You are here

The role of the tour wholesaler

19 January, 2016 - 17:57

Size and importance

Tour wholesalers combine transportation and ground services into a package that is then sold through a sales channel to the public.

History. Tour wholesaling began in the mid-nineteenth century. In 1841, Thomas Cook, founder of the Thomas Cook travel agency, chartered a train to carry several hundred people to a temperance meeting 20 miles away. In 1856, Cook led the first Grand Tour of Europe and, several years later, was offering cruises down the Nile, rail tours to India, and trips to the United States.

It was not until the advent of jet aircraft in 1958 that the packaging of tours increased significantly. Larger aircraft capable of flying greater distances stimulated the development of the package tour as we know it today. Because of the increased capacity of the airlines, prices were lowered. This, in turn, stimulated a demand for low- cost vacations. Tourists were able to travel farther with their two to three weeks of annual vacation. Crossing the Atlantic, for example, was cut from six days by liner and twenty-four hours by propeller aircraft to seven hours by jet. As a result, tour wholesalers came into the marketplace to put together low-cost package vacations.

Role in industry. There are over 1,000 tour operators in the United States today. The tour operator or wholesaler buys in bulk from industry suppliers. Instead of making a reservation for two nights' lodging, a wholesaler may contract for a hundred rooms for the months of June, July, and August. Similar arrangements would be made with airlines, ground transportation and travel attractions. By buying in bulk the wholesaler gets a better rate than would the regular traveler.

After the wholesaler adds on the costs of doing business, profit and commission to retailers, the cost savings are passed on to the customer. Typically, a wholesaler gains by making a small profit on each package sold to a large number of customers.

Definition. Often used interchangeably, the terms tour operator and tour wholesaler are different. The operator sells packages directly to the public while the wholesaler sells the package through a retail travel agent.

Independent wholesalers make up about three-quarters of all wholesalers. This might be an individual or a corporation such as American Express. The remaining wholesalers are travel agencies that package tours, airlines that have their own wholesaling division and travel clubs, and incentive travel companies that do not sell to the general public.

Operators may specialize by segment of the market catered to, by destination or by type of transportation used. Over 90 per cent of tours sold by independent wholesalers involves air travel. However, some companies may specialize in cruises.

Tours may be independent, hosted, escorted, or special format. An independent tour offers few components; usually hotel plus one other land arrangement such as car hire. Tourists have maximum flexibility regarding departure and return dates. Additionally, they can extend their stay by paying an extra per diem charge.

A hosted tour includes the services of a host at each destination to make local arrangements. Travelers can still choose travel dates and hotel used.

An escorted tour is the most structured. A tour escort accompanies the tour throughout. Tourists begin and end the tour according to the operator's schedule and stay in hotels selected by the operator. Participants have little free time.

Special tour formats include incentive tours, pre- or post-convention tours, and special-interest tours.

Image of group tours

Group travel is perceived as an experience rather than "just" a method of travel. It is an experience shared with others; it is organized; it is passive and carefree. Those on tours give up a degree of personal control over the vacation in return for having someone plan and execute the trip for them. Because those planning the trip have experience and buying power, the package is less expensive than if the components were purchased separately by the tourist.

Tour appeals. People go on tours for reasons that are practical and emotional. The practical benefits are convenience, expertise, safety, and price.

Tours are convenient in that the vacation can be spent concentrating on the experience rather than on making the arrangements. Having someone else do the driving is important in terms of dealing with city traffic, driving in unfamiliar areas, and spending time reading maps rather than enjoying the scenery. Tours offer the convenience of being picked up and delivered to hotels, attractions, and entertainment. Accommodations and tickets to events are guaranteed. This is particularly important for high-season events or times. Lastly, the idea of the baggage being taken care of is appreciated. This is particularly true for single women and older people.

People who take tours feel that they can see and do more than if they were traveling alone. There is the feeling that the operator has the expertise to select the best places to see. Because of this, participants can actually see more because they do not have to spend time evaluating all of the options.

There is safety in numbers. This is particularly true for older or female travelers and for urban or "off-beat" destinations.

The fixed price of a tour is an important feature. The most important part, however, is not the absolute price but the fact that the costs are known beforehand. There is little or no danger of being halfway through one's vacation and running out of money because of poor budgeting. The tour is prepaid. The only other costs are some meals, sightseeing and shopping.

