SETTING UP A TRAVEL AGENCY

Setting up a travel agency requires a lot of planning and organizing and is not an
easy task. Their primary business is to sell various kinds of services such as transportation,
accommodation, sightseeing tours, etc. The products of a travel agency depend on the size,
structure, and market pattern. Some may focus on both inbound and outbound tourism,
catering to both international and domestic tourists. Some travel agencies may focus on
specialty tours or provide customized travel packages. Some also offer ancillary services
such as consultation or information on travel requirements such as visas, travel insurance,
or vaccinations. Therefore, before setting up a travel agency, it is vital to clearly
understand these companies’ functioning, activities, and products/services. Following are
the steps involved in setting up a travel business:

7.5.1 Steps Involved

Identify the Market: Before entering the travel business, a thorough understanding of the
tourism industry’s current position and prospects is essential. It is also necessary to know
other travel businesses and their strengths and weaknesses. It will provide you with an idea
of tourism businesses and help develop networks with other formal tourism businesses.
Further, the travel business competition depends mainly on your travel agency’s location
and niche. It is essential to create your niche presence in the market to experience less
competition.

Deciding the Name and Structure: After choosing the niche of your travel agency, decide
on a unique and memorable name for your business and get it registered. Another step to
take into consideration is your business structure. Whether it is a large, medium, or small
business, you need to decide on options such as remaining a sole proprietor, having a
partnership, or forming a corporation [SEE NOTES ON DIFFERENT BUSINES FORMS
IN KENYA]. With a medium or large travel company, it is also vital to consider hierarchal
organizational structure. Agencies with different departments or sections, including sales,
research, and planning, accounts, public relations, etc., function in an organized and
coordinated way. This organizational structure produces better output, gives better clarity
of decisions, and avoids ambiguity [see notes on Organizational Structure).

Selection of Ideal Location: Selecting a site is an arduous task. An ideal location provides
an added advantage for a business to grow in a more competitive environment. A company
must be visible and easily accessible to its clients. The ideal location is preferably a ground
floor office with adequate nearby parking. Office space must be as stipulated by IATA or
any other standard organization.

Investment Capital: Capital is essential to set up and expand a business. It is the lifeline
of a company and is necessary at every stage of its operations. Capital can be arranged
from its source or commercial banks at a subsidized rate of interest. As in Kenya, various
schemes have been implemented by banks and financial institutions to cater to the
financial needs of tourism and hospitality-related businesses.

Hiring Qualified and Skilled Workforce: A travel agency is service-oriented, and human
resources is a core component of the total resources of a travel agency. Therefore, it is
essential to hire efficient personnel with professional qualifications and skills. According
to IATA or any other recognized organizations, it is vital to have a minimum of two staff
members qualified from an approved tourism educational institution.

Develop Technical Resources: In today’s world, it is crucial to be up-to-date with

technological advancements even in the tourism and hospitality sector. Most travel
agencies and tour operators use major computer reservation system applications such as –
GDS and software applications such as Amadeus CRS, Galileo CRS, SABRE,
TRAVELPORT and World span.
Adoption and use of technological advancements make the job easy and enhances the
productivity of the company. The online presence of a travel company is also crucial in
today's modern scenario where everything, including travel information and distribution,
booking, controlling the operation, handling the clients, fund transfer, can be done with the
help of mobile phones or laptops. Developing the website and mobile apps for a travel
company has become a must-demand and market trend.
 Managing Cash Flow: A travel agent not only needs the investment capital to start a
business but also needs continuous cash flow for day-to-day business operations. Running
out of cash despite your other assets will cause the risk of business failure. Therefore, cash
flow consideration is important as any other business function. It will also help you figure
out your business viability.

Recognition from Professional Agencies: Getting certified from any local, national or
international organization has a profound impact on the clients and market. Though it is
not mandatory, it is a sign of credibility and makes any travel company stand out from
others. Therefore, one should work towards acquiring needed certifications for their
business. Tourism Regulatory Authority (TRA), IATA, KATA and other professional
agencies provide such certifications and recognizations.

