Unit 13: Tour OperationsKnow how tour operators plan, sell, administer and operate a package holiday programme

How tour operators plan, sell, administer and operate a package holiday

*TO = Tour Operator

PlanningPlanning includes the stages of:ResearchForecastingProduct developmentMethods of contractingCosting the packageData inputWorking to a timescale

Research, forecasting and product development• Research takes place on a continuous basis.• Research informs product development. TO’s are always

monitoring their sales, the competition and the market. • Through researching these 3 areas, it allows them to

forecast what numbers they should offer in existing destinations, what destinations should be dropped and which new destinations to adopt.

• They will use many sources and trends to inform the process:

Research, forecasting and product developmentSales figures• When figures go down a

decision has to be made whether to drop the destination.

• If figures go up a tour operator may consider investing in more capacity.

Reports on consumer demand from salespeople in reservations and travel agents

• If people are asking about a travel opportunity that isn’t being provided, a TO will investigate whether it would be profitable.

Research, forecasting and product developmentResearch findings• Sites such as Travel Trends,

Mintel and VisitBritain produce reports that can be used.

Travel and Tourism Conferences• The main players hear about

exciting opportunities

PEST Analysis• Analysing• Political• Economic• Social• Technological factors

Research, forecasting and product development• An organisation that uses and is aware of all the

information will make informed decisions about which destinations to include in package holiday programs.

• Despite this, there are times when TO’s have to pull out of a destination due to unforeseen circumstances for example a terrorist attack.

• Product development includes changing the range of excursions offered, the services offered during the flight and holiday and not just the destinations.

Methods of contracting• Contracts are usually fixed 18 months in advance.• TO’s need to estimate the capacity in order to agree

contracts with hotels and airlines.• There will be some adjustments later but it is difficult to

make major changes as prices will have been agreed and brochures printed.

• It is hard to contract too far in advance as TO’s have to make decisions based on sales and other research, about what to include in their programme.

Methods of Contracting• Different types of contract that might be organised for

accommodation include:• A fixed contract• An allocation contract• An ad-hoc contract

Methods of ContractingFixed contract• Is better for the supplier as it

means if the accommodation is not sold they still get paid.

• Obviously this isn’t the best for the TO.

Ad-hoc contract• A TO will agree a rate with the

hotelier, but do not commit to a specific allocation.

• When the TO receives a booking they take up the room at a previously agreed rate.

Methods of Contracting: An allocation contractVery popular with hotels.They contract the TO for more beds than they have available.The TO must confirm by an agreed date how many beds they will take.This gives the hotel time to sell the remaining beds at a competitive price.

Methods of Contracting: An allocation contractAlso applies to flights.A small TO buys an allocation of seats on a flight if they cannot fill a whole charter.Once filled, it requests seats for extra bookings or looks for seats on an alternative flight.Customers may have to pay a supplement for these seats as they will not be acquired at the original rate.If the allocation cannot be sold, the unsold seats are returned to the airline nut the deadline for this is 6 to 8 weeks before the departure date.

Methods of Contracting: SituationsFixed contracts aren’t as common as they use to be because TO’s look for greater flexibility and control over costs.It depends on which company (TO or supplier) is the more powerful.For example, if an independent hotel worked with Thomas Cook, Thomas Cook would hold control. If an independant tour operator wanted to work with Hilton Hotels, Hilton would have the power.

Methods of Contracting: Situations• Flights are often contracted more than a season in

advance.• TO’s have to predict how many people will want to book

i) a particular holiday from a ii) particular airport.• If they predict wrong, adjustments may be made but

that is not always possible. They may be able to contract another aircraft, but it is hard to cancel a craft without being charged.

Methods of Contracting: Situations• If a TO cannot achieve the required load factor, they

may decide to consolidate 2 flights.• This means one flight will be cancelled and those

passengers transferred to another flight which may depart from a different airport.

• This can cause customer dissatisfaction however they may be given an extra couple of day’s holiday to fit in with the new flight.

Planning: Costing the Package• Margins on package holidays are extremely low at

around 4%.• For this reason, costings have to be done extremely

carefully with accurate forecasting.• This is difficult because they are carried out 18 months

in advance where many of the costs are subject to fluctuation.

