What is meant ation’ could be interpreted as meaning a
by ‘inclusive price’? Despite the fact that package put together at the time when
the Regulations are now 25 years old, the contract was concluded. In a brief but
many fundamental questions like this re- robust judgment, the European Court of
main unanswered. However, the vast ma- Justice held that both questions should be
jority of holidays sold, whether by major answered in the affirmative. On the first
tour operators like TUI and Thomas issue, the Court said that there was
Cook or independents, for example, in the nothing in the definition which prevented
adventure tour market, undoubtedly fall such arrangements from being a package;
within the Regulations, and some online and on the second issue, given the answer
travel agencies like Expedia have terms to the first question, then it necessarily
and conditions saying that some of their followed that the arrangements were
products are sold as packages – although pre-arranged if they consisted of elements
Travel Republic specifically state that they chosen by the consumer before the con-
do not. Some of these issues have been ad- tract was concluded. Note that the travel
dressed by case law – either in the UK agent was suing for non-payment, i.e.
courts or in the Court of Justice of the breach of contract, therefore it was im-
European Union (CJEU). Here we present possible for them to argue that there was
two key cases by way of exemplification. no contract.
Club Tour Viagens e Turismo v Gar- The case of ABTA v CAA [2006]
rido C400/2000 ECJ was a decision on EWCA Civ 1356 revolved around the
the meaning of ‘pre-arranged’. The facts meaning of ‘inclusive price’. The gist of
of the case were that the defendant the case can be found in paragraphs 25
booked a holiday through a travel agency and 26 from the judgment delivered by
in Portugal. The holiday consisted of ac- Chadwick LJ:
commodation at an all-inclusive resort
operated by Club Med in Greece plus flights 25. The point may be illustrated by
from Portugal. It was the travel agent examples. Suppose a customer, in
who combined the flights (from a dif- London, who wishes to spend a week at
ferent supplier) with the all-inclusive re- a named hotel in, say, Rome. He asks his
sort. While on holiday the resort became travel agent what the trip will cost him.
infested with thousands of wasps, which The agent ascertains that the cost of the
prevented the defendant from enjoying return flight will be £X, the cost of
accommodation will be £Y and the cost
his stay. Despite his complaints, neither
of the airport transfers will be £Z.
the travel agency nor Club Med could Without disclosing the individual cost of
provide suitable alternative accommoda- each service, the agent offers the
tion. On his return, the defendant refused customer flights, accommodation and
to pay for the holiday and the travel transfers at a price of £(X+Y+Z). The
agent sued him. The domestic court in customer accepts without further
Portugal referred the case to the E
­ uropean inquiry. In that case there would be little

148 Chapter 8
doubt – as it seems to me – that the The organizer
services were sold as a pre-arranged
combination and at an inclusive price. 2(1) ‘Organiser’ means a person who,
otherwise than occasionally, organises
26. Now suppose that the agent has
packages and sells or offers them for
informed the customer that the cost of
sale, whether directly or through a
flights will be £X, the cost of
retailer.
­accommodation will be £Y and the cost
of transfers will be £Z; and has The test here is how frequently the organ-
­explained to the customer that he can izer arranges packages and not, as in other
purchase any one or more of those consumer protection legislation, whether
services, as he chooses, without any need
the organizer acts in the course of a busi-
to purchase the others. He has
­explained, in effect, that the customer
ness. The definition will clearly catch con-
can choose to purchase the other ventional tour operators but, importantly,
services elsewhere; or to make other it will also catch most travel agents in its
arrangements. In that case – as it seems net on occasion. If tailor-made packages
to me – there would be little doubt that are regarded as ‘pre-arranged’, then it will
the services are not offered for sale as a be very rare indeed that a travel agent
pre-arranged combination and at an can say that s/he does not ‘otherwise than
inclusive price. occasionally’ put a package together –
Although this passage can be criti- ­although the Travel Republic case suggests
cized, it nevertheless represents the cur- that evading the Regulations can be
rent state of the law – and was relied on achieved. In this context it is important to
by Travel Republic in the case of CAA v note that the term ‘organizer’ cuts across
Travel Republic [2010] EWHC 1151 to the more conventional terms of principal
establish that they were not selling pack- and agent. That is, to be an organizer it is
ages. One later case in which the defin- not necessary to be a principal and, by the
ition of a package, and in particular the same token, an agent is not precluded
meaning of ‘inclusive price’, is examined from being an organizer simply because
is Titshall v Qwerty Travel Ltd [2011] s/he is an agent; the criterion is whether a
EWCA Civ 1569. Mr Titshall paid person ‘organizes’ a package, not whether
£569.16 for a flight and accommodation they act as principal.
and ‘service fees’ for a last minute package The chief significance of being la-
holiday in Corfu. The Court of Appeal belled an organizer is that the liabilities
concluded that this was a package bought are much greater that those of a retailer.
for an inclusive price, largely because the The organizer is responsible for the per-
service fees could not be broken down formance of the whole package, but the
and attributed to either the flight or the retailer’s liabilities are much more nar-
accommodation and therefore he could rowly defined. There are also additional
not have been buying two separate ser- criminal offences for organizers to fall
vices at the same time as in the second foul of, as the following case illustrates.
example given by Chadwick LJ. Hone v Going Places [2001] EWCA
Civ 947 is a case where a travel agent fell
into the trap of holding themselves out as
Upon Whom is Liability organizers even though they were only
Imposed? retailers. The facts of the case were that
the claimant, who was on a package
The Regulations impose liability on ‘the holiday, was injured during an emergency
organizer’ and ‘the retailer’. evacuation of an aeroplane following a

Tour Operators and Key Travel Regulations (with David Grant) 149
bomb scare. Both the tour operator that elements with a conventional package is
organized the holiday and the airline that likely to be classified as an organizer ra-
provided the flights were bankrupt and ther than a retailer.
not worth suing, so the claimant sued the
travel agent through whom the holiday
had been purchased. During the purchase In Whose Favour is Liability
of the holiday the travel agent had not Imposed?
made it clear that they were only acting
as an agent for the tour operator; they The Regulations impose civil liability on
had given the impression that they were the organizer and, in some cases, the re-
the principals selling the holiday. The tailer, in favour of ‘consumers’.
Court of Appeal held that they would be
2(2) . . . ‘consumer’ means the person
treated as ‘organizers’ because they had who takes or agrees to take the package
held themselves out as such. (Note that (‘the principal contractor) and elsewhere
although the travel agents could be sued in these Regulations ‘consumer’ means,
as organizers, they were ultimately not li- as the context requires, the principal
able because the Court said that there contractor, any person on whose behalf
was no failure to take reasonable care of the principal contractor agrees to
the claimant.) purchase the package (‘the other
beneficiaries’) or any person to whom
the principal contractor or any of the
The retailer other beneficiaries transfers the package
(‘the transferee’).
2(1) ‘Retailer’ means the person who Traditionally, in English law, only a
sells or offers for sale the package put
party to a contract is entitled to take the
together by the organiser.
benefit of it. In other words, there have
The definition clearly covers the activities been doubts as to the extent to which
of travel agents. Under the Directive, EU members of a client’s family who are
member states had the option of imposing named on the booking form but who may
liability on either organizers or retailers not be party to the contract would be en-
or both for failures in the package itself. titled to the benefits of the contract, but in
It is generally believed that the Regula- the case of Jackson v Horizon [1975] 3
tions do not impose such extensive liabil- All ER 92 the Court of Appeal was pre-
ities on retailers, but they do make them pared to say that the person who makes
subject to the provision of information the holiday contract on behalf of others
regime (Regulation 5 and possibly also can sue on their behalf.
Regulations 7 and 8) and they incur civil However, the definition of ‘consumer’ in
liability under Regulation 4 for providing the Regulations, making what amounts to a
misleading descriptive matter. However, revolutionary change to a long-established
as discussed above, the Hone case has im- rule of English law (a change that now also
posed liability on a travel agent. applies to other contracts by virtue of the
As previously stated, a travel agent Contracts (Rights of Third Parties) Act 1999)
who puts a package together and sells it goes some way to eliminating these prob-
in his/her own name falls within the def- lems. Furthermore, if a consumer transfers
inition of organizer rather than retailer his/her booking to another person, as s/he is
and is, therefore, subject to the more sometimes entitled to do now under Regula-
stringent liabilities in the Regulations. tion 10, the transferee stands in the same
Similarly, the agent who packages extra position as the original consumer.

150 Chapter 8
Regulation 2(2) identifies three types (a) where the organiser is constrained
of consumer: before the departure to alter s­ ignificantly
an essential term of the contract, such as
●● the principal contractor; the price (so far as regulation 11 permits
●● the other beneficiaries; him to do so), he will notify the con-
●● the transferee. sumer as quickly as possible in order to
enable him to take appropriate decisions
As a broad proposition it could be and in particular to withdraw from the
said that the legislation was intended to contract without penalty or to accept a
cover three types of person: rider to the contract specifying the
alterations made and their impact on the
●● a person who buys the package, but price; and
may or may not go on it – the prin-
(b) the consumer will inform the
cipal contractor; organiser or the retailer of his decision
●● a person who goes on the package, as soon as possible.
but is paid for by another – the other
13(1) The terms set out in paragraphs
beneficiary;
(2) and (3) below are implied in every
●● a person who acquires a package in- contract and apply where the consumer
directly from one of the other types withdraws from the contract pursuant to
of consumer but not directly from the term in it implied by virtue of
the organizer – the transferee. regulation 12(a), or where the organiser,
for any reason other than the fault of the
On this basis anyone who either pays for
consumer, cancels the package before the
a package or who goes on a package will
agreed date of departure.
get the protection of the Regulations.
Note that under Regulation 10 there 13(2) The consumer is entitled –
are limits to whom the package may be (a) to take a substitute package of
transferred in that the transferee must equivalent or superior quality if the
satisfy ‘all the conditions applicable to other party to the contract is able to
the package’ – so for instance it would offer him such a substitute; or
not be permissible to substitute two teen- (b) to take a substitute package of lower
agers for a couple who had booked a se- quality if the other party to the contract
is able to offer him one and to recover
niors’ package.
from the organiser the difference in price
between the price of the package
purchased and that of the substitute
Pre-departure Changes package; or
(c) to have repaid to him as soon as
possible all the monies paid by him
It is not unknown for tour operators to
under the contract.
have to make changes to a package be-
fore the consumer departs. This may be 13(3) The consumer is entitled, if
for many reasons: political or civil un- appropriate, to be compensated by the
rest; acts of terrorism; problems caused organiser for non-performance of the
by extreme weather such as hurricanes contract except where –
or tsunamis; overbooking; insolvency of (a) the package is cancelled because the
airlines etc. In these circumstances the number of persons who agree to take it
consumer’s rights are governed by Regu- is less than the minimum number
lations 12 and 13: required and the consumer is informed
of the cancellation, in writing, within the
12. In every contract there are implied period indicated in the description of the
terms to the effect that – package; or

Tour Operators and Key Travel Regulations (with David Grant) 151
(b) the package is cancelled by reason of diminution of value (£200) and £250 for
unusual and unforeseeable circum- distress and disappointment. Of more sig-
stances beyond the control of the party nificance however is that the judge said
by whom this exception is pleaded, the that the claimants had not been ‘properly
consequences of which could not have
informed’ of their full rights under Regu-
been avoided even if all due care had
lation 12, including the right to withdraw
been exercised.
without penalty, and that in such circum-
Thus, under Regulation 12, if a con- stances tour operators should inform con-
sumer can establish that a tour operator sumers in writing of the options available
has altered significantly an essential term to them. In this case he felt that there had
s/he has the choice of either withdrawing been ‘an element of H being duped into
from the contract, or accepting the change believing he had no right to cancel’.
with a rider to the price. Presumably, if
there is such a major change, then the
Post-departure Changes
consumer will withdraw unless the tour
operator offers enough by way of com-
Some of the problems that cause pre-­
pensation. If the consumer does with-
departure changes may also affect the
draw, or if the operator cancels the holiday
holiday after the consumer has departed.
for any reason other than the consumer’s
In that case the consumer’s rights are
fault, then the consumer is entitled to the
determined by Regulation 14 which
following choices:
provides:
●● a substitute holiday of equivalent or 14(1) The terms set out in paragraphs
superior quality, or (2) and (3) below are implied in every
●● a substitute holiday of inferior quality contract and apply where, after de-
plus the difference in value, or parture, a significant proportion of the
services contracted for is not provided
●● a full refund, and
or the organiser becomes aware that he
●● compensation, except where the
will be unable to procure a significant
contract was cancelled for force ma-
proportion of the services to be
jeure or because of lack of minimum provided.
numbers.
14(2) The organiser will make suitable
In Hook v First Choice Holiday & alternative arrangements, at no extra
Flights Ltd [1998] CLY 1426, the tour cost to the consumer, for the continu-
operator knew four days before the claim- ation of the package and will, where
ants departed on holiday that their hotel appropriate, compensate the consumer
for the difference between the services to
was not available and informed them of
be supplied under the contract and those
this. They were told that the alternative supplied.
being offered them was in the same resort
and of equivalent quality. They were fur- 14(3) If it is impossible to make
ther told that if they chose to cancel they arrangements as described in paragraph
would only receive a 10% refund. The (2), or these are not accepted by the
consumer for good reasons, the
claimants reluctantly agreed to the
­organiser will, where appropriate,
change. The hotel, although of the same provide the consumer with equivalent
star rating, was of inferior quality. It was transport back to the place of departure
decided that the claimants’ holiday had or to another place to which the
not been entirely ruined and they were en- consumer has agreed and will, where
titled to a 20% discount on the price for appropriate, compensate the consumer.

152 Chapter 8
Thus, if the consumer can show that: family then returned to their room and
let themselves out of the room via the
●● a significant proportion of the ser- balcony using a makeshift rope made of
vices are not to be provided, or sheets. Mrs Wall was injured when the
●● the tour operator becomes aware sheets gave way and she fell to the ground.
that they cannot be provided Although it had been the fault of the
the tour operator must hotelkeeper that the fire escape gate had
been padlocked, no blame could be attrib-
●● make suitable alternative arrange- uted to the tour operator in the case. On
ments for the continuation of the the contrary, the judge said that the tour
holiday, or operator was a reputable company that
●● if it is impossible to make alternative had acted properly throughout. It had se-
arrangements transport the consumer lected a modern hotel and monitored it for
home again and safety and there was nothing more that
●● in both cases, compensate the con- could reasonably be expected of them.
sumer where appropriate. In practice, this approach meant that
because most of a package is made up of
In Milner v Carnival plc [2010] EWCA elements subcontracted to others – airlines
Civ 389, which is discussed more exten- and hotels – much of what went wrong
sively below, the Milners disembarked a with a package could not be made the
round-the-world cruise in Hawaii and legal responsibility of the tour operator.
paid for their own passage home to the This often left clients either without a
UK because they were unhappy with their remedy or the difficult task of suing a
cabin. They claimed this cost under Regu- foreign hotel or airline. However, Regu-
lation 14 but the claim was disallowed lation 15 of the PTR changes that. It
because the Milners were found not to provides:
have had good reasons for rejecting the
final cabin offered to them and their dis- 15(1) The other party to the contract is
embarkation was treated as consensual liable to the consumer for the proper
rather than a breach of Regulation 14. performance of the obligations under the
contract, irrespective of whether such
obligations are to be performed by that
other party or by other suppliers of
Liability under Regulation 15 services but this shall not affect any
remedy or right of action which that
Until 1992, the position at common law other party may have against those other
was that tour operators were not liable suppliers of services.
for the defaults or negligence of their sub- 15(2) The other party to the contract is
contractors (or suppliers as they are often liable to the consumer for any damage
called). This was the issue which was at caused to him by the failure to perform
the heart of the Wall v Silver Wing Sur- the contract or the improper perform-
face Arrangements (High Court, 1981, ance of the contract unless the failure or
Unreported). In that case the plaintiff and the improper performance is due neither
her family had booked a package to Ten- to any fault of that other party nor to
erife with Enterprise holidays. One night that of another supplier of services,
a fire broke out at their hotel. They were because –
unable to exit the hotel via the fire escape (a) the failures which occur in the
because the hotelkeeper had padlocked performance of the contract are
the gate at the bottom of the escape. The attributable to the consumer

Tour Operators and Key Travel Regulations (with David Grant) 153
(b) such failures are attributable to a 4(1). No organiser or retailer shall
third party unconnected with the supply to a consumer any descriptive
provision of the services contracted for, matter concerning a package, the price
and are unforeseeable or unavoidable, or of a package or any other conditions
(c) such failures are due to – applying to the contract which contains
(i) unusual and unforeseeable circum- any misleading information.
stances beyond the control of the party
4(2). If an organiser or retailer is in
by whom this exception is pleaded, the
breach of paragraph (1) he shall be liable
consequences of which could not have
to compensate the consumer for any loss
been avoided even if all due care had
which the consumer suffers in
been exercised; or
­consequence.
(ii) an event which the other party to the
contract or the supplier of services, even There is liability if the plaintiff can
with all due care, could not foresee or show that a tour operator or travel
forestall. agent supplied to a consumer a bro-
The effect of this is that if part of chure that contained misleading de-
what the tour operator has promised to scriptive matter concerning a package or
the client is to be performed by subcon- its price and the consumer suffers as a
tractors, the tour operator is nevertheless consequence.
held responsible if things go wrong unless The liability is imposed for supplying
they can prove one of four things: misleading descriptive matter. The impli-
cation here is that it will cover written
●● it was the consumer’s own fault; matter but not oral statements. The word
●● it was the fault of a third-party un- matter suggests something tangible. It
connected with the contract; will obviously cover brochures and other
●● it was caused by force majeure; brochure-like leaflets and it would most
●● it was caused by some other event probably extend to videos of holiday des-
that the tour operator could not pre- tinations. It probably does not extend to
dict or avoid. window displays or window cards be-
cause the requirement is that the matter
Most of the most important cases
be supplied to the consumer and it cannot
involving personal injury, such as Evans v
be said that such matter is supplied to the
Kosmar [2007] EWCA Civ 1003, Healy v
Cosmosair [2005] EWHC 1657 (QB), consumer. Press advertisements are po-
tentially different in that it is a moot
Japp v Virgin Holidays Ltd [2013]
point whether it can be said that the op-
EWCA Civ 1371 and Gouldbourn v
erator or the retailer has supplied the
Balkan Holidays [2010] EWCA Civ 37,
matter if it comes in a paper or journal
rely on Regulation 15 as the basis of li-
supplied by a publisher or newsagent.
ability.
The other qualification is that liability is
only imposed where the consumer, be-
Liability under Regulation 4 cause of the misleading information, suf-
fers as a ­consequence. For the consumer
Regulation 4 creates a statutory right to to show that as a consequence of the de-
compensation for the consumer that scriptive material s/he suffered loss, there
cuts across the traditional boundaries will have to be some evidence of cause
of the common law. It imposes civil li- and effect. S/he must show that s/he relied
ability on both organizers and retailers on the information, otherwise how can it
if they supply misleading information. be said that s/he suffered loss as a conse-
It states: quence? A significant point is that the

