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Section ThreeDefining, Promoting, and Selling

the Product

Section FourConservation and Intervention

Section FiveManagement Tools

Section SixWhat’s Next for the Industry?

Part Two

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Travel and Tourism: An Industry Primer, by Paul S. Biederman, with Jun Lai, Jukka M. Laitamaki, Hannah R. Messerli, Peter D. Nyheim,and Stanley C. Plog. Published by Prentice Hall. Copyright © 2008 by Pearson Education, Inc.

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Section Three

Defining, Promoting,and Selling the Product

13 Travel Agents and Tour Operators

14 Distribution Channels15 Destinations: A Psychographic

and Sociological Perspective

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334

In travel and tourism, intermediaries occupy the space between consumers andsuppliers. Travel agents, whether traditional or online, have held that role be-

cause airlines, hotels, cruise lines, and other producers of tourist services have,until recently, found it more economic to pay fees to the intermediaries than tohire the staff and buy the technology necessary to do so in-house through theirown Web sites and call centers. Now that is changing, and the traditional agents,in particular, have lost a lot of business. Tour operators combine different com-ponents of travel and tourism into a package for sale to consumers. Packages tendto be popular with less-experienced travelers and bargain-hunters. Students whounderstand this chapter will learn that industries don’t always remain stable andlast forever. This has great importance in terms of career planning.

Learning Objectives

After reading this chapter, you should be able to✦ Describe the importance of Thomas Cook✦ Identify the problems faced by traditional travel agents✦ Describe the factors that led the airlines to eliminate travel agent

commissions and the consequences for the travel agency sector✦ Identify the changes in the sources of travel agency sales and supplier

dependence on travel agents over the past 10 years.✦ Understand the factors that make the tour operator business risky

Travel Agents and Tour Operators

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Chapter 13 Travel Agents and Tour Operators 335

Homage to Thomas Cook

I sometimes think that Thomas Cook should benumbered among the secular saints. He took travelfrom the privileged and gave it to the people.

Robert RuncieFormer Archbishop of Canterbury

The career and contributions of ThomasCook, whose name is synonymous with travelagencies and packaged tours, was documentedin Chapter 1. Just to reiterate, he began his ca-

reer by organizing rail tours in the British Mid-lands early in the 19th century. By midcentury,his firm Thomas Cook and Son, was the world’spreeminent travel services company and by 1872had organized a 222-day trip around the world.It retained its prominence in travel services untilthe rise of the American Express company. Afterundergoing a number of alliance and ownershipchanges, in 2002 the company was renamedThomas Cook AG and is jointly owned byLufthansa and Karstadt of Germany.

Type of train used by Thomas Cook’s first excursions.

BackgroundThe main function of a traditional travel agency is to act as a real-time interme-diary between customers and suppliers, the latter being airlines, hotels, rentalcar companies, cruise lines, and trains. Thus, travel agents are a valuable dis-tributor of the travel and tourism product. For a long time, travel agents were thekey link between the two, advising travelers on destinations, making the reserva-tions and all the other arrangements within the confines of the customer’s budget.While extending the distribution network, the need for travel agents essentiallystemmed from a choice on the part of industry suppliers to let travel agents assume

Travel Agencies

travel agents Traditional in-termediaries between sellersof travel and tourism prod-ucts and their customers.

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the principal responsibility in reservations, reasoning that paying for a smallportion of each sale would be far more cost effective than having to hire andtrain thousands of workers themselves in addition to building or leasing facili-ties to accomplish the same thing. For their efforts, travel agents collected acommission based on the price of the product from each of the product sectors,usually in the 10 to 15 percent range, and through 1994, the travel agent busi-ness was a vigorous and expanding sector. Although salaries were relativelymodest, the employment package for a travel agent included extraordinaryperks (travel benefits), such as practically free FAM (familiarization) trips to in-teresting destinations as well as deep air, hotel, cruise, and rental car discounts,which made the profession highly attractive to many. According to the AirlineReporting Corporation, the number of fully accredited so-called brick and mor-tar travel agencies in the United States amounted to 33,715 during that year. Dur-ing the mid-1980s, there had been about 26,000, up sharply from the mere 5,000agencies in existence nationwide during the mid-1960s. However, by 2006, thattotal had shrunken to about 20,800, with the disappearances nearly exclusivelyoccurring among small agencies whose total annual revenue failed to exceed $2million. In addition, total employment fell to just under 89,0001 compared to anestimated 160,000 at its peak. What caused this reversal of fortune?

Industry CharacteristicsThe key suppliers of the travel agency business are the airlines. As mentionedin Chapter 2, airlines are the key player in the travel and tourism supply

336 Section 3 Defining, Promoting, and Selling the Product

perks As in prerequisites,refers to free and discountedfringe benefits that accrue totravel industry employees.

FAM Inexpensive familiariza-tion trips available to travelagents from attractions anddestinations designed to ac-quaint the agent with theproduct.

