Chapter 3

Travel Agency Operations and Services

Learning Objectives

As a future frontline professional, this chapter will broaden your perspective for you will be able to:

define the terms and jargon being used in travel agency operations;

identify the different specializations of travel agencies;

differentiate the types of travel agencies based on distribution channels;

identify the departments in a travel agency and the functions of each;

understand the advantages of an online travel agency as a distribution channel for travel services;

discuss the importance of GDS in the travel industry;

and recognize and explain the aims of known travel agency associations.

Take-off

Assessing your future career plans, do you envision yourself working in a travel agency someday? Based
on your knowledge and skills, what are your qualifications that may serve as your edge working as a
professional in this kind of business? Name some of the leading commercialized travel agencies that you
know and cite the services that they offer to travelers.

What is a travel agency?

A travel agency is a company or business that does arrangements. Packaging and costing of travel-
related services for traveling clients, travel insurance, documentation and tours that can be availed and
of travel re-accommodation, transfers serailed separately or good as one known as a travel package.
These businesses acquire and sell services on behalf of affiliate suppliers such as airlines. hotels,
attractions and tour operators.

A travel agent, by definition, is a person whose job is to arrange and book for services that are needed
by a traveling client including but not limited to airlines, hotels, transfer services, tours and travel
insurance. His roles are to act as a personified intermediary between the supplier and traveler for a
simplified and more convenient process of transaction and to provide consultation services and
extensive information for the traveling client. A travel agent can be a self-employed professional,
employed in a travel agency as an associate, or an affiliate of a travel agency consortia.

However, the frontline team of some travel agencies may have varying positions with respective
functions on hand. In most cases, the following are the titles or positions of frontline personnel in the
travel agency businesses.

1. Travel Agent is the one who does the usual packaging of the travel service components that are
required by a customer. He ensures that all the necessary inclusions are covered including the major and
ancillary services that the customer will be needing during the duration of the travel. This position
requires strategic, creative and technical skills together with sufficient knowledge on travel service
suppliers' operations and management.

2. Travel Counselor/Consultant as the name implies, provides "advice" as the main value proposition of
the service. This position requires a rich knowledge on economic, socio-cultural and most especially in
geographical aspect for a consultant acts as a "walking atlas" being a source of essential travel
information. In order to close deals with the clients, an enthusiastic character, persuasive
communication and organization skill are additional edging factors.

3. Ticketing Officer is a specialist assigned for booking the transportation requirements of a traveling
customer that facilitates the reservation and confirmation of "tickets" for the customers. The suppliers
of transportation services such as airlines are now using Global Distribution System (GDS) for a wider
reach of service distribution channels, thus, technical skill in this area is a must for this position. For
instance, most travel agencies require job specifications for ticketing officer applicants who must have
undergone at least a training certification on Amadeus system, the industry's universally used GDS.

4. Reservations Associate is a "supplier-customer link" staff whose primary task is to handle purchase
orders with the suppliers of the travel agency. All too often, these associates are delegated to thepective
accounts and services as the suppliers may have varying requirements and operational procedures to
follow. Specifically, some destinations may have varying regulations in compliance with carrying capacity
of tourists whereas hotels may also have differences in terms of cancellation and finalization policies
that must be known to the agency and their customers.

These personnel of travel agencies are the ones who facilitate booking transactions with customers that
may come in different means such as personal or walk-in, over the phone, e-mail, and worldwide web
platforms such as website and social media.

Areas of Specialization of Travel Agencies

Travel agency as a business may have various specializations targeting a particular market in which
products and services are designed to. The following enlists the most common specializations of travel
agencies in the industry.

1. Leisure Travel

2. Luxury Cruise Voyage

3. Corporate Travel

4. Pilgrimage

Leisure Travel

This specialization involves a segment of travel business focused on recreation, adventure,

entertainment, sports and gaming for a vacation or holiday break. The most common market of this
specialization are couples, family, group and FITs (free independent travelers).

Luxury Cruise Voyage

Cruise voyage is an emerging travel specialization among agencies nowadays due to its increasing
demand. This type of travel is intended for leisure purposes with an all-inclusive holiday vacation on a
cruise ship that usually lasts for weeks or months depending on a specific itinerary availed by the
passenger. This service caters the market in a higher socio-economic class of higher income. Popular
cruise destinations are normally centered on Caribbean, Alaska, Asia, Hawaii and South Pacific.