154 Chapter 8
travel agent, as well as the tour operator, Damages for difference in value:
could incur liability, thus making them Where the tour operator has provided a
strictly liable for brochure errors they holiday which is worth less than the
might know nothing about – and with no holiday s/he contracted to provide, the
defence. The only way to combat this li- holidaymaker is entitled to the difference
ability is to ensure that the agency agree- in value. A straightforward example of
ments they have with operators contain this principle is the case of Mcleod v
indemnity clauses. Whether they do or Hunter [1987] CLY 1162. In that case the
not may very well be a matter of bar- tour operator promised a luxurious villa
gaining power. but what they provided was a cramped
The leading case on Regulation 4 is apartment. The court assessed the diffe-
Mawdsley v Cosmosair Plc [2002] EWCA rence in value as £439. This was in add-
Civ 587. The facts of the case were that ition to damages for distress and
Mrs Mawdsley and her husband were disappointment.
descending a flight of stairs leading to Consequential loss: When the breach
the restaurant in the hotel they were of contract results in the holidaymaker
staying at. They were carrying their baby having to expend further sums in order to
daughter, Charlotte, in a pushchair be- rectify the breach, damages for conse-
tween them. In the process Mrs Mawds- quential loss can be claimed. Sometimes
ley lost her footing, slipped and fell. Mrs these damages are referred to as out-of-
Mawdsley claimed that in the brochure pocket expenses. In Harris v Torchgrove
advertising the hotel, in reliance on [1985] CLY 944 the court awarded £40
which she and her husband booked the damages for parking expenses because
holiday, Cosmos represented that the the promised parking at the apartment
hotel restaurant could be accessed by a was not available and a further £300 for
lift when in fact it could not, and that the the cost of extra meals taken in restaur-
hotel was suitable for parents with young ants because the apartment had no oven
children when in truth it was not so suit- and the fridge was ‘eccentric’.
able. The Court of Appeal held that Difference in value claims and conse-
Cosmos were in breach of their duty quential loss claims cannot be combined
under Regulation 4 of the PTR in that its to give double compensation. For in-
brochure contained ‘misleading informa- stance, if a tour operator promises full
tion’, and this misleading information board but no evening meals are provided,
caused her fall – she would not have the consumer cannot claim both the dif-
booked the holiday or been descending ference in value between half board and
the stairs if the restaurant had been ac- full board and also the out-of-pocket ex-
cessible by lift. penses for purchasing restaurant meals in
the evening.
Damages for distress and disap-
Damages
pointment: Holiday contracts are almost
unique because in appropriate cases the
To compensate the consumer for breach
courts will award damages for distress
of contract, three heads of damage are
and disappointment caused by a breach
recognized:
of contract. Such damages are not avail-
●● damages for difference in value; able generally in the law of contract. The
●● consequential loss; and rule was established in the case of Jarvis
●● damages for distress and disappoint- v Swans Tours [1973] 1 All ER 71. The
ment. plaintiff booked a holiday in the Tyrol

Tour Operators and Key Travel Regulations (with David Grant) 155
at Christmas. He was promised a ‘house- Ward LJ offered the following sug-
party’ atmosphere; ‘gemutlichkeit’; fondue gestions for making the assessment of
parties; yodler evenings; afternoon tea these types of damages (mental distress/
and cakes; etc. The hotel was virtually disappointment etc.) more consistent:
deserted, the skiing was very restricted,
almost none of the services were pro- ●● The award should be in the nature of
vided and the hotel proprietor spoke no a conventional figure, or range of fig-
English. The Court of Appeal awarded ures. In arriving at this, use should be
the plaintiff £125 damages on a holiday made of ‘comparables’.
that cost £64. Lord Denning said: ‘In a ●● The first comparable was the deci-
proper case damages for mental distress sions in large numbers of other cases.
can be recovered in contract . . . One such These showed modest awards. Ru-
case is a contract for a holiday, or any ined foreign weddings got the highest,
other contract to provide entertainment just over £4000; ruined honeymoons
and enjoyment. If the contracting party £321 to £1890; other special holidays
breaks his contract, damages can be £264 to £1161; ordinary holidays
given for the disappointment, the dis- £83 to £1876.
tress, the upset and frustration caused by ●● The next comparable was the awards
the breach.’ suggested by the Judicial Studies Board
The rationale behind the decision is (JSB) in their Guidelines, for psychi-
that where the purpose of the contract is atric injuries and for post-traumatic
to provide peace of mind and enjoyment, stress disorder. At the bottom end,
then such damages can be claimed, but modest four-figure sums were con-
not for everyday commercial transactions sidered the benchmark by the JSB.
where the provision of pleasure is not the ●● Another comparable is discrimination
essence of the contract. cases in which awards had been made
Although the Jarvis case forms the for injury to feelings. These were mo-
basis for claims for distress and disap- dest four-figure, or even sometimes
pointment, it must now be read in the three-figure sums.
light of the Milner case referred to above ●● Then there are bereavement claims,
in relation to Regulation 14. The facts of where even awards to parents for
Milner were these: Mr and Mrs Milner the death of a child did not exceed
bought a cruise for themselves on the £10,000.
maiden round-the-world cruise of ●● Ward LJ also quoted from the House
Cunard’s Queen Victoria. It was priced at of Lords decision in Farley v Skinner
£65,558, but the Milners managed to ne- [2001] UKHL 49: ‘I consider that
gotiate a discount and actually paid awards in this area should be re-
£59,052. The cruise lasted 102 nights but strained and modest. It is important
the Milners disembarked after only 28 that logical and beneficial develop-
nights because their cabin was so noisy – ments in this corner of the law should
caused by the grinding and banging not contribute to the creation of a so-
sounds of the metal plates flexing and vi- ciety bent on litigation.’
brating and reverberating in the area of
their cabin. Cunard refunded the unused Set against these comparables, Ward
portion of the price (£48,270), but the LJ considered holiday damages. He said:
Milners claimed further compensation ‘Physical inconvenience and discomfort is
for the distress and disappointment they necessarily ephemeral. Disappointment,
had suffered. distress, annoyance and frustration are

156 Chapter 8
likewise the feelings one experiences at ly’s annual budget. In the vast majority of
the time and which last painfully for cases, the money has to be paid in ad-
some time thereafter. But one is not dis- vance to the tour operator. The obvious
abled, the psyche is not injured, and one danger with this is that, if the tour oper-
gets on with life. Every time one thinks ator becomes insolvent, consumers will
back, one relives the horror but the re- lose their money. The problem is exacer-
living of it is transitory.’ bated if the clients happen to be abroad at
He then considered the award in this the time. Prior to 1992, there were various
case. As to mental distress, he said it was voluntary and statutory schemes in place
‘wrong to use the price of the holiday as to protect consumers if this happened.
a benchmark for damages’. He awarded Thus, if a consumer booked an air
£4000 for Mr Milner and £4500 for Mrs package holiday they were protected by
Milner, describing these figures as ‘excep- the Air Travel Organiser’s Licence (ATOL)
tional’ to cater for the ruination of an ex- scheme, which required air package tour
ceptional event. Normal awards would operators to take out a bond to be paid
be considerably lower. out to clients in the event of the tour oper-
Mitigation of loss: A victim of a ator’s insolvency. ABTA also operated a
breach of contract cannot simply sit back scheme whereby their members, whether
and collect damages. They must take rea- air package operators or not, were also
sonable steps to mitigate their loss and required to have bonds to protect their
failure to do so can mean that they will clients. However, the protection was not
lose their damages. In holiday cases, one universal and it was possible for a client
of the simplest ways to mitigate your loss to book a holiday with a non-bonded op-
is to complain to the tour operator or erator and lose their money. Many coach
their representative who may then be tour operators fell into this category.
able to put things right. Regulation 15(9), Now, as required by the PTD, the PTR re-
in fact, requires tour operators to include quire all tour operators to be able to pro-
in their contracts a term obliging con- vide evidence of security for the return of
sumers to complain at the earliest oppor- pre-payments and for repatriation (Regu-
tunity if they have a problem. In lation 16). The Regulations provide that
Czyzewski v Intasun (1990, County Ct. this can be done in a number of ways:
Unreported) the plaintiff complained of
an ‘offensive’ toilet. After several unsuc- ●● by bonding;
cessful attempts to repair it, the hotel ●● by insurance;
offered him an alternative room but for ●● by establishing a trust fund.
some reason he declined to take it and re- All air tour operators (but not air-
mained in his room for the rest of his lines selling flight-only direct to the
holiday. The court awarded him only £50 public) must have an ATOL. The scheme
damages based on the limited amount of is administered by the Civil Aviation Au-
time he would have had to spend in the thority (CAA), which has created a
room if he had accepted the alternative. number of different ways of acquiring a
licence. Tour operators can acquire a li-
cence direct from the CAA or indirectly
Protection against Insolvency via several different trade association
schemes. For instance, the CAA offer a
Expenditure on the average family holiday standard licence for large tour operators
usually ranks as one of the two or three and a small business ATOL (SBA) for
largest items of expenditure in the fami- those businesses carrying less than 500

Tour Operators and Key Travel Regulations (with David Grant) 157
passengers a year. Alternatively, if the from the current regime. Briefly, they are
tour operator is a member of an accredited as follows:
body, such as Advantage Travel Centres
or Hays Travel, they can trade under the ●● The definition of ‘package’ has been
radically extended to include, for in-
licence of the accredited body – so long as
stance, not only packages as defined al-
they meet the membership criteria. Tour
ready but also much of what is loosely
operators may also acquire a licence by
called dynamic packaging; arrange-
being a member of a franchise such as the
ments described as a ‘package’; ar-
Travel Trust Association. ABTA and the
rangements sold at a total or inclusive
CAA have a Joint Administration Scheme
price; and ‘click through’ arrangements.
by which ABTA members with an annual
turnover of less than £1.5 million can ob- ●● ‘Fly-Drive’ arrangements are now
caught by the definition of package.
tain a licence. The value of ATOL protec-
tion to the customer cannot be overstated ●● There is also a new concept, the
Linked Travel Arrangement (or LTA),
in the event of the collapse of a tour oper-
which resembles the ‘flight-plus’ con-
ator, as was well illustrated in the summer
cept found in the ATOL Regulations.
of 2016 when the Low Cost Travel Group
As with flight-plus, they attract in-
and Anatolian Sky failed. The former was
solvency protection but not the same
registered in Spain, did not hold an ATOL
liability as packages.
and had only a small fund to cover liabil-
ities resulting in at best low compensa- ●● Business travel that is bought via a
‘general agreement’ is excluded from
tion for customers. In contrast, Anatolian
the legislation.
Sky (UK) collapsed due to the marked de-
cline in demand for Turkey, but all their ●● The obligation to provide accommo-
dation to travellers where it is impos-
customers’ payments were secure because
sible to return them to their point of
of their ATOL.
departure because of unavoidable
The ATOL scheme also covers ‘flight-
and extraordinary circumstances is
plus’ arrangements. This is where an op-
limited to three days.
erator, usually a travel agent, puts together
separate travel services, but including ●● As far as insolvency protection is con-
cerned, the enforcement of the
flights, at separate times but within a
­legislation depends on the tour opera-
24-hour period. These are not ‘packages’,
tor’s place of establishment, i.e. tour
but they do attract insolvency protection
operators established in Spain are sub-
under the ATOL scheme. For non-air
ject to the Spanish rules on insolvency.
packages, or ‘non-licensable business’ as
it is known, the ATOL scheme does not ●● Even if the contract provides for an
increase in price because of such
apply. However, ABTA protects con-
events as currency fluctuations, the
sumers through a scheme that it runs for
price cannot be increased by more
its members and other tour operators can
than 8% and if it is the traveller has
join schemes run by the Travel Trust As-
the right to cancel the package and
sociation or Travel Vault, which offer
terminate the contract without penalty.
insurance-based or trust accounts.
●● The requirements relating to the pro-
vision of information are strengthened.
PTD2 – The Major Changes There is an invitation in the Directive
for Member States to make retailers as
When PTD2 is brought into effect by July well as organizers liable for the perform-
2018, there will be significant differences ance of the package.

158 Chapter 8
Asia Pacific Region administered by the country’s respective
and Legislation Ministry of Trade and Tourism, National
Tourism Association and Consumer As-
The Asia Pacific region is one of the top sociation. The legislation usually covers
tourist-generating regions in the world. the various aspects of tour packages from
According to the UNWTO, international fee collections, marketing, tour arrange-
tourist arrivals to the Asia Pacific coun- ments, breach of contract and booking
tries increased to 279 million in 2015. In regulations. Hong Kong, Singapore and
this region the mature destinations are China have all established legislative
mainly Singapore, Hong Kong, Thailand frameworks to set guidelines for tour
and Malaysia, which are widely con- agents and to protect the interests of their
sidered to be pioneers in the development customers (see below). These have been
of tourism in the region. However, with successfully implemented over time and
rising affluence, other countries such as revised where needed so as to be in line with
China, Vietnam, Korea and the various changing trends in tourism. As tourism
ASEAN countries are developing their in the Asia Pacific regions continues to
tourism potential, partly if not totally in expand, destinations such as Myanmar,
recognition of its macro-economic bene- Laos, Cambodia and Vietnam are all now
fits. The Asia and Pacific region is the se- looking into new legislation and regula-
cond largest source of international tory procedures for their tour/travel op-
tourists (24%) after Europe (50%) erations sector.
(UNWTO, 2016, p. 12). The importance
of the tourism sector, especially with the
growth of inbound and outbound mar- Hong Kong
kets, means that there is need for more
tour operators offering packaged tours In Hong Kong, the Travel Agents Ordin-
and facilitating travel. In this regard, the ance (TAO) (CAP 218) provides the legis-
need for legislation to control and admin- lation framework for the regulation and
ister tour operators through licensing as control of travel agents and for the oper-
well as to protect consumer interest is of ation of the Travel Industry Compensa-
great importance. tion Fund. Under the TAO, any person
In comparison with the EU, many operating as a travel agent is required to
countries and regions outside Europe do obtain a licence from the Registrar of Travel
not have such comprehensive package Agents and is defined as either outbound
travel legislation. For many countries the travel agent or inbound travel agent. Li-
distinction between travel agent and tour censing requires that a travel agent must
operator is not identified and those regu- be a member of the Travel Industry Council
lations that do exist mainly apply to of Hong Kong. Consumers on the other
travel agents on the grounds that they hand are also protected under the Travel
create and/or retail packages on behalf of Industry Compensation Fund and the
suppliers. This can be well illustrated by Package Tour Accidents Contingent Fund.
an overview of legislation and regulation
applicable to travel agents in Asia Pacific
countries. Singapore
The legislation process in the Asian
countries varies in accordance with the Tourism in Singapore largely developed
stage of travel agent development. Gen- during the 1950s and it is now a mature
erally, the legislation process is set and destination. Since 1976, travel agents

Tour Operators and Key Travel Regulations (with David Grant) 159
have been guided by the Travel Agents ●● purchases for resale the right of pas-
Act, which clearly states all the legal regu- sage on any conveyance (not being a
lations that agents need to comply with, prescribed conveyance);
from marketing to key issues such as col- ●● carries out such activity as may be
lection of tour fees and tour cancellation. prescribed; or
The Act also established the licensing of ●● holds himself out as, or advertises
travel agents, both inbound and out- that he is, willing to carry on any ac-
bound, and is administered by the Singa- tivity referred to in paragraph (a), (b),
pore Tourism Board (STB), a statutory (c) or (d).
board under the umbrella of the Ministry
Operators carrying out activities in
of Trade and Industry, which promotes (a) do not require a licence if they intend
the development of tourism through man- to use conveyances owned by them, and
aging quality, promoting tourism devel- operators carrying out activities in
opment and marketing. The licence lasts (b) do not require a licence if they own
for up to two years and includes listing in both the conveyance and place of
the travel agent directory on the STB’s accommodation.’ (STB, 2016, para 1)
corporate website.
These travel agents are also required
The STB also upholds the regulatory
to inform outbound customers to con-
environment for travel agents, tour guides
sider travel insurance that will insure
(Tourist Guide Regulations) and hotels
against the travel agent’s insolvency, and
through a licensing process. In addition,
the customer’s decision must be formally
they ensure compliance with the related
recorded either through acceptance or re-
Acts, policies and regulations and under-
jection. The aim of such additional condi-
take reviews of the pertinent legislation to
tions is to remind consumers that they
ensure currency and relevance in the regu-
need to safeguard their interests when
latory environment. In order to assess
making travel bookings. If the travel agent
compliance and practice, the STB regu-
does not sell insurance themselves then
larly checks on travel agents to ensure fi-
customers must be referred to the STB’s
nancial stability, thereby assessing that
list of insurers. Should a customer decline
they do not pose a financial risk to the
such insurance, this does not prevent con-
travelling public. The STB also ensures
tinuing the booking as the purchaser may
that only licensed tour guides are used to
wish to buy travel insurance later or have
maintain a quality experience for visitors.
alternative policies in place.
The STB states that a travel agent is
Travel agents wishing to handle in-
anyone who:
bound tourists from China need to sign a
●● ‘sells tickets entitling an individual Memorandum of Understanding (MOU)
to travel, or otherwise arranges for a with the National Association of Travel
person a right of passage on any Agents Singapore (NATAS). All China-­
conveyance (not being a prescribed based outbound travel agents are re-
conveyance); quired to work only with agents who
●● sells to, or arranges or makes avail- have signed a MoU, and therefore, in the
able for, a person rights of passage to, case of Singapore, only these Singaporean
and hotel or other accommodation travel agents will be allowed to apply for
at, one or more places (being places China Group Visas from the Immigration
within or outside Singapore, or some and Checkpoints Authority of Singapore
of which are within and others of (ICA). To protect further the interests of
which are outside Singapore); Singaporeans, the Consumer Association

160 Chapter 8
of Singapore (CASE) and the National Domestic tourism developed from
Travel Association of Singapore (NATAS) the early 1980s, which is demonstrated
launched a CASE–NATAS joint accredit- by the increase in the number of travel
ation scheme for travel agents. The new agencies from less than 300 in the mid-
scheme is to protect the rights of con- 1980s to 7725 by the year 2000 (Zhang
sumers in a dispute and it covers trans- et al., 2005). This, in part, was facilitated
parency in their fee policy, accuracy in by significant changes in 1985, which al-
advertising, refund policy practice and lowed collectives and private citizens to
professional business ethics. operate travel agencies, thereby estab-
lishing three categories of agency (CNTA,
2015):
China
●● Category 3: Domestic tourism. Ser-
vices for Chinese mainland citizens
The travel sector in China is highly regu-
to travel within the territory of main-
lated and controlled by the Government,
land China. Category 3 agents work
which largely dictates how the sector is
with Category 1 or 2 to process inter-
managed, while tourism in general is
national travel and other administra-
closely monitored by China’s National
tive matters.
Tourism Administration (CNTA). It is
important therefore that tour operators, ●● Category 2: Inbound tourism. Ser-
vices for foreign tourists and tourists
both internal and external, understand
from Hong Kong, Macau and Taiwan
China’s political landscape. China’s travel
to travel within the territory of main-
sector started to develop during the
land China; restricted to handling
1970s, a period when the country ‘offi-
only Chinese passengers or providing
cially opened’ in combination with major
ground service arrangements for
economic reforms and development.
overseas visitors.
This was particularly notable in 1978
and the start of the Open Door policy ●● Category 1: Outbound tourism. Ser-
vices for Chinese mainland citizens
enabling outbound travel from China,
or foreign residents of China to travel
such that by 1990 residents were allowed
overseas or to Hong Kong, Macau
to join group tours to Southeast Asian
and Taiwan and allowed to sell prod-
destinations such as Singapore, Malaysia
ucts of all types and conduct sales
and Thailand (Zhang et al., 2005). All
and marketing overseas (CNTA,
foreign travel was handled by China’s
2015).
International Travel Service (CITS) or
China Travel Service (CTS), which re- With the rapid growth in tourism de-
stricted the destinations to which they velopment, the State Council of the Peo-
were allowed to travel. Albeit a com- ple’s Republic of China and the CNTA
paratively late entrant into the tourism introduced the Travel Agency Regula-
market compared with western nations, tions (TAR) in 2009, updating the 1996
the tourism sector has grown exponen- Management of Travel Agencies Regula-
tially since the 1970s. By 2015 China re- tions, which aims to protect the interests
corded 120 million outbound visitors, of tourists, stabilize the market and
supported by 26,650 travel service agents strengthen the administration of travel
of which 2774 were in outbound tourism agencies within China, thus there is a pri-
and 23,876 in domestic tourism (EU mary focus on the legislation and li-
SME Centre, 2015). censing process of travel agents. The