People also take tours for emotional reasons: companionship, an opportunity to learn, to share activities, and for security. Tours offer the opportunity to meet new people and make new friends. Many see it as an opportunity to get an overview of a destination, to discover and learn. Adventure touring is important to younger travelers while historical touring is mentioned by older tourists.

Group travel is seen as a way of participating in activities with others who have the same interests. This can include physical-activity tours such as skiing or water sports as well as theater, garden, or historic homes tours. In all of this, there is the opportunity to be further educated in a particular area.

The security component comes from the feeling of being an insider even in a strange place. This is an emotional appeal compared to the physical feeling of safety explored above.

Negatives. The negative images that people have about tours fall into four categories: perceptions of the bus, the tour experience, the group concept, and the types of people who take tours.

For a number of people, tours are associated rather negatively with buses. The term "motor coach" is used by the industry to designate touring buses. Particularly in Europe, most coaches are extremely comfortable with videos, hostesses who serve drinks, and reclining seats. However, despite the fact that such equipment is available in the United States (albeit on a lesser scale), the image brought to mind is too often the school or commuter bus. The bus is seen as too slow, too confining, and too uncomfortable. It is viewed as a cheap and old-fashioned way to travel. Travelers also have a negative image of bus terminals and view this as an undesirable place to start a vacation. Additionally, some people, particularly men, dislike the idea of giving up control to the coach driver. They complain about not being able to control the lights, the fans, or where and when to stop.

media/image3.png
Figure 11.3 The cynic's view of group tours! 
(Courtesy Hong Kong Tourist Association.) 

For people who do not take tours, the tour experience itself it perceived negatively. Touring, to many, is equated with regimentation, inflexibility, and passivity. The tour is seen as a shallow, boring, and impersonal experience. There are those who think that, rather than receiving the advantages of group power, being part of a group involves getting second-class treatment from hotels and restaurants.

Yet another barrier to be overcome in selling tours is the group aspect of the tour. There is a fear of not relating well to other members of the group. A vacation to many people involves having personal space and freedom. Being part of a group limits both.

Finally, many people have a negative perception of the kinds of people who take tours. People who travel as part of a group are seen, stereotypically, as infirm, older, inexperienced travelers. This translates into a personality profile of people who take tours as passive and lacking in self-confidence.

To overcome these negatives, those who package tours need to be more innovative in upgrading both the image and the content of tours. Perhaps even the word "tour" needs to be changed into “adventure holiday”, “expedition”, “discovery trip”, or "excursion”. Different modes of transportation can be used in conjunction with each other; for example, air to get the traveler there and coach to see the destination. Hub-and-spoke concepts can be used to bring people to a destination where they can relax on their own. Shorter mini-trips can be packaged with more free time, and tours with themes grouped around recreational activities can be developed to appeal to the younger, more active crowd.

Economics

The tour wholesaling business is one that is relatively easy to get into, that places an emphasis on cash flow, has a low return on sales, and a high potential for return on equity invested.

Ease of entry. In the US, the bus industry was deregulated in 1982, effectively ending control of the tour industry by the Interstate Commerce Commission. Since that time, it has become easier for smaller operators to get into the business of wholesaling tours. To be considered a tour, a vacation must meet requirements of duration, price and number of travelers. For travel agents to receive a commission, the air transportation element of the tour must meet the standards of the Airline Reporting Conference, for domestic tours, and the International Airlines Travel Agent Network, for international tours.

Wholesalers must also take out a performance bond, similar to an insurance policy, to protect travelers, travel agents and suppliers in the event of bankruptcy by the wholesaler.

Cash flow. A wholesaler buys transportation and ground services in bulk. The wholesaler will pay a deposit on services contracted for. As the time of the tour draws closer, the percentage of the deposit that is refunded if the tour is cancelled is reduced.

By buying in bulk, the unit cost to the wholesaler is reduced. The ground portion of the tour is marked up, added to any air component and sold to the public. Commissions flow directly to the travel agent involved in selling the tour. Cash flow is generated by the wholesaler as deposits and final payments for the tour come in. Suppliers do not have to be paid until after they have provided the service being contracted for. The resulting "float" can finance the operation of the wholesaler's business.

When a wholesaler uses the float from one tour to finance a second tour, a reduction in demand can result in cash losses if there is insufficient equity in the business to carry the business downturn.

Return on sales. For independent tour wholesalers the average return on sales is about 3 per cent. This means that, on a tour selling for USD 1,000, the net profit is approximately USD 30. The key to profits is volume, number of tours sold. Out of the revenue received from the traveler, the wholesaler must pay the suppliers and the travel agent who sold the package. This accounts for 85 to 90 per cent of the revenue. With what is left, gross profit, the wholesaler must pay for the costs of operating the business. Net profit is what remains after the operating costs are paid.