Airline Reporting Corpora-tion Airline-owned clearinghouse for settling and assign-ing payments of airline ticketsales.

brick and mortar Refers totraditional travel agencieshaving real offices staffed bypersonnel who directly dealwith customers, as opposedto online agencies.

1U.S. Department of Labor, Bureau of Labor Statistics, Occupational Employment & Wages (May 24, 2006).

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2Somerset Waters, Travel Industry World Yearbook 1996–1997, The Big Picture, Volume 40, p. 147.3Edwin McDowell, “Lawsuit by Travel Agents Is Settled,” New York Times (September 4, 1996), p. D2.4Edwin McDowell, “United Cuts Travel Agent Commissions,” New York Times (September 19, 1997), p. D2.5Edwin McDowell, “An Airline Limit on Travel Agent Fees for Overseas Flights May Cost the FlyingPublic Millions,” New York Times (November 25, 1998), p. C6.6Laurence Zuckerman, “Delta to Deny Travel Agents Most Ticket Commissions,” New York Times(March 15, 2002), p. C9.

chain, by virtue of their central role in delivering travelers to hotels, rental caragencies and cruise lines and acting as the centerpiece for all-inclusive tours.In 1994, commissions from airline ticket sales accounted for over 60 percent ofall agency revenues.2 Travel agencies had especially prospered following air-line deregulation in 1978, when fares began dropping causing travel volumesto rise rapidly. While airline traffic continued to grow strongly through the1990s, a succession of actions by the carriers, anxious to reduce distribution(cost of sales) expenses, during this period proved disastrous for the travelagency business. This involved a series of commission cutbacks on the part ofthe airlines.

The first blow was delivered by Delta in February 1995, when a commissioncap of $50 for a domestic round-trip ticket was implemented. The existing 10 per-cent commission remained in place, but this meant that instead of $100 beingearned on a ticket worth $1,000, the agency received $50 instead. Almost all theother major air carriers quickly matched the Delta initiative move, and the travelagent community, acting through their trade association, the American Society ofTravel Agents (ASTA), and claiming that collusion had taken place among thecarriers in violation of antitrust statutes, filed a $725 million lawsuit. While denyingany wrongdoing, the airlines, rather than face the travel agents in court, decidedto settle out of court for about $86 million just prior to the start of jury selec-tion in September 1995.3 More important for the airlines, the out-of-courtagreement allowed the commission caps to stand, which led to further reductionsthrough 2002.

The motivation for the airlines was that each carrier was desirous of decreas-ing distribution costs, the second leading expense item after labor costs, but actingout the rules of an oligopolistic industry, each had been afraid to be the first tomove for fear of not being matched, thus being disadvantaged in the marketplaceand ostracized by the agents. At the time, before the age of online sales, these tra-ditional agents sold over 75 percent of all airline tickets. However, Delta decidedto go out first, and the gambit succeeded.

Heartened by their initial success in slicing travel agents commissions,United, two years later, led the industry in a cut of the 10 percent domestic com-mission to 8 percent.4 Up to that point, both airline moves had omitted any referenceto international commissions, which amounted to about 15 percent of the ticketprice. This changed in 1998, when United initiated an international commissioncap of $100.5 The rationale by the airlines was that writing an expensive ticket in-volved no more time and effort on the part of an agent as issuing an inexpensiveticket, thus the idea of a commission being based on a percentage of the ticketprice was unwarranted. Domestic airline commissions were nearly completelyeliminated (the largest agencies continued to receive commissions from suppliersdue to their high production) by the U.S. carriers in March 2002, when many air-lines were battered by a recession, the effects of 9/11, and escalating security ex-penses. Perhaps fittingly, Delta, who had started the process in 1995, wound updelivering the final unkind cut.6

distribution expense Thecosts of selling travel andtourism products that includecommissions paid to distribu-tors like travel agents.

American Society of TravelAgents (ASTA) The mostprominent trade associationfor travel agents in theUnited States.

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7“Three More Airlines Eliminate Commissions to Travel Agents,” New York Times, March 22, 2002,p. C48U.S. General Accounting Office, Report #03-749, Airline Ticketing: Impact of Changes in the Airline Tick-eting Distribution Industry (Washington, DC, Author, 2003).9Travel Weekly magazine; http://travelweekly.com/multimedia/TWSurvey2005/seg_hl.htm.10Ibid.

The virtual elimination of domestic travel agent commissions was said tohave saved the airlines around $1 billion a year7 at the time of its final elimina-tion. Foreign airlines, for the most part, continued to pay commissions of varyingsizes to U.S. travel agents. In 2002, the U.S. General Accounting Office reportedthat the largest 1 percent of travel agents (annual sales in excess of $50 million) ac-counted for 60 percent of all travel and tourism sales.8

As mentioned, the commission cuts significantly reduced airline distributionexpenses, but even that was insufficient to stave off the specter of bankruptcy forthose carriers whose labor costs remained out of control. Travel agencies havesince offset the loss of commission revenue somewhat by gaining payments fromtheir Global Distribution System providers in the form of rebates or incentivepayments per booking.