Tour Operators and Key Travel Regulations (with David Grant) 161
document defines a travel agency busi- ­ ecessary. In addition, the contract will
n
ness as involving: also state charges for changing or cancel-
soliciting for, organizing, and serving
ling the holiday, the dispute resolution
tourists and providing other tourism mechanism and responsibilities for breach
services such as planning for accommo- of contract (EU SME Centre, 2015).
dations, food and beverage, sightseeing, The TAR notes that travel agencies
leisure entertainment and vacation, tour often utilize local travel agents (ground
guide service, and tourism consultation handling agents) to provide travel services
and tourism activities planning services. in destinations and states that the agency
Travel agencies can also book transpor- must outsource its services to a qualified
tation tickets, reserve hotels, and apply local agency with the agreement of the
for visas on behalf of tourists; manage tourists, i.e. the tourists must be made
the transportation, lodging, food, and
aware that the service is subcontracted. It
conference requirements for all kinds of
entities; and provide other tourism
also states that if there is a breach of con-
services. (Day, 2009, np) tract by the ground handling agent (iden-
tified as outsourcing agent), the travel
As the definition demonstrates, there is agent retailing the trip will be liable, al-
little distinction between travel agents though they note that they may be able to
and tour operators, wholesalers and re- recoup the costs from the ground hand-
tailers in China. ling agent. Also, and similar to regula-
The Regulations stipulate that travel tions in the EU, travel agencies in China
agents maintain a performance bond by are required to carry liability insurance.
depositing funds at banks designated by Those that do not have liability insurance
CNTA, which can be used in situations are liable to have their operation permit
where either: revoked.
China’s decision to join the World
●● a travel agency breaches the tourist
Trade Organization in 2001 resulted in a
contract, or
number of initiatives and notably led to
●● customers lose their advance payments
the lifting of restrictions on foreign in-
as a result of bankruptcy or dissolution
vestment in travel agencies and allowed
of the travel agent.
for the establishment of wholly foreign-
The actual bond cost depends on the owned travel agents. TUI was one of the
type of travel agent and the number of first major tour operators to demonstrate
outlets. For example, domestic and in- early recognition of this and of the poten-
bound agents provide a bond less than tial of the Chinese market. They estab-
that for outbound travel agents. The TAR lished the China Travel Company in
states that when an agent enters into a 2003, which was the first joint venture
contract with a tourist, the contract must with an overseas company in tourism.
include the following: full details of the
travel agency, travel details including de-
parture, transit and destination, all included Recent changes
arrangements such as transportation, ac-
commodation and catering provision, in- In 2013 the Chinese government intro-
cluded activities such as guided tours, duced regulations specifically for group
clarification of self-guided activities, tourist travel. The regulations seek to prevent
payments and payment method, length of outbound group tour packages to any des-
time spent at specified retail outlets, and tination from being sold at unreasonably
any additional payments that will be low prices and to ensure an increased level

162 Chapter 8
of transparency. Historically, package a third party is responsible, unless they
holidays had been sold at low, sometimes stipulate that they voluntarily assume this
below-­market price, with the travel com- responsibility. Several US states, including
panies increasing their profits through California, Florida, Hawaii, Iowa and
commissions gained from shops to which Washington, have ‘Seller of Travel Laws’,
the tour groups were taken and from an- which require travel agents to register,
cillary payments. These regulations are regulate the sales of travel agencies and
only applicable to group tours and effect- provide financial protection for consumers
ively ban zero-based tour fares, i.e. those (Cameron, 2013). Three Canadian Provinces,
being sold at a loss; this had the resulting British Columbia, Ontario and Quebec,
effect of increasing the cost of package also have extensive legislation protecting
holidays. Fundamentally, this new law is the interests of consumers.
meant to protect the legitimate rights and
interests of Chinese tourists. It is con-
sidered to be a key step forward in regu- Summary
lating and sustaining the tourism market,
which is considered as one of the major Prior to the latter part of the 20th cen-
pillars of economic growth. This increased tury, customers of tour operators had
cost of packages resulted in a decrease in little redress in the event of an issue
the number of holidays being taken by arising between the purchase of their
Chinese passengers, particularly in Aus- package and their return to home. A
tralia, Taiwan and other countries within failing in any element of the product/ser-
the South East Asia region. vice, be that on the part of one of the
principals, misleading information or the
collapse of the tour operator itself, would
USA and Canada not necessarily mean the customer could
gain due recompense. Indeed, operators
According to US federal and state law invariably considered the delivery of the
there is no difference between the legal re- separate components of the package to
sponsibilities of the tour operator and a be largely the responsibility of the princi-
travel agency (Travel Weekly, 2013). Both pals concerned. By and large, what re-
are considered sellers of travel, which also dress customers had was based on general
includes telemarketers, travel clubs, law such as consumer protection (com-
Internet websites and informal travel pro- paratively limited at the time) and con-
moters. A travel agent acts as a person au- tract law. The latter, however, was often
thorized to sell products and services of a not particularly helpful given the wide
supplier, in effect as an agent. The travel practice of including exclusion clauses in
agent can be liable for any injuries caused the small print and disclaimers of li-
to a customer if it can be proved that the ability. In effect, in many situations cus-
agent did not act with due diligence in tomer protection was only present after
investigating the safety of the provider/ the early 1970s to cover for the collapse
principal. However, if the customer is in- of the tour operator. Thus, across the EU,
formed of the identity of the principal, until the introduction of the Package
then the agent will not be held individu- Travel Regulations, customers, as else-
ally liable for any breach of contract. Ac- where across the globe, had little sub-
cording to US law, both travel agents and stantive protection from poor practices.
tour operators are responsible for their This largely changed after 1990 with
own acts or omissions, but not those where the introduction of the EU’s Package

Tour Operators and Key Travel Regulations (with David Grant) 163
Travel Directive Regulations, regulations
which we now can identify in one form Internet Exercise
or another in many other countries. These
Search the internet for two different
regulations have gone a long way to re- European tour operators that you may
dress the weaknesses of the past to the not have heard of and which are of-
benefit of customers. However, it is still fering different types of holiday pack-
very much the case today of ‘caveat ages. Once you have selected the
emptor’ – let the buyer be aware. Indeed, two companies, search for an online
and perhaps even more so today given guide to holiday protection such as
the growing number of online travel www.­telegraph.co.uk/travel/advice/
agents (see Chapter 9) and tour operators Guide-to-­ATOL-holiday-­protection and
who can operate satellite offices in coun- investigate whether your potential
tries other than their home country, it is holiday package is protected through a
bonding scheme.
potentially risky to purchase a package
through small agents and operators in the
absence of clear and professional ac-
creditation and explicitly ATOL or ABTA
protection (or similar, dependent on a
country’s regulations) or awareness of Recommended Reading
their adoption of the home country’s re-
gulations and requirements, which even For a detailed examination of the PTR, see:
then might not be adopted to an equiva- DTI (2006) The Package Travel Regulations.
lent level. In practice, it is potentially dan- Question and Answer Guidance for Organ-
gerous for the customer to assume isers and Retailers. Available at: https://
protection, especially as regards the se- www.gov.uk/government/uploads/system/
curity of pre-payments. uploads/attachment_data/file/417823/bis-
06-1640-­package-travel-regulations-ques
tion-and-­answer-guidance-for-organisers-
and-­retailers.pdf, accessed 26 May 2017.
Discussion Questions
For further detail and illustration specif-
1. Why was it necessary to revise the ically relating to the PTR, see:
1992 PTD? Saggerson, A. (2010) Package Holiday
2.  Do you think that all countries should Law: Cases and Materials. Tarquin, St
adopt a similar set of regulations? Albans, UK.
3.  Should all tour operators be legally re- Tour operators, as with any business, are
quired to identify how their products(s) subject to general law relating to business
contribute socio-economic benefits within practices, employment, health and safety
the destination(s) visited? and consumer protection, etc., therefore stu-
dents are recommended to refer to the ap-
propriate sources on legislation/regulations
Key Terms covering business and management spe-
cific to their own country. In the case of the
● ● Force majeure: Unforeseeable UK, the following are particularly helpful:
circumstances. Grant, D.J. and Mason, S. (2012) Holiday
●● Local authority: Second tier of govern- Law: The Law Relating to Travel and
ment at the local level; often referred Tourism, 5th edn. Sweet & Maxwell,
to as municipal authority. London.

164 Chapter 8
References EU SME Centre (2015) The Tourism Market in
China. Sector Report. EU SME Centre,
Cameron, P. (2013) Travel agents: their role Beijing.
and liability. Vacation Law 30(3). American Grant, D.J. and Mason, S. (2012) Holiday Law:
Bar Association. The Law Relating to Travel and Tourism, 5th
CNTA (2015) Tourism Law of the People’s edn. Sweet & Maxwell, London.
Republic of China (Full Text) China National Saggerson, A. (2010) Package Holiday
Tourism Administration. Available at: http:// Law: Cases and Materials. Tarquin, St
en.cnta.gov.cn/Policies/TourismPolicies/ Albans, UK.
201507/t20150707_721478.shtml, accessed STB (2016) Travel Agent Licence. Singapore
6 August 2016. Tourist Board. Available at: https://www.
Council (Council of the European Communi- stb.gov.sg/assistance-and-licensing/
ties) (1990) Package Travel, Package l i c e n s i n g / Pa g e s / T R AV E L- AG E N T-
Holidays and Package Tours Council Dir- LICENCE.aspx?, accessed 5 August
ective of 13 June 1990 (90/314/EEC). 2016.
Council (Council of the European Communi- Travel Weekly (2013) Legal briefs. Travel
ties) (1992) Package Travel, Package Weekly. Available at: http://www.travel-
Holidays and Package Tours Regulations w e e k ly. com/M a r k -­Pe s t ro n k / I n - U S -
(SI 1992 No. 3288). responsibilities-of-tour-­operator-vs-agent-
Council (Council of the European Communities) no-different, accessed 5 November 2016.
(2015) Package Travel and Linked Travel UNWTO (2016) UNWTO Tourism Highlights,
Arrangements. Council Directive 2015/2302. 2016 edition. United Nations World
Day, J. (2009) China Adopts New Travel Agency Tourism Organization, Madrid.
Regulations and Lifts Restrictions on Foreign Zhang, H.Q., Pine, R. and Lam, T. (2005)
Invested Travel Agencies. Jones Day Publica- Tourism and Hotel Development in
tions. Available at: http://www.jonesday.com/ China: From Political to Economic Suc-
china_adopts_new_travel_agency_regula- cess. The Howarth Hospitality Press,
tions/, accessed 8 August 2016. Binghampton, New York.

Tour Operators and Key Travel Regulations (with David Grant) 165
9 Distribution (Place)

Learning Objectives its tour operations enterprise. As such, it


had a ready outlet for the distribution of
After studying this chapter, you should be its own tours through its developing travel
able to: agency network. However, as identified in
Chapter 3 (this volume), potential cus-
●● Identify the channels of distribution
tomers can access products directly from
and assess factors affecting the choice
tour operators and principals. In effect,
of channel(s).
distribution is the process that links the
●● Identify the activities involved in the
consumer with the tour operator, the de-
distribution process.
mand with the supplier, providing access
●● Appreciate the role of the travel
to holiday products and enabling their
agent as a channel of distribution.
purchase. Significantly in comparison with
●● Utilize marketing terminology ap-
traditional business operations, the distri-
propriately.
bution system in tourism is far stronger.
Indeed:
Introduction Travel agents and tour operators as well
as charter brokers, reservation systems
and other travel distribution specialists
The purpose of this chapter is to examine
have a far greater power to influence
the opportunities for and issues con- and to direct demand than their
fronting tour operators in relation to the counterparts in other industries do. Since
distribution of their products. Thus, our they do, in fact, control demand, they
focus herein is on how travel organizers also have increased bargaining power in
distribute their products to their target their relations with suppliers of tourist
market(s). In this context, distribution is services and are in a position to
how the product can be ‘made available ­influence their pricing, their product
to, and be purchased by consumers’ (Miller, policies and their promotional activities.
2002, p. 95). Unlike traditional goods, (Buhalis, 2003, p. 179)
holiday products are intangible and there- The choice of distribution channel(s)
fore distribution is concerned with pro- is one of the most important decisions a
viding customers with access to the product tour operator must make and involves
rather than transporting/­delivering goods. two key considerations. First, where and
The traditional channel of distribution for how potential customers can purchase the
tour operators is that of the travel agent product(s). Second, given that customers
(see Chapter 6, this volume). Indeed, the cannot experience the product before
establishment of the first signs of a channel consumption, they rely on information
of distribution are to be seen in the develop- being provided about the product; trad-
ment of Thomas Cook, which started out itionally, the brochure. Therefore, it is
as a retail travel agent before developing essential that the operator ensures the
­

166© J. Holland and D. Leslie, 2018. Tour Operators and Operations: Development,
Management and Responsibility (J. Holland and D. Leslie)
­ecessary information is provided for
n services by some of the major supermar-
customers to inform their choice and sub- kets today. Other companies in the sector
sequent decision as to which product best sought to expand; for example, Lunn
suits their requirements. Traditionally, Poly was bought out by the Thomson
the distribution system of tour operators Travel Group, which embarked on a rapid
can be considered as a simple process expansion campaign, from 60 branches in
within which consumers purchase holiday 1972 to over 600 by 1993, in the process
products through travel agents. Over time becoming the dominant retailer in the UK.
this chain of distribution has been chal- However, since the high days of the 20th
lenged as the role of the intermediaries has century, the traditional travel agency distri-
become blurred. Indeed, the distribution bution channel has been increasingly chal-
landscape has changed substantially over lenged by developments in information
the last 25 years, becoming increasingly communication technology, specifically
complex with the introduction of new the introduction of computer reservation
players in the market and alternative chan- systems and global distribution systems.
nels emerging, most noticeably online sales.

Global distribution systems


Changes in Traditional
­Distribution The rapid changes in information tech-
nology have impacted on all industries,
The principle function of travel agents is but perhaps none more so than the tourism
retailing travel products and services on product. The nature of the tourism product
behalf of the primary suppliers, e.g. tour (see characteristics of tourism, Chapter
operator or principal. However, the 1970s 10, this volume) certainly lends itself to
witnessed significant changes in the struc- the application of information tech-
ture of the UK travel agency and tour nology, especially for the supply and ex-
operator sector, in what became termed change of information throughout the
by the trade press as the ‘March of the production supply chain and distribution,
Multiples’. Large tour operators expanded and more so for intra-regional and inter-
rapidly, often through the acquisition of national travel. The first major evidence
small retail chains, a strategy that con- of this lies in the development of the elec-
tinued to the end of the 20th century. tronic distribution systems known as
Thus, the multiples gained greater econ- computer reservation systems (CRS) – the
omies of scale, increased bargaining power forerunners of today’s global distribution
with the principals and greater brand systems (GDS).
awareness leading to increased profits. CRS were first developed by airlines
The emergence and rapid expansion in the late 1960s to manage flight sched-
of the large travel agency organizations ules, availability, reservations and prices,
saw an unprecedented number of new with the primary objective of selling air-
travel agencies opening, fuelled by the in- line tickets. Prior to this, travel agents
creasing demand for package holidays and would have to phone airlines to request
travel in general. Non-tourism companies specific flights, while tour operators would
such as WH Smith, the Co-operative ­Society manually manage reservations and pri-
and the Automobile Association identified cing itineraries. American Airlines was one
opportunities to expand into the travel of the first to introduce a CRS known as
retail sector, a development continued Sabre (Semi Automated Business R ­ esource
with the introduction of travel agency Environment), which was only used

Distribution (Place) 167


i­nternally and travel agents still had to there was no direct connection with the
make contact by telephone. Sabre origin- customer and principals and wholesales
ally had very limited reservation capability, looked to find alternative methods of dis-
until 1980 when an advanced airline yield tribution. This situation led to a shift
management system was introduced from being passive systems handling only
(Das, 2009). By the late 1960s the airlines bookings for airlines to include all travel
recognized that automating the reserva- services and becoming a distinct distribu-
tion process for travel agents would make tion channel.
their agents more productive and poten- Three major GDS suppliers have
tially more loyal to the airlines, as such emerged: Amadeus; Sabre; Galileo/World-
becoming part of their salesforce. In rec- span (after a merger in 2007). Almost
ognition of this, in 1976 United Airlines every travel agent in the world uses either
offered the Apollo system to travel agents, one or a combination of these three com-
although this only allowed agents to panies to search and book airfares. Tours
book on United Airlines. These systems and activity products are not available
allowed airlines to share their product through any GDS system. They charge
capacity with retailers and suppliers. The airlines booking fees and require subscrip-
next step was to introduce computer ter- tions from agencies for using the system,
minals into travel agencies to ensure that which holds no inventories (products) but
their system was used. Subsequently other they can access a supplier’s inventory in
systems were developed, for example, real-time. Amadeus is the largest GDS but
European airlines invested in creating their does not have a strong foothold in the
own reservation systems, and in 1987 a USA, whereas Sabre is strong in the USA,
consortium of Air France and Lufthansa but does not have a large presence else-
developed Amadeus. where. Travel Port owns both Galileo and
CRS providers have ensured that Worldspan and used to be the dominant
these distribution systems have developed GDS system in Europe, Africa, the Middle
into a business, becoming a substantial East and Eurasia, but is losing its foothold
source of income because they charge a in most markets. Each of these GDS sys-
small fee per booking and a fee for travel tems has a customer portal for end-users;
agents for the right to use the system. On- Sabre has Virtually There, Amadeus has
going developments in CRS led to GDS, Check My Trip and Travel Port uses View
which today can do considerably more Trip and My Trip (see Chapter 6, this
than sell only airline tickets and auto- volume). GDS systems enable tour oper-
mate procedures and have effectively re- ators to purchase components when
placed CRS. These reservation systems, putting together packages, particularly
sometimes called automated reservation packaging tailor-made holidays or buying
systems, used by travel agents and tour rooms/seats once allocations are full or
operators were hugely influential in dis- additional supply is needed. Some pack-
tributing package holidays to clients. ages may be available through GDS and
Until the early 1990s, GDS were a closed sold via one of the distribution channels.
group limited to the retail travel agency
community. Suppliers pay fees to have
their products on the system and al- Distribution Channels
though lucrative in terms of sales they
proved to be expensive due to the cost of Today there are alternative distribution
the system, transaction fees and commis- channels that can be used by tour oper-
sions. As GDS are distribution software, ators and wholesalers, which has enabled

168 Chapter 9
consumers to interact directly with tour ●● incentive travel company – these may
operators. These channels are usually be professional services that plan, pro-
classified as either direct or indirect, as il- mote and execute their own product
lustrated in Fig. 9.1. or act as an intermediary for operators;
The key question for the tour oper- ●● meeting and convention planners –
ator is which channel(s) to use. Channel these may be professional services
decisions must be made on information that plan meetings for corporate cli-
drawn from analysis of the product, the ents or act as an intermediary for
market and the competition. Essentially, it other suppliers;
is important to determine which distribu- ●● national tourism organization web-
tion channels are most likely to be effective sites, e.g. Japan’s National Tourism
given the target market(s) (see Chapter 10, Organization which hosts packages
this volume). The main options are: provided by airlines;
Direct to the consumer: ●● visitor information centres;
●● concierge services.
●● telesales/email;
●● walk-in; The benefits of using an intermediary
●● call centre; (e.g. a travel agent), although varied, may
●● online via a booking engine. be primarily considered as they have
direct contact with potential customers.
Indirect, using an intermediary:
They will also reach a wider market that
●● travel agents; may be difficult for the tour operator
●● online travel agents; otherwise to identify and service.