Return on equity. Return on equity is the ratio of net income divided by owner's equity. Because the amount of money invested is relatively small there is an opportunity for a high return on equity.

Tour preparation

The preparation for a tour begins up to 18 months prior to departure.

Fourteen to eighteen months prior. Market research is the starting point for any tour, and this is the time to prepare. Based on an analysis of travel research, tourist trends, what the competition is doing and a survey of retailers and travelers, wholesalers get an indication of what will likely sell.

The best destinations are those that are popular, have adequate facilities, appeal to a broad group, are far away, offer good weather and have the recommendation of an agent. 1  Popular destinations are easier to sell. Certain destination such as Acapulco, Puerto Rico, and Hawaii have developed a very popular and positive image over the years. The facilities important for a group are:

  • convenient transportation
  • hotels with a variety of function space
  • a variety of hotel types and prices

Destinations that offer a wide variety of things to do and see are more attractive because while one part of the group is viewing historic sites others can be off shopping.

Distant destinations can be appealing to both the agent selling the tour and to the traveler. Much of the selling agent's income derives from commissions on the air part of the tour. The greater the distance traveled, the greater the cost of the air fare and the greater the agent's commission. Yet there are also savings for the traveler. One of the advantages of buying a package is the saving on the air fare. The money saved on a long trip is greater than that on a shorter one.

Finally, a destination should have good weather and the support of the agents selling it. Poor weather can limit the activities that people can undertake during a vacation. Of course, destinations will offer off-season rates in order to entice travel in the low season. Thus, support of the people who will ultimately sell the package is important if the tour is to make money.

media/image4.png
Figure 11.4 Waihirere Maori Club. Tours usually include entrance to local attractions. 
(Courtesy New Zealand Tourist & Publicity Office.) 

Detailed tour specifications can then be developed on departure dates, length of the tour, and transportation and ground services to be used.

Of special importance are considerations of distance, the amount of free time, planning for shopping and the location of accommodations. The distance that can be covered in a day will vary greatly depending on the terrain and quality of roads. The amount of touring should vary each day, with a long touring day followed by a day of shorter travel. Two and three-night stopovers help travelers catch up on laundry and rest. Packing and unpacking each day can be both tiring and unsettling.

The number of items to plan compared to the amount of free time available is a matter of cost and convenience. The fewer meals and side trips planned for and included in the basic tour price, the more expensive the add-ons will be for the travelers. This, of course, works against one of the major advantages of buying a package, knowing the price in advance. Yet most people will want to have some time and choice of meals and activities to themselves. The key is that items should not be included in the basic price if travelers have the time to do them on their own, if there are different interests among the group members, and if it is convenient and not too expensive for them to do so.

Certain activities and meals should be included. If an early morning departure is called for, breakfast should be included, preferably a buffet. The same thing is true for dinner after a long day of travel. There should be a group activity shortly into the tour, to allow travelers to get to know each other and to set an upbeat tone for the tour, and one at the end to allow for a grand finale.

Shopping is a very important part of any holiday. Hence, organizers must be aware of early closing times and local holidays.

The choice of hotel is often a balance between cost and convenience. Hotels outside the city may be less expensive, but they are often far from shopping, restaurants, and nightlife.

Twelve to fourteen months prior. Ground services are negotiated and transportation arranged during this time; contracts may also be signed.

Ten to twelve months prior. This is the period when tour programs are finalized and a selling price reached. Cost figures are tallied and a markup added that will cover overhead and profit. Costs may be either fixed or variable. A fixed cost is one that must be paid irrespective of the number of travelers. The cost of chartering a coach or hiring a tour escort is a fixed cost. The pro-rated share of such a cost is spread over the anticipated number of travelers. A variable cost is one that is charged per traveler. Charges for hotel rooms, meals or admission tickets to an attraction are examples of variable costs. Finally, the method of handling reservations is determined during this time.

media/image5.png
Figure 11.5 Tour organizers must be aware of shopping hours. 
(Courtesy New Zealand Tourist & Publicity Office.) 

Tour marketing

Ten to twelve months prior. This is the period when brochure production begins. The cost of producing brochures is often shared by suppliers, especially transportation companies. Suppliers may offer shells to the wholesaler for personalizing. Shells are brochures that have color photographs with a minimum of copy. The wholesaler adds the copy specific to the tour, outlining the features and statement of conditions. This latter includes such things as what is and is not included, how to make a reservation, procedures for putting down a deposit and final payment, any travel documents required, and a refund policy.