Industry EconomicsDuring the latter part of the 1990s, online reservations services delivered an-other blow to the travel agent industry as customers increasingly sought outcomputer-based, third-party vendors such as Priceline, Expedia, Travelocity,Orbitz, Hotels.com, and individual supplier Web sites, among others, in pur-suit of air, lodging, cruise, and inclusive tour bargains. Chapter 14 provides a detailed discussion of online distributors. This innovation provided easier ac-cess to prices and schedules than the previous main intermediary, the travelagencies. A survey by the U.S.-based Travel Industry Association (TIA) foundthat between 1999 and 2003, the number of Americans using the services of atravel agent had declined by 32 percent and that 35 million Americans hadpurchased a travel product online during 2003. The smaller travel agenciesfound it even more difficult to compete because travel and tourism companieshave largely ignored them due to their relatively low sales volumes. Thus, theyfail to receive the incentives given to larger travel agencies like override com-missions (higher payments beyond an initial sales threshold), incentive rebatesfrom their Global Distribution System (GDS) provider and also are forced topay for GDS service and equipment.

How have the traditional travel agencies responded to the adversities of theairline commission reductions and the increased online competition? First, olderpeople and recent immigrant groups have remained important clients.9 Youngertravelers, however, appeared far more likely to avoid travel agents and book on-line, as a 2005 survey showed 53 percent using the online mode compared to only33 percent of those over 55.10 Both older Americans and ethnic groups tend to beless computer-savvy and in the case of older travelers, especially affluent ones,hiring a travel agent removes the burden of handling the minutiae of arrange-ments. Perhaps most importantly, however, business travelers have remainedloyal. For example, only about 10 percent of business people book on the Internet,due to restrictive corporate policies, negotiated corporate rates, often complexitineraries, and frequent changes. Also, the large agencies who handle the bulk ofthis business often provide neat itemized travel records for their customers. To

Global Distribution System(GDS) Electronic travel andtourism intermediaries thatmaintain an inventory of air-line seats, hotel rooms, cruisecabins, etc. and collect com-missions from travel agentswho book that inventory.Sabre, Galileo, Amadeus, andWorldspan are the mostprominent systems.

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compensate for the lost airline revenue, both large and small travel agenciesbegan charging fees to clients for administrative costs involved in booking airline,Amtrak, hotel, car rental, and cruise tickets. For example, travel agents reportedlycollect about $26 to $27 for issuing airline tickets. Moreover, although airline com-mission revenue has dried up, the commission structure from other suppliers,including cruise lines, hotels, rental car companies, and Amtrak remainedlargely untouched. As a percentage of total travel agency sales, Figure 13.1 indi-cates a changing pattern since 1995.

Following the 1995 to 2002 commission episode, it is understandable thatthe percentage of airline sales at agencies would be down sharply, accountingfor a just a third in 2005 compared to over 60 percent in 1995. Nearly 10 percentof agencies reported in 2004 that they had refused to sell airline tickets even tocustomers who were booking hotels or cruises with them. Concurrently, thecruise companies, who traditionally have booked upward of 90 percent orpractically all of their own business through travel agencies and who contin-ued to support a liberal commission schedule, experienced a near doubling intheir relative position. Hotels, who with airlines became the main online book-ing target, but who maintained their agency commission structure for the mostpart, moved up slightly, whereas the position of car rental firms slid by thesame percentage. In 2002, Hertz and Avis had begun a commission-reductionmovement in that industry. The biggest gainer was in the remaining catch-allcategory, which was dominated by strong growth in tour packages, many thecreation of the agencies themselves. Of the 24 percent share in 2005, 19 per-centage points, or 80 percent of this, involved selling inclusive tour packages,and this together with the cruise lines provided some offset to the lost airlinecommissions.

Looking at the dependence on travel agents by the various travel sectors, surveydata suggested less-dramatic shifts between 1995 and 2005, with only the airlinesand car rentals selling a lesser percentage through travel agents during this period.

Among other travel agency characteristics, despite the elimination of manysmaller enterprises, most (77 percent) of the remaining firms are still small, with12 or fewer employees. Moreover, leisure clients account for nearly 70 percent of

FIGURE 13.1 U.S.TravelAgency Sales 1995 and 2005 by SourceSources: 1995—Somerset Waters,Travel Industry World Yearbook—The Big Picture 1996–1997, p. 147;2005—Travel Weekly, 2005 U.S.Travel Industry Survey;http://www.travelweekly.com/multimedia/TWSURVEY2005/agent_hl.htm.

Airlines61%

Airlines33%

Cruise lines 14%

Cruise lines 25%

All other 8%

1995 2005

All other 24%

Lodging10%

Lodging13%

Car rentals 7%

Car rental5%

inclusive tour package Acombination having at leasttwo of the following ele-ments—air, lodging, food,tours, ground transporta-tion—assembled by tour op-erators and sold to touristsby tour operators or travelagents.