Transport and accommodation suppliers

Tour operator
(direct using
Tour operator telesales, call Tour operator Tour operator
centres and
online)

Speciality
planners–
concierge
services, Home worker
Retail travel Retail travel Online travel
meeting and retail travel
convention agent agent agent
agent
planners and
incentive
companies

Customers

Fig. 9.1.  Channels of distribution for tour operators.

Distribution (Place) 169


Channel choice through travel agents. Basically, a travel
agent is a retailer of travel-related prod-
The right choice of distribution channel(s) ucts on behalf of suppliers (principals
is crucial to the success of any product be- and operators) to customers, who may or
cause it is the link between the supplier of may not be the final consumer. Therefore,
the product offering and the consumer. the agent’s role is to act on behalf of
As Lumsden (1997) indicated, operators principals and consumers – in effect, a
need to assess carefully their channel op- ‘go-between’ – by supplying information
tions by considering the following factors: on, and opportunities to purchase, travel
products, hence the term agent. As such,
●● Cost: includes consideration of the
travel agents act on behalf of the sup-
commission and costs involved in dis-
pliers and can be considered as a broker
tribution of the marketing material.
in that they bring buyer and seller to-
●● Control: specifically, the degree of
gether. They operate on the basis that
control the operator wishes to have
they will receive commission on sales.
in the distribution of their products;
Sales primarily comprise prearranged
for example, selling direct ensures
packages on behalf of tour operators;
that information given to potential
individual components provided by the
customers is accurate, which may be
principals such as airlines or hoteliers; or
particularly important for specialist
packages created by bundling compo-
operators.
nents together to create a single holiday
●● Service: the level and quality of ser-
product. Agents who do create packages
vice can be controlled if operators sell
for customers are considered ‘travel or-
directly to their customers, whereas
ganizers’ under the EU Package Travel
they have little control of the service
Regulations and therefore can be con-
provision when using third-party
sidered as a type of tour operator (see
suppliers such as travel agents.
Chapter 8, this volume).
●● Consumer: the target market and
To make such sales, the travel agent
their preferences.
needs to provide the necessary product
●● Resource commitment: how much
information as opposed to holding and
support can they offer to travel agents
retailing goods, thus they have no stock
and other retail intermediaries?
holdings. Essentially, the agent provides a
●● Competitor activity: how are com-
convenient location for the purchase of
petitors distributing their products?
holiday products. The key functions of a
●● Coverage and access to market seg-
travel agent include:
ment: can retailers access potential
customers more efficiently than the ●● making reservations;
tour operator themselves? ●● planning itineraries;
●● Image: does the retailer support the ●● costing fares and charges;
image created by the tour operator? ●● providing tickets (or vouchers) for
the components of the package;
These factors are all particularly per-
●● communicating with customers, main-
tinent to travel agents.
taining reservations;
●● promoting products using brochures
and other marketing collateral; and
Travel agents
●● dealing with customer complaints.
One of the most efficient ways for tour A travel agent will only contact the tour
operators to distribute their product(s) is operator or principal on the customer’s

170 Chapter 9
behalf once the customer has decided to is designed to cater for customers who
purchase the product. Therefore, in com- have already done their holiday research
parison with general retail services, they (potentially including quotes) but want a
have lower investment costs. Holloway face-to-face conversation before booking,
and Humphreys (2012) notes that this emphasizing speed and convenience. The
has three important implications. First, fierce competition between agents, the re-
the start-up costs of operating a travel duction or removal of commission paid
agency are relatively low because there is by principals and the ever-increasing avail-
no investment in products, thus limiting ability of online distribution is challenging
the financial risk, while revenues are gen- the profitability of the traditional ‘bricks
erated through sales commissions. Second, and mortar’ travel agent. This has led to a
travel agents promote products that are deskilling in the sector; once travel agents
often in competition with other travel were seen as consultants with expert
agents. Third, because they do not need to product knowledge, but declining rev-
sell stock holdings they can be less loyal enues have increased the focus on redu-
to the principals involved (unless they are cing costs, leading to lower salaries and a
vertically integrated) (see Chapter 3, this tendency to recruit staff who are com-
volume). Vertically integrated tour oper- paratively young and inexperienced.
ators such as TUI retain high street travel Overall, the evident trend in the USA
agents so that they can maintain their in- and UK is a decline in the use of travel
fluence on the way their products are mar- agents, which is symptomatic of the in-
keted while also promoting their brands. creasing use of the Internet for research and
Within the UK, for example, Thomas Cook booking. This shift to digital purchasing is
is the UK’s largest travel agency in terms substantiated by Mintel (2014) in that 9%
of number of stores with 850, compared of customers booked their holiday package
with TUI, which has 644, Virgin Holidays in-store and in-store conversion rates of
123, Hays Travel 104 and Flight Centre enquiries to sales were as high as 67%.
87 (Mintel, 2014). To compete with online travel agents, some
Over the past few years it has been agents have introduced late night openings,
suggested that travel agents are in de- Sunday openings, immersive technology,
cline, and unlikely to maintain their pos- coffee bar style comforts and shops that
ition in the chain of distribution; this is have become ‘destinations’ (see Holiday
termed disintermediation. For example, Hypermarkets, which are part of TUI’s
in the USA in the mid-1990s there were retail operations). These trends are not rep-
over 34,000 travel agents, which had re- licated in many other countries, wherein
duced to 13,000 by 2013 (CNN, 2013), agents are still seen as the first choice for
while in the UK retail travel outlets (ABTA purchasing holiday packages. Across the
members) declined from 7575 in 2002 to EU, purchasing patterns are very different:
4435 in 2008 (Mintel, 2016). Both Thomas Belgian, Danish, Greek and Austrian tour-
Cook and TUI have reduced the number ists prefer to book direct with tour oper-
of outlets with the aim of increasing their ators, the German market still typically
market share of online bookings substan- arrange their holidays through travel
tially. Virgin Holidays operate a con- agents, whereas the Spanish are known
cession model, which means it has stores for also using travel agents for domestic
inside other shops such as House of Fraser, travel products. Within Saudi Arabia,
Debenhams, Tesco and Sainsbury. Fur- travel agents are used for both leisure and
thermore, Virgin Holidays also has re- business travel, although their presence
cently introduced a ‘retail lite’ store, which has changed from traditional bricks and

Distribution (Place) 171


mortar shops to offering online services. Although the sale of inclusive tours usu-
Even so, the majority of customers still paid ally accounts for the major proportion of
travel agents directly (Mintel, 2014). their revenues, they may make additional
While travel agencies may have de- income from foreign exchange transac-
clined in mature markets, they are still tions, selling insurance and visa applica-
very much a part of the tour operating tions in addition to the sale of other travel
sector in young markets such as China. services such as air flight tickets and so
As domestic tourism in China developed forth. For each of these provisions, the
notably since the 1980s, the number of agent will receive a commission. Com-
agencies increased from less than 300 to missions vary according to the type of
7725 by the year 2000 (Zhang et al., 2005). product that is sold; typical rates are:
Subsequent liberalization has ­resulted in
●● 10% commission for inclusive tours;
approximately 1400 international travel
however, this may be increased by
agencies (those agencies authorized for
dealing with preferred suppliers and
group and individual travel overseas) (see
achieving sales targets. Some agents
Chapter 8, this volume).
can achieve ‘overrides’, which can in-
crease commission by an additional
2.5% when agents achieve a certain
Types of retail travel agent
level of sales.
●● 6% to 8% commission for hotel ac-
Travel agents have historically been clas-
commodation, airline and railway.
sified into three main types: leisure travel
●● 50% for insurance sales.
agents, business travel agents and home-
●● 10% for car hire.
based travel agents. However, the delin-
eation between these three classifications However, with increased competition
has become more blurred with leisure between principals and among travel
travel agents recruiting home-based agents agents, there has been downward pres-
and expanding to include business travel. sure on the levels of commission; for ex-
Furthermore, online travel agents have ample, many airlines have reduced their
enabled both business and leisure cus- commission rates to 2% or less. In some
tomers to create and purchase packages. instances, such as British Airways, agents
receive 1% commission on their sales, but
many airlines in the USA, such as United
Leisure travel agent Airlines, Continental Airlines and North-
West Airlines, do not pay any commission
These travel agents are usually based in (Amadeus, 2007). In the case of the USA,
the main thoroughfares and/or central agencies often add a service fee; as The
business districts in towns and cities. American Society of Travel Agents noted,
They may also have a presence as an on- over 40% of agencies charge a service fee
line travel agency. Their primary objective (usually US$25 per booking) for the pack-
is to achieve the highest level of revenue, ages (Amadeus, 2007), which may well be
e.g. commission, per sale. This sector is higher for cruise holidays. This approach
highly competitive and generally requires has not yet been adopted in the UK, so
a substantial turnover to generate profits agencies need to find alternative revenue
and sustain the business. They may retail streams, potentially in addition to relying
products on behalf of tour operators and/ on ‘up-selling’ and selling ancillary ser-
or package together different components vices such as car parking to maintain in-
to create individual packages for clients. come in the form of commission.

172 Chapter 9
Types of agencies such as Hays Travel, a company
based in the North of England, which
There are many different types of travel bought out Bath Travel and its 60
agency and their titles may well differ, de- branches in the South of England.
pending on their country and its regula- ●● Independent agents, generally a one- or
tions relating to tour operators and travel two-outlet operation. They usually
agencies; for example, there is little distinc- cater to specialist niche markets; for
tion between travel agents and tour oper- example, a well-defined group inter-
ators, wholesalers and retailers in China ested in similar types of activities such
(see Chapter 8, this volume). In the UK, as sports or specific destinations, such
for example, they are categorized based as CTC Travel, which is based in Singa-
on their size and links to tour operators. pore and specializes in organizing and
operating tours to China. Independent
●● Multinationals. Multinational agents agents, and also some miniples, tend to
have offices worldwide, e.g. the remain small and focus on having an
American Automobile Association, experienced workforce, quality of cus-
American Express. The UK company tomer care and customer retention.
Thomas Cook is represented in most They are often located in prime loca-
European countries, North America tions in cities and towns and may be
and the Indian subcontinent, while, for operated by a sole proprietor.
example, the Australian-based com- ●● Homeworkers. Homeworkers have
pany Flight Centre Limited has a UK been in operation for over 30 years in
subsidiary known as The Flight Centre. the USA and are now gradually de-
●● Multiple chains. Most of the travel veloping in other countries. Basically,
agents on the high street are part of they are anyone seeking to market
multiple chains and often vertically and sell travel products from a home-
integrated with a tour operator, e.g. based office, usually on behalf of a
Going Places, Hays Travel, Trailfind- bonded, accredited travel agency, re-
ers. These agencies generally operate ferred to as ‘the host agency’. The
at a national and/or global level. host agency will usually support such
●● Agents that are part of a vertically in- homeworkers by providing help with
tegrated chain have been accused of administration, finance and mar-
directional selling, i.e. encouraging keting, e.g. Hays Travel (UK), which
passengers to book products that are has been supporting homeworkers –
supplied by their integrated operators. known as Travel Counsellors – for
Multiples are more likely to operate a over 20 years. Homeworkers design
racking policy based on selected tour and build packages on behalf of cus-
operators, promoting those products tomers and aim to develop a relation-
that offer greater incentives or are ship with their clients and a strong
part of the parent company. client base to encourage repeat cus-
●● Miniples. These are small travel agency tomers, which is generally essential
chains, which are usually regionally to achieve a viable number of sales.
based and tend to offer a greater range
of brochures and may include spe-
cialist operators, for example Chan Business travel agents
Bros. in Singapore. Regional-­ based
miniples are particularly vulnerable Business travel is generally considered to
to takeovers by national multiples be one of the most lucrative sectors of

Distribution (Place) 173


r­etail travel and is a highly-specialized Online travel agents
field requiring prompt, expert service. Al-
though business demand is far less than Perhaps the greatest concern for travel
that for leisure, income from business agents and operators retailing their own
travellers is often greater due to enhanced pre-packaged holidays is the growth of
product purchase and the comparative online travel agencies (OTAs), which has
lack of seasonality. increased the level of competition in the
Business travel agents, aka corporate marketplace. Originally, only travel agents
travel agents or travel management com- could use global distribution systems
panies, enable organizations to manage (GDS). But the development of the Internet
their business travel. Business travel is has catalysed OTAs, which can access
dominated by multiples such as American GDSs daily to make reservations for cli-
Express or Carlson Wagonlit, although ents. This has enabled customers to search
many independent travel agents will for travel information and to compare
offer  a service tailored to local busi- prices easily, a development that has been
ness  needs. Large organizations may be aided by the emergence of metasearch en-
offered ‘implants’, whereby an agent sets gines (e.g. Kayak, Trivago, Skyscanner)
up an office within the organization, e.g. that provide an interface that shows hotel
Procter & Gamble, to organize travel for and flight availability and pricing infor-
company staff. Most of these agents pro- mation from multiple sources without
vide self-booking tools, which allow trav- the user needing to visit each of these sites
ellers or those appointed to book travel separately. These enable customers to
to do it themselves, although this is usu- compare different brands, products, pack-
ally supported by an advisory service. ages and prices easily. Many OTAs offer
Even so, face-to-face interactions are far this facility.
less likely. Although OTAs are available globally,
Planning packages for business trav- they are still dominated by the North
ellers can be demanding because they American and Western European market,
have high expectations for quality of ser- and have a growing presence in the Middle
vice and expect efficient itineraries to East; for example, many companies such
minimize waiting times and the option to as Expedia, Agoda and booking.com offer
change tickets/destinations as necessary. Arabic websites. In contrast, emerging
Flexibility is a major constituent in the economies are currently still very reliant
higher prices charged for business fares. on traditional retailing. In 2011, the top-
Business agents may work directly with four global OTAs were all based in the
suppliers to negotiate corporate rates, USA, with Expedia being dominant with
which requires information on the corpo- major shares in Trivago, hotels.com, hot-
ration’s travel patterns and expenditure wire, carrentals.com and Travelocity.
to achieve favourable rates. However, the Competition though is increasing; for ex-
role of these agents is under threat by ample, from OTAs in Brazil, Russia, India
business travellers booking their own (MakeMyTrip) and China (Ctrip). Make-
trips through online travel agencies via MyTrip initially focused on US travel to
smartphone apps and travel platforms, India, but now is a very important player
enabling them to make their own ar- in the Indian market. In China, while the
rangements, and the use of peer-to-peer clear majority of international travel
accommodation such as AirBnB, which packages are still booked through trad-
has grown by 10% in the past two years itional travel retailers, OTAs are rapidly
(Mintel, 2015a). developing, with Ctrip (see Box 9.1)

174 Chapter 9
Box 9.1.  Ctrip purchases Skyscanner
In November 2016, Ctrip, the biggest Chinese online travel company, purchased
Skyscanner, the UK-based travel search company, in a deal worth £1.4 billion.
­
­Skyscanner lets users compare prices from different travel sites when searching for
flights, hotels and car rental.
Why did Ctrip purchase the meta search engine Skyscanner?

a­ccounting for approximately 50% of Dynamic Packaging


the online market (Mintel, 2015b). Al-
though online sales currently account for Dynamic packaging is a self-packaging
approximately 10% of the outbound ­facility, which enables customers to create
market, it is expected this will grow as their own holidays by designing their own
more Chinese tourists gain experience of package of flights, accommodation, car
overseas trips and look to travel inde- rental and other products to suit their own
pendently. needs. These tailor-made packages will be
The European market was relatively priced based on current availability. As dy-
fragmented until Odigeo (eDreams Odi- namic packages are sold as a single product,
geo) was created in 2011, through the the customer does not know the individual
merger of eDreams and Go Voyages and cost of each component, meaning that it is
the ­acquisition of Opodo and its subsid- not transparent. They will not be aware of
iary Travellink, and is now the largest the special prices that travel agents can
grouping of OTAs in Europe. Expedia, achieve from principals, such as discounted
Orbitz and eDreams have developed airline tickets and reduced rates for accom-
affiliation programmes with traditional
­ modation. In this instance, the consumer
high-street travel agents. These pro- may achieve a competitive price for their
grammes give OTAs access to a larger tailor-made product and the tour operator/
customer base while allowing traditional travel agent will still maintain their profit
travel agencies the opportunity to main- margins. Dynamic packaging has been en-
tain their presence in an increasingly abled by the growth of computerized soft-
competitive market, adopting more of a ware for tour operators. Thus an agent or
consultant role providing professional tour operator can create a package and
­assistance for customers. the software can compare this with trad-
The rise of OTAs has led to Lufthansa itional package prices, as a dynamically
charging a €16 fee on all bookings made packaged holiday may not be the cheapest
through third-party websites. This was a option. Conversely, an agent may be able
strategic move to encourage passengers to dynamically package and replicate a
to book direct through the airline’s tour operator’s product at a lower price
website, although it could be considered without having to discount. It should be
a risky move as 70% of airline tickets noted that many people confuse dynamic
are booked through third parties. If packaging with customization. Custom-
other companies follow suit, then pas- ization, which can also be called dynamic
sengers using price comparison sites bundling, is when individual components
will be directed towards the supplier within a prearranged package are changed,
(principal). for example upgraded.

