Chapter 4:

Agency-Supplier Relations
4.1 Negotiation and Contract

4.2 Agency Income

4.3 Direct Booking System via CRS/ GDS/

Database Marketing/ the Internet and
Company Website

4.4 Agency-Suppliers Legal Aspects

4.0 INTRODUCTION

Agency as a legal concept is a relationship between two persons or companies in

which one of them, the agent is authorized by the other, the principal, to act on his or
her behalf. In the travel industry, the airlines, tour operators, hotels, steamship and
cruise lines, the car rental companies are the principals and the retail travel agency is
the agent.

Suits against travel agencies have been increasing due to a combination of factors:

i. Growing depersonalization of service

ii. Rise of consumerism movement
iii. Increased accessibility to and low cost of small claims courts

To avoid potentially costly and time-consuming litigation, the manager must know:

i. The agency’s responsibilities ensuing from relationships with clients,

suppliers, employees and others

ii. Rights accrued to the agency

4.1 NEGOTIATIONS AND CONTRACT

Negotiations is the process by which a meeting planner and hotel representatives (or
other supplier) reach an agreement on the terms and conditions that will govern their
relationship before, during, and after a meeting, convention, exposition or event.

Contract is an agreement between two or more person consisting of promise or mutual

promises which the law will enforce, or the performance of which the law recognize as
a duty.

Disclosure

In acting as an agent for a specified principal (tour operator, hotel, air carrier) it is
important for the agent to disclose the principal, that is, to inform clients that he or she
is merely acting in the role of agent for the principal. With disclosure, the agent has
taken a major step in avoiding liability by obtaining implicit consent from the clients to
use the travel supplier.

For example, when the clients purchase a packaged tour, they are not always aware
that the travel agent represents a principal (tour operator), hence they may assume
that the travel agent is acting on the agent’s own behalf and is liable for any breach of
contract (failure to perform) or any harm caused by the travel supplier. Although a
contract made between the client and the disclosed principal is generally still binding
 on the principal, courts have often interpreted the contract to be binding on the agent
as well because of the failure to disclose.

Figure 4.1: A sample of consumer disclosure notice.

TRAVEL AGENTS’ CONSUMER DISCLOSURE NOTICE

(To be printed on invoice, ticket jacket or computerized itinerary)

(Name of Travel Agency) is acting as intermediary and agent for suppliers (“principals”
identified on the attached or accompanying documents) in selling services, or in accepting
reservations or bookings for services which are not directly supplied by this travel agency
(such as air carriage, hotel accommodations, ground transportation, meals, tours, cruises,
etc.). This agency shall not be responsible for breach of contract or any intentional or
careless actions or damage, delay, or injury to you or your travel companions or group
members. Unless the term “guaranteed” is specifically stated in writing on your ticket,
invoice, or reservation itinerary, we do not guarantee any of such suppliers’ rates,
bookings or reservations. The travel agent shall not be liable for any injuries, damages or
losses caused to any traveler in connection with terrorist activities, social or labor unrest,
mechanical or construction difficulties, diseases, local laws, climatic conditions, abnormal
conditions outside the travel agent’s control. By embarking his/her travel, the traveler/s
voluntarily assumes all risks involved with such travel, whether expected or unexpected.
The traveler is hereby warned of such risks and is advised to appropriate insurance
coverage against them. Your retention of tickets, reservations or bookings after issuance
shall constitute a consent to the above, and an agreement on your part to convey the
contents here to your travel companions or group members.

*Source: Alexander Anolik. The Law and the Travel Industry, Vol. 11 (San Francisco:
Alchemy Books, 1987), p. 1-29.
Termination of Contract

An agency-principal agreement may be terminated in various ways. Agreements

between agents and travel suppliers made for a specified period of time terminate at
the end of the expiration date. When no expiration date is stated, the courts have
permitted the agreement to lapse after a reasonable length of time has passed and
there has been no activity between the two parties that could keep the contract in
force.