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all sales, 57 percent of all sales are domestic in content, and 66 percent of all U.S.agencies have been in business for at least 10 years.11 As of 2005, 13 agencies, bothbrick and mortar and online, recorded annual revenues of at least $1 billion. Thelargest included American Express Business Travel, Carlson Wagonlit, IAC/In-teractive (through ownership of Expedia but spun off at midyear), TQ3 Navigant(acquired by American Express in 2006), and Travelocity (owned by SABRE). Theformerly huge and independent Rosenbluth International was acquired by Amer-ican Express during 2004. Other large agencies included World Travel BTI, AAATravel, and Liberty Travel.

Interestingly, the traditional travel agency sector is much more vibrant inEurope than in the United States. For example, the industry appears stable andfar more numerous in terms of population served than that in the United States.Granted that travel agencies and tour operators are hard to separate becausemany perform both functions. Greece, for example, lists nearly 4,700 combina-tion travel services companies12 in a country of 10 million people. Greece thushas 47 companies arranging travel per 100,000 people. In Germany, with its18,500 travel services13 companies and 82 million people, that ratio is 22.5 per100,000. Switzerland reported about 2,000 firms14 making travel arrangementsfor its 7 million people, which works out to 28.5 per 100,000 people. By contrastin the United States, even if we generously added 1,000 tour operators to the20,800 reporting travel agencies, the travel services firms to population ratiowould amount to 7.3 per 100,000, assuming a population of 300 million in 2006.Several factors come to mind in explaining this dichotomy, although, sincemany smaller agencies in the United States have disappeared and those re-maining are larger and probably serve more clients per firm than do Europeanagencies, the disparity may be less stark than it appears. First, commissions

0

Airlines

Lodging

Cruise lines

20 40 60 80

80%

90%

70%

95%

50%

17%

82%

35%

25%

20%

100

Car rentals

Packaged tours

1995

2005

FIGURE 13.2 SupplierDependence on TravelAgents*Sources: 1995—Somerset Waters,Travel Industry World Yearbook1996–1997: The Big Picture, p. 147;2005—Travel Weekly, 2005 U.S.Travel Industry Survey;http://www.travelweekly.com/multimedia/TWSURVEY2005/agent_hl.htm.

11Travel Weekly, U.S. 2005 Travel Industry Survey.12The European Travel Agents’ and Tour Operators Association, Facts & Figures 2003;http://www.ectaa.org/ECTAA%20English/Facts_Figures/Agent.htm.13Ibid.14Ibid.

*Traditional brick and mortaragencies.

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paid by suppliers to travel agents in Europe have not been diminished to theextent that they have been in the United States. Also, Internet penetration fortravel has been far less a factor in Europe than in the United States,15 and Euro-pean tourists are said to rely on packaged tours arranged by travel agents ortour operators to a greater extent than Americans. Over time, however, whathappened in America will inevitably occur elsewhere, namely an increased re-liance on the Internet to the detriment of traditional travel agents and tour op-erators plus a desire to further reduce distribution costs on the part of traveland tourism providers. Perhaps the only remaining question is about how longthis might take.

BackgroundThe first tour packages appeared during the mid-19th century with railroads asthe central transportation mode. Later, in the early part of the 20th century, toursusing the steamship and motorcoach became the focal point. Then air trans-portation, first using charter services and eventually scheduled services, formedthe centerpiece of the typical tour package. Most tour operators are small, inde-pendent companies, but they may also be tour subsidiaries of airlines as well astravel agencies and bus companies.

The tour package itself is constructed from at least two tourism elements—air travel, accommodations including or excluding meals, ground and/or watertransportation, and guided sightseeing services. International packages gener-ally cost twice that of a domestic one and naturally are of longer duration. Touroperators assemble a package after negotiating contracts with suppliers for thepurchase of these services. They then print brochures, advertise the product, andsell the package directly to the public and through travel agencies. The U.S. TourOperators Association (USTOA), the industry trade association in the UnitedStates, lists many different kinds of tours sold by its 125 active members’brands.16

Industry CharacteristicsTours can also be categorized based on client personality—independent,escorted, special interest, and adventure. Independent travelers generally aremore experienced and desirous of the flexibility that comes from being on one’sown. Some are also averse to traveling with a group where they might be in closequarters for an extended period with people they do not enjoy. A typical inde-pendent tour would involve a fly and drive package, where the tour operator sim-ply sells a combined air fare and car rental arrangement. Escorted customers tendto be less-secure, inexperienced travelers who require a worry-free travel journey.Full-service tours, in which several destinations are visited over a period of atleast a week, dominate this category. These are the most popular tour packages.Special-interest tours might include bird watching, safaris, architecture, and arche-ology, among others. These types tend to be fully programmed, as the individual

Tour Operators

15GMI, New Online Travel Survey Polls 18,000 Consumers; http://www.hotelmarketing.com/index.php/content/article/new_online_travel_survey_polls_18000_consumer/.16U. S. Tour Operators Association; http://ustoa.com/pressroom/newsreleases/factsheet.html.

escorted tour Generally aninclusive tour where the airtravel, hotel rooms, meals,ground tours, and transporta-tion have been prearrangedand paid for in advance.