Distribution (Place) 175


The benefits of dynamic packaging However, many agencies are owned
for customers are that it provides more by tour companies and they will pre-
flexibility in terms of routes and duration dominantly sell their own products
of trips, and may offer better value for through their own set of agents.
money. The most likely areas for growth ●● Exclusive – the operator limits distri-
will be in the short-haul market as dy- bution specifically to targeted agents;
namic packaging can take advantage of for example, those specializing in
low-cost airlines. As a response to the upmarket tailor-made products or
­
growth of dynamic packaging by travel specialist retailers. The granting of
agents, some large tour operators such as exclusive rights to one agent to sell
Thomas Cook have introduced dynamic products is rare in the tourism sector,
packaging on their websites under the although some adventure tour oper-
title flexibletrips.com. Utilizing new soft- ators allow a small number of spe-
ware, for example Multicon, the software cialist travel agents to sell their
scans for dynamic components and feeds products, typically holidays that are
them into this agent’s website, allowing higher priced.
greater flexibility and more choice for ●● Selective – this is where a limited
customers. Online agents offering these number of agencies are used and can
packages in the UK need to have an be positioned somewhere between in-
ATOL bond (see Chapter 8, this volume). tensive and exclusive. These agents
As the foregoing discussion suggests, may be identified using specific cri-
practice in different countries will vary teria, such as those who have under-
both in terms of agency operations and gone training by the tour operator
consumer preferences, which may well be and have access to the requisite market
due to variance in historical development segments. For example, an operator
and culture. may use specific agents that are inter-
national to the operator, providing
exclusive rights to sell the operator’s
Travel Agency Selection products in their area/country.
Once a tour operator has decided that
Travel agency branches are usually
utilizing travel agencies is the most ap-
small outlets and thus have limited shelf
propriate means of accessing their target
space, perhaps allowing for 100–150
market, they need to decide the degree to
brochure spaces (the exception is holiday
which their product should be distrib-
supermarkets, which can carry consider-
uted. Holloway and Humphreys (2012)
ably more). Brochures are promoted
suggest that this strategy can be intensive,
based on links to other levels of the com-
exclusive or selective.
pany; for example, Thomas Cook travel
●● Intensive – this is where the tour agents will promote Thomas Cook holi-
operator maximizes their exposure
­ days, Thomson’s, as part of TUI, will pro-
by utilizing all available channels of mote their products. Agents will also
distribution and their brochures are promote those tour operators and princi-
available through as many travel pals that offer them higher commissions
agency chains as possible. This is ex- and thus give their own products and
pensive due to the number of bro- preferred operators premium racking
chures needed and the support given space. Due to the limited space, agents in-
to the agency, so this approach is most variably operate different policies on pro-
suitable for mass market holidays. moting brochures, such as only displaying

176 Chapter 9
one copy, or keeping some brochures for products using a small number of inde-
‘on request’ only. Overall, this situation pendent travel agents and encourage sales
can prove very difficult for small oper- by providing incentives. Within the UK
ators seeking to gain access to the market market, small tour operators who are
through agencies. Thus, they need to members of AITO have access to agents
target travel agents whose customers are under the ‘Special Agents Scheme’, which
in line with their target market segment identifies travel agents willing to handle
and who reflect the image of the tour op- independent tour operator bookings.
erator – for example, an upmarket inde-
pendent travel agent such as Gosforth
Travel based in an affluent suburb of Call centres
Newcastle upon Tyne (UK).
By the early 2000s, call centres had be-
come a central element for customer con-
Direct distribution tact and a popular method for selling
holidays (Russell, 2008). Inbound call
In some cases, tour operators are taking centres (those that receive calls initiated
direct control of the distribution by elim- by customers) are very labour intensive
inating the need for travel agents. There and staff costs are estimated to be be-
are a few alternative options to that of tween 60% and 80% of the overall oper-
travel agents for tour operators to use, ating budget (Askin et al., 2007). Many
which involve selling directly to the cus- operators have introduced their own tele-
tomer. This is perhaps the greatest chal- phone-based sales teams, frequently re-
lenge to travel agents. The benefit of ferred to as call centres or the central
direct distribution is most notably the re- reservation office, even though they may
moval of the need to pay commission to be located within the company offices.
travel agents on each sale, hence the With increasing operating costs and
interest among operators to sell directly declining sales, many vertically integrated
to the public. While initially this may operators have looked to reduce costs by
seem an obvious decision for operators, closing retail premises, but have remained
there are costs involved. For example, set- committed to call centres, although on-
ting up call centres and sales staff can be line retailing is considered more cost effi-
expensive and supporting this with na- cient. Direct Holidays, which is owned by
tional advertising campaigns will also the Thomas Cook Group, is a key player
add to the cost. There is also an additional in the Irish travel market, with over
consideration, specifically if operators are 750,000 passengers travelling to popular
selling both directly, and through travel resorts in the Mediterranean such as the
agents. By offering lower prices to book Balearics, Greece and North Africa, and
direct, they run the risk of jeopardizing further afield to destinations such as
their relationship with the agents, which Florida and the Dominican Republic.
may have an impact on future sales. In 2009, in a bid to cut costs, they closed
Smaller tour operators frequently sell their Dublin premises with the loss of
their own packages direct because they 30 jobs, but retained the 70 back-office
do not have the bargaining power to and call-centre employees. Centralized
command good racking positioning in call centres have an additional advantage
travel agents and sales may be small, thus in that they can provide consistent service
limiting commission revenues. These op- and the ability to amend prices quickly.
erators may choose to distribute their However, multi-branded companies may

Distribution (Place) 177


operate several different call centres Distribution Resources
aligned with each brand, which may di-
lute the product knowledge of the sales This section addresses the management
staff. issue of distribution of marketing com-
International outsourcing of call munication material, usually in the form
centres has grown considerably because of a brochure. Although technology has
of technology such as Voice Over Internet enabled operators and agents to utilize
Protocol (VOIP), which uses the Internet information communication technology
for calls. This has enabled companies for the presentation of and consumer ac-
such as Thomson to operate a call centre cess to such material, many people still
located in India. However, it is noted that prefer hard copy material to viewing
the Philippines are predominantly the sources online (Mintel, 2013). Therefore
main location for outsourced call-centre in this section we will consider the pro-
services (BBC, 2012). cess of producing brochures.

Web-based distribution (direct sales) Brochure production

The impact of the World Wide Web – the Brochures have traditionally been syn-
Internet – on the distribution of tourism onymous with booking holidays and are
products cannot be underestimated. still an important part of the buying pro-
Travel companies have and continue to cess, being an important part of the infor-
exploit the opportunities arising from mation search (see Chapter 10, this
Internet technology and many operators volume, Fig. 10.3).
have set up direct-to-consumer websites. The brochure enables potential cus-
This has resulted in the travel product be- tomers to view and compare different
coming one of the most commonly sold product offerings, including price and
products on the Internet, although pre- key features and indeed may provide in-
dominantly transportation and accom- spiration for consideration of new destin-
modation rather than holiday packages. ations and resorts. They have several
As a channel of distribution, the positive attributes, such as attracting cus-
Internet is ideally suited to tour operators tomer attention when displayed at travel
and travel agents because there are rela- agencies (the pull factor) and being taken
tively few barriers to setting up an away for consideration to enable deci-
Internet presence. Websites allow com- sions to be made with other travelling
panies to make direct contact with poten- companions. In addition, brochures allow
tial customers and thereby avoid GDS easy comparison between destinations
transaction fees, call centre processing and between different operators. They
charges and commissions. This also also provide information about the legal
­provides excellent opportunities for ‘up-­ contract between the holidaymaker and
selling’, i.e. seeking to add on additional the tour operator, specifying the commit-
services such as airport parking, insur- ment on either side, information on insur-
ance, accommodation or transport up- ance and booking conditions and explaining
grades and car hire. Furthermore, direct complaint procedures. As such, they form
contact with the consumer allows oper- the basis of the contract between the cus-
ators to engage in customer relationship tomer and the tour operator. Criticisms of
management to develop the lifetime value the brochure include consumers’ dislike
of the customer. of the lack of transparency in terms of

178 Chapter 9
pricing, with sections often dedicated to Brochure contents
supplementary charges such as regional
departures, peak season pricing and It is a legal requirement within the EU
limited information about the product. that the brochure contents are clear, le-
However, they are a significant cost gible and accurate to enable customers to
factor, often accounting for the largest make a judgement and include:
share of the marketing budget. While the
●● price of package;
cost of brochures varies, the average cost
●● destination, itinerary and mode of
is approximately £1–£1.50 per copy for
transport;
mainstream brochures, although for
●● departure dates;
some specialist operators this may be as
●● type of accommodation, additional
high as £5. Mass tour operators can pub-
facilities;
lish between one and five editions of their
●● any meals included;
brochure(s) each year, some of which
●● standard information on passport,
may be up to 800 pages long, with up to
health and visa requirements;
3 million copies produced due to the need
●● deadline for payment.
to update prices. Although this is labour-­
intensive and expensive, brochures cannot Specialist brochures, such as those
be produced within the EU without in- prepared for adventure tours, are more
cluding prices (Package Travel Directive – likely to contain specific information
see Chapter 8, this volume). The cost of about the holidays such as difficulty rat-
designing each page of the brochure can ings (e.g. for walking and mountain holi-
be between £50 and £100, based on the days), pictures of attractions, information
charges of the design agencies, while dis- about the destinations and means of
tribution costs range from £0.06 for bulk travel. As Page (2009) noted, the bro-
distribution to over £2.00 per brochure chure can be considered as comprising
for individual postal distribution (Travel the following sections.
Weekly, 2007).
It is not surprising therefore to find
that tour operators have been seeking to Front cover
reduce the production and distribution of
brochures since the 1990s, a time when, Logo and imagery. The logo needs to repre-
according to Middleton and Clarke (2001), sent the company and should be recogniz-
tour operators were producing between 6 able. This should be supported by any
and 10 brochures per person booking a brand imagery that is used by the company.
holiday in their main summer programmes, The pictures on the front cover should rep-
adding approximately £20 in costs to each resent the type of holiday or destination
booking. In July 2016, TUI announced featured, for example brochures that are
that it was going to phase out its Thomson aimed at families usually include a picture
and First Choice brochures by 2020; cur- of a family on the front cover.
rently it prints 4.7 million brochures a year
with 58 titles for some 5.5 million cus-
tomers, so it is anticipating substantial cost Introduction
savings (Dennis, 2016). This may be seen
as a move to disintermediate the travel This usually includes information about
agents because one of the prime motiv- the company, the uniqueness of their
ators for visiting travel agents is to collect products and the destinations they serve
brochures that can be taken away. and any specific information that is p
­ ertinent

Distribution (Place) 179


to all the products promoted within, e.g. and vaccinations for destinations. There-
car hire. This section may also include in- fore, they are likely to include useful links
formation about the transport used; for to the National Travel Health Network
example, in the case of air transport, the and Centre or recommend visiting a med-
name of the airline, type and class of air- ical practice. Information about visas will
craft and the operator. be included, such as the need for a visa or
Electronic System for Travel Authoriza-
tion (ESTA), which is the USA visa waiver
Destination pages programme, or other specific requirements.

Most of the brochure is given over to


­information about the destinations and Back cover
resorts. This will usually include com-
­
mentary on each of the holidays, such as The back cover often includes promo-
duration, location, accommodation pro- tional pictures of other brochures and/or
vider, meals included, activities and facil- outlets, web address and social media de-
ities included or available, clear indication tails. In addition it usually lists contact
of price, and any supplements that may details, membership logos, e.g. ABTA,
be charged. AITO, FTO; travel protection logos, e.g.
CAA/ATOL, IATA; awards, e.g. British
Travel Awards Winner.
Information specific to the brochure

This may include regional departures,


Brochures and travel agents
hotel grading information, upgrade op-
portunities or surcharges for additional
The distribution of brochures is a further
occupants (or single occupancy), health
expense that tour operators must con-
requirements, specific information about
sider, not only in terms of placement but
meals and other information that may en-
also the cost involved. Operators must
able customers to make an educated choice,
evaluate the effectiveness of each of the
such as same-sex couples restrictions.
retailers they may use and calculate the
number of brochures they distribute to
Terms and conditions each one. This ratio is known as the con-
version rate and will determine how
Full conditions of booking, including can- many and how often brochures are sup-
cellation charges and conditions, transfer- plied. For example, high-performing travel
ring the booking, pricing errors, insurance, agents sell over 100 holidays a year, while
minimum numbers and complaint pro- low-performing agents may sell as few as
cedures, are given. Information about in- five of that operator’s products, although
surance may be included, but customers this depends on the cost of the holiday
must have the right to choose their own (Page, 2009).
insurance if it covers all the activities. There are different ways to deliver
brochures. The larger tour operators have
a fleet of delivery vehicles, whereas smaller
Visas and general information tour operators might choose to use a spe-
cialist company that provides this service
It is difficult for tour operators to provide and acts on behalf of several different
up-to-date information on health matters operators. The benefits of ­
­ delivering

180 Chapter 9
­ rochures directly means that their bro-
b Producing a brochure
chure is received alone, encouraging pri-
ority racking, whereas using delivery To produce a brochure, operators need to
companies means that many operators’ coordinate the information with that
brochures are delivered at the same time available on their website. A brochure
and less time is spent racking them; some can take five months or longer to produce
brochures may not be racked at all. Also, and involve considerable detail and time,
to encourage sales, operators may offer as illustrated in Fig. 9.2. Decisions need
additional commissions or prizes to sales to be made about the quality of the paper,
agents who achieve defined targets, for ex- the colours, the graphics and the style, all
ample Virgin Holidays offers the chance of which needs to be attuned to the oper-
to win a holiday to Miami with one entry ator’s brand image and be consistent
every time they sell a Virgin holiday (Travel across all marketing communications.
Bulletin, 2015), while another travel com-
pany offers iPads to agents who achieve a
specific number of bookings. Move to online brochures
The small tour operators encounter
difficulties in encouraging travel agents There are clear benefits for tour oper-
to stock their brochures, given the avail- ators to replace the traditional hardcopy
able display space, which is invariably brochure with e-brochures, such as a re-
prioritized for their own company prod- duction in cost of production, storage
ucts, operators offering higher commis- and distribution. Originally e-brochures
sions or those that are known to sell well. were presented as a PDF format of the
One approach to address this problem hardcopy brochure, but expectations have
adopted by some of these small com- changed considerably. With the increasing
panies (primarily wholesalers) is to use use of ‘tablets’ and portable devices cap-
distribution agencies to promote their able of searching quickly for products, it
brochures directly to travel agents. These is increasingly likely that an e-brochure is
distribution agents provide account man- unnecessary as long as the company’s
agers who deal directly with the travel website is easy to navigate and has an
agents to encourage them to promote in-site search engine.
their products, either by phone or face-­
to-face visits. More generally, small tour
operators need to consider carefully Summary
whether a brochure is actually going to
be an effective marketing tool. In the context of the classic 4Ps of mar-
keting (Product, Price, Place, Promotion),
the one which potentially presents the
Direct mail brochures most complexity for today’s tour oper-
ators is that of place. In operational terms,
Some tour operators rely on customers place translates into distribution; in other
contacting them after seeing advertise- words, how does the tour operator reach
ments (newspapers, online, social media, its target market(s) when it does not have
radio or television) to request brochures a physical product that a retailer can dis-
that are then posted to them. This obvi- play for sale, in the process taking owner-
ously is an additional cost but is likely to ship of the goods? The tour operator needs
have a better conversion rate because the to establish a channel through which
customer has actively sought the brochure. to communicate their product offerings.

Distribution (Place) 181


Itineraries planned and costed
Text and images written and agreed
Analysis of competitors’ prices
Product
development Dates for departures agreed and suppliers contacted

Photograph requirements identified and pictures sourced


Proofing of costs, content including update of visa and vaccination
information
Print and
Legal check by solicitors including booking forms and information
production

Final proof of all brochure content and changes made, including dates
and prices
Proofing

Marketing support materials such as dossiers, websites and newsletters


Additional written and updated
colateral
production

Agreed number of brochures requested


Discussion with mailing house about distribution
Mailing reports Sales team training
and distribution
plans

Brochure launch with key retail agents


Brochure
launch

Fig. 9.2.  Key stages in brochure production.

Traditionally, this was the travel agent, travel agents. In due course, some tour
with the operator’s products being pre- operators sought to merge with or take-
sented through their brochures, which over travel agencies (see Chapter 3, this
was logical development on the part of volume), thereby expanding their own
earlier agents who diversified into tour operations and being able to prioritize
operating. Clearly other entrepreneurs their own holiday packages, giving prom-
saw opportunities to develop a business inence to their own holiday brochures.
in tour operations but then they needed a As discussed, developments in infor-
distribution channel, which was basically mation communication technology cata-
ready-made in the developing network of lysed opportunities for operators to deal

182 Chapter 9
directly with their potential customers, distribution strategy for travel/tourism
as is manifest through call centres, the organizations.
Internet and websites. Thus, over the last 6. Consider the impact of IT develop-
two decades, the channels of distribution ments on travel and tourism industry
open to tour operators have diversified stakeholders.
considerably, bringing into question the 7. What do you think are the current and
role of intermediaries, in particular the future issues in distribution choice in
travel agent, in these systems. travel and tourism management?
The adoption of direct channels en-
abled through the Internet has given rise
to questions over the real value of bro-
chures as a marketing tool now that Key Terms
­potential customers can garner all the in-
formation on possible holiday choices ●● Disintermediation – Disintermedi-
from surfing the Internet. Certainly, vis- ation is the removal of an intermediary
itors to their local travel agent like to from the chain of distribution, for ex-
browse brochures and take them home ample tour operators selling directly
to share with other members of the to customers, eliminating the need for
family or friends. But increasingly, such a travel agent, or a hotel selling dir-
sharing of information can be mutually ectly to customers, eliminating both
convenient and simultaneously under- the travel agent and tour operator.
taken within a group using their own ●● FTO – The Federation of Tour Oper-
smart phones. Brochures are also expen- ators was established in 1967 and
sive to produce and distribute and sub- comprised the major UK tour oper-
ject to change, which then requires a new ators. In 2008 it merged with ABTA.
issue. Thus tour operators are less likely ●● IATA – The International Air Trans-
to produce brochures and increasingly port Association is the trade associ-
are seeking to use the Internet, particu- ation for 265 airlines (83%). IATA
larly their own website, as their channel formulates industry policy and stand-
of first choice. ards such as safety and security, and
provides accreditation for travel
agents to sell tickets on behalf of
Discussion Questions IATA members.
●● Multiple (as in March of the Mul-
1. What are the benefits of disintermedi- tiples) – The March of the Multiples
ation for the consumer? refers to the rapid increase in travel
2. What are the implications for the agents owned by vertically integrated
growth of online sales for the traditional companies, threatening the existence
travel agent? of independent and small travel
3. In the context of responsible tourism, agency chains.
what other benefits arise from tour oper- ●● Up-selling – This is a sales technique
ators ceasing brochure production? where a seller, for example travel
4. Why is travel and tourism distribution agent/tour operator, persuades the
such an important issue and the selection customer to buy more expensive
of a distribution strategy so crucial to an items, upgrades or other add-ons in
organization? an attempt to make a more profitable
5 . Compile a list of considerations sale, e.g. car parking, room upgrade,
that should be made when selecting a excursions.

Distribution (Place) 183


Internet Exercise
There is much discussion that the future of travel agents is in doubt, with travel industry
news articles suggesting they will no longer have a role in the distribution of package
holidays (see www.travelweekly.co.uk/articles/40940/mintel-study-casts-doubt-on-­
future-of-high-street-agents). Other reports suggest that they are still relevant (see
www.travelmarketreport.com/articles/Travel-Agents-A-Much-Brighter-­Future-Than-You-
Might-Think).

Question
●● Discuss the future of travel agents and their continued role in the distribution of
package holidays and other travel-related services.

Mini Case Study


Virgin Holidays are a long-haul specialist tour operator based in the UK. In 2015, they
announced that they would become a direct-sell-only operator, claiming that their
reason was they wished to get ‘closer to the customer’ and control the booking and
whole pre-departure experience. They planned to increase sales through their call
centre, website and retail shops.

Questions
●● How important is the pre-departure experience in the overall holiday?
●● How valid are their claims that this is not about cost cutting?

Major Case Study


Sandals launch UK tour operation
Sandals Resorts International is a Jamaica-based, family-owned company operating
15 luxury all-inclusive resorts. They offer romantic and relaxing breaks for couples,
family and friends, but do not allow children. The resorts are fully inclusive, meaning
that dining in the speciality restaurants is included in the price and no tipping is allowed.
The only additional costs are optional tours, spa treatments and some activities, e.g.
scuba certification.
Sandals packages were originally sold through Funway Holidays and included in
their brochure, but in 2017 Sandals and Beaches Resorts launched a UK tour operation
under the name Unique Caribbean Holidays Limited (UCHL). UCHL distribute their
packages directly by liaising with key travel agents and publishing a unique brochure
advertising only UCHL packages. These agents are supported by Sandals’ call centre
team, 24-hour helpline, bespoke agent portal and access to a new training programme
and industry workshops at the Sandals Luxury Travel Store in London.
Continued

184 Chapter 9
Case Study.  Continued.
For Sandals, setting up as a tour operator means they will have greater control over
the distribution and marketing of their packages. Customers can book direct or through
an agency. A new booking engine has been developed with Traveltek that allows travel
agents to book online up to two years in advance and manage their bookings with ac-
cess to a flight and price availability calendar.