An agent’s authority can be revoked by the principal at any time. However the principal
is liable for any losses the agent suffers under the existing agreement. The principal
must also notify all third parties involved that the agency’s authority has been revoked
to avoid the responsibility of continuing liability. The agent has the option to renounce
an agreement at any time as well; in this case, the agent is subject the same liability as
the principal when the principal revokes the agreement. The principal-agency
agreement may also be terminated upon the death of either agent or principal and for
reasons of bankruptcy, insanity or other incapacity to perform by either party.

Travel Agent as Principal

The agent assumes the role of tour operator or promoter of travel shows or in other
business situations in which the agency represents itself, the travel agent may be
legally interpreted as acting as a principal. One major difference between agent and
principal is that the principal acts for itself for profit whereas the agent is generally a
sales representative working on commission for suppliers and does not own or
produce the travel product.

If the agency decides to purchase products outrights for resale at a profit or to create
its own agency package tours, the travel agent if effect becomes the owner (principal)
of the travel product and therefore assumes responsibility for product liability.

Relationship with Clients

When the travel agent has acted fully within the scope of his or her authority and has
properly disclosed the fact of his or her agency capacity and the identity of principal(s),
the agent has no actual contractual liability. In a legal aspect, client and principal are
bound to each other. However, because clients make travel arrangements and ticket
purchases through travel agents, many feel that the agency should bear some
responsibility for the harmful principals and consequently numerous lawsuits are filed
against travel agencies.

It should be noted that some responsibilities of the agent not transferred to the simply
by the disclosure. The agent is still liable to third parties for damages resulting from
any false or misleading statements made on the agent’s part, for fraud or
 misinterpretation, and for breach of contract, if any between the agent and client. As
previously noted, an agent may also be liable for any statements made with regard to
the quality of travel products, especially if these statements appear to be based on the
agent’s expertise rather than information printed in a brochure. When people use
travel agencies for professional services, they feel they have the right to expect that
the services rendered or advice given will be informed, knowledgeable and accurate.

Strictly Liability

Many disgruntled travellers have tried to convince the courts that the principle of “strict
liability” should be applied to travel agencies, whereby travel agents would be held liable
for any damages suffered by clients regardless of any negligence on the agent’s part.
This would mean that legally the agency would be viewed as an “insurer” of the quality or
safety of travel regardless of fault. The following examples and composites of actual court
cases illustrate the relationship existing between the agent and the client and why there
is a need to take preventive steps to avoid potential problems.

Disclaimers

To avoid legal predicaments in the event that problems arise in the client’s planned or
expected itinerary, travel agents should use disclaimers and other prospective measures.
All disclaimers should be drawn up a qualified travel attorney. The disclaimer is an
agreement whereby one party to a transaction (the client) declares that he or she will
release the other party (the agent) from liability and responsibility for the transaction
under certain stated conditions. Disclaimers aside, it should be reiterated that travel
agencies do not have responsibility for the negligent acts, bankruptcy and other defaults
of travel product suppliers.
Risk Management

The selling of travel has many inherent risks, for there are many aspects over which
the agency has no control. Risk management incorporates the business activities of
planning, organizing, directing, and controlling the agency’s resources to safeguard
against potentially losses. Risk can be defined as a chance of financial loss resulting
from many possible causes; fire, theft, death of an owner or key employee, computer
breakdown, employment problems, or, legal damages paid for a mistake or negligence
on the part of the agency.

The process of risk management incorporates four steps:

1) Identification of potential risks

2) Assessment of degree and impact of potential risks
3) Decision to assume, avoid, or transfer risk
4) Action implementation

As a first step, travel agency should make an effort to identify all potential risk to its
business which should then be evaluated in terms of their probability, frequency,
severity and impact.

In dealing with identified and evaluated risks, the agency has two choices. It may
decide to accept the risk through internal control and self-insurance or to transfer the
risk through insurance. Usually combination of both options will be exercised, as it is a
rare business that can afford to fully self-insure in modern practice. Managers need to
impress on their employees that dealing with risk management is every employee’s
responsibility. Employees should become so familiar with risk-management
procedures that their application becomes almost second nature.
4.1.1 Tour Wholesaler

Tour wholesalers specialize in designing tour offerings that are marketed through retail
travel agencies, not dealing directly with consumers unless they also operate a retail
division. A key distinction between wholesalers and retail agencies is that a wholesaler
will contract for services from suppliers such as airlines and hotels in large volume in
order to achieve lower cost per unit then repackage the services for resale through
retail travel agents. The success of a wholesale operator is dependent upon its ability
to design and market tour packages that meet the needs of the traveling public.