Corporate Travel

This is a particular specialization of travel arrangements designed for corporate personnel for their
business travels (mostly conferences and meetings) which services usually include arranged flight and
accommodation with special features such as business class seats in airlines and access to the Business
Center in the hotel. For large travel agencies that offer this type of specialization, a separate agent is
designated solely to handle corporate accounts as the business clients may have different travel
requirements compared to an ordinary traveler.

Pilgrimage

Another emerging type of specialization among travel agencies with high demand is coming from
religious travelers, the pilgrims. Pilgrimage is a type of tourism that intensely motivates travelers for the
achievement of religious attitudes and practices. Holy Land Pilgrimage is one of the world's largest
source of pilgrims' arrival in today's market that is becoming more influential in creating spiritual and
heritage experience among Christian believers.

Types of Travel Agency based on Distribution Channel

Basically, travel agencies can be classified into two types based on their product distribution with a
specific target market to cater. An agency can be either a retailer and/or a wholesaler travel agency.

Retail Travel Agency

A retailing travel agency offers services directly to the public consumer on behalf of the suppliers that in
return gets commission from the selling rate or puts mark-up from the agreed contracted rate. When
the travel agency gets a commission, it means that the agency will be selling the supplier's product at
the actual selling rate which upon billing, the former will deduct an agreed percentage of commission
less from the rate. On the other hand, the mark-up is applied when the supplier and the agency had an
agreed contracted rate also known as industry rate (usually lower than the actual selling price) where
the latter adds a mark-up to the contracted rate as its profit for the transaction.
Simply put:

contracted rate + mark-up % = selling price commission = selling price - commission %

Wholesale Travel Agency

These agencies offer travel services that are acquired from their suppliers in bulk. Applicable in all types
of businesses, bulk purchase entails lower cost thus, resulting in a more competitive selling price in the
market. All too often, wholesale travel agencies are a larger entity of business and of high goodwill for
them to earn trust and network in the industry. They assemble travel packages and sell them through
their affiliate retail travel agencies. Some large travel agencies offer both retailing and wholesaling
handled by two departments with separate agents.

Levels of Distribution Channel for Travel Servicesя

Similar to the flow of distribution channels for typical consumer products, the figure below illustrates
the levels of the distribution channels for travel services. It shows how a travel product reaches the
tourist in three different channels of distribution where a supplier, wholesaler, retailer and tourist (as
the consumers) may be involved.

Figure 2.1 Levels of Distribution Channel

for instance when a tourist is booking online for a flight seat through To comprehensively discuss the
figure illustrated above, simply put the airline's website. With the fact the flight seat was availed by the
tourist directly from the airline (supplier), the distribution passed through Level 1 channel. Assuming
that a tourist walks in a travel agency and booked for a flight, the travel agency (retailer) will then
forward the reservation to the airline (supplier) which will release the itinerary ticket. With such, Level 2
takes place. Level 3 occurs when a tourist requests for a reservation from a travel agency (retailer) that
orders the booking to another travel agency offering bulk-purchase rate (wholesaler) who will reserve
the seat to the airline (supplier).

Take note that not all online transactions are passing through Level 1 channel. Nowadays, travel services
can already be booked through various websites passing through different distribution channels.
Expedia is an example of online travel agency (OTA) that offers flight bookings through their website,
whereas Agoda stands to be one of the leading booking platforms for hotels.

Rate Codes in Travel Agencies

Travel agencies are using different rate codes that may vary depending on the type of market,
availability of service, the quantity of purchase, seasonality and other relevant variables which can be a
pricing and a promotional strategy for them.

1. Rack Rate is the standard selling rate based on the published tariff defined by the supplier.

2. Contracted Rate is a special lower agreed rate written and indicated in the contract signed by the
supplier and the travel agency.

3. Corporate Rate also known as the commercial rate is offered to privileged companies in return to
their frequent purchase transaction with the travel agency as a loyal client.

4. Barter rate is an applicable cost-based rate for two affiliates whose medium of exchange is not by
monetary value but rather by the services that they offer. For instance, a travel agency booking a flight
for one of their personnel may settle the payment to the airline in a form of accommodation, tour,
travel insurance or the likes.