Legal Documents Required: Some primary legal documents are needed to start a new
travel agency business which is as follows:

• Certificate of Incorporation
• Business License
• Business Plan
• Education Certificates of Staff Members
• Online privacy policy
• IATA or any other approved organizations' approval

Company registration:

Once you have your business plan in check, you can proceed to register your business through
the following process, which we do for you from start to end.

 Get three preferred names for your company. Make sure these names are exciting to
entice clients to want to take part in your expeditions.
 Register a Company in Kenya.
 You will receive certificate of incorporation and CR12 document.
 Then get you KRA pin, NHIF, NSSF, and open a bank account.

After securing these documents, you then proceed to the Tourism Regulation Authority to be
issued with a Tourism License.
7.5.2 Government Guidelines
The Ministry of Tourism and Wildlife through TRA, has laid down guidelines for
the recognition of tourism service providers, which also entitles them to incentives and
concessions to be granted by the Government from time to time. It is a voluntary scheme
open to all travel agencies and tour operators. This recognition is aimed to bring these
service providers into an organized sector and encourage standardized and quality tourism
services.

7. 5.3 IATA Rules

IATA accreditation is not an obligatory requirement for becoming a travel agent. However,
having an IATA accreditation can provide travel agencies/tour operators with credibility
and enhanced revenue. The rules and regulations to apply for IATA accreditation are as
follows:

1. The application for grant of approval shall be in the prescribed form and addressed
to the Director, Agency Investigation Panel IATA. The objective of recognition is to
promote and develop the air transport and tourism industry at the global, regional,
and national levels.

2. Travel agency shall have a full-fledged business for the last two to three years.

3. The travel/tour company must have professional staff members qualified from
IATA approved institutions.
4. The agency must have sound financial credibility.

5. The agency’s location must be easily accessible, having proper security, and be
clearly identified to the tourists.

6. All travel agents must provide Financial Security with a minimum amount of USD
50,000 to be accredited.
 7. The agency should have the ability to generate business.

8. The travel/tour company granted recognition shall be entitled to such rights and
privileges as may be granted by the association from time to time and shall abide
by the terms and conditions of recognition as set by the association from time to
time.

9. The agency must audit and attest annual reports with the application form.

10. The decision of the IATA in the matter of accreditation shall be final. The
association may refuse to accredit any travel/tour company without assigning any
reason.

11. The association reserves the right to withdraw at any time, the recognition already
granted, without assigning any reason.

12. The recognition granted by the IATA shall not automatically entitle the Travel
Agency/ Tour Operator to be approved by any other organization/association.

IATA-approved travel agencies are entitled to use the IATA logo and benefits as fulltime
member of IATA. It also enhances the agency’s credibility by being an IATA member.
IATA also provides training for the agency staff members and also helps in marketing.

KENYA ASSOCIATIONOF TRAVEL AGENTS (KATA)

Membership is open to any Travel Agent licensed by the relevant Kenyan Government body to
provide comprehensive travel services and accredited by IATA.

The Travel Agent must have been in operation for at least two years to qualify for
membership.

Requirements

1. Valid Travel Agency License from Tourism Regulatory Authority (TRA)

2. Valid IATA Certificate.
3. Valid Single Business Permit.
 4. Valid KRA Pin Certificate and or Tax Compliance Certificate.
5. Company Registration Certificate.
6. CR12
7. Full set of Audited Accounts for past two years.
8. Copy of ID / Passport of the Directors. Work permits should also be included for foreign
nationals.

FEES

The following fees shall be payable to the Association prior to the full admission to membership.