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traveler would have difficulty making the necessary arrangements on his or herown. In recent years, full-service tours have tended to become a bit less regi-mented, allowing for more free time at destinations. Finally, as the subject sug-gests, adventure tours involve effort and energy on the part of travelers and oftensome danger as well. One such tour is a 7- to 10-day rafting excursion down theGrand Canyon, where travelers must navigate rough currents in a small boat, liveoutside without any modern amenities, pitch and repack their own tents, and dosome hiking. Such tourists tend to be both younger and in search of the more ex-otic tourism experience.

Tour packages are also appealing because they are generally cheaperthan if each of the pieces were to be purchased separately. This is made pos-sible as a result of packagers being able to buy the individual pieces in bulk.Suppliers, especially during periods of slack seasonal demand, are anx-ious to unload inventory to tour operators in order to guarantee themcash flow. Moreover, suppliers often sell small amounts of airline seats andhotel rooms to tour operators at a discount, even during peak periods, out ofgratitude to the tour operators for buying off-peak inventory. The othergreat attraction is that tour packages make tourism easy for consumers byeliminating the time and energy necessary to attend to each aspect of a trip.The packaged product also offers peace of mind to inexperienced travelersfearful of unfamiliar surroundings.

Niche AttractionsAlthough the typical mainstream tour package might involve routine 7- to14-day tours encompassing several cities in a region, increasingly special pack-ages are being created for niche attractions. A useful definition or commonthread for organized special tourism programs would be that they appeal to anarrow, like-interested population base. The U.S. Tour Operators AssociationWeb site, for example, lists about 50 types of special tourism products includ-ing the following:

A culinary tour for self-described foodies, offered by Epiculinary Tours ofLake Bluff, Illinois, entitled Neapolitan Food and Wine Experience, concentrateson the food and wine of the region surrounding Naples, Italy, and lists a seven-day itinerary full of cooking instruction and fine dining, as well as localtourism. The tour starts at a four-star hotel in Sorrento on the Amalfi coast

niche attractions Travel andtourism products without amass appeal, appealing tospecial interests and tastes.

AlumniArcheologyArchitecturalBarge/river cruisesBicyclingBird watchingCastle/chateau staysCulinaryDog sleddingFall foliageFarmFishing

GardensGay/lesbianGolfHeritageHiking/trekkingHistoryHoneymoons/

weddingsHorses/ranchesHot-air ballooningNature/wildlife/safaris

RaftingRailroadShoppingSinglesSpaTheatre/operaWhale watchingWinery

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where, after breakfast, tour members are shown a historic wine celler, then adrive along the scenic coast, followed by lunch, free time, and dinner. The nextday is taken up with a cooking class on pizza making and desserts at a localfarm. The day after, guests are taken to an old cheese factory and then back tothe cooking school, where the art of preparing preserved foods like artichokesin olive oil and limoncello is presented. The food tourists then take a day outfor a ferry trip and tour of the Isle of Capri, and the final days are spent in eat-ing and drinking with more classes, plus a trip to the ruins of Pompeii. Beforeheading home, the cooking school awards graduation certificates and treatsthe tour members to a lavish farewell dinner. A typical French wine tour of-fered by Eurogroups, a division of Rail Europe, might last 12 days, starting andfinishing in Paris, while visiting the Bordeaux, Languedoc, and Lyon regionsand taking in at least 13 vineyards and experiencing ample tastings and finemeals along the way. Tour operators involved in this niche or boutique touristproduct must pay great attention to detail because these customers tend to beupscale and demanding. The operator of Epiculinary Tours reports a total an-nual clientele of close to 1,000, whereas a Canadian study in 2000 estimated thepotential U.S. market for this type of tourism at over 20 million,17 which ap-pears a bit optimistic.

River and barge tours also qualify as a special tourism attraction by virtue oftheir limited appeal. Globus of Littleton, Colorado, offers a 16-day tour, whichtakes tourists from Amsterdam to Budapest floating through Holland, Germany,Austria, Slovakia, and Hungary. Passengers leave the boats frequently for localtours of the interesting cities—Cologne, Coblenz, Rudesheim, Miltenberg,Wurzburg, Bamberg, Nuremberg, Regensburg, Linz, Vienna, Bratislava—alongthe way.

17Laura Del Russo, “Culinary Tourism: Traveling Foodies Bring About Emerging Trend,” Travel WeeklyOnline (May 24, 2005); http://www.travelweekly.com/printarticle.aspx?pageid=50015.

Five-star historic restaurant, Pucic Palace, Dubrovnik, Croatia.