4.1.2 Tour Operators

Tour operators may sell directly to travellers upon arrival at their destination or market
their tours through retail travel agencies as wholesalers. Tour operators referred to as
”ground operators” provide services at the destination only and usually do not package
or market transportation to or from the destination. A tour operator offers a variety of
packages for individuals or groups, either escorted or unescorted. However, with
today's’ low discount fares and bulk fare contracts, individuals can travel inexpensively
by themselves. Wholesale travel agencies and tour operators have met this challenge
by offering flexible packages than be varied to suit the individual needs of the travel
agency's clients.

4.1.3 Retail Travel Agency

Retail travel agent act as agents for travel suppliers such as airlines, cruise ship lines,
hotels, car rentals, and railroads. Retail agency receives commission from suppliers for
selling their products and services. Like other retail businesses, retail travel agencies
sell directly to the consumer but do not take ownership or have any advance
commitment to purchase services from an its suppliers. A retail agency will usually not
purchase services from airlines until a client already has paid for the travel services he
or she has requested.

4.2 AGENCY INCOME

A travel agency is a business firm to generate revenue through various sources of

revenue as it is diversified in case of modern travel agents. All those profits are
derived from the sources of commissions as travel agents or tour operators run the
business for obtaining commission. Tour operators work for mark-up besides
commission from various primary service providers. The amount of commission is
determined by the kind of network that a travel intermediary establishes during the
course of running business.

A travel agent tries to find various traditional source of earning revenue along with the
emerging ways of maximizing revenue through commissions. It is however certain that
business expansion plan of a travel agent is determined by the amount of net profits
that can be maximized in a particular period. However, various traditional sources of
income are still considered as core business strength. Commissions of travel agents
and tour operators largely comprise sale of air, train, bus and ferry tickets, car rentals,
sale of package tours, booking of hotels, insurance and foreign exchange.

The niche areas include meetings, incentives, travels, conferences, exhibitions and
expositions, educational tours, event management and thematic tours. These are all
one or other forms of organized inclusive package tours for group and individual
travelers. Moreover, the emerging sources of business include group inclusive tours
(GIT) and independent package tours for FIT

In the good old days, a large portion of travel agency income came from commissions
from airlines. Since tickets were expensive, in demand, and could only be ticketed by
agents or the airlines, they were the bread and butter of any agency. Their revenue
came from the commissions earned from selling travel products. However, when
airline commissions were cut in the 1990s, the main revenue base of travel agents
disappeared. This has affected the travel agency business tremendously.

Commissions from the sale of domestic and outbound package tours constitute the
main source of income of travel agents. An increasing number of travel agents focus
on taking franchise or GSA for dealing with packaging services for revenue
maximization.

In the present travel agency business environment, negotiation with airlines or hotels
for the sale of airline seats and rooms in bulk has created a new type of agent i.e.
consolidators. These large consolidators are retailing individual element or group
services with a mark-up that helps the travel agents to increase the average sale and
profits. Lower revenue during the lean period can be balanced with the huge sale
during peak period.

The emerging sources of revenue are generated from MICE activities, travel
counselling, online booking and consultancy services to corporate houses. In the cut-
throat competition, specialized services are given much care so as to keep maintaining
the level of profit even during the off-season.

The amount of profit is a direct function of a travel agent’s capacity to make

negotiations with the primary service providers for special rates or commissions for the
bulk sale. Figure illustrates about linkage of profit sharing through various transactions
between travel agents and tour operators and primary service providers.
Commissions

Nowadays, the agency still makes money on airline, hotel and car commissions in
certain classes of service or on certain routings, and net/private fares. For corporate
agencies, airline tickets are their lifeblood and not selling airline tickets after
commission cuts was out of the question.

Several areas of a travel agency’s focus pay commissions to the agency which
becomes its principal income. These are mainly car rentals, cruise lines, hotels,
railways, sightseeing tours, tour operators, etc. A fixed percentage of the main element
of the price is paid to the agent as a commission. Commissions are not paid on the
Tax component of the price.
However regarding air travel, commissions are becoming a thing of the past. In the
United States, most airlines pay no commission at all to travel agencies. In this case,
an agency usually adds a service fee to the net price.