Commission rates and incentives for selling specific numbers of packages can be negotiated with retailers.

Six to eight months prior. Selling of the tour now begins in earnest. At this point, it would be helpful to examine the process by which people choose a tour.

The decision process for many is, in fact, a two-step process. First, the decision is made to travel with a group. Second, the particular tour and/or tour company is chosen. The first step is often to decide whether to travel with a friend or organization. This seems to be particularly important for singles, especially single women. In fact, it is usually a friend who introduces others to the idea of group travel. In fewer cases do advertisements influence the choice of a tour. Personal experience in using a particular operator and word-of-mouth endorsement from friends and relatives is especially important.

Some differences exist by market segment. Preformed groups are those people who belong to clubs or associations. For these people the destination or company used is secondary to the idea of being with their friends, having fun, and getting away. Travelers who book individually have often formed their own mini-performed group consisting of people who are compatible with each other. One sale can mean four sales. Single older women place a great emphasis on being able to travel safely and securely with others like themselves, whereas for younger single women, adventure and the ability to participate are valued. Price is a more important consideration for this group than for others.

Marketing programs will usually involve the distribution of brochures, media advertising, personal selling, and communication with other wholesalers. There are almost 30,000 retail travel agencies in the United States, and it is obviously costly to distribute brochures to all of them. However, target marketing can reduce the number. Wholesalers can work with retailers who have sold for them before or who are in the geographic areas where the tours would sell (northern cites, for example, for winter tours to the Caribbean). Wholesalers can also identify agencies located in places where the surrounding people have the income to enable them to buy the package.

Media advertising will follow the principles outlined in the previous chapter. Because of the high cost of promotion and distribution, wholesalers in one part of the country may use wholesalers from another part of the country to distribute their tours in that region for a fee.

Marketing efforts may continue up to a few days before the actual tour begins. Since the tour is going anyway, travelers can pick up last-minute bargains if they are flexible as to destination. In Britain, for example, the windows of retail travel agents are often plastered with last-minute savings on tours leaving within the next few weeks. A weekly travel show on British television also offers bargains for the upcoming week. If a plane is chartered and is leaving with ten spaces on board, the wholesaler, at the last minute, will accept reduced prices to bring in some income. If the break-even costs have been met, this extra income, once direct costs have been subtracted, is profit.

Reservations, deposits and final payments are usually required one to two months prior to departure. Reservations are usually received by telephone from retailers. They are confirmed, recorded, and filed. After the payments have been processed the documents necessary for the tour are sent to the retailer, who will pass them on to the traveler. Suppliers will be paid after the tour.

Tour operation

Crucial factors. For the traveler, the success or otherwise, of a tour depends upon the tour escort, the extent to which the tour is personalized, the pace of the tour and the value received.

For many people the tour escort or guide is the person who can make or break a tour. Factors considered important are:

  • how knowledgeable is the guide with the places and sights that are part of the tour?
  • to what extent is the guide able to take care of such problems as poor hotel space, bad meals, and disruptive passengers?
  • how interested is the escort or guide in the group as people as distinct from customers?
  • to what extent is the guide able to create a fun atmosphere?

Group leaders, on the other hand, place a great deal of emphasis on the importance of the driver in giving assistance and even serving as a second host.

The second factor considered important by travelers to the success of the operation of a tour is the degree of personalized service received and the way in which it is delivered. To what extent does the operator, as well as the escort, attempt to get to know the traveler? Some operators extend themselves in such ways as requesting that they be informed of special personal occasions that will occur during the trip. In these instances, a birthday cake is arranged or a gift certificate presented to celebrate a wedding anniversary. Other operators have been known to ask travelers to contact relatives at the tour's destination and to invite them to join the group for one of the tour meals.

The pace of the tour and, in particular, the balance between organized activities and free time is also important. This means less travel time each day, fewer one-night stays, and more opportunities to do individual things at the destinations.

Tour operators are expected to deliver both the physical aspects of the tour (the coach, hotels, meals, and sights) as well as the experience (the fun and flavor of the trip). Thus, it is vital that travelers get what is promised in the brochure. Beyond that, however, is the inclusion of something not mentioned in the brochure, a surprise. It might be an extra outing, a special meal, something perceived to be for free. Some operators say that they advertise 90 per cent of what they will deliver. The 90 per cent is enough to sell the tour. The extra 10 per cent is the surprise or added value. It might be called “planned spontaneity”. Often on a vacation it is the unexpected that people most remember. If this can be part of the tour, unknown to the travelers beforehand, it becomes something to talk about afterwards.

