Organizations in the Distribution Process

Learning Objectives
• Become familiar with tourism distribution systems organizations and their
functions

• Understand the role of travel agents and their dominance

in the distribution system

• Consider the impact of the Internet on the distribution system

• Examine the role of the tour wholesaler

• Recognize that a combination of all channels of distribution can be used by

travel suppliers
The tourism channel of distribution is an operating structure, system, or linkage
of various combinations of organizations through which a producer of travel
products describes, sells, or confirms travel arrangements to the buyers.
Operating Sectors of the Tourism Industry
 Travel Trade
Sector
Why tourism channel of Distribution is required?

It would be impossible to a tourism and hospitality marketer to have a sales office in

every market city.

How can the tourism products be distributed?

• The most efficient method is to market through a number of retail travel agencies
around the country and pay them a commission for every individual sales

• Tourism and hospitality products can also be sold through such intermediaries as
tour wholesalers

• Through corporate travel offices

• Via the Internet

• By association such as an Automobile club

Tourism Distribution Channels
 Suppliers
Transportation Providers Accommodations Food Service Resorts
Recreation, Entertainment, Etc.

Specialty
Channeler

Direct Telephone Tour Tour Specialty Channeler

Channel via Host Retail Travel Agent Wholesaler Wholesaler
Internet Specialty Channeler

Suppliers Office Home-based Travel Agent Tour Specialty Channeler Retail Travel Agent Tour Retail Travel Retail Travel
Retail Travel Agent Wholesaler Wholesaler Agent Agent

Customers
Individuals Pleasure Groups Business Groups, Etc.

Nature of Tourism and Hospitality Channel of Distribution

• Tourism and hospitality distribution channels are similar to those of other basic
industries such as agriculture or manufacturing.
• Their products flow to the ultimate consumers through wholesalers,
distributors, and middlemen
• While there are similarities with other industries, the tourism distribution
system is unique
• Tourism produces services that are intangible
• There is no physical product that can be held in inventory to flow from one
sales intermediary to another
• Instead, the “product” is for example a hotel room that is a available on a
certain day, which is very temporal. If the room is not sold, that revenue is lost
for ever.
• Powered by advances in technology and the growth of e-commerce, travel
distribution has changed dramatically
Travel Agents

• Travel, whether for business or pleasure, requires arrangements

• The traveler usually faces a verity of choices regarding transportation and

accommodations

• If the trip is for pleasure, there are a variety of choices regarding destinations,
attractions, and activities

• The traveler may gather information on prices, value, schedule, characteristics

 of destination, and available activities directly, investing a considerable amount
of time on the Internet, or possible money on long distance telephone calls, to
complete the trip arrangements.

• Alternatively, the traveler may use the services of a travel agency, obtaining
all these arrangements for a fee.
What is a Travel Agent?
• A travel agency is a middleman- a business or person selling the travel industry’s
individual parts to the consumers
• In marketing terms, a travel agent is an agent middleman, acting on behalf of the
client, making arrangements with suppliers of travel (airlines, hotels, tour
operators), and receiving a commission from the suppliers and/or a fee for the
client.
• In legal terms, a travel agency is an agent of the principle-specifically,
transportation companies. The agency operates as a legally appointed agent,
representing the principal in certain geographic area.
• The agency functions as a broker (bring buyer and seller together) for the other
suppliers, such as hotels, car rentals, ground operators, and tour companies.
• A travel agent is thus an expert, knowledgeable in schedules, routing, lodging,
currency, prices, regulations, distributions, and all other aspects of travel and travel
opportunities.
• In short, the travel agent is a specialist and counselor who saves the client both
time and money.
The changing world of the Travel Agent
While the travel industry has struggled through times in recent past years because
of 9/11, SARS, terrorism, war and COVID-19 the long-term expectation for all
sectors except travel agents is recovery and growth.

• The first was shrinking airline commission (ex: airlines standard commission is
more that 10%, was cut to 2/3%; domestic commissions cut to zero)

• Many of the larger carriers stopped paying base commissions to travel agents.
These changes in the commission system driven the airline alerted the distribution
system fundamentally. Agents were no longer paid to process transactions, and the
airlines lost a huge sales force that was not paid until a sale was made.
What travel agents do to offset the loss of
commission?
 • Agents had to develop new sources of income
• The most readily available source was service fees
• Service fees put agents at a price disadvantage because when airlines sell
directly to passengers, whether off-line or online, they do not add a separate
fee to cover their own distribution costs.
The second major factor is the Internet which has changed the way commerce
is conducted.
• The Internet has changed the way commerce is conducted.
• Many business are the Internet as a way to bypass product or service
intermediaries and deal directly with consumers.
• Airlines were the first to provide customers with schedule and fare
information on the Internet.
• The major carriers built powerful Web sites where passengers could make
reservations review frequent flyer accounts, and check on the status of flights
• The low cost carriers around the world have been reading the use of the
Internet and will continue to do so to keep their distribution costs low
• Airlines now attempt to bypass travel agents
• As more people have Internet access and are willing to purchase over the
 Web, airlines have adopted the strategy of selling direct, diverting business
away from travel agents and dealing directly with the passenger
• It is expected that traditional travel agents will continue to lose sales to
airlines sites and to online agencies.
Travel Agent vs. Internet
• Customers now have choice
• They can make their own booking on the Internet, or they can use services of travel
agents • The Internet can be a powerful tool
• It can increase the scope and reach of a consumers efforts and allow a person to check
hundreds of options of research destinations in depth
• But to make the Internet work effectively, a person has to understand where to look and
what questions to ask, otherwise hours can’t be wasted surfing the Web and ultimately
produce unsatisfactory results.
• This is where a travel agent can make a world of difference
• Because of the expertise of travel agents, customers may save time and achieve savings
that more than cover the cost of service fees
• Agents have superior knowledge of the industry and are aware of various alternatives that
provide lower fares that the average consumer is unaware of.