Consultation fees and service fees are becoming more common as agencies try to
diversify income sources to become less dependent on supplier commissions and
boost their bottom line. This is mainly for leisure travel agencies’, as an additional to
their main revenue from commissions of vacation packages, cruises, and other add-
ons.

1) Commission from the Sale of Package Tour

Selling package tour has become an appealing business option for travel agents.
There is a growing demand for organized domestic, inbound and outbound package
tours from branded travel companies. Travel agents sell package tours directly to
customers on the price printed on tour brochures. Tour operators or wholesalers
appoint retail travel agents to sell package tours on the basis of various terms and
conditions.

For sale of package tours, tour operators offer 10 per cent commission on the total
sale of package tours along with incentives for making target sale. For example,
Thomas Cook and Raj Travels reach out customers at various small towns and cities
through their authorized travel agents.

2) Commission from Hotel Room Reservation

Travel agents generally find the sale of hotel rooms for certain duration very lucrative
and attractive as compared to other sources of income. Even though online bookings
are made available directly for customers, all categories of accommodation operators
also consider the sale of rooms through retail travel agents very convenient and
feasible. Hotels offer 10 per cent to 20 per cent commission for the sale of room along
with special offers to tour operators for the bulk sale of rooms and free rooms to group
leaders or executives of travel agents.

3) Commission for Booking of Transport

Earning commission for reservation of ground transport is a traditional source that

each travel agent heavily depends while booking different types of transports for their
own clients. There are transport operators having hundreds of vehicles for running on
hiring purpose. Tour operators hire from them for city sightseeing and excursion
purposes. Transport operators offer 10 per cent commission on the total transaction of
booking of transport service.

4) Profits from Organizing MICE Activities

Travel agents also organize MICE activities for business houses and companies.
Specialized event management companies deal with trade fair, exhibitions,
conference, conventions, congress, political rally, yoga camp and meetings of different
scale and size.

The wholesalers of these activities promote directly and through retail travel agents.
Event management or destination management companies offer commission to travel
agents. For example, Creative Travel, New Delhi is a wholesale agent or a tour
operator known for its MICE business. For example, The HRG SITA generates
revenues from sale of air tickets, sightseeing tours, hotel bookings, conference hall
bookings, exhibition bookings, ground transport, and outbound tours.

5) Commission from Transaction of Foreign Exchange

Many travel agents and tour operators obtain authorization from Reserve Bank, or in
Malaysia Bank Negara Malaysia (BNM) of for selling and buying of foreign currency. At
the same time, inbound tour operators get authorization for receiving the payments in
foreign currency for sale of package tours foreign nationals whereas outbound tour
operators make the payments in foreign currency to hotels and ground transport
operators.

Thus, travel agents do the retailing of foreign currency directly to customers who plan
to travel abroad. Travel agencies also earn commission from the wholesale foreign
exchange dealer for the transactions of foreign currencies. Most of the foreign
exchange dealers deal with US dollar, Great Britain Pound, Singapore Dollar,
Australian Dollar, Euro, Yen and Franc.
6) Commission from Insurance

Insuring package tours is a part of general insurance. Tour operators take the
insurance services from insurance companies for package tour and suggest the clients
to go for insurance policy covering medical aid on emergency. There are merits of
taking insurance policy while travelling on tour. Insurance companies offer commission
on the insurance policy.

7) Revenue from Bank Interests

This is an implicit way of earning income. This source of income of travel agents and
tour operators must not be ignored as travel agents and tour operators receive
advance payments for booking hotel rooms, airline seats and berth in cruise lines,
airline and train tickets, hiring coach or light vehicles. The payments to all these
agencies are made in a gap between 15 days and three months. Travel agents and
tour operators get time to rotate the money or go for term deposits for which he can
get interest or make the down payments for borrowing loans from banks.

8) Credit and Debit Card

Travel agents take the payments through credit cards or debits as an importance
source of income as they get the commission from banks. Many customers find
convenience to make payments through credit cards when it is acceptable to both. The
concept of travel now and pay latter has gained more acceptances.