Questions
●● Why have Sandals decided to expand into tour operations?
●● What are the benefits for Sandals?
●● Why do you think they have maintained their relationship with Funway Holidays
by allowing them to include Sandals packages in their brochures?
●● Why are they maintaining their relationship with travel agents in addition to
selling direct?

Recommended Reading Harrison, S., Fubger, G. and Hauschka, C.


(2014) Insights into web presence, online
marketing and the use of social media by
For a comprehensive discussion on inter-
tourism operators in Dunedin, New Z
­ ealand.
mediaries and the challenges facing travel Anatolia 26, 269–283.
agents and tour operators that still have
resonance today, see:
References
Buhalis, D. and Ujman, D. (2006) Intermedi-
aries: travel agents and tour operators. In:
Amadeus (2007) Service fees and com-
Buhalis, D. and Cosat, C. (eds) Tourism
mission cuts. Available at: http://www.
Business Frontiers – Consumers, Prod-
amadeus.com/travelagencies/docu-
ucts and Industry. Elsevier Butterworth-­
ments/travelagencies/White%20Paper_
Heinemann, Oxford, UK, pp. 171–180.
ForWebUse.pdf, accessed 20 June 2016.
For a detailed critique of brochures and Askin, Z., Armony, M. and Mehrotra, V. (2007)
their contents, see: The modern call centre: a multidisciplinary
perspective on operations management
Horner, S. and Swarbrooke, J. (2004) The research. Production and Operations Man-
Brochures of Tour Operators. Case Study agement 16, 665–688.
17 in International Cases in Tourism BBC (2012) Call me: tech powers Philippines
Management. Butterworth-Heinemann, call centre success. Available at: http://
Oxford, UK. www.bbc.co.uk/news/business-18061909,
accessed 21 March 2016.
For an article examining the skills and
Buhalis, D. (2003) Etourism: Information
experience necessary for luxury travel Technology for Strategic Tourism Man-
agents selling wildlife tourism packages agement. Prentice Hall, London.
on behalf of tour operators, see: CNN (2013) The travel agent is dying, but it’s
Buckley, R. and Mossaz, A.C. (2016) Decision not yet dead. Available at: http://edition.
making by specialist luxury travel agents. cnn.com/2013/10/03/travel/travel-agent-
Tourism Management 55, 133–138. survival/, accessed 25 January 2017.
Das, D.K. (2009) Globalisation and an emer-
For a research based paper meriting atten- ging global middle class. Economic Affairs
tion, see: 29, 89–92.

Distribution (Place) 185


Dennis, J. (2016) TUI brochures to be phased Mintel (2015b) China outbound – May
out by 2020. Available at: http://www.trav- 2015. Available at: http://academic.
e lw e e k ly. c o. u k / a r t i c l e s / 6 2 3 3 6 / t u i - mintel.com/display/718321/, accessed
brochures-to-be-­p hased-out-by-2020, 20 March 2016.
accessed 12 July 2016. Mintel (2016) Travel agents – UK – December
Holloway, C. and Humphreys, C. (2012) The 2016. Available at: http://academic.mintel.
Business of Tourism, 9th edn. Pearson, com/­display/748920/, accessed 24 January
Harlow, UK. 2017.
Lumsden, L. (1997) Tourism Marketing. Page, S.J. (2009) Tourism Management, 3rd
Thomson Business Press, London. edn. Butterworth-Heinemann, Oxford, UK.
Middleton, V. and Clarke, J. (2001) Marketing Russell, B. (2008) Call centres: a decade of
in Travel and Tourism, 3rd edn. Butterworth- research. International Journal of Man-
Heinemann, Oxford, UK. agement Reviews 10, 195–219.
Miller, A. (2002) Tourism distribution. In: Travel Bulletin (2015) Booking incentives.
Sharpley, R. (ed.) The Tourism Business: Available at: http://www.travelbulletin.co.
An Introduction. Business Education Pub- uk/archives-magazine/travel-­b ulletin-
lishers, Sunderland, UK, pp. 95–115. 16th-october-2015, accessed 15 July
Mintel (2013) Holiday planning and booking 2016.
process – November 2014. Available at: Travel Weekly (2007) Why e-brochures are
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638302/, accessed 25 July 2016. travelweekly.co.uk/articles/23443/why-e-
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Available at: http://academic.mintel.com/ Howarth Hospitality Press, Binghampton,
display/744282/, accessed 25 June 2016. New York.

186 Chapter 9
10 Marketing

Learning Objectives those involved in tour operations. To


­appreciate the scope, purpose and pro-
After studying this chapter, you should be cess of marketing, it would first be helpful
able to: to define what the term marketing means.
The Chartered Institute of Marketing
●● Understand the key characteristics
(CIM) defines marketing as ‘the manage-
and features of the tourism product
ment process responsible for identifying,
and evaluate marketing solutions as-
anticipating and satisfying customer re-
sociated with them.
quirements profitably’ (CIM, 2016). Thus,
●● Appreciate the mechanisms needed
marketing is more than just promoting
to produce a marketing plan.
the product and involves the whole organ-
●● Conduct a situation analysis.
ization from product design, distribution,
●● Understand the tourist decision-­
finance and operations through to suc-
making process.
cessful delivery and consumption. This
●● Evaluate the target market and pos-
means that a business must first identify
ition the packages appropriately.
potential customers (the market) for
●● Identify key promotional tactics avail-
whom they are designing the products,
able to tour operators.
anticipate the needs and desires of this
●● Appreciate the importance of evalu-
market and create a product that satisfies
ation of campaigns.
them successfully. Traditionally, marketing
activities are examined using a framework
Introduction comprising the 4Ps – Product, Place (dis-
tribution), Price and Promotion. However,
The purpose of this chapter is to examine recognizing the needs and operations of
the role of marketing for tour operators the service sector, a further 3Ps have been
and their products. The chapter aims to added by Booms and Bitner (1981) namely:
provide an overview of marketing and People, Process and Physical Evidence. This
consider the unique characteristics of tour means that tour operators need to pro-
operator products. In addition, to develop duce the right product, at the right price,
a better understanding of marketing in promoted effectively and distributed
practice, it is important to appreciate the through the right places, while also oper-
tourist decision-making process because ating effectively, using appropriate pro-
this shapes the operation of the marketing cesses and employing the right people in
department and, specifically, the marketing a physical environment that meets the
planning cycle. needs of the customer.
Marketing is a key activity for any Once a tour operator’s product is
organization, and none more so than for planned and ready for execution at the

© J. Holland and D. Leslie, 2018. Tour Operators and Operations: Development, 187
Management and Responsibility (J. Holland and D. Leslie)
right price for the right market, part of has been called ‘selling the invisible’
the role of the marketing department is ­because services cannot be assessed using
to  promote the product and its benefits physical senses and can only be evaluated
to the consumers. The role of the tour op- after the service has been delivered. As
erator is to find the most effective way to Holloway expressed, a package tour is
promote their product(s) to potential con- a ‘speculative investment’ (2006, p. 8) be-
sumers and this is inextricably linked to cause the customer does not know exactly
distribution. While promotion is the re- what they are purchasing since they cannot
sponsibility of the tour operators it is often examine the service before purchase. The
customers who provide an effective method lack of a physical presence means that
of supporting the promotional activities of they may be difficult to sell, although they
the tour operator through word-of mouth/ are easier to distribute as there is nothing
electronic word-of-mouth (WOM/eWOM), to transfer between producer and con-
such as recommendations, ­reviews and sumer (Evans, 2015). Thus, the tour oper-
the use of social media. ator needs to provide sufficient evidence
relating to the holiday product and its
quality to ensure that prospective cus-
Essential Characteristics of tomers are purchasing the product that is
Tour Operators, Products most suitable for them. This is especially
important given that quality and enjoy-
It is generally accepted that goods and ment are subjective. The Product Devel-
services are different, with the main diffe- opment Manager may visit hotels and
rence being that goods are produced, restaurants included in tours to evaluate
whereas services are performed. This cre- the tangible elements of a package (phys-
ates specific challenges from a marketing ical facilities) and enjoy the service, but
perspective. ‘Goods are tangible objects the experience of the customers may be
that exist in both time and space; services different.
consist solely of acts or processes, and To reduce such potential dissonance
exist in time only. Services are rendered, between expectations and reality, oper-
goods are possessed. Services cannot be ators need to provide physical description
possessed; they can only be experienced, and supporting information to potential
created or participated in’ (Shostack, customers to reduce uncertainty and en-
1982, p. 52). The most frequently cited able them to make a judgement as to the
service characteristics are intangibility, quality and suitability of the offering. It is
perishability, inseparability of production therefore crucial that commentaries about
and consumption and heterogeneity (see what the customer can expect of the
below). There are additional factors that package and level(s) of service are accur-
are particularly pertinent to tour operators ately conveyed to the customer. Operators
and the package holiday and these will do this by providing brochures, details on
also be discussed. websites and other supporting informa-
tion, such as trip dossiers, by which po-
tential consumers can assess the product.
Intangibility This may be reinforced by personal infor-
mation gathered by the consumer through
Services by their very nature are intan- recommendations by family and friends
gible, meaning that they cannot be tested, or reviews found in the media. Therefore,
touched or seen, unlike products, which operators aim to create a positive strong
have a physical existence. Selling services brand and organizational image and clear

188 Chapter 10
messages in advertising that can reassure yield management, which aims to match
customers. Intangibility is one of the supply with demand (see Chapter 7, this
reasons why Holloway (2006) considers volume). Variations in demand and, in
buying a holiday a risky investment and particular, oversupply can be tempered
involves a high degree of trust, especially using pricing and promotional campaigns
considering the expenditure involved in to encourage sales, cooperating with other
purchasing a package. In addition, cus- suppliers to share capacity, the utilization
tomers frequently use price to make a of part-time employees, or retailing sur-
judgement about the value and quality of plus capacity using specialist websites.
the product, suggesting that low prices
infer a lower quality product. Therefore,
tour operators need to position their
products at a price that the customer feels Inseparability
is worth paying for the experience they
wish to have and meets their expectations Inseparability refers to the overlap be-
of both quality and service (see Chapter 6, tween production and consumption. The
this volume). production of the service cannot be sep-
arated from the delivery/consumption
of that service. In effect, the holiday is
Perishability produced and consumed at the same time,
i.e. simultaneous production and con-
Tourism products are perishable; this sumption. Also, other customers are part
means that service providers cannot pro- of the experience and thus the tourism
duce and store services for future sales as product is co-produced. This provides a
they could with physical products. For challenge for tour operators because cus-
this reason it is imperative that tour oper- tomers may expect differing levels of ser-
ators accurately predict sales capacity. vice or for it to be delivered in a specific
If  the quota for any one package is not way. Therefore they need to ensure that
fulfilled, the remaining allocation cannot the level of service is comparable with
be sold at a later date as the departure the expectations of the customer. Cus-
has already happened. Clearly, such short- tomers will expect the service to be of an
falls in sales have a cost implication and acceptable standard, but because it is
indeed may lead to an overall loss on that consumed at the point of delivery, there
holiday departure. A complicating factor is no opportunity to correct mistakes at
is the variance of demand that arises due that time. It must be right the first time.
to seasonality. In the high season, operators To overcome the challenges of insepar-
may sell all their products, but at off-peak ability, operators need to ensure the
times of year there may be over supply quality within all stages and components
due to lower demand. Supply is difficult of the package and this can be achieved
to change in the short term, so if the des- by training and quality assessments, such
tination proves popular it is hard for the as customer feedback and benchmarking
tour operator to increase the supply due (see Chapter 6, this volume). For some
to limitations of resources such as accom- tour operators, targeting a specific market
modation. Thus, tour operators need to segment ensures that customers purchase
factor in the potential for unsold capacity, a holiday suited to their preferences and
which will have an impact on the price of therefore more likely to be compatible
the holiday. The most commonly used with other guests, e.g. holiday packages for
method to facilitate such forecasting is the ‘over 50s’.

Marketing189
Variability/heterogeneity for instance, choosing a short-haul holiday
package or holidaying within the home
Tour operator products are delivered by country instead of abroad.
people and are therefore subject to vari-
ability. In general, every service perform-
ance is unique to each customer because Lack of ownership/composite
it is almost impossible to replicate human products
behaviour entirely. Staff, from tour guides
directly employed by the operator to staff Package holidays are a combination of
in restaurants included in the package, different, complementary products rather
can vary by the time of day and the day than a single entity. The holiday product
of the week/month/year. This variability covers the complete experience; that is,
is also experienced by the consumers be- the transportation element, accommoda-
cause their service encounters will vary ac- tion, food and beverage services as well
cording to their own experience and as, potentially, travel agents and tour
expectations; for example, two people guides. This may be particularly difficult
on the same holiday may have very dif- to manage because many of the compo-
ferent ideas about the level and quality of nents may not be owned by the tour
any particular service because their as- ­operator and be provided by third-party
sessment of this is based on their previous suppliers. This means if there is a failure
experience and expectations. Services, in in any component of the holiday product,
contrast to physical products which are it can have a negative impact on the overall
homogenous, are never identical, eviden- experience (see Chapter 6, this volume).
cing variable degrees of heterogeneity. Furthermore, as customers buy a service
Therefore another feature of the tourism and no product changes hands, there is
product is the lack of standardization. To no physical product to sell. Operators
overcome the problems caused by vari- need to convince customers that they
ability, operators and suppliers may at- are offering a unique product that is su-
tempt to standardize their products and perior to that of their competition. This is
service through staff training (as exempli- often achieved through unique selling
fied by the ubiquitous McDonald’s). This points that differentiate them from their
may be supported by ensuring custom- competitors.
er-focused behaviour, or adopting a more
customer-centric approach by customizing
the package to the needs of the customer
using techniques such as dynamic pack- High fixed cost
aging, add-ons and upgrades (e.g. rooms
with balconies, private transfers). The package involves high fixed costs,
e.g. seats on charter air flights, accommo-
dation paid on commitment, and relatively
Discretionary low variable costs, yet does not guarantee
generating a profit. High fixed costs ex-
The purchase of a holiday package is dis- acerbate the problems of the perishable
cretionary, i.e. people do not need to buy nature of tour operators’ products and
holidays. Therefore, in times of financial the often low profit margins encourage
hardship, a planned holiday may be one operators to sell surplus holiday pack-
area of expenditure that is sacrificed or ages with minimal profit rather than no
lower cost, alternative products are sought; sale at all.

190 Chapter 10
Unstable demand/seasonality the potential solutions to devise a strategy
to market and promote their company, as
Tourism demand is influenced by many well as to overcome difficulties and the
factors, including the economic situation, complications involved in retailing intan-
seasonality and global politics. Also, gible products. In order to do this, a
sudden events such as terrorist attacks, company devises a marketing plan. Be-
geographic catastrophes or fluctuations in fore we discuss marketing planning, it is
currency exchange rates can very quickly important at this stage to develop an under-
influence demand. There are certain times standing of the role and value of the brand
during the year when destinations will see for tour operators, which is a key element
greater demand and this has substantial of marketing.
implication on the provision of services. As
a result of demand fluctuations, hotel oc-
cupancies may vary from 90/100% to Branding
30% or lower in low season. For this
reason, many mass tour operators in nor- A brand is the name given to a product or
thern Europe have attempted to over- service from a specific source. The Char-
come seasonality by introducing new tered Institute of Marketing (UK) defines
products during the traditional low a brand as ‘an idea or an image of a product
season, such as winter sun and niche prod- or a service provided by the organisation.
ucts (e.g. wildlife tours), which may be less Branding is the marketing of this idea or
affected by seasonality and can enable a image so that more and more people rec-
more stable cash flow into the company. ognise it and become aware of the brand’
(CIM, 2016). As Kotler et al. (2014)
argue, it exists to distinguish a particular
Ease of Entry/Exit product or service from its competitors.
Therefore, a brand is more than just a name
In the tour operations/retailing sector it is and/or a logo; for example, the global
relatively easy to set up a new enterprise TUI logo, which presents the company
or indeed exit the business compared name as a smile, is considered one of their
with many other business sectors, if local most valuable assets. The brand is part of
conditions and regulations allow. The ini- the relationship with the customer, a
tial outlay for a tour operator is relatively promise made by a particular company
small because they never need to invest in about a specific product, a uniqueness, and
product as stock, and for travel agents, therefore can be seen as a validation of
who only pay the tour operator once quality. This is particularly important when
the customer has paid for their product, purchasing holidays because it is such a
they do not run the risk of having unsold speculative investment due to the lack of
stock. For many small and medium-sized tangibility. Significantly, a brand can create
tour operators, their most significant cost increased levels of customer loyalty and
is usually that of producing promotional therefore companies are less vulnerable
marketing communications such as a web- to competition, which may enable a pre-
site and the brochure. This ease of entry mium price for the branded product/­
(and exit) has resulted in the tour operation offering.
sector being dominated in numerical terms Furthermore, branding can reduce
by small and medium-sized enterprises. competition and substitutability; as Wood
Tour operators use their knowledge, opined, ‘a brand is a mechanism for
the characteristics of their product and achieving competitive advantage for firms,

Marketing191
through differentiation. The attributes ●● Brand essence: Strong brands have an
that differentiate a brand provide the cus- easily identified, simple essence, i.e.
tomer satisfaction and benefits to which the fundamental quality of the brand
they are willing to pay’ (Wood, 2000, is usually stated in one to three words
p. 666). A successful brand can act as a bar- (an example would be that Disney is
rier and limit the opportunities for com- ‘magical’) and is consistently delivered
petitors in the market or for new entrants. throughout every component of the
Brand portfolios comprise sets of brands holiday or visits.
that the company offers and in the case ●● Personality: Basically, this is what
of many large tour operators, each brand the brand stands for; the words and
is aimed at a specific target market. For qualities that describe the brand
example, specific brochures and products and that usually have an emotive at-
with their own individual brand identity, tachment. Research suggests that
such as Club 18–30 and Manos, are both customers are increasingly likely to
independent brands within TUI. Tour op- purchase the product from a brand
erators then seek to advertise a company if they share similar personality char-
name rather than the individual sub- acteristics or philosophies, which
brands. Overall, the value of a brand over perhaps explains the growth of em-
and above its physical assets is described phasis on charity work, responsible
as Brand Equity and is the customers’ tourism and sustainability on tour
perception – the feelings that they have operators’ websites.
about the brand. One of the key strategies ●● Values: These are the core of the brand
for a tour operator is the creation of a and what makes customers choose
brand personality, i.e. human characteris- one product or service over another.
tics that are attributed to a brand name. They can relate to intangibles, such
We can examine brands in more de- as service quality, or more tangible
tail by reference to the ‘Brand Wheel’, aspects, such as price, but either way
which is also known as the Brand Essence they differentiate one product or
model (see Fig. 10.1). company from another.

Brand essence

Personality

Values

Benefits

Attributes

Fig. 10.1.  The brand wheel. (From Ward et al., 1999.)