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A relatively new attraction, medical tourism involves travel overseas for low-cost medical care. India has emerged as the most popular destination for this nichedue to its Western-trained and English-speaking personnel and modern facilities.Where treating a life-threatening heart condition might cost upward of $100,000 inthe United States, for example, the Escorts Heart Institute and Research Centre inNew Delhi might charge only $10,000, including air fare from the states and a sidetrip to nearby Agra and the Taj Mahal at the hopefully successful conclusion of thetreatment.18 The Escorts facility, founded by a former professor at the New YorkUniversity Medical School, has gained a formidable following for its so-calledfirst-world care at third-world prices. Escorts and certain other Indian medicalcenters catering to Westerners have acquired a strong reputation in cardiology,cosmetic surgery, joint replacement, and dentistry. The McKinsey ConsultingCompany has estimated the potential of India’s medical tourism business at over$2 billion.19 Not only is price an important draw for India, but long waiting timesin many countries practicing government-run, socialized medicine like Canada andmost of Europe have also begun to provide an increasing stream of customers.Thailand has also become a force in this growing market.

Other notable niche tourism products include architectural tours, archeolog-ical programs, vegetarian/yoga combinations, river/barge cruises, and roughadventure types of packages. Archetours of New York conducts an architecturalexcursion to Bilbao and Barcelona, Spain, featuring guided insider tours of the1997 Frank Gehry-designed Guggenheim Museum in Bilbao, plus the fascinatingAntonio Gaudi structures that dot Barcelona.

Andante Travels of Salisbury, U.K., specializes in archeological tours. Their11-day tour of Syria starts in Damascus, moves on to Amrit, the religious center

Cruising the Nile River, Egypt.

18John Lancaster, “Surgeries, Side Trips for Medical Tourists,” Washington Post Foreign Service (October21, 2004), p. 1.19Ibid.

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of the Phoenician kingdom of Arwad, then to the Canaanite city of Ugarit, fol-lowed by Tell Mardikh, the great third millennium city of Ebla, Aleppo with theworld’s largest covered souk, Mari, a royal city state founded around 2900 BC,Dura Europos, the greatest border fortress in Roman times, the ancient city ofPalmyra, a train ride on the antique Hejaz railway to Bosra with its well-preservedRoman theatre, and finally a plane back to Damascus. Another popular Andantetour package involves a 14-day trip to Mayan ruins of Yucatan, Belize, andGuatemala.

For those interested in spiritual attractions, Global Yoga Journeys of Co-lumbia, Missouri, offers a seven-day tour entitled Yoga in Tuscany, which fea-tures accommodations on an organic farm, yoga meditation, vegetarian meals,and excursions to San Gimignano, Siena, Florence, and the beach. Adventureattractions constitute a small but important niche tourism product, accountingfor less than 5 percent of all leisure trips. An example of rough adventuretourism might include a 15- or 22-day Mongolian Bike Nomadic Tour offeredby Samar Magic Tours of Ulaan Bataar and Beijing. Here, guides lead cyclistson a 1,500-mile trip through mountain passes, valleys, and steppes whilecamping out and visiting national parks, monasteries, and nomadic familiesalong the way.

A softer adventure attraction would be an increasingly popular tour to theedge of the Antarctic. The upscale Abercrombie & Kent company of Oak Brook,Illinois, conducts three different itineraries to Antarctica in which passengersboard comfortable small ships with reinforced hulls (many of which are formerRussian Navy icebreakers) in Ushuaia, Argentina; sail out of the Beagle Channelinto the Drake Passage past the South Shetlands; view ice flows, penguins, ma-rine mammals, and sea birds; and approach land in glorified rafts known as zo-diacs whenever feasible given the elements. The latter tour fits the soft adventuredefinition as featuring outside touring in a sometimes harsh environment but ina controlled, risk-free way.

Guggenheim Museum, Bilbao, Spain.

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Sex tourism also qualifies as a niche attraction in which customers are able toengage in illicit activities that are generally taboo in their country of origin. In-creasingly, however, governments and UN agencies have tried to ban the sale ofsuch packages because the itineraries often take customers to Southeast Asia andAfrica, where underage male and female prostitution is widely practiced but alsobroadly condemned by local and international organizations.

Perhaps the fastest-growing niche attractions of all involves luxury tourism,which caters to affluent travelers with lots of free time. As baby boomers approachretirement, a large group of relatively wealthy individuals interested in exotic and/oreducational tourism experiences tinged with adventure while enjoying luxuriouscreature comforts has emerged. For example, Starquest Expeditions, a Seattle-basedtour operator, has packaged a 24-day, Around-the-World tour by private jet stop-ping at Lima, Cuzco, Machu Picchu, Easter Island, Samoa, the Great Barrier Reef,Angkor Wat, Lhasa, Taj Mahal, the Serengeti, Luxor, the Pyramids, Petra, and Mar-rakech with a price tag of $90,000 for a couple. This prices out to nearly $4,000 per day.The same operator also provides a 22-day, Crossroads of Humanity tour via private jet,which originates in Reykjavik, Iceland, with stops in Yerevan, Armenia; Ulaanbaatar,Mongolia; Bhutan; Khajuraho, India; Lalibela and Addis Ababa, Ethiopia; Timbuktu,and ending up in Malta at a price of $80,000 for two people or $3,600 per day.20

Clearly, with world demographic trends pointing to aging populations and as-suming favorable economic conditions, promoters of this type of tourism may befacing a rosy future.

