Links And Relationships Within The Travel Industry
Tour operations is a dynamic and complex business environment, where companies must work with many different travel and tourism component industries, comply with laws and regulations, and deal with a variety of external influences and challenges.Unlike travel agents, who sell holidays and a range of other travel products, tour operators actually assemble the different parts of a holiday, i.e.
the type of travel, accommodation, facilities, transfers, excursions and other services.
If we consider that travel agents are the retail arm of the travel business, then tour operators are the wholesalers, since they buy in bulk from the providers of travel services, such as the hoteliers and airlines, break the bulk into manageable packages and offer the finished product – the package holiday (or inclusive tour) – for sale via a travel agent or direct to the public. The package is sold for an all-inclusive price, which is generally lower than if the different parts of the holiday had been booked individually by the holidaymaker.
In working with other travel and tourism industries, tour operators develop links with a wide range of organisations, including: • Travel agents – using agents as a sales outlet for the tour operator’s holidays and agreeing commission payments and booking procedures; • Transport providers – negotiating and agreeing contracts with airlines (charter and scheduled), rail operators, coach companies, taxi operators, etc.
to supply transport services for holidaymakers; • Hotels and other accommodation providers – negotiating allocations of bed spaces that form the accommodation element of the package holiday; • Ancillary service providers – contracting with companies to supply representative services, transfers, ‘meet and greet’ arrangements, insurance, car hire, activities, excursions, etc.
Even the large, vertically-integrated travel groups have to liaise on different functions within their own organisations, since individual parts of the group are usually separate companies in their own right, e.g. staff from Neilson Holidays, part of the Thomas Cook Group, would negotiate with staff at Thomas Cook Airlines to agree seat allocations for a season. As competition in the travel and tourism sector has intensified, tour operators have taken over or merged with other travel and tourism businesses as a way of maintaining or increasing their market share and maximising their profits. This is most noticeable in the tour operator/travel agent relationship, where: • TUI Travel UK owns Thomson and
First Choice tour operating businesses, and the Thomson travel agency chains (TUI UK is itself controlled by the German company TUI AG); • Thomas Cook AG (a German group) owns a number of Thomas Cook tour operating brands/companies, plus the Thomas Cook and Going Places chains of travel agencies. These ‘big two’ travel groups were formed in 2007 from the mergers of Thomson and First Choice Holidays, and Thomas Cook with MyTravel. They dominate the sale of package holidays in the UK, accounting for just fewer than 50 per cent of all sales.
These are examples of vertical integration in the travel and tourism industry, which is when a company has control over other companies that are at different levels in the chain of distribution or in different industries. Some of the largest tour operators also own their own airlines, giving even greater control over the component parts of package holidays. As competition in the travel and tourism sector has intensified, tour operators have taken over or merged with other travel and tourism businesses.
This is called vertical integration and it benefits the travel companies since they get bulk discounts and make savings by using their own companies as suppliers. However, there is concern that vertical integration of this sort may not always be in the public’s interest, since it can reduce the number of companies and give customers less choice when buying holidays. Also, customers may not know that a tour operator is owned by the travel agency that is selling their holiday.
Horizontal integration is when a company owns or has control over a number of companies at the same level in the distribution chain or in the same industry. For example, many tour operating businesses that are now part of Thomas Cook and Thomson were originally independent companies, e. g. Neilson and Club 18-30 (now part of the Thomas Cook Group), and Something Special and the Holiday Cottages Group (now merged with Thomson). Large travel companies take over smaller independents as a way or reducing competition in the marketplace, but this is not always a benefit for customers who may have less choice.
Trade bodies and associations are established to represent the interests of companies in a particular industry sector. ABTA – The Travel Association is the main trade body for both travel agents and tour operators in the UK. Its members are responsible for the sale of over 90 per cent of package holidays and 45 per cent of independent travel arrangements in the UK.
ABTA’s role is to ensure that customers benefit from high standards of trading practice in the travel industry and that the standards of service and business throughout its membership are of the highest calibre. All ABTA members – travel agents and tour operators – adhere to a strict code of conduct. ATOL – A United Kingdom Civil Aviation Authority scheme to protect people who have purchased package holidays (Thomson, Thomas Cook, etc) and flights from a member tour operator. The majority of UK tour operators are required to hold an ATOL licence, without which they may not legally sell air travel.
ATOL licensed firms will have had their business practices inspected by the CAA. An ATOL licensed tour operator must also obtain insurance bonds from the CAA. The aim of this is to provide refunds to travellers affected by any event which causes the airline to be unable to provide travel for its customers, and to arrange for flights (in addition to accommodation and other items which may be included in a package holiday) to return home those who are still abroad at this time.