1. A non-refundable application fee of 5,000/=

2. Joining fee of 35,000/=
3. Applicable annual membership subscription fees

Membership Benefits

1. Promotion and protection of the interests of KATA and its members.

2. Communicating the concerns of members and to lobby government, public and private
sector for actions.
3. Acting on behalf of members in discussions and negotiations on industry specific issues.
4. Continuously review and appraise the needs of Members so as to provide them with
meaningful services and benefits.
5. Promotion of the highest code of ethical and professional Standards of members in their
dealings with consumers and each other.
6. Facilitation of access to innovative and Industry driven financial and risk management
services.
7. Facilitation of access to training, information and promotional materials for members in a
way that promotes their effective participation in the industry.
8. Networking with other bodies or organizations with similar business at both national and
international level, and to leverage the relationships arising out of these alignments for
the benefit of its members.
9. Continuously creating awareness of the KATA brand and value.
10. Providing a platform to discuss individual challenges related to the industry.
 11. Providing information of new products, services and technology in the Industry.
12. Providing exposure to the members through the Travel Guide and Website.
13. Providing an amicable dispute resolution platform for all.
14. Providing guidance and assistance when dealing with IATA related issues.
15. Free listing in the travel guide and website.
16. Members are subjected to a weekly newsletter with industry news.
17. Members receive regular circulars with industry updates and information.
18. Members are eligible to access tenders which require KATA membership.
19. Right to serve and vote for Executive Committee, and service on sub- Committee (IATA
agents only).

7.6 SOURCES OF INCOME OF TRAVEL AGENCY BUSINESS

Travel agencies earn income through the suppliers and the customers they serve. The
primary source of income of Travel Agency Business is commission received from various
sources. However, the introduction of travel services through online has impacted this
source of income making the travel agencies to be more competitive. Approximately 95
per cent of the revenue is earned from the commission, and 5 per cent is made through
other services. The sources from where these travel agencies are remunerated are as
follows:
1. Commission on the sale of principal services: When a travel agent book and buy
any principal services such as hotel, airline, or transport for their clients, they are
paid a commission on each booking by the service provider. The scale of this
commission differs from one travel agency to another.
2. Consultation and handling service charges: The travel agency collects a service
fee from the clients for consultancy services and tour handling.
3. Commission from ancillary services: The travel agency provides ancillary
services such as travel insurance, traveler's cheques, and other travel documentation
for which it collects service fees from the clients.
 4. Income earned from short-term investment: The travel agencies invest the
money they receive from various sources as deposits and make profits.
5. Profit from its own tours: A travel agency can earn profit by selling its own tours
such as excursions, sightseeing, hikes, etc.
6. Specialized Services: Travel agencies that offer specialized services like corporate
travel earn profit based on their expertise in that area.

VISIT THIS KATA WEBSITE FOR THE LIST OF PRODUCTS OFFERED BY ITS MEMBERS:
https://katakenya.org/our-members/
TYPES OF BUSINESS ENTITIES THAT CAN BE REGISTERED IN KENYA

When starting a business in Kenya, there are many forms the business can take depending
with various factors be it nature of business, the ownership structure etc.

Different businesses will fit in various forms of entities and to help you come up with a sound
decision of what form of business you want to register, we have discussed the various forms
of entities that can be registered in Kenya.

SOLE PROPRIETORSHIP

A Sole Proprietorship is the simplest form of business that one can open and operate.

It is owned by one person who is liable for its debts and solely enjoys the profits and suffers
losses of the business.

Thus a business name is not a legal entity and therefore it is not separate from its owner.

In Kenya Sole Proprietorships are registered under the registration of Business names Act.

NB:

The business name takes the owners KRA Pin and thus the owner declares his/her taxes
using his/her pin.
PARTNERSHIPS

Unlike a Sole Proprietorship, a Partnership is owned by two or more persons to a maximum

of up to twenty who come together with the sole purpose of carrying on business and sharing
profits according to the agreed ratios in the partnership deed.

In Kenya Partnerships are registered under the registration of Business names Act.

NB:

A Partnership has its own seperate KRA Pin for the purposes of filling tax returns but
its not subject to any corporate tax.The profit /loss realised is then declared by the
partners individually according to the profit sharing ratios agreed.