5. ADHOC Rate is usually a lower non-standard special rate which is being offered as an exceptional one-
time rate for special occasion or event.

6. Group rate is commonly offered to groups of travelers (e.g., Barkada Package Rate) used as a pricing
strategy to close a deal at a lower cost but at larger quantity.

1. Promo Rate is a discounted rate offered to a client redeeming an availed promo code that is also
commonly used by low-costaing an

8. Complimentary Rate is a free-of-charge (FOC) rate given to privileged Individuals such as special
guests or rates used in equivalent to gift certificates or vouchers.

9. Early Bird Rate is a time pricing strategy-based rate available for clients who will book for their travel
services as early as specified which are usually months ahead of the travel date.

10. Best Price Guarantee Rate is the lowest discounted rate guaranteed and available for a day offered
to clients which is typically under the book-and-buy policy.

An Organizational View of Travel Agencies

The accomplishment of organizational goals relies heavily on the efficient and tactical arrangement of
personnel and their responsibilities. Travel agencies function systematically in a manner that each
department has respective organizational roles and functions. Established agencies are composed of
departments with a strategically designed flow of operations from supply chain down to bookkeeping
and account reconciliation, while small-scale businesses are in the practice of multi-tasking where the
personnel performs dual functions and roles.

The most common organizational structures of travel agencies can be in a functional or a divisional one.

1. Functional Structure is common from small to medium-scale travel agency businesses where
members of similar job descriptions are grouped together into functional areas such as sales and
marketing, operations and accounting.
The above illustration shows an organizational structure of a typical travel agency where the company is
divided into three subsections namely operations, sales and marketing, and accounting.

The following table shows the functions and job descriptions for each subsection. lover to
Janoitasinayчо пл

The Operations Department functions as the front line of the company. Working in this team requires
technical and good communication skills as the jobs entail direct contact with the clients.

Ticketing

Reservations

Customer Service

does the booking, confirming, amending, finalizing and canceling of flights of the passengers through th
a Global Distribution System (GDS)

does the booking of hotels, tours and

transfers service for guests through a Central

Reservation System (CRS) does the answering of queries and giving out information for inquiring clients

The Sales and Marketing Department acts as the starting point of everything in the business. The people
involved in this team are the ones who look for and affiliate with suppliers, create rapport and maintain
a professional relationship with them hence, requiring one to have a good social skill and pleasing
personality.

Revenue

does the pricing, determination of mark-up and commission, yielding and competitors analysis
Contracting

does contract signing, negotiation and

bargaining with suppliers in terms of

contracted rate and allocations, attends to

meeting and sales call with affiliates

Advertising

Product Development

does multi-media promotions and creates advertising paraphernalia

does the creation of packages, special deals, co-branding products and initiates participation in travel
trades and expositions

unting

ing

The Accounting Department handles all the inflows and outflows of the company's finances. The
functions of this section are debit and credit activities including but not limited to auditing, processing of
refund and reimbursement, handles billing and collection, and cashiering.

Audit

does the reviewing and checking of daily transactions and reports discrepancy concerns

Refund

does the refund and reimbursement processes for amended and canceled transactions

Billing

does the processing of billing clients with postpaid transactions especially for corporate accounts

Cashiering

does the handling of actual and virtual payment transactions that can be through cash, credit card,
check, bank transfers and Paypal; performs security measures in detecting fraudulent transactions
Some large-scale travel agencies have a separate department for administrative staff such as the Human
Resource Department who does the staffing function, overseeing and monitoring the employees'
performance and handling compensation and benefits.

Whereas, in small-scale ones, the manager who, in most cases, is the owner of the agency handles the
administrative functions as these involve heavy decision-making matters.

2. A Divisional Structure can be found in large-scale businesses of travel agencies that handle diverse
operations covering various product types, markets, processes and territories. This kind of
organizational structure is highly applicable for travel agencies offering both retaicture whole services as
these would require different mastery among its personnel when it comes to product knowledge and
operational procedures.

As discussed in the previous page, travel agencies may differ in type based on the level of distribution
channel. The above illustration shows a divided organization based on the product type that the
company offers. Retailers are those that distribute travel services in a Business- to-Consumer (B2C)
commerce whereas, wholesalers distribute the products in a Business-to-Business (B2B) transaction.

With the emergence of contemporary marketing approaches coupled and technological advancement
enters the concept of e-commerce that later had sprouted the advent of online travel agencies (OTAS).