9) Financial Benefits of Travel Agency and Tour Operator

It is a noticeable development in travel industry with the rising numbers of users of

internet for booking, cancellation, confirmation and information for hotel rooms, airline
seats, bus tickets, package tours, train tickets, ferry tickets, theatre tickets, etc. It is
user friendly, economical and accessible for all. This has resulted in increased access
to websites of online travel intermediaries and service providers for information,
reservation and cancellation.

There is a concept namely “compensation mix”. It comprises commissions, overrides,

bonuses and other incentives like free air tickets, hotel rooms and family package.
Effective management of travel agency products needs the promotion and marketing
strategies to increase more sales and ensure customer satisfaction. Thus, travel
agencies and tour operating companies are largely benefited from the expansion of
online travel markets and a shift of faith in online transactions of intangible services.
Travel Agency Business Returns

As far as the sources of profitability are concerned, travel agents usually make it
through more sales of services. There can be two ways of increasing the margin of
profits. One way is to increase the sale of each unit of service with minimum profit
margins and other alternative way is to provide unique services with premium price. It
is however clear from the practices of travel agency business that the sources of profit
for a global conglomerate or a small travel agent with limited service do have not
much variation.

Apart from the IATA commission, travel agents earn commissions on other value-
added services such as the sale of foreign exchange, packaged tours, and hotel
bookings. However, such global conglomerates have low operating margins due to the
high overhead costs on salaries, administration and communications. These are the
following sources of commission that travel agencies receive from the transaction of
business.

Travel agents that specialize in custom itineraries may also increase revenue
through net pricing mark-ups and commissions. Agents that build custom trips (FITs)
typically charge higher consultation, trip planning, and/or service fees to compensate.

The top tier travel agencies have generous revenue streams beyond commissions and
fees. Based on their revenue, they can earn overrides from vendors if sales goals are
met. These overrides can come from any number of vendors including airlines, GDSs,
cruise lines, tour operators, car rental companies, and more.
4.3 Connecting to Customers via CRS/ GDS/ Database Marketing/ the Internet and
Company Website

With the rapid expansion of airline networks and operations, there was a need for
integrating the airline ticket booking through technology. Thus, the Global
Distribution System (GDS) has provided solutions to hundreds of airlines in the
world for booking, cancellation and payments of air fare.

It is the Global Distribution System (GDS) that helps in booking the complex air tickets.
The most popular GDS are Amadeus, Galileo, Abacus, Sabre, and world Span. The
GDS works on the VPN (virtual private network) and connects the computers of
passenger sales agents with the reservation systems of different airlines. The payment
through the billing settlement plan of IATA is also done through online. Travel agents
and the GDS have shared a symbiotic relationship for the past two decades. The travel
agency and tour operators establish linkage between tourists and the tour wholesalers,
hotels, and airlines.

There are various ways for the agency to reach out to their customers. These include
the central reservation system, global distribution system, database marketing, sales
support tools and the internet and World Wide Web.

i. Central Reservation System (CRS) has become a mainstay for booking and
reservations at chain hotels, car rental companies, airlines, cruise lines, and now
even restaurants. CRS keeps track of inventory for the entire chain, therefore rates
can be adjusted accordingly.

ii. Global Distribution System (GDS) is a network of worldwide computer reservation

systems for booking hotel,, airline, car rental, and other travel related reservations.
Examples of GDS are Galileo, Sabre, Gemini, Amadeus and Fantasia.

iii. Database Marketing is a driven technology-driven tool used to reach out to targeted
customers in the marketplace. It is precision marketing, a one-on-one sales
approach to individual customers and clients.

iv. The Internet is a communication tool as people use it for various reasons. The
customers use the Internet to learn about the products. It also provides a means for
consumers to purchase their products. Users can send emails messages back and
forth to inquiries on the products availability and making purchases.
v. Company Website. Many agencies set up their own websites on the Web.
Examples including Reliance Travel (www.reliancetravel.com) Mayflower Acme
Tours (www.mayflower.com.my), Asian Overland Services Tours and Travel Sdn
Bhd (www.asianoverland.com.my). The company websites allow the customers to
view their directory, finding out about current promotions, making reservation, and
so on.