LIMITED LIABILITY PARTNERSHIPS (LLP)

These are unique forms of business associations which combine the features/elements of a
company with those of a partnership.

The number of partners is not restricted.

LLP has limited liability where partners in the LLP are not personally liable directly or
indirectly for obligations in the partnership, however individuals are liable for their own
wrongful acts or omissions.

The LLP can enter into contracts in its own name, can own property in its own name and can
sue or be sued in its own name.

NB:

An LLP is not subject to Corporate Tax and therefore partnership income is taxed in the
hands of the individual partners and not at the firm level.Partners are deemed self-
employed and hence each partner declares their profit and pay tax on their share of
profit.

PRIVATE LIMITED COMPANY

Also known as a limited liability company.

A Private Limited Company requires a minimum of one director/shareholder of any

nationality and who can be living outside Kenya.

A private limited company has share capital, its a seperate legal entity and the liability of
members is limited to the amount, if any, unpaid on the shares respectively held by them.

A private limited company is subject to corporate tax and therefore has its own KRA
Pin for the purposes of filling tax returns and the director(s) declare their tax returns
using their personal KRA Pins.

COMPANY LIMITED BY GUARANTEE (CLG)

A CLG is an alternative type of corporation used primarily for non-profit organizations that
require legal personality.

A CLG does not have a share capital.

The liability of its members is limited by the company’s articles to the amount that the
members undertake, to contribute towards the debts of the company in the event of its
winding up.

Its certificate of incorporation states that it is a company limited by guarantee.

Various associations for charitable causes and not for profit (for example, clubs, and
associatio may be incorporated in many forms including as a company limited by guarantee.

The profits realised is not distributed to the shareholders as in the case of a private company
limited by shares butis rather re-invested for the good of the business.

Check Your Progress-B

 a. List 3 sources of investment capital for a travel company.
b. Name four national/international organizations providing certification for a travel
agency.
c. What is the minimum office space required for a travel company as prescribed by
IATA?
d. Expand IATA.
e. List two primary sources of income of a travel agency.

7.7 LET US SUM UP

In this unit, procedures of the establishment of travel agency and tour operation
units in particular and types, functions, and sources of revenue of travel agencies
and tour units, in general, have been explained in detail with suitable examples.
Travel agencies act as retailers or aggregators to sell primary services based on
commission or mark up. The roles of a travel agent and tour operator have
undergone several changes owing to the change in taste and preference of buyers or
takers of services.
Travel agents, apart from selling services of principal service providers now act as
tour consultants and planners assisting the customers to save the cost of the tour
and use the vacation time optimally. Thus, due diligence should be given for setting
up a travel agency or tour operation for continuation for a longer period with an
increasing market size along with diversification of services. Apart from obtaining
IATA approval or recognition for the sale of international air tickets, a travel agent
can explore getting aligned with the national and international professional bodies
for branding and market credibility. Thus, the establishment of a travel company,
when it happens with good planning, can grow despite internal and external
hindrances.
7.8 FURTHER READINGS

1. Bhatia, A.K. (2013). The Business of Travel Agency and Tour Operations
Management. New Delhi: Sterling Publishers (P) Ltd.
2. E-Pathshala. (2018). Retrieved from E-Pathshala an MHRD Project Website:
http://epgp.inflibnet.ac.in/ahl.php?csrno=1827 Select- P-02.
3. Goeldner, R., & Ritchie, B. (2010). Tourism, Principles, Practices, and
Philosophies. London: John Wiley & Sons.
4. Negi, J. (2005). Travel Agency Operations: Concepts and Principles. New Delhi:
Kanishka.
5. Negi, K.S. (2011). Travel Agency Management. New Delhi: Wisdom Press.
6. Roday, S., Biwal, A., & Joshi, V. (2009). Tourism Operations and Management.
New Delhi: Oxford University Press.
7. Swain, S.K. & Mishra, J.M. (2011). Tourism Principles and Practices. New Delhi:
OUP.