Online Travel Agency (OTA)

Virtual shopping for travel services has become popular nowadays. With the fast-paced technological
innovation, most companies seize the opportunity to offer their products and services in more efficient
and convenient ways. Passengers may now search for flight availability and book seats from airlines in
just one click, while guests may now reserve rooms virtually from hotels providing instant confirmation.
Why do clients prefer to book through online travel agencies if they can book directly through the
websites of the suppliers?

1. Convenient service is a major value proposition of OTAS compared to other distributing entities.
Through the online transactions, a client may easily book for a hotel room without walking-in or
calling for assistance.

2. Efficient transaction takes place through virtual booking as payment can now be settled
online through credit card.

3. Access to real-time availability is also an advantage of booking through OTAs. For instance,
with the help of GDS, airlines are displaying the real time availability of their flight seats to
online bookers.

4. Cheaper rates can be availed through OTAs as these agencies buy the services from their
suppliers in bulk, thus at lesser cost. Hence, the lower the cost, the lower the selling price they
can set for the services to be sold cheaper online.

5. Extended information from OTAs is also a huge help for online bookers. Through them, a
client may extract relevant information, essential ancillary services and other necessary details
that a traveler must know. Moreover, bookers will tend to get more options from OTAs as their
source of comparison in availing the best deal among the service providers.

According to worldtravelawards.com, the following alphabetically enlists the World's Leading

Online Travel Agencies of 2019.

1. Almosafer

2. Booking.com

3. Cheap Air

4. Ctrip.com

5. ebookers.com

6. eDreams

7. Expedia

8. FlightSite

9. Flyin.com

10. Opodo
 11. Orbitzpat

12. Priceline.com

13. Rovia

14. Travelocity

15. Travelstart

Global Distribution System

Global Distribution System, also known as GDS, is a computerized network that enables virtual
transactions between travel services providers and travel agencies. It allows the agents to check on real-
time availability of flight schedules, compare prices, and block, confirm, amend and cancel reservations.

Travel agencies are the major targets of GDS as it serves as a medium of distribution to efficiently deliver
the travel services from the suppliers to the consumers.

The most commonly and universally used GDS that are leading in the industry nowadays are Amadeus,
Sabre and Travelport (the majority owner of Worldspan, Apollo, and Galileo).

Travel Agency Associations in the Philippines and their Roles

Various corporate and professional travel-related associations play a vital role in the industry. Some
associations do accreditation, while the most common objective is to provide valuable contacts and
networking opportunities to its members.

The following enumerates some of the leading travel agency associations in the country and their roles
in the industry.

1. The International Air Transport Association (IATA) founded in 1945 is a trade association of the
world's airlines. It aims to assist airlines and air travelers to have a simplified process, provide
convenience and improve efficiency while reducing costs. The association does accreditation among
travel agencies. Note that more than just flight reservations, IATA accreditation is needed for a travel
agency to "issue" flight tickets.

2. The Philippine Travel Agencies Association (PTAA) founded in 1979 is the country's national travel
union whose mission is to promote welfare to its members and the traveling public. With more than 500
members, the association is prestigiously recognized by international airlines, hotels, resorts, insurance,
cruises and travel agencies.
3. The Philippine Tour Operators Association (PHILTOA), Inc. founded in 1986 is a non-stock and non-
profit nationwide organization of tour operators and allied members that are advocates of responsible
tourism. The members of the association include travel agencies, hotels, resorts, transportation
companies and other tourism- oriented establishments and organizations.

4. The Philippine Department of Tourism (DOT) acts as the executive department of the government
responsible for the regulation of the Philippine tourism and the promotion of the country as a domestic
and international tourist destination. The department sets the accreditation guidelines and criteria for
businesses that belong in the tourism and hospitality industries including hotels, resorts, restaurants,
travel agencies and tour operators.

5. The Philippine Tourism Promotions Board (TPB) under the virtue of Republic Act No. 9593 also known
as The Tourism Act of 2009 was founded to market and promote the Philippines as a world-class tourism
and MICE destination for the domestic and international market. With an established strategic
partnership for both public and private stakeholders, the Board aims to deliver a unique high-value
experience for visitors that significantly contribute to increasing tourist arrivals.