Wineries have become a popular niche tour attraction in California andFrance, and a more recent development involving alcoholic beverages has seenbeer tourism gain adherents. Beer tourism can be about visiting large breweries inlarge organized groups, but in the Czech Republic, several microbreweries haveoutfitted their buildings with hotels, restaurants, and spas to attract tourists. Inaddition to tours and tastings, plus inexpensive hotel accommodations and meals,one microbrewery complex in Chodovar promotes a hot bath treatment in whicha tub is filled with mineral water and the local beer in equal proportions.21 Thistype of tourism still must be carried out by individuals in rented cars because thebest tasting opportunities lie in small towns dotting the countryside.

Finally, two other niche attractions deserve mention here. One of these hasbeen termed dark22 tourism since death is the common denominator for suchtours. These would include visits to cemeteries like Pere Lachaise in Paris andArlington, just across the Potomac River from Washington, D.C., the final rest-ing places of many famous people; the World War II concentration camps ofAuschwitz, Buchenwald, and Dachau; the historic and bloody American CivilWar battlefields like Gettysburg and Antietam; Waterloo in Belgium, whereWellington in 1815 defeated Napoleon Bonaparte; Pearl Harbor in Hawaii,where Japan first attacked America in 1941, and the beaches of Normandy inFrance, where the Allies began to roll back Hitler’s Germany in 1944.

Another among the fastest-growing niche attractions would be genealogy23

tourism, where individuals interested in their family roots travel to the areasinhabited by their ancestors. This enables people to establish linkages to their cul-tural heritage.

20Starquest Expeditions, August 28, 2005; www.starquestexpeditions.com.21Stan Sesser, “Central Europe—On Two Beers a Day,” Wall Street Journal (July 22, 2006), p. P1.22Peter Tarlow in Marina Novelli (Ed.), Niche Tourism (Burlington, MA: Elsevier Butterworth-Heineman, 2005), 47.23Ibid., 59.

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Industry EconomicsThe tour operator business probably contains tens of thousands of companiesworldwide, the vast majority of whom are relatively small enterprises. Preciseindustry data is elusive because most U.S. firms are small private entities, andtrade associations overseas fail to separate travel agency and tour operator es-tablishments data in reporting membership. This is an industry where entry iseasy largely because of the low capital requirement. In theory, all a tour pack-ager needs is a telephone or computer to communicate and deal with suppliers,access to printers of brochures, and an ability to market the assembled package,plus $1 million if he or she wishes to belong to the USTOA. As such, intense com-petition has made this part of travel and tourism highly susceptible to failure.

However, tour operators are responsible for transporting and guiding mil-lions of tourists annually, many of whom are first-time travelers. Tours are nec-essary in certain countries relatively new to mass tourism like China; indeedno travel outside the country could take place without a prearranged tourpackage for many years when the country finally decided to allow foreign travelfor its citizens.

In the United States, the USTOA estimates that about 10 million Americanstravel on packaged tours spending over $8 billion in the process.24 Based on theinformation that is available, the United States appears to represent only a smallshare of the global business. Moreover, as its industry structure with its ease ofentry and the resulting thousands of companies suggests, the tour operatorbusiness does not seem to be wildly profitable. Trade associations in Americaand the U.K. estimate that average profit margins amount to no more than 2 to

24Ibid., http://ustoa.com/pressroom/newsrelease/04surveysales_trade.html.

Pere Lachaise Cemetery, Paris, France.

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3 percent, meaning that a $1,000 tour package yields a $20 to $30 profit.25 Interms of the cost distribution, payments to suppliers typically account forroughly 70 percent for a tour operator with travel agent commissions and mar-keting and administrative expenses accounting for the rest exclusive of theprofit margin. One advantage gained by tour operators is that because customerdeposits and payments are received prior to the tour date while payments tosuppliers are concurrent with the tour date, operators may hold a sizeable cashbalance capable of earning interest. Besides that, however, there are enormousrisks arising from the fact that tour packages must be assembled and priced atleast a year in advance. In the interim, exchange rates may change, and envi-ronmental and political events may alter the appeal of certain destinations.

Concerning exchange rates, if an American tour operator selling a packageincorporating travel to four Italian cities, such as Rome, Venice, Florence, andSiena, where the dollar–euro value relationship were to shift in favor of the dol-lar by the time of the trip, then the terms originally agreed on between the hotel,the ground operator, and the tour operator will have resulted in the original priceof the tour being inflated. Meanwhile, the tour will have been promoted in themarketplace at the higher price, perhaps reducing its appeal.