Tour operator needs

The success of the tour will depend upon the extent to which the operator and supplier meet the needs of each other (and, therefore, the tour group).

In general, tour operators look to suppliers to provide:

  • services and facilities that are convenient to the main tour route;
  • a staging area for the motor coach close to the facility entrance to load and unload passengers;
  • a convenient place to service the restroom on the coach;
  • a positive attitude on the part of the staff toward group members.

Supplier needs

A supplier, at the same time, expects the following from the tour operator:

  • a complete list of those on the tour;
  • specific arrival and departure times;
  • a complete rooming list, detailing the number of different types of rooms needed;
  • credit information to set up billing procedures;
  • confirmation and deposit dates;
  • notification of any special needs, for handicapped passengers, for example;
  • complete tour itinerary (this might enable the supplier to suggest additions such as places to eat and sights to see).

Attractions. It is helpful to the operator if attractions provide a brief description of their facility that might be included in the tour brochure. This helps not only the operator but also the attraction. Brochures from the attraction can be sent to the supplier for distribution to the tour members en route. This increases the anticipation of the tour members prior to the visit.

media/image6.png
Figure 11.6 Tour escorts must know the appropriate behavior when visiting centers of worship. Wong Tai Sin Temple, Kowloon Peninsula. 
(Courtesy Hong Kong Tourist Association.) 

Accommodations. After a day of traveling a tour group wants a friendly reception and some extra amenities. Often a group will get impersonal treatment from staff members who think that, because 40 people arrive at once, they will only expect “group treatment”. Thus, the ability to treat each member of a group as an individual is important. Some kind of hospitality reception is appreciated; a wine and cheese or cocktail party can put everyone in a happy mood.

Because group travelers usually travel in pairs, operators will select hotels that offer rooms with two beds, a double-double. Many properties offer either a welcome package or a farewell gift that ties into the destination, a small souvenir or something to eat and/or drink.

The recommendation of the escort is crucial to the continued use of a hotel by an operator. A debriefing by the management of the hotel with the escort before the group vacates the property is vital. Any problems that arise can be taken care of before the group departs. This way the tour members can leave satisfied.

Restaurants. People on a tour spend approximately one-quarter of their waking hours and more money per day in restaurants than in any other tour component. Success of the meal depends upon the quality of the food, the quality of the service, and the facilities.

media/image7.png
Figure 11.7 Eating is a big part of any tour. 
(Courtesy Hong Kong Tourist Association.) 

Restaurants should be able to serve the group in 60 to 90 minutes. There should be a variety of selections on the menu to accommodate both heavy and light eaters. As with hotels, the level of service given to groups should be the same as that given to other diners. The restaurant should market itself to the operator as the place to be to get a flavor of the area being visited.

Ships and airlines. Suppliers who offer special areas and procedures for the boarding of groups are appreciated by the tour operator. Preassigned seating on planes is an important feature.

Motor coaches. Operators are concerned with the dependability and safety record of the bus company and the equipment. As mentioned before, the driver is crucial to the success of the tour. Small items such as having the group's name on the outside of the motor coach adds a personalized touch in addition to making it easier to find the right coach in a parking lot full of them. On board the bus, the quality of the audio system is very important.

Sightseeing. An operator will often hire the services of a local guide or courier when in a metropolitan area. The driver, tour escort and local courier must operate as a team with a joint goal of offering a fun experience for the group members. Usually the escort will relinquish control of the tour to the local courier for the duration of the sightseeing trip.

The local courier is expected to offer commentary that is not only factually correct but also entertaining. Some items of local current interest or historical anecdotes can enliven the tour. If free evenings are part of the stop the courier should be able to make appropriate suggestions on things to do and places to eat.

Follow-up

The end of the tour need not be the end of the vacation. Part of the entire experience are the reminiscences afterwards. It was previously noted that word-of-mouth advertising was the most effective means of selling people on group tours. For these reasons follow-up is important. Follow-up can be in the form of "welcome home" letters and/or reunions. Reunions can be tied to the tour itself, with music, food and drinks linked to the tour that was taken. Tour members can be encouraged to bring along slides and photographs as well as friends, and small prizes can be awarded for photos and slides in different categories. The reunion then becomes the staging area for the next tour.