192 Chapter 10
●● Benefits: This is why the product/­ marketing strategy. The key stages in
offering would be more beneficial to ­designing a marketing strategy are encap-
prospective customers than others. sulated in the marketing planning cycle
For example, this may be because the (Fig. 10.2). For the purpose of this chapter,
company is more experienced than we have adopted a simplified cycle.
other companies or perhaps they offer When devising a marketing plan, the
unique experiences that cannot be first stage is an assessment of the current
found with other tour operators. situation, i.e. an appreciation of where
●● Attributes: These are the characteris- the company is and where it aims to be
tics that define a particular product, in  the future. This is often identified
for example a family activity tour op- through the mission, vision and values of
erator, an operator offering a wide the company.
choice of holidays, global reputation
or access to unique product offerings.
Mission, vision and values

Marketing Planning A marketing plan needs to support the


strategic vision of the company, which is
Marketing is often considered in the con- identified using mission statements, or-
text of strategic planning on the one hand ganizational goals and vision. There are
and tactical (operational) planning on the different styles of presenting a mission
other. Strategic marketing planning covers statement, although the aim is to clarify
a longer timescale and is often embedded the purpose of the organization, essen-
in the strategic plan of the company tially what it does, and communicate
(see Chapter 3, this volume). Operational the objectives of the company. The vision
marketing planning is shorter term, often of the company can also be presented in
12–18 months. In the tour operating several ways; they tend to be future orien-
sector this short-term planning is more tated, i.e. what the company aims to
dynamic because of the intense competi- achieve, whereas the values provide a set
tion within the sector. In summary, the of guiding principles. Many operators pro-
strategic marketing plan outlines exactly vide additional information about their
what the company is trying to achieve core values on their website; for example,
based on the current market situation, life embracing sustainability and responsi-
cycle, competition and opportunities. The bility, the philosophy behind the creation
tactical marketing plan identifies what is of their products and future ambitions.
required to achieve the strategic goals in This is exemplified by Haven Holidays.
the short term. The easiest way to under-
stand the difference between a strategic
and a tactical marketing plan is to break it Situation Analysis
down into two questions.
Situation analysis involves examining the
●● What are you trying to achieve? The
company’s external operating environ-
answer will shape your strategy.
ment and an internal review examining
●● What do you need to do to achieve
its own structures, processes, aims and
that? The answer will shape your
objectives. These reviews will enable the
­tactics.
company to decide the direction it should
The marketing planning process there- take, based on the organization’s capabil-
fore starts with developing the overall ities, customers and operating environment.

Marketing193
Situation analysis:
market research,
competitor
analysis, customer
analysis

Mission The marketing


Evaluation of statement, plan: segmentation,
campaign vision and targeting and
values positioning; branding

Execution:
marketing
communications
and direct
marketing

Fig. 10.2.  The marketing planning cycle.

Box 10.1.  Haven Holidays.


Mission statement
Provide at our holiday resorts services and products which enable the maximum
number of families to enjoy a holiday or holiday home ownership, in a safe, secure and
appealing environment.
Identify and develop new services, facilities and locations to maintain and improve the
attractions of our holiday resorts.
Lead employees towards excellence, recognize achievement and provide opportunities
to develop their careers.
Maintain the integrity of the company and its brands.
Thus:
Growing the profit of the company year by year to benefit:
●● The guests with an experience they value.
●● The environment using only those resources appropriate to our task.
●● The employees with a fulfilling job.
●● The shareholders and bankers with a sustainable and secure return, commensurate
with the risk on their investment.
(Haven Holidays, 2006)

194 Chapter 10
Essentially, situation analysis will involve inform any marketing activity. It is a
both a SWOT analysis and Porters Five central activity and there should be a
­
Forces (see Chapter 3, this volume) and constant loop or feedback from analysis
may include a ‘5C’ assessment. That is: of market research to inform the manage-
ment, thereby enabling better informed
●● Customer: determining which cus-
strategic and tactical marketing decisions
tomers, and their needs, you want to
to be made. Therefore, tour operators
attract by assessing market segments,
need up to date research relating to the
frequency of purchases, quality of pur-
market and their target market(s) through
chases, distribution channels and con-
either secondary (previously published
sumer trends.
information) or primary research. Sec-
●● Company: assessing whether the com-
ondary research sources may be available
pany has the right product(s) to meet
in the public domain, e.g. data on market
the needs of those customers; this can
trends, tourist flows, visitor numbers,
be evaluated using a SWOT analysis.
competitors with competing products and
●● Competition: determining who the
services, and general information about
company will be in competition with
market segments (e.g. from market research
to meet the needs of the customers
organizations such as Mintel, Nielsen and
identified. An assessment of products
Keynote). A disadvantage of such sec-
on offer by competitors, alongside
ondary data is that it needs to be used with
their strengths and weaknesses, is
care. Although it is relatively low cost,
valuable in establishing the level of
marketing managers need to be aware of
competition.
the suitability of the data in terms of ac-
●● Collaborators: identifying other or-
curacy, reliability, objectivity and currency.
ganizations or people that may be
Depending on the quality of available
able to help the company. This could
secondary information, the tour operator
involve working with national tourism
may need additional data requiring pri-
offices, suppliers, airlines or other
mary research, either through undertaking
transport organizations.
their own direct research or commissioning
●● Context (sometimes referred to as cli-
a suitable organization to undertake it for
mate): determining if there are any
them. Primary data collection is often
limitations that may prevent or limit
time-consuming and can be expensive, but
the opportunities. An analysis of the
there are numerous ways in which tour
climate can be achieved by conducting
operators can obtain data that may be
a PESTEL analysis (see Chapter 3, this
useful in decision-making. One of the most
volume).
frequently used data collection methods
Once a company has assessed the op- is that of the questionnaire, whereby cus-
erating environment, research may need tomers complete a questionnaire in the
to be conducted to identify specific infor- final days or on the return journey of their
mation that will enable the operators to holiday (see Chapter 6, this volume).
identify their market and evaluate the
competition.
Competitor Analysis

Market Research A competitor analysis obviously identifies


not only current competitors but also
Market research is research that directly should consider potential competitors and
focuses on consumers and is essential to this can be achieved in one of two ways.

Marketing195
Competitors can be examined by identi- high-involvement and extensive problem-­
fying them from the customer’s perspective solving behaviour (Clarke, 2005), which
or from the company’s perspective. When in part is illustrated through the numerous
examining a competitor from the cus- decision-making models that seek to ex-
tomer’s point of view, the strengths and plain the process that tourists go through
weaknesses of the company should be to choose a package. The decision-making
identified. This is similar to the SW dimen- process is often considered to comprise
sions of a SWOT analysis (Strengths, Weak- five stages (see Swarbrooke and Horner,
nesses, Opportunities and Threats; see 2016). In the case of tour operator prod-
Chapter 3, this volume). Questions that ucts, an additional stage can be added
will inform such analysis are: why do because consumers evaluate the product
customers choose their holiday products; as they are consuming it, as well as in their
what do the competitors do differently or post-trip evaluation (see Fig. 10.3).
better than us; what makes them suc-
cessful? Alternatively, examining a com-
petitor from the company’s perspective Desire to travel
may involve considering that company’s
size, location, their product(s) and distri- The first stage of the process is ‘need
bution channels. arousal’. In this context, this occurs when
a person decides s/he wants to take a
holiday. This can be triggered by a host of
Customer Analysis factors; for example, external stimuli
and Behaviour can trigger the desire to travel, such as
advertising, promotional campaigns, the
The situation analysis needs to clearly media, family and friends, in addition
identify consumer trends and potential to  personal determinants such as socio-­
market development. A fundamental facet economic status, personality, values and
of marketing is an understanding of con- social influences.
sumer behaviour. This is key to success in
tour operations by ensuring that operators
plan and develop products that appeal to Information search
their target market(s). Second to this is
an appreciation of the tourist decision-­ Once the desire has been identified, po-
making process, which enables operators tential customers are motivated to search
to identify any bias towards specific in- for solutions to satisfy that need. Infor-
formation sources that can be utilized in mation about possible holiday packages
the marketing strategy. is collected, which may involve formal
The purchase of a holiday package sources such as reviewing advertisements
involving a transaction between the re- and brochures, talking to intermediaries
tailer or organizer and consumer is only such as travel agents and searching the
part of a complex process that a potential Internet, as well as informal sources such
customer will go through. This process is as friends, family and colleagues. It is
considered to be characterized by high-risk, unlikely that potential customers will
­

Tourists’ desire Information Evaluation of Purchase Travel preparation Post-trip evaluation


to travel search the alternatives decision and execution of the experience

Fig. 10.3.  The tourist decision-making process. (Adapted from Mathieson and Wall, 1982.)

196 Chapter 10
identify all the potential options, because that the tourist feels during and after
experience and knowledge will enable the consumption of a holiday service. It
them to narrow down the choice to only should be noted that evaluation often
those that could be considered seriously. takes place at the same time as the holiday
These form a ‘consideration set’ (Wirtz is consumed and therefore is an ongoing
et al., 2012), i.e. those products that can evaluation. The customer will reflect on
be considered as potential purchases. whether the experience was satisfying or
disappointing, and in the case where their
expectations are met or exceeded then
Evaluation of the alternatives the customer can be referred to as being
satisfied (see Chapter 6, this volume).
Once the consideration set has been identi- ­Alternatively, a customer may begin to
fied and key features of the holidays under- experience cognitive dissonance, that is,
stood, the customer will evaluate the if the consumer has conflicting ideas
offerings taking into consideration con- relating to their experiences and even dis-
straints such as time and expenditure, satisfaction in comparison with their
length of trip, personal circumstances and expectations, then the experience will be
expectations. As the offerings in many des- considered to have been disappointing.
tinations will be similar in terms of quality
and range of services, then the presentation
of the image(s) of the destination (e.g. in Preparation of the Marketing
brochures or on websites) becomes more Plan
important as an influential factor. Pre-
vious experience, brand recognition and The next stage of the planning cycle in-
recall will all impact on the final decision. volves the production of the marketing
plan. Information derived from the situ-
ation, the competitor and customer ana-
Purchase decision
lysis, and market research will enable a
company to produce a strategic plan, i.e.
The final stage in the process is the pur-
one that supports the company’s mission
chase decision, which is made after evalu-
statement, values and vision. The strategic
ating all the options identified. This decision
decisions will involve how the company
will also be influenced by price, conveni-
chooses to compete; for example, based
ence, logistics and experience.
on price or quality (see Chapter 3, this
volume), identifying sales objectives such
Travel preparation and execution as turnover and profit, and marketing ob-
jectives such as increasing repeat book-
Confirmation of the booking and the ings by a specified percentage. Once these
travel experience takes place. The tourist decisions have been made, a marketing
will evaluate the experience as it is pro- plan can then be formulated, which covers
duced and consumed and, in that sense, is a shorter period such as one year, while
a co-constructor of the experience. the strategic plan is based on long-term
objectives. The marketing plan is cyclical
and dynamic, responding to change,
Post-consumption evaluation whether in the marketplace, indicated by
new data or customer feedback.
Post-consumption evaluation refers to In effect, the marketing plan deter-
the experiences, feelings and satisfactions mines in greater detail how a company can

Marketing197
achieve its objectives. It usually incorpor- the needs of the market and stimulate de-
ates the ‘7Ps’, which are recognized col- mand. They also need to be flexible and
lectively as the marketing mix. incorporate continuous research and re-
flection.
●● Product: the product is usually the first
As noted above, fundamental to the
consideration, i.e. to create a product
marketing plan is the identification of suit-
that consumers want (see Chapters 4
able groups of tourists who will purchase
and 5, this volume).
the product. This is called segmenting the
●● Pricing: a clear pricing strategy is
market.
­necessary, based on costs, the per-
ceived value of the product and the
attractiveness to customers (see
Chapter 7, this volume).
Segmentation, Targeting
●● Place/distribution: decisions about the
and Positioning
distribution of the holiday product.
Market segmentation is the process by
There are several different platforms
which organizations divide up the market
available for operators to use to dis-
into subsets of consumers who have
tribute their products (see Chapters 9
similar needs or demand characteristics.
and 11, this volume).
The benefit of market segmentation is
●● Promotion: the way in which the
that the tour operator will have a better
product is marketed to the consumer
idea about the needs and wants of their
needs to be planned. This may involve
target market and thus can make more
traditional marketing communications
effective use of their budget by selecting
such as newspapers and television, but
appropriate promotional communication
increasingly will need to include social
tools.
media (see Chapter 11, this volume)
Realistically, tour operators cannot
●● People: tour operators rely on people
aim to attract all the population, so the
to deliver their product/services. It is
market needs to be broken down into
important to invest in selecting and
groups with whom the operator can try
developing the right employees in all
to engage. This is termed ‘reach’. This is
areas of the organization, e.g. sales
target marketing, which Kotler and Keller
staff, tour guides and resort-based staff
(2012) argued is the way forward for
(see Chapter 6, this volume).
modern marketing strategy. In effect, the
●● Process: the way the holiday product
operator divides the market into seg-
operates is critical for customers, so
ments, targets one or more of the seg-
planning the processes such as time-
ments and positions its products – ‘market
scales, transfers, flight times and col-
positioning’ – and marketing materials so
lection points is critical (see Chapters
that they will appeal specifically to the
4 and 5, this volume).
needs and wants of the chosen market
●● Physical evidence/packaging: the
segment (see Fig. 10.4).
quality of the physical evidence is used
by customers to assess the value of
the product, so it is important that ve-
Segmentation
hicles, hotels, specialist equipment and
so forth are in good condition so that
The first stage of target marketing involves
customers are confident in the product.
identifying the most appropriate customers,
Each of these factors can be manipulated i.e. groups with similar needs, and this is
to change the product offering to meet usually achieved through market research.

198 Chapter 10
MARKET SEGMENTATION

Identify bases for


segmenting the market
Develop segment profiles

MARKET TARGETING

Develop measure of
segment attractiveness
Select target segments

MARKET POSITIONING
Develop positioning the
target segments
Developing a marketing mix
for each segment

Fig. 10.4.  The segmentation, targeting and positioning process. (From Kotler et al., 2014, p. 221.)

To identify market segments, the tour ●● Psychographic profile: groups people


­operator should identify who the market on a broad basis of how they live, their
is, their requirements, when they want to priorities, their opinions and their atti-
travel, where they want to find the infor- tudes and interests (see Table 10.2).
mation and how they can be reached. There ●● Geodemographic profile (see below).
are many methods that can be applied ●● Price, e.g. budget/low-cost holidays,
to help segment the general market (see luxury.
Swarbrooke and Horner, 2016), one of
These segments are not necessarily
which that is specific to tourism is that
discreet but overlap and complement each
of  Middleton and Clarke (2001), who
other, thus a tour operator may use two
suggest that the main methods of segmen-
or more methods (and categories within)
tation are by:
to identify more accurately a chosen market
●● Purpose of travel, e.g. holiday, leisure segment. In addition, it should be borne in
break, business trip, visiting friends mind that the potential means of segmen-
and relatives. tation may vary, depending on geographic
●● Buyer needs, motivations and bene- region/country of a source market and
fits sought, e.g. relaxation, shopping, changes in societal norms over time.
education. Another method used in tourism is
●● Buyer behaviour/characteristics of that of geodemographic segmentation,
the product usage, e.g. families, which is a multivariate classification tech-
Halal, grey market, LGBT. nique using geographic and demographic
●● Demographic, economic and geo- details. The most commonly known sys-
graphic profile (see Table 10.1). tems are ACORN and MOSAIC. ACORN

Marketing199
Table 10.1.  Illustration of sociodemographic variables.

Variable Explanation

Age Segmentation using age-band categories is very common as


an indicator of different requirements; these are often given
names such as baby boomers (born between 1946 and
1964), tweens (9–12), Generation X and millennials. For
example, PGL Holidays offers summer camp activity
breaks for 7–17-year-olds, whereas SAGA Holidays targets
the over 50s
Life stage It is often easy for operators to segment their market, linking it
to life stage in the family life cycle, for example couples with
children and those without. Segments include: young single
people, young couples with no children, couples with young
children, families with older children, retired couples and
retired single people
Gender Men and women have different holiday choices; for example,
women are more likely to choose spa breaks, whereas men
may choose golfing holidays
Sexual orientation Sexual orientation is becoming a key market segment for tour
operators. Some tour operators and destinations focus
specifically on attracting gay and lesbian audiences,
e.g. Mykonos in Greece, which have become a very lucrative
market. Also same-sex marriages and civil partnership
ceremonies are now packaged by tour operators,
e.g. perfectgayhoneymoons.co.uk
Income This relates to disposable income; for example, a
differentiating factor between consumers of ‘exclusive tours’
or safaris and mass market products, e.g. traditional ‘3S’
holidays or camping. ACORN provides a list of categories
from A to F, whereas the UK social class categorization
uses a scale of 1 to 8
This method of segmentation emphasizes occupation or social
class as a form of segmenting the market
Education levels Education levels can be used to segment the market under the
assumption that higher education levels will mean higher
paying jobs, which leads to higher levels of disposable
income. Also it is argued they are more likely to be interested
in cultural tours, etc.
Ethnicity and cultural Services can be segmented according to ethnic group, which
background is a group of people who have characteristics in common,
such as racial background, language or social customs

classifies residential neighbourhoods on Assessing the segment


the assumption that people living in similar
areas will have similar incomes, lifestyles A starting point for assessing a market
and needs and are likely to share common segment by tour operators is the purpose
demographic characteristics. MOSAIC of the customers, travel, e.g. mass market
identifies 15 groups and 66 types of con- summer holiday, short break, activity-­
sumers (Experian, 2016). based or family. These segments can be

200 Chapter 10
Table 10.2.  Psychographic segmentation.

Lifestyle Based on tourists’ activities, interests and opinions. This approach links product
choice to habits and lifestyle, such as Club 18–30 holidays aimed at
hedonistic activities, or interests such as bird watching, skiing or spa breaks
Personality For example, extroverts are more likely to choose busy resorts with various
entertainment opportunities, whereas those considered introvert may
choose more remote locations
Values This segmentation method utilizes the VALS framework (values, attitudes
and lifestyle). Consumers called Thinkers and Believers are motivated by
ideals, whereas Achievers and Strivers are motivated by achievement.
Experiencers and Makers are considered risk takers and are motivated by
self-expression. Innovatives are at the top of the VALS framework,
characterized by high income and high resource individuals who consider
independence vitally important and aim to achieve the finer things in life.
Survivors are those with the least resources and therefore less likely to
purchase new products, but are often considered to be brand loyal

further subdivided to include more spe- evaluate their potential in terms of con-
cific information, such as a beach holiday tributing to the company’s success and
with children, beach holidays without select one or more of those market seg-
children, specific activities such as walking ments to target. This could involve some
and sailing, or the destination such as re-evaluation of the segment, which may
short- or long-haul travel. involve identifying segments where they
A key consideration in market seg- offer advantages over their competition
ment identification is to ensure that it is (unique selling points) and/or can pro-
large enough to provide a sustainable vide superior levels of service to ensure
number of customers and that the seg- that they match the segment(s) to their
ment has longevity. The segment should product offerings.
be assessed in the context of the company
objectives. For example, mass market com-
panies aim to have large numbers of sales,
Positioning
whereas smaller companies may aim for
higher profit from a smaller client base.
Once a company has identified its target
Consideration must also be given to the
market segment, it must decide on what
competitors within that market; this is
position to occupy in the market. A prod-
called segment attractiveness (see Porters
uct’s position is the way the product is
Five Forces in Chapter 3, this volume).
perceived by the customer relative to
The identification of the specific
competing products. Positioning involves
market segment(s) is crucial to the tour
identifying competitive advantage and
operator in developing their marketing
communicating this clearly to the target
strategy to target effectively those specific
market by creating a detailed and specific
segments.
marketing mix. There are several different
strategies that operators can use.
Targeting ●● Undifferentiated marketing: This is
when a company utilizes the same mar-
Once the tour operator has identified keting strategy across all their mar-
suitable market segment(s), they need to keting communications. For example,