How GDS Connects People What is CRS?

4.4 AGENCY-SUPPLIERS LEGAL ASPECTS

The agency relationship can be created in different ways:

i. Agency by conduct – based on the conduct, behaviour of suppliers. For example,

when a tour operator sends travel brochures to an agency and requests that these
brochures to be distributed to the agency customers with the agency’s stamp, the tour
operator is in effect giving authorization for the agency to act on its behalf to sell tours.

ii. Agency by ratifications – if a supplier accept reservation via reservation system

such as the ABACUS or AMEDEUS, even though the travel agency may not be an
official agency of the supplier.

iii. Agency by Necessity - During an emergency, it is possible to establish an agency-

by-necessity relationship between principal and agent. For instance, during a tour a
situation arise that required medical attention to treat an injured passenger, the tour
group leader could approve an emergency treatment.

iv. Agency by authorization - most common form of relationship between travel

agencies and air carriers, where the principal officially appointed/authorized the
agency as their agent to sell their travel products and services.

Potential Liability Issues

Constantly changing airfares and schedules, literally thousands of available vacation

packages, and a vast amount of travel information on the Internet can make travel
planning frustrating and time-consuming for travellers. To sort out their options, tourists
and businesspeople often turn to travel agents. They act on behalf of a principal. For
example, when a travel agent acts on behalf of a tour company (the principal) when selling
a tour to the travel agent’s client, the principal will be bound by the actions of the travel
agent. In turn, the travel agent will be responsible for informing the client about the identity
of the tour companies. Travel agents routinely act as agents for airlines, hotels, car rental
agencies, and others. Thus, they have a duty to both their clients and their principals.
Common areas of potential travel agent liability, and, as a result, possible litigation, have
revolved around five issues:

1) Failure to provide promised services.

When a travel agent books a service for its client (the traveller) from a travel services
provider, the agent should be confident about the ability of the provider to deliver as
promised. That said, not all failures to provide services result in travel agent liability. For
example, if a travel agent, in good faith, books a client at a Hilton hotel that normally
operates a swimming pool, yet at check-in the guest discovers that the pool is closed for
repairs, the agent is unlikely to be held responsible for this event because the client could
reasonably foresee that such events happen at hotels. If, on the other hand, the travel
agent booked, for the same client, a whirlpool suite at the hotel knowing that the hotel did
not have whirlpool suites, the travel agent would likely be held liable for the inability of the
hotel to provide the promised services. Travel agents have a duty to exercise reasonable
care when promising specific travel services will be available from specific travel service
providers.

2) Failure to honour agreed-upon pricing.

The ability of a travel agent in one part of the world to control the pricing behaviour of a
travel service provider in another part of the world is often quite limited. As a result, the
traveller who paid a travel agent $100 to secure a hotel room reservation in a foreign
country could, upon arrival at the hotel, be forced to pay additional monies before the hotel
will actually honour the reservation. In such a situation, the traveller might have no
immediate option except to pay the additional amount. He or she would likely, however,
have a claim against the travel agent for failure to secure the services purchased at the
agreed-on price. To avoid such situations, travel agents should deal only with reputable
hotels, as well as any other providers of travel services.

3) Misrepresentation.

Travel agents generally are paid only upon the sale of a travel service. Unfortunately, this
causes unscrupulous travel agents to intentionally misrepresent the services they market
in order to make more sales, and thus more personal income. When they do so and are
caught, they face potential liability. However, actual liability in this area is not always easy
to determine. For example, Florida is known worldwide as the sunshine state, yet it rains
there in some months more than in others. If a travel agent represents to a client living in
Vermont that a vacation to Florida during one of the rainy months, would be a chance to
“escape to the sunshine,” it might be unclear as to whether this statement constituted
actual misrepresentation on the agent’s part or was in fact a legal marketing effort
designed to generate vacation sales, and thus agent commissions. It is highly unlikely that
a jury would hold a travel agent responsible for the weather in Florida, but that same agent
might be held responsible if it could be established that the agent wilfully misrepresented
the facts about Florida weather during a specific time period in order to sell more Florida
tours.

