Role of the retail travel agent

Introduction

Retail travel agents are the most important travel intermediary. They act as sales outlets for suppliers and wholesalers from whom they receive commission for any sales made. They also act as travel counselor, advising people on when, where, and how to travel; as salesperson actively selling travel, and as clerk, making reservations in response to customer requests.

Historical development

Thomas Cook. In 1841, Thomas Cook chartered a train to take people about 37 kilometers from Leicester to Loughborough to attend a temperance meeting. He is credited with being the first travel agent. Soon came trips to Europe and, in 1866, Cook organized and led a tour of the US Civil War battlefields, Niagara Falls, New York City, US and Toronto, Canada. In 1872, he escorted a group of travelers around the world. It is said that this trip inspired the Jules Verne book Around the World in 80 Days. In 1873, he introduced the “circular note”, the forerunner of the present-day traveler's check. The notes were issued originally in denominations of GBP 5 and 10 and could be exchanged for local currency at prevailing exchange rates in any hotels that were part of the Cook system. This meant that people no longer had to travel with large amounts of cash on their person.

United States. In the United States in the early 1900s, the travel agent of the day was the hotel porter. Rail travel was the predominant form of transportation, and most of the travel was undertaken for business purposes. The porter would make reservations for the business traveler staying at the hotel. A commission was paid by the railroad to the porter who would add a delivery charge for going to the railroad station to pick up the ticket.

When the airlines, in the late 1920s, first purchased planes with seats for passengers they saw the railroads as their main competition for the business traveler. They provided ticket stock to the hotel porters and offered them a 5 per cent commission for making the sale.

As traffic expanded, the airlines opened offices in hotels where they did a large business. The new breed of travel agent was prohibited by the airlines from opening an office if it would compete with the airline's own sales office. Up until 1959, a travel agency could be opened only if it was sponsored by an airline and its opening approved by two-thirds of the carriers represented by the appropriate domestic or international travel conference.

Travel agency growth. The growth of travel agents can be attributed to two trends that occurred after World War II. These were the growth of international travel and the increase in personal or pleasure travel. Both groups of travelers have an increased tendency to use a travel agent. They have neither the time nor the expertise to make their own travel arrangements.

The recent growth of retail travel agencies can be seen by comparing industry figures from 1978 to 1987. In 1978, 14,804 agencies accounted for USD 19.4 million in industry sales, an average of USD 1.31 million per agency. In 1987, 29,584 agencies were responsible for USD 64,237,000 in revenue, an average of USD 2,171,000.

Industry profile

Every two years Travel Weekly publishes a Louis Harris survey of the retail travel industry. Some of the highlights from their 1988 survey indicate that:

Regulations governing travel agencies

Although regulations imposed on retail travel agents are not as stringent compared to the days before airline deregulation and the consequent competitive marketing decision, agencies still confront a variety of regulations to get into and stay in business.

Certification. The effect of deregulation can be seen from the fact that approximately one-half of agencies in business today were started after 1980. To be certified for business as a travel agency the business must be appointed or approved by industry conferences. The four major conferences in the United States are:

Each conference is made up of companies that sell transportation. The ARC consists of domestic airlines. Normally, an agency will apply for an ARC appointment first. To receive an ARC appointment an agency must:

Once the ARC appointment has been secured the other appointments are usually issued as a matter of course. When operating as a business, agencies are regulated as to the amount of ticket stock they can have on hand and the procedures for handling it. Ticket stock is like a blank check and requires stiff security. Agencies are not allowed to change ownership without meeting conference regulations.

Licensing. In addition to industry appointments, a number of states require travel agents to be licensed and to pass examination by state licensing boards.

Customer protection. Agents are also held responsible for their actions in running their business. Agents pride themselves as being travel counselors rather than booking agents. Thus, they can be held responsible for the quality of their advice. They must take the age and health of the client and the situation at the destination into account in recommending an appropriate trip.

Situations have arisen where a customer buys a tour package through a travel agent and prior to the vacation the tour wholesaler goes bankrupt. Courts have held that, when the customer was unaware of the existence on any other intermediaries in the purchase of the tour, the retailer was liable for the customer's loss. Agencies can protect themselves by dealing with reputable wholesalers, buying insurance, and explaining and having travelers sign a disclaimer.