The price of airline tickets may also change. Tour operators may reservespace on a plane often with a small deposit for a specific date, only to discoverthat the price of jet fuel has gone up, and the airline has decided not to honor theold agreed-upon price. Again the tour operator will have assumed a lower pricewhile setting the overall cost of the package. Environmental changes may alsoalter the appeal of a destination. Tour packages sold for January 2005 to SouthAsian beach resorts suddenly had to be cancelled en masse when the December2004 tsunami blasted the tourism infrastructure at those locations. Even assuming

25Federation of Tour Operators (UK), Operators Factfile, Pricing and Profit; http://www.fto.co.uk/pricing_profit.php?a=220.

Tourists in a kayak dwarfed by cruise ship, Anvers Island, Antarctica.

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refunds from suppliers, tour operators will have spent irretrievable funds on theearlier printing and marketing expenses.

Political upheavals and wars can also interfere with the original conceptionand final delivery of a tour package. It is no wonder that tour operator bank-ruptcies are commonplace, sometimes to the detriment of clients, who findthemselves stranded when hotels and airlines refuse to honor vouchers andtickets issued by a defunct operator. This is why the USTOA, for example, re-quires that its members post a bond or letter of credit for $1 million for the po-tential reimbursement of customers. Nevertheless, the tour operator picture is notalways dark, for many tour operators have been success stories (see interviewwith Bob Drumm, owner of General Tours, in Chapter 15).

✦ Traditional travel agencies were the original intermediaries between travel andtourism suppliers and the public and earned commissions for making bookings.As opposed to online agencies, traditional travel agencies have offices staffed bytravel advisors. Since 1995, these so-called brick and mortar enterprises have ab-sorbed a number of setbacks that have greatly diminished their ranks. These haveincluded the loss of domestic airline commissions, reduced commissions fromother providers, and increased competition from online agencies.

✦ The impact of online search and booking capability has been far more pro-nounced in the United States than elsewhere. The traditional travel agencymodel is still alive and well in Europe, where the number of travel agencies, in-cluding tour operators, relative to the population is much higher than that inthe United States. This may reflect the idea that their relatively older popula-tions are less computer-savvy and comfortable with change than Americans.

✦ As a result of the end of domestic airline commissions, which used to provide over60 percent of travel agency revenue, agencies have become increasingly dependenton cruise lines and tour packages for their livelihood. Moreover, where airlines usedto derive 80 percent of their revenue through travel agencies, that number hasdropped to about 35 percent. All other suppliers who deal with travel agencies havealso increased sales through their own Web sites and online travel agents, but nonehas so drastically reduced its travel agency dependence as much as the airlines.

✦ Tour packages have typically appealed to less-experienced travelers who are un-able or unwilling to take the time necessary to book an entire trip. Packages alsoare likely to be less expensive than if the pieces—air, lodging, meals, tours, andground transportation—are booked separately. Technically, any combination ofat least two of these constitutes a package.

✦ Putting together a package requires that tour operators, also known as whole-salers, negotiate to obtain airline seats, hotel rooms, restaurant space, and con-tract for ground tours and transportation long in advance of the departure date.This is a risky enterprise because much can go wrong during the interveningperiod, such as flight cancellations and exchange rate fluctuations, for example.Thus, the tour operator sector is fraught with risk. Nevertheless, aside fromconstructing general group tours to popular destinations, tour operators caterto a wide base of customers who are interested in the many niche or specializedtourism attractions.

Summary

bond A deposit placed in anescrow account by a tour op-erator that can be used tocompensate travelers whosetours have been disrupted orcancelled. The U.S. Tour Op-erators Association requiresits members to post a $1 mil-lion bond.

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Discussion Questions

1. Who was Thomas Cook and what is his legacy?2. What prompted the airlines to alter the travel

agent commission structure?3. Discuss the travel agency industry response to

the airline commission cuts that started in themid-1990s.

4. Discuss how online distributors affect the travelagency industry.

5. Why do you think that cruise lines still rely on tra-ditional travel agents more than any other sector?

6. What accounts for the relative vibrancy of tradi-tional travel agencies in Europe compared tothose in the United States?

7. What makes the tour operator business so risky?8. How has the composition of travel agent sales

changed between 1995 and 2005?9. What is driving the rapid popularity of medical

tourism?10. Describe the job of a tour operator.11. What is the advantage for travelers buying tour

packages compared to independent travel?12. What are niche attractions?

Useful Web Sites

Abercrombie & Kentwww.abercrombiekent.com

American Society of Travel Agentswww.astanet.com

Andante Travelswww.andantetravels.co.uk

Archetourswww.archetours.com

Eurogroupwww.eurogroups.com

European Travel Agents and Tour Operator’s Associationwww.ectaa.org

Global Yoga Tourswww.globalyogajourneys.com

Globus Journeyswww.globusjourneys.com

National Tour Associationwww.ntaonline.com

Samar Magic Tourswww.samarmagictours.com

United States Tour Operators Associationwww.ustoa.com

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