4) Failure to discover and disclose.

Travel agents generally are not held liable for the negligent acts of the hotels, restaurants,
airlines, and other travel service providers they represent, but they are responsible for
informing clients about known hazards and risks. Thus, the travel agent who sells an
excursion package for a rafting trip down a river would be required to disclose, if it were
known, that, typically, several couples, per rafting season, drown on the same trip. The
failure to discover and disclose such information puts the travel agent (as well as the
clients!) at risk. To avoid this risk, travel agents must become knowledgeable about the
products they sell, then they must be forthright with their clients about what they know. In
addition, travel agents are liable for disclosing information that could be interpreted as
creating a conflict of interest, which could be detrimental to the interests of their client. For
example, if the travel agent is also acting as a tour operator selling its own packages to its
travel agent clients, it must disclose this fact.

5) Negligence.

Faced with the difficulties involved with relying on other parties to provide the services they
sell, travel agents have, commonly, sought to limit their liability exposure through the use
of contracts that include exculpatory clauses or disclaimers. As noted in Chapter 2,
however, the courts are not likely to limit a travel agent’s liability via the use of exculpatory
clauses or disclaimers when it can be proved that the agent exhibited negligence or gross
negligence when interacting with his or her clients.

6) Non-payment for prearranged services.

As a hospitality manager, you are most likely to interact with tour operators when they
contract with you for food or lodging services. In most cases, the terms of such
agreements are subject to the traditional tenets of contract law. Nevertheless,
disagreements can arise, so the best practice for restaurant and hotel managers is to seek
payment from tour operators for the services they are to render before those services are
supplied. Clearly, it is more difficult for a hotel or restaurant to collect payments due to
them after services have been provided than it would be if payment were required in
advance. Payment terms of contracts with tour operators should be clearly spelled out in
any agreements made.

7) Adhesion contracts.

An adhesion contract exists when one party to the contract dictates its nonnegotiable
terms to the other party. If the terms of the contract are so one-sided as to be deemed
unconscionable by the courts, the offending portion—or, in some cases, all of the contract
terms— will be set aside, and the contract interpreted as the court sees appropriate.
Because a tour operator’s booking conditions often fi t the profile of an adhesion
contract—that is, tour buyers are often offered a “take it or leave it” form to sign when
selecting a tour—it is important that tour operators offer contracts that will be deemed by
the courts to be fair to both parties. Thus, excessive cancellation or change fees, broad
liability disclaimers, and unreadable fi ne print (so small it can be assumed to have been
used to put off buyers) should be avoided in tour operator contracts.

8) Liability for injury or accident.

Despite all the advances made by the travel industry, travel can still be dangerous. This is
especially true in this day of worldwide terrorist activities that are purportedly directed
toward specific governments, but inevitably strike individual travellers on a random basis.

In addition, many tour activities such as rock or mountain climbing, skiing, motorized
sports, or hunting are all inherently risky, regardless of the safety precautions taken. In
cases such as these, and even in tours that involve no more strenuous or dangerous an
activity than walking, accidents will happen, dangerous unforeseen as well as foreseen
events will occur, and even the weather may cause injury or accident. All these raise the
question of liability, especially for tour operators who, in most cases, contract for, rather
than directly provide, the services they sell. Generally, the courts will not hold tour
operators liable for the negligent actions of travel services suppliers unless they are owned
by the tour operator. Tour operators will be held liable, however, for their own negligence.

9) Overbooking

Just as hotels can sometimes miscalculate their occupancy forecasts and oversell their
capacity, so too can airlines and rental car companies. Thus, hotel managers often find
themselves housing guests who are affected by the overbooking of a transportation
provider. In many such cases, guests are understandably upset and, consequently, may
express much more dissatisfaction with their accommodations than would a guest whose
travel plans had not been disrupted by overbooking. When this happens, it is important for
the hotel manager to understand that the client paying for the hotel’s services (generally,
the transportation provider) is in an unfortunate situation, as is the guest staying in the
hotel, and that both parties should be accommodated in the best manner possible. U.S.
federal regulations do not require any compensation be made for a delayed or cancelled
flight if the delay or cancellation is due to circumstances beyond the airline’s control, such
as inclement weather. For other kinds of delays and schedule interruptions, each airline
has its own policies on offering compensation for a passenger.