• Fuel costs may rise and exchange rates fluctuate.• Package Travel Regulations Act means surcharges

cannot be added to the holiday price.

PlanningData Input• Once contracts are agreed, an

assistant will load the supplier information onto the company database.

• They will ensure the contract information is correctly entered and maintained.

Timescales• Planning a package holiday

takes up to two years. Some companies have even longer term plans

SellingBrochure ProductionPricing StrategiesDistributionPromotionReservationsCommissionLate Sales

Brochure Production• Printed a long time in

advance.• Include prices even

though it is difficult to predict the future.

• TO’s produce several versions of the same brochure in order to update prices.

• Printing a brochure without prices is illegal in the UK.

Brochure Production• Is traditionally the main

source of information and an important sales tool.

• Will be based on previous years version unless the company is new or it is a new venture.

• Whilst this means they do not have to photograph every hotel every year and rewrite text, it still takes a lot of time to produce.

• 1. design the brochure.• 2. Write copy (text)• 3. Determine prices.

• The brochure must be produced in good time to allow sales.

• A summer brochure will be produced in the spring of the previous year.

Brochure Production: e-brochures• Electronic versions of TO information of the type that

traditionally appears in print.• Advantages – saves paper, ink, space and money. Can

be downloaded by a targeted customer and discarded with ease. Prices can be altered.

• Disadvantages – TO’s have to invest in a content managing system in order for it to be done properly. Customers may prefer a paper version to browse through at home.

Pricing Strategies: Discount Pricing• Through fixing contracts,

TO’s secure their supplies (flights and rooms) at the cheapest rate a long time before the holiday.

• They then encourage early bookings to ensure holidays are not left unsold. This ensures good cash flow.

• When early bookings are high, TO’s can gage if their will be much excess capacity – hopefully for them, none. They then take a substantial deposit per person.

• TO’s can invest this money as they don’t need to pay suppliers until the holidays are taken.

Pricing Strategies: Discount Pricing• Tour operators aim to sell

95% of holidays to maintain profitability.

• When there is excess capacity, TO’s are forced to discount holidays at the last minute.

• Large TO’s make only 3-4% of the price of the holiday as profit. As the achieve such small margins, if they have to discount a holiday, they aim to cover the costs.

• Selling Ancillary products is vital to TO’s – it is where the profits are made.

• This is why TO’s will charge extra for transfers, late booking fees and meals on the plane.

Pricing Strategies: Seasonal Pricing• TO’s divide the year into

different seasons.• Summer from May to

November.• Winter from November to

May.• In summer it is all about

beach holidays, whilst the winter has ski programmes running

Peak Season – is the busiest times, normally when there are school holidays.Shoulder Season – slightly less busy times either side of peak season.Off-peak Season – the least busy times.TO’s vary the capacity during the seasons but must fill the planes and hotels they contract.

Selling: Distribution• TO’s traditionally distribute packages through Travel

Agents who stock brochures and sell on their behalf taking commission.

• There is also Internet distribution where customers book directly with TO’s or Travel Agents website.

• When booked by internet or phone with TO this is called a direct sell.

Selling: Promotion• Television advertising campaigns and press releases

about new products and destinations.• Examples of press releases can be found in trade

magazines.• Can be aimed at holidaymakers or the trade.• Trade promotion is important as professionals can bring

preferred products to the attention of their customers.• Trade promotions include educational trips for agents

and sales incentives.

Selling: Reservation• Most TO’s use computerised reservation systems.• Reservation staff have to be well informed about the products

they sell.• It is easier for TO’s than Travel Agents as they only need to

know about one companies products.• Reservation staff in a call centre will have targets to meet with

calls answered and sales made.• Others call customers if a query is made from the

computerised reservation system.• When a booking is made, a reference code is created which

allows the booking to be traced through the system.

Selling: Commission• TO’s pay commission to

Travel agents but can negotiate how much.

• Tour Operators also receive commission from third parties whose products and services they sell.

• E.g. Car-hire and insurance

Selling: Late Sales• Once the flight has

departed the opportunity to sell has gone.

• Late sales mean at least some contribution to the cost has been made even if there is no profit.

• If the forecast for demand is accurate, late sales can be avoided.

AdministrationConfirmations, itineraries and tickets.Passenger manifests and rooming lists.ErrataCancellations and amendments.