Industry education. Through such industry groups as the Institute of Certified Travel Agents (ICTA), The American Society of Travel Agents (ASTA) and The Association of Retail Travel Agents (ARTA), professional standards, while not regulated, are encouraged. Both ASTA and ICTA offer home study courses. The ICTA courses lead to the designation Certified Travel Counselor (CTC).

Running a travel agency

Retail travel agents receive income in the form of commissions paid by suppliers and wholesalers. A commission is a percentage of the total sale. The traveler does not pay for the services of a travel agent when a booking is made by the agent.

Commissions

In the past, the ATC regulated the percentage of commission paid by the airlines. Deregulation, however, has meant that airlines can pay different percentages of commissions to the agents they deal with. Suppliers can also pay overrides or bonuses for volume sales. A wholesaler may offer a graduated rate schedule to stimulate the retailer to sell more. As the number of bookings increase beyond certain points, the commission percentage increases. Often these overrides are retroactive, the higher percentage commission applies to earlier bookings within a given time frame. It may be, for example, that the basic commission for selling a package is 10 per cent. An override or incentive commission may be offered of 1 per cent for bookings over USD 15,000; 2 per cent for bookings over USD 20,000; 3 per cent over USD 25,000, etc. An agent selling USD 26,000 worth of bookings would receive a commission of 13 per cent on all bookings under a retroactive override system.

Rebates

In order to attract customers, some agencies offer rebates for volume business to them. In this case an agency would split the commission received with the customer, which is usually a company doing a large volume business with the agency. While this is legal for domestic air travel, it is against the law to rebate international air travel. It is not uncommon for such rebating to go on, however.

Sources of income

Almost 60 per cent of the average agency's income comes from commissions from selling some form of air travel. American agencies are responsible for selling 70 per cent of domestic and 80 per cent of international air travel. The average commission received is 10 per cent, slightly less than this for domestic air, slightly more for international. The average revenue per air ticket in 1986 was USD 20.99, indicating an average fare of just under USD 200.

Income from the cruise lines comprises, on average, 16 per cent of travel agency income, and travel agents book 95 per cent of all cruises sold in the United States.

Commissions from hotels account for 11 per cent of agency income. Agents are responsible for 25 per cent of domestic and 85 per cent of international sales to hotels.

Car rental business accounts for 8 per cent of US travel agency business, and approximately half of all car rental sales are made through travel agents.

Rail travel accounts for only 3 per cent of agency business nationwide. Just over one-third of rail ticket sales are made by retailers.

Commissions from package tours can run from 11 to 22 per cent. Retail travel agents account for 90 per cent of all package tour sales.

Other income sources. Two additional sources of income for agencies are service charges and sales of travel- related products and services.

Over the past few years there has been some discussion among agents about levying a charge for services rendered to travelers. The argument is made that a “travel counselor”, in giving professional advice, should charge for that advice. Such a move, some feel, would help professionalize the industry. This argument has received some backing because low air fares have reduced the dollar amount of commission received. However, the public is not yet ready to pay for an agent making a reservation, but some agencies do charge for drawing up complicated itineraries and making trip cancellations.

There are travel-related services that some full-service agencies provide to increase their income. These include such things as personal, baggage and trip cancellation insurance, providing travelers checks and foreign currency, and taking passport photos.

Maximizing profit

According to Travel Agent magazine the value of an agency is increased if:

Summary

Tourist products and services can either be distributed directly to the traveler or through a variety of intermediaries. The high cost of marketing is a major reason for suppliers to use middlemen in the distribution channel.

Tour wholesalers and operators are major players in distributing travel and tourism. Whether selling through retail travel agents or directly to the public, they offer a variety of group tours for vacationers to enjoy. The advantages of group travel, cost and convenience, will ensure the future growth of this segment of the business.

Retail travel agents are the most important travel intermediary. They receive income from suppliers and wholesalers in the form of commissions and overrides on sales made. Some receive additional income from the traveler when they charge for services rendered in putting together a complicated itinerary or through selling related travel services.

Retail agents will probably continue to be the primary travel distributor because suppliers are so heavily dependent on them for the selling of travel products.

Study questions

Discussion questions