Those policies are either included with the paperwork associated with passenger tickets or
are available from an airline’s airport or ticket offices. Typical compensation offered for a
delayed flight may range from free meals to hotel accommodations. When faced with a
delay, passengers should either review the airline’s policy or obtain a copy of the policy to
see what compensation is available. Federal law specifically allows airlines to overbook
flights to allow for no-show passengers. But when passengers are involuntarily bumped,
airlines are first required to request volunteers to give up their seats in exchange for
compensation. Involuntarily bumped passengers are subject to minimum compensation
as follows:
 • No compensation if alternative transportation is available to get the passenger to his
or her destination within one hour of the original scheduled arrival.

• The equivalent of the passenger’s one-way fare up to a maximum of $200 for

substitute domestic flights that arrive between one and two hours after the original
scheduled arrival time, or for substitute international flights that arrive between one
and four hours after the original scheduled arrival time.

• If the substitute transportation is scheduled to get the passenger to his or her

destination more than two hours later (four hours internationally), or if the airline
does not make any substitute travel arrangements, the compensation doubles, to a
maximum of $400.

10) Responsibility for Baggage

With millions of people traveling each year, it is inevitable that some of those travellers get
separated from their luggage. Also, despite their best efforts, common carriers may
damage baggage that has been entrusted to them. Airlines, by far, handle the greatest
amount of passenger luggage. Thus, airlines flying domestic routes may, as part of their
tariffs, set limits on the amount they will pay for lost or damaged bags. For travel wholly
between U.S. points, federal rules require any limit on an airline’s total baggage liability to
be at least $2,500 per passenger; and this information must be communicated to the
passenger. For international flights, provisions of the Warsaw Convention limit liability for
lost or damaged baggage unless a higher value is declared in advance and additional
charges are paid. The limit for most international travel is approximately $9 per pound for
checked baggage and $400
for unchecked baggage.

Baggage that has been lost is an inconvenience to both the traveller and the business
responsible for the loss. Hospitality managers hosting travellers who have lost their
luggage should, of course, ensure that their operations will do all they can to assist these
travellers.

11) Unplanned Changes in Itinerary

Travel plans can be disrupted by a variety of factors, some controllable, some not.
Inclement weather, mechanical failures, traffic congestion, and human error can all disrupt
travel plans, resulting in losses of both time and money. For example, if a couple’s flight
delay means they miss a cruise ship departure, an entire vacation may be in jeopardy.
Regardless of who is responsible, when travel plans are disrupted, those in the restaurant
and hotel business may be affected. Meals may be delayed or cancelled, hotel rooms may
go unused, or, when travel departure plans are disrupted, a hotel may be overbooked.
Managers must be sensitive to the needs of the inconvenienced traveller, as well as the
needs of their own business. The best time to address the potential difficulties that could
result from unanticipated itinerary changes is prior to signing a contract with a service
provider. For example, assume that a restaurant agrees to serve dinner to a sports team
traveling from one state to another. The 45-person team is scheduled to arrive at the
restaurant at 6:00 P.M. The food for the group is prepared and the dining area reserved.
But due to mechanical trouble with the bus used to transport the players, the team is
stranded 100 miles away and elects to eat dinner in the town where the bus has broken
down. The terms of the contract signed between the restaurant and the team’s
representative will dictate what level, if any, of charges will be assessed by the restaurant.

REFERENCES

1. Chuck Y. Gee, James C. Makens, Dexter J. L. Choy (1996) The Travel Industry 3”
ed. John Wiley & Sons, Inc.

2. Laurence Stevens (1990) Guide to Starting and Operating a Successful Travel

Agency 3'” ed. Delmar Publishers Inc.

3. Shaw & Morris (2000) Hospitality Sales: A Marketing Approach John Wiley & Sons,
Inc

4. http://hostagencyreviews.com/how-do-travel-agents-make-money/

5. Legal Responsibilities in Travel And Tourism, WTTC Research Report.

6. The Four Global Distribution Systems in the Travel and Tourism Industry

7. World Tourism Impact 2019.