AdministrationConfirmations, itineraries and tickets.• Once a reservation has been

made, further administration is dealt with by another team.

• The issue booking confirmations, invoices after booking and send reminders for payment.

• The issue tickets, itineraries and other documents, for example guides to the local area, as well as booking details.

Passenger manifests and rooming lists.• Is a record of passengers.• The administration department

must make sure suppliers such as the hotel and airline are sent passenger details.

• If there is a cancelation, suppliers must be updated by the administrators.

AdministrationErrata• Is the term used in publishing

and refers to corrections made after publication.

• If a hotel only has one pool and the brochure says 2, instead of republishing the brochure a list of corrections is sent to be read alongside the brochure.

Cancellations and amendments.• Must adhere to the EU Package

Travel Regulations.• A customer must have the

opportunitiy to read the policies on cancellation or amendment in the TO’s terms and conditions when they book their holiday.

• If the TO has to cancel the holiday they must offer a full refund or an alternative holidays.

OperationsConsolidationsLoad FactorsOverbookingsTransport OperationsDuty OfficeUK and overseas resort liaisonHealth and SafetyEmergency situationsCrisis ManagementQuality ControlCustomer ServiceExcursion Sales

Operations• Consolidations – is when there aren’t enough bookings

to take up the spare capacity on air seats or hotels. Instead of leaving the seats empty, the capacity is cut with flights and hotels cancelled (where contract allows) and people with bookings are transferred to other flights and different accommodation.

• Load Factors – the ratio of paid passengers to available capacity. The ideal load factor is 100%.

• Overbookings – an unusual occurrence where customers may arrive at the airport and find no seats available. It is up to the TO to solve the problem.

OperationsTransport Operations• This refers to the organisation

of charter flights and in-resort transfers. Transfers are usually included in the package.

• On many bookings now, tour operators may charge extra, especially on late bookings.

Duty Office• Smaller tour operators many

not have a dedicated duty office.

• Large tour operators have a duty office which provide an essential link between the UK and the resorts. The office deals with any non-routine occurrences, for example medical problems , delays etc.

Operations: UK and overseas resort liaison• Package holidays include the services of a

representative. The reps are employed directly by the tour operator.

OperationsHealth and Safety• The reps will have a degree of

responsibility for health and safety. Under the EU Package Travel Regulations, the tour operator, not the hotel , is responsible for the customers health and safety.

Emergency Situations• The reps have to also deal with

emergency situations. A good tour operator lays down procedures to be followed in such cases.

• The worst scenario involves some ones death.

OperationsCrisis Management• This is the most demanding

situation, it is dealing with a crisis that effects a lot of customers. Examples include mass food poisoning, a bus crash or a hurricane.

Quality Control• Quality control is ensured by

different methods. Surveys are often undertaken asking for customers views on their holiday.

• The reports are monitored in resort by senior staff.

Operations: Customer Service• Tour operators provide routine customer service

departments. They may be divided into pre-departure customer service and post-holiday customer service.

Operations: Excursion Sales• Excursions are a very

valuable source of income and an important part of the reps job is to sell them.

Commercial Considerations

Maximising ProfitabilityLinks to different planningSellingAdministrationOperations

Maximising profitability The tour operator has to maximise the profitability of the planned package holiday programme. Profitability has to be considered throughout the stages of planning, selling, administration and operation. There are various means of achieving this.

Links to different planningNegotiating a more flexible contract with a supplier means that if insufficient bookings are made they can b e cancelled with penalty; remember: a fixed contract means that rooms or plane seats have to be paid for whether they are filled or not.

SellingUsing appropriate pricing strategies maximizes profitability. For example, discounting before absolutely necessary would damage profits.

Administration

Having effective systems saves on costs. Where two companies merge economies of scale can be achieved by merging administration and operational systemsTour operators terms and conditions include details of cancellation charges. If a customer decides to cancel their holiday they will lose a percentage of the cost.

OperationsIf load factors on flights cannot be achieved, money can be saved by consolidating flights. Where small numbers of passengers are to be transferred from airports to hotels, the transfer options should be studied. It can be cheaper to hire taxis as needed rather than half-fill coaches.Costs of customer service can be reduced if resort staff deal with problems in resort rather than when the customer returns home.