Marketing201
First Choice uses the same media by operators such as First Choice and TUI
channels for all their offerings to target often manipulate price rather than promo-
the widest possible group of potential tional campaigns. Smaller tour operators
customers. This strategy is most ef- in competition with bigger brands may
fective when the operator’s packages emphasize their expertise, personal service
are homogenous or customers have and additional value to differentiate their
the same requirements from a holiday product.
and will be looking for similar experi- Overall, the strategic marketing plan
ences, such as First Choice’s range of provides the direction of growth for the
all-inclusive packages, which are not company and the brand image. The stra-
aimed at specific segments but rather tegic plan will guide and influence the
focus on the benefits of the holiday ­tactical marketing plan, for example the
being inclusive of all food and enter- budget that can be spent, and allocate
tainment. ­financial resources to each of the promo-
●● Differentiated marketing. A differen- tional methods chosen. The design of the
tiated marketing strategy involves of- marketing campaign is the implementa-
fering a range of products to different tion of the marketing mix, i.e. communi-
market segments while maintaining cating the product, the sales price and
a  focal brand to differentiate the the distribution channel to the potential
tour operator from competitors. For customers via a range of promotional ac-
example, Voyage Jules Verne present tivities encompassed by the promotional
several brochures for both resort and mix. This is often referred to as the tactical
escorted tours while maintaining marketing plan.
their brand.
●● Concentrated marketing. This strategy,
also called niche marketing, is when The Promotional Mix
a company focuses all their resources
on one specific market segment. For When devising a tactical marketing plan,
example, if a vertically integrated tour companies can utilize several strategies
operator has several different brands, and channels to achieve the aim of the
each of those brands may be marketed marketing plan, and promote the brand.
to very distinct, separate market seg- Promotional campaigns are part of the
ments. An example of this would be a marketing mix and here we review pro-
ski tour operator marketing their motional activities available to tour oper-
products to those consumers specific- ators. These activities are encapsulated in
ally interested in skiing rather than to the promotional mix (see Fig. 10.5) and
the general market. are discussed below. Others are examined
in more depth in Chapters 4 and 5 (this
To achieve effective positioning, mar- volume; product development and price)
keting communications need to focus on and Chapter 9 (this volume; distribution).
the needs of the segment and provide in- The promotional mix is the coordin-
formation that identifies the benefits that ation of marketing activities which include
this group are seeking. Furthermore, be- several different opportunities that en-
cause of the large number of products on able companies to interact directly with
offer, companies may adopt a strategy of customers or through their channels of
grouping products together or plan their distribution. The aim of the promotional
positioning strategy based on their com- mix is to inform, persuade and ultimately
petitors’ offerings. Mass market products encourage the purchase of the holiday

202 Chapter 10
Advertising

Social
Public
media
relations
campaign

Promotional
mix
Internet Sales
presence promotion

Direct Personal
marketing selling

Fig. 10.5.  The promotional mix.

products. The tactical marketing plan may no longer be appropriate or afford-


will stipulate the blend of promotional able due to budgetary constraints.
activities that target the market segment To create a media plan, operators need
in the most appropriate manner. to make decisions about:
●● Media selection: the choice of paid
media vehicles and channels that can
Advertising be used to target a specific market and
communicate the chosen message.
Advertising involves the design of media These can include mail, TV and radio,
plans that aim to deliver the right mes- newspaper, magazines brochures, tele-
sage to the right people at the right time marketing and the Internet.
within budget to generate the right re- ●● Media scheduling: the number of
sponse, i.e. a purchase. A media plan starts occurrences, timing and duration that
with setting the communication objectives, those messages are exposed to the spe-
i.e. ‘what message do we wish to give cific market using the agreed vehicle.
potential consumers?’ However, this is
not as straightforward as one might think
due to the number and types of media Media selection
vehicles available. Furthermore, changing
characteristics of the target market means Traditional print media such as national
that audience fragmentation is likely and and regional newspapers, magazines and
that mass communication methods such trade journals are very effective at delivering
as television (TV) and the popular press messages to large audiences. Advertising

Marketing203
in hobby and special interest magazines is measures how people view the com-
a very effective tool for targeting specific munication, but fails to identify how
audiences. For example, a company of- they react. Coverage is an important
fering walking and trekking holidays consideration because the objective
would look to advertise in magazines of the marketing campaign may be to
focusing on these activities. For tour
­ create awareness of the brand.
­operators who do not sell directly to the ●● Frequency. This is the measurement of
customer, the trade press may be used to the number of times on average that
promote brand awareness. a member of the audience is exposed
Broadcast media takes one of two to the media vehicle and is usually
forms, i.e. TV and radio. The main advan- measured in opportunities to see (OTS)
tage of these forms of media is that they or opportunities to hear (OTH). Fre-
can reach mass audiences at a relatively quency is important because the more
low cost per person. Visuals and sound times a potential consumer sees or is
can be used in creative strategies to gain exposed to the marketing message,
audience attention. TV advertising is nor- the more likely it is to be effective.
mally the most expensive, although prices Marketers will adapt the frequency
vary according to the time advertisements and scheduling according to the type
are broadcast, with advertising slots during of products on offer and the market
popular television programmes being the segment. This may include continuous
most expensive. This is particularly useful campaigns for nonseasonal products
for targeting family audiences and thus is such as city breaks and specialist ac-
used by many mass market operators to tivities, awareness-raising campaigns
advertise their family-friendly products. where communications are built up
Radio services often operate on a 24-hour over time towards a specific date, such
basis allowing consumer segments to be as a particular event, or falling off
targeted based on the time of day and the where advertising campaigns launch
type of channel. Outdoor media primarily and then gradually reduce in activity.
include advertising boards, transport ve- Falling campaigns are often used
hicles (e.g. public buses) and street furni- to  market mass market products;
ture and can provide effective support for example, in the UK traditionally
when used with other communication, television advertising for summer
especially in building brand name recog- beach holidays starts in the New
nition. It is clear that TV, radio and printed Year and gradually declines towards
newspapers are losing their centrality high season.
within the media landscape as an in- ●● Media scheduling. This determines
creasing number of consumers obtain when the messages are transmitted,
their information through digital sources. so it often refers to the pattern of ad-
Decisions as to which media to use vertising time. Short-term advertising
involve the following factors: campaigns focus on increasing sales,
whereas longer term communica-
●● The reach. This is the number of mem- tions focus on brand-building.
bers of the target audience who were ●● Purchasing cycle. This is the optimum
exposed to communications in a number of exposures that customers
specific time period. This is usually have to the promotional activity. This
expressed as a percentage measure- may vary according to the time of
ment against the target audience, year; for example, in the UK advert-
not the general population. The reach isements of traditional summer sun

204 Chapter 10
holidays start in January, while Euro- or branded items such as passport holders
pean ski tour operators launch their and t-shirts. Promotions are often com-
brochures during the summer months. municated to customers through specific
●● Level of involvement. Decisions with marketing materials, such as newsletters,
higher levels of involvement need less emails and flyers. Sales promotions for
repetitions of the communications be- distribution channel members can include
cause people who are highly involved competitions to reward retailers who sell
in the decision process will actively the most packages, temporary increases
seek additional information, whereas in commission rates and free gifts.
low-involvement decisions need a
higher level of frequency to maintain
awareness and change attitudes.
Personal Selling

Many staff are engaged in personal selling,


Public Relations
either directly as part of a vertically inte-
grated travel agent, a telesales agent, or as
Public relations is a communication pro-
a travel agent selling products on behalf
cess that aims to create a favourable image
of the tour operator. Personal selling can
of the company in the target audience,
increase the likelihood of a purchase and
although the audience can be not just
agents can upsell (upgraded accommoda-
customers but also suppliers, investors,
tion etc.) or switch sell (sell a product of a
journalists and employees. Many tour op-
higher price). B2B (Business to Business),
erators utilize PR companies to represent
personal selling, i.e. communication be-
them in activities such as press relations,
tween tour operators, retailers, conven-
product publicity and corporate publicity
tion, incentive and meeting planners,
through writing press releases, E-shots
usually takes place at travel trade events
and tailored PR campaigns through so-
such as the World Travel Market.
cial media (e.g. announcing awards, new
product launch or charity support). PR
also has an important role in offsetting
unfavourable publicity and it is extremely Direct Marketing
useful when dealing with the aftermath
of incidents and crises (see Chapter 13, this Direct marketing allows operators to
volume). communicate directly with customers ra-
ther than through an intermediary such
as a travel agent. Copley (2014) describes
Sales Promotion it as an interactive system that uses one
or more communication tools and media
Sales promotion activities are activities to generate a measurable response. The
undertaken by tour operators to promote key to direct marketing is to identify the
an increase in sales. Sales promotions can target market and direct promotional
be directed either to the customer or to material to them, essentially providing
distribution channel members such as in-depth information to customers and
travel agents. Tactics used by tour oper- prospects that matches the needs of the
ators for customers include competitions target group.
and giveaways, temporary price reduc- Traditionally, direct marketing in-
tions, free gifts such as free surfing les- volved direct mail using mailing lists.
sons included in the price of the holiday, The original direct response advertising

Marketing205
delivered by mail expanded rapidly in the Digital Media
1960s/70s as advertising on television
increased and potential customers re- The key forms of digital media include the
quested brochures that were delivered by Internet, database technologies, social
post. For several decades, this form of media, mobile technologies and interactive
direct marketing was popular, but it has TV. Digital media have allowed marketers
fallen out of favour due to the ‘junk mail’ to develop new forms of communication to
image and the relatively high cost for generate ­responses from the relevant target
­operators in terms of printing and dis- audience; these can include email mar-
tributing marketing collateral (design keting, search engine optimization, pay per
and printing, packaging, addressing and click, online advertising, affiliate marketing,
postage). However, more recently direct text messaging and blogging. One of the
marketing has become increasingly more benefits of digital media marketing is that
sophisticated as a direct result of devel- the interaction between the customer/po-
opments in information communication tential customer is greater than the trad-
technologies (ICT), particularly the itional one-way forms of communication
Internet. Basically, the convenience of the such as radio and newspapers. Essentially,
Internet and the ability to shop from marketing has moved from a transactional
home have changed the way direct mar- perspective with passive customers to a re-
keting operates. lationship perspective with engagement in
One of the most common and ef- a two-way communication between com-
fective means of reaching the consumer panies and consumers. As such, digital
is through email and email addresses are media allow interactivity between pro-
retained by companies to send messages ducer and consumer and can disseminate
about products and offers. The benefits marketing communications through mul-
of contacting customers and prospects tiple channels.
directly include the ability to target seg-
ments of the operator’s own customer
database with specific products. Person- Internet presence
alized messages are low cost and easy to
produce and emails can be sent at spe- The Internet is a highly popular and valu-
cific times of day when customers are able tool for consumers to access travel
perceived to be more likely to be recep- information, to provide the opportunity
tive. This medium allows operators to to compare prices with ease and poten-
track accurately whether the email has tially obtain faster responses than would
been opened, whether a ‘click through’ be the case with the traditional high street
has been actioned and what the result is, travel agent. In response, travel agents
thus giving them data which will inform claim that they provide a better service
other campaigns. than the Internet and are more adept at
It should be noted that in many coun- creating complex bookings (Cheyne et al.,
tries the use of personal information is 2006). Tour operators have also been
controlled by data protection legislation affected in two main ways. On the one
and although companies may be able to hand the Internet offers a direct route for
contact their own clients, it is usually il- consumers to contact suppliers and prin-
legal for the database of clients to be cipals, thereby omitting travel agents
given/sold to other companies or for and/or tour operators from the chain of
other firms to contact clients without distribution (disintermediation). On the
their express permission. other hand, the Internet provides a way of

206 Chapter 10
reaching new target audiences outside the To develop a deeper appreciation of
areas where they are easily accessible, websites and further understand their de-
e.g. international customers. It also allows sign, it is particularly helpful to consider
companies to collect and analyse data to and apply Rayport and Jaworski’s (2001)
help them make decisions about prod- ‘7Cs’ framework (see Table 10.3).
ucts, marketing campaigns and competi- When designing websites, operators
tors. The Internet is particularly useful may use Content Management Systems
for small and medium-sized enterprises (CMS) software applications (collection
because it offers a cost-effective commu- of programs) that are used to create and
nication method, which is particularly manage the digital content. There are
useful when targeting niche markets that many systems available for tour operators
may be geographically widespread. to buy off-the-shelf that are targeted at
small and medium-sized operators, whereas
larger tour operators invariably will de-
Websites sign their own purpose-built software.
CMS provide operators with the oppor-
Websites have become important to or- tunity to update and make changes to the
ganizations and increasingly represent websites with relative ease and may be
the face of the company. Satisfactory ex- linked to image banks so that the correct
periences in using websites can enhance image is viewed on the relevant page.
relationships. However, utilization of Search functions are integral to web-
websites should not be considered as sites, allowing viewers to narrow down
additional to a marketing strategy, but in- product offerings to fit with their own re-
tegral to that strategy, because it will be quirements. Such searches will include:
used to supplement other vehicles, e.g.
advertisements that include web ad- ●● Date: The ability to search by date
dresses. In general, websites are quick to range, month of departure, specific
set up, although they are not necessarily dates and flexible dates.
cheap to design (particularly if using ●● Country.
website designing companies), but they ●● Specific country destination.
are more cost effective than brochure ●● Holiday or brochure code.
production. The benefits to tour oper- ●● Duration.
ators are that they have a local as well as ●● Season.
global reach and are available 24/7 and ●● Activities involved or specific experiences,
therefore consumers and customers can e.g. cultural tours, hiking, dog sledding.
access information at their leisure. In ●● Trip pace, e.g. easy, moderate, strenuous.
terms of design, the content of a website ●● Price range.
needs to include the same substantive ●● Accommodation style.
messages that will be included in a hard- ●● Type of holiday, e.g. self-drive, self-­
copy brochure. That is, destinations guiding, escorted.
available, the types of holiday and offer, An analysis of website traffic is essen-
itineraries and information about the tial and involves activities such as:
company. In addition, websites have the
additional advantage of being able to ●● Online demand: Is your sector growing
interact with the customer by encour- or declining?
aging them to sign up for newsletters, ●● Visitor numbers: Traffic levels of your
send enquiries or request specific infor- Internet footprint. Measurements in-
mation using web chat services. clude the per click campaign.

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Table 10.3.  The 7Cs framework. (Adapted from Rayport and Jaworski, 2001.)

7Cs Explanation Importance for tour operators

Context Context is the look and feel of the The division of the site into
screen and can be classified by sections and pages and how
aesthetics and functionality. new pages relate to other
Aesthetics is created by colours, sections, i.e. the linking
graphics and images, the structure. Thus, navigation tools
inclusion of interactive videos are important so that customers
and other rich media. can access the required
Functionality is related to the information easily, such as
layout and performance of the internal search engines. For
website, including tabs, quick operators with numerous
access shortcuts, speed, brands, it can be useful to link
reliability and media accessibility the brands together and
encourage visitors to move
between the sites
For tour operators working in
wide-ranging markets,
language options may be
considered an investment
Content Content focuses on what the site The content should include, for
offers, the product offering, example, high-quality
customer service, information photographs and graphics, and
and relevance well-written in-depth
descriptions of destinations.
Sites need to be frequently
updated
How the products are presented
and the range on offer are
important
Community Community concerns the Operators can enable user-to-user
interaction between the users communication through a
and this may include a feeling of feedback and review section or
involvement or membership of a communication with the
group company using Instant
Messenger
Customization Customization refers to the site’s
ability to present different content
for each user. Customization can
be personalized by the user or
tailored by the company
Communication Communication is defined as the Broadcast messages can include
dialogue between the website mass emailing of newsletters,
and the user. It can be either notifications of new products
one-way (broadcast), meaning and webcast events
information is provided for the Interactive may include customer
user, or interactive, which service through emails or live
encourages two-way online communications
communication between the
organization and the user
Continued

208 Chapter 10
Table 10.3. Continued.

7Cs Explanation Importance for tour operators


Connection Connection refers to formal Links may be to external
linkages between sites organizations, for example links
to content from another supplier
whereby the user is taken to the
supplier’s website
Commerce Commerce is a level of support for Low-level commerce includes the
transactions such as online ability to process basic
purchases, security, order transactions, whereas high-level
tracking, confirmation and links commerce provides additional
support such as customer login
and tracking of bookings,
additional departure information
and destination-specific data

●● New sessions: A metric in Google enquiry. While the algorithms used by


analytics that will identify the number search engines change over time and are
of visitors to your site that are new fiercely guarded, it is logical to assume
and those that are returning. that activities on operators’ websites may
●● Direct versus referral: Identifies the be influential, such as regular updates. In
point of origin of website visitors. addition, links to and from social media
●● Bounce rates: Where visitors enter can drive traffic to the website through ac-
and leave immediately. tivities such as shares, retweets and ‘likes’,
●● Conversions: To enquiry, quotation and it is more likely that search engines
and point of sale. will pick the ‘relevance’ of the site and it
●● Lead to close ratio: The number of will appear higher up in the search results.
people who follow up on a lead and
purchase versus the number of people
Move to mobile devices
who follow up on the lead but fail to
close.
Most websites have been designed for use
The number of visitors to a website is on personal computers, but this is changing
often referred to as current traffic. A break- as more customers use mobile devices to
down of this could include the number of search travel information and for book-
unique visitors, i.e. those visitors who are ings. As mobile use increases, tour oper-
visiting the website for the first time. In ators need to adapt their digital strategies,
addition, it is useful to know the average for example ensuring swift and accurate
time spent on the site (stickiness) and the transfer between devices so that searches
number of pages that are viewed. on one mobile device can be found on
Other data that can be collected from another mobile device. This provides an
websites include the type of device people excellent opportunity to strengthen cus-
used to access the pages, the location of tomer relationships by encouraging them
those visitors (either domestically or inter- to ‘register’ so they can then log in to their
nationally) and probably the most im- account on different devices – this is par-
portant statistic, the conversion rate to ticularly important for the millennial
enquiry, i.e. the percentage of people who generation (Asia Travel Leaders Summit,
view the site and then go on to make an 2016). By enabling the mobile experience,

Marketing209
tour operators can build brands and rela- and user-centric social media (Lueng et al.,
tionships and provide opportunities for 2015).
incremental purchases and increase brand Web 2.0 is the development of second-­
loyalty. generation Internet-based services that
are interactive, context rich and easy to
use (O’Reilly, 2007), which has enabled
Social media people to collaborate and share informa-
tion online through social networking
Although there is no universal definition sites. These are called User Generated Con-
of social media, Chan and Guillet state tent (UGC), the ‘word-of-mouse’, and
that it is ‘a group of Internet-based appli- include blogs, wikis, discussion forums,
cations that exist on the Web 2.0 platform posts, chats, tweets, podcasting, pins,
and enable Internet users from all over the digital images, video, audio files, and other
world to interact, communicate and share forms of media that are created by users
ideas, content, thoughts, experiences, of an online system or service, often made
perspectives, information and relation-