• Agents are more likely to know enough to check alternative airports and departure times
 • The Internet can be valuable resource but it cannot replace a human being who will
provide the personalized service to help a client and offer a number of alternatives.
The Future of Travel Agents
▪ One of the problems of being an intermediary (wholesaler or retailer) is that someone is
always trying to eliminate them.
▪ So-called experts have been predicting for that with the current level of education,
technology, and communication, consumers could conduct business directly with
suppliers, and middlemen would gradually disappear because they were no longer
needed
▪ The experts have been wrong; intermediaries are doing more business than ever before,
while at the same time there has been an increase in direct selling.
▪ Despite the many predications that the travel agent would disappear, the species is alive
and well and will adapt to the changing marketplace and survive.
▪ The travel industry cannot get along without travel agents, and they will continue to
save clients time and money far into the future
▪ Travel agents are still the leading distributors of travel products and services
▪ High tech requires high touch. In this day and age of the information superhighway,
virtual reality, cyberspace, ticket-less travel, e-mail, paging devices, and the internet, it is
the professional, knowledgeable travel agent who can provide both high tech and high
touch.
 ▪ A knowledgeable travel agent can provide timesaving, cost-saving, pleasure-adding
ingredients that cannot be achieved via technology
▪ Travel agents are adapting to new ways of doing business. They are shifting their
shifting their revenue sources from the airlines to the other suppliers.
▪ The consumer will continue to rely on agents for trip information, planning, and
booking because they offer valuable professional services that save time and money

▪ Agents (including online) book a majority of all air travel, 25% of hotel reservation,
95% of all cruise reservations, 40% of rental cars, and 90% of tour packages. Agents are
the best professionals

▪ Another factor supporting travel agents is that the industry is one of the relatively few
business that have used computers for years and know the value of computer technology
Internet as a Channel of Distribution
▪ In today’s marketplace, it is necessary to talk about the Internet as a
channel of distribution
▪ It makes direct selling from the suppliers to the consumer more
possible than ever before.
▪ We have witnessed the coming of computers, central reservation
systems (CSR), fax, smart cards, videos, CD ROMs, and the impact they
have had on the travel distribution process
▪ However, the newest technology entrant is attracting more attention
and has more potential than any of its predecessors. It is internet
▪ As an evolving communications and booking tool, the internet is
delivering on its vast potential because travel is an information based
product.
▪ The Web gives consumers the information and power to plan and book
▪ The Web also gives travel agents and tour operators the
opportunity to have their own sites and greatly expands their
reach.

▪ The Web gives suppliers (airlines, hotels, rental car

companies, cruise lines, attractions, and so on) a direct sales
channel that can reduce distribution costs by having the
consumer do the booking.

▪ Consequently, the Internet is a relatively new marketing

medium.
Limitation of Internet

▪ Despite its great potential, the Internet has limitations

▪ While it is high tech, it is not high touch.

▪ It produces overwhelming amount of information- more than the

consumer can digest.

▪ Keeping information current on different web sites is a

formidable task
 ▪ Speed and ease of use of Internet still need to be improved

▪ Right to privacy and security is a concern to many users.

▪ Definition: The tour wholesaler (also called tour operator) puts together
a tour and all of its components and sells the tour through his or her own
company, through retail outlets, and/or through approved retail travel
agencies.
▪ Tour wholesaling became an important segment of the travel industry
after World War II.
▪ It has expanded substantially since 1960s.
▪ The tour wholesale business consists primarily of planning, preparing,
and making a vacation tour, including making reservations and
consolidating transportation and ground services into a tour assembled
for a departure date to specific destination.
▪ Tours are than sold to the public through retail outlets such as travel
agents and airline ticket offices.
▪ They provide the retailer and the public with a wide selection of tours
to a large number of destinations at varying costs for varying durations,
Kinds of Tour Wholesaling Business
▪ The independent tour wholesaler
▪ The airline working in close cooperation with a tour
wholesaling business
▪ The retail travel agent who packages tours for its
clients
▪ The operator of motor coach tours
Specialty Channels
▪ Specialty intermediaries include such organizations as incentive travel
firms, business, meeting and convention planners corporate travel
offices, association executives, hotel representatives, travel consultants,
and supplier sales offices.
▪ While specialty intermediaries are a small force in distribution
compared to travel agencies, they have considerable power to influence
when, where, and how people travel.
▪ Such groups can represent either buyers or sellers, receiving either a
commission or a salary from their employer.
▪ They are expert in their particular aspect of travel.
▪ As tourism becomes more specialized, these types of channel will
become increasingly important.