[Chapter 4]

Tour Operations and Services

Learning Objectives

As a future frontline professional, this chapter will broaden your perspective for you will be able to:

define the terms and jargons being used in tour operations;

classify the different types of tours;

understand the operational differences between travel agents and tour operators;

categorize the types of tour operators based on service scope;

classify the types of tours based on varying factors; and

plan, design and create a strategic tour itinerary.

Take-off

Can you still remember the first time that you joined a family or an educational tour? What were the
destinations that you visited and the activities that you have done? Were there people who facilitated
and accompanied you during the trip? Share some of the unforgettable experiences, encounters and
mind- marking learnings that you have gained in joining that tour.
What is a tour?

From the previous discussions, the word 'tour' is defined as a journey or a trip done for the purpose of
pleasure, business, pilgrimage, education or other forms involving series of stops and ending at the
starting point. This chapter will expound further in details the types of tour and how the businesses
offering this type of service run in the industry.

Classifications of Tours

Tours can be classified into two factors either classification based on the purpose of travel or
classification based on the market segment. The classification based on purpose of travel may include
but are not limited to sightseeing, outdoor activity, sporting and adventure, cruise, cultural and heritage,
wellness, honeymoon, pilgrimage, MICE, ecological and special interest tours. These types according to
purpose may, on the other hand, have varying suitability in terms of market segment classified into FITS
(Free Independent Traveler), family or group, business, educational, institutional.

Based on the Purpose of Travel

1. Sightseeing tour is an activity of traveling around a place, to see some interesting and panoramic
places. The most common examples are rolling city tours that follow a certain circuit as guide for
destinations to visit.

2. Outdoor activity tour as the term of classification implies refers to "outside of door" trip usually in
forms of recreation and leisure that requires minimal physical engagement such as swimming, fishing,
and hunting.

3. Sporting and adventure tours can be classified as trips done in purpose of enjoyment, exercise and
challenge encounters that require more physical engagement than just an ordinary outdoor activity. This
includes kayaking, diving, canyoneering, rafting, mountaineering and rock climbing.

4. Cruise tour is an overseas type of tour on board on a cruise ship that usually lasts for days, weeks or
months depending on the type of tour availed. The most common routes pass through Caribbean,
Mediterranean, Alaska and some Asian sea circuits. This also includes land tour of interior destinations
for each port to dock.

5. Cultural and heritage tours are those that involve visiting sites of significant past cultural and
historical identity. This usually includes museums, forts, landmarks, ancestral properties and other pre-
historic establishments.

6. Wellness tour is a form of travel associated with the pursuit of maintaining, enhancing and
rejuvenating one's self in the aspects of physical, mental and emotional health. Most of these
destinations open an opportunity for the travelers to relax and unwind such as springs and baths, spas
and some wellness-themed vacation houses
7. Honeymoon tour, which originated from western traditions, is a type of travel in celebration of newly-
married couples after their nuptials. Some do travel in group together with their friends and family
members and the common destinations of this type are seaside resorts and romantic cities.

8. Pilgrimage tour, one of the oldest forms of travel, is a type of religious trip that roots from the
motivation of achieving and practicing one's spiritual belief and attitude. The destinations under this
type include churches, temples, meccas and other places showcasing religious features and historical
happenings.

9. Meetings, Incentives, Conventions and Exhibitions (MICE) tours are associated with travels aimed for
business, educational and institutional purposes. MICE normally includes programmed and themed
events, seminars and symposium, professional networking and some social affairs. These are commonly
held in conference,

event and convention centers and in large-sized hotels and resorts.

10. Ecological tour, also known as "ecotourism", involves a green- themed travel visiting fragile and
unspoiled natural areas which in purpose is to conserve and preserve environmental features and
resources. This type is usually educational and some of the common places to visit are forests, land and
water forms, caves, and national and wildlife parks.

11. Special interest tour (SIT) is a niche, customized tourism activity designed for special interests of
individuals or groups normally within personal, social and professional aspects. The most common
examples of SITs are in the fields of agriculture, gastronomy, winery and photography.

Based on the Market Segment

1. Free Independent Traveler (FIT) tour is a classification of tour based on market segment that pertains
to travelers who minimally or do not need an assistance from travel intermediaries for as the name
implies, they plan or arrange their own trips. With the huge rise in the availability of travel services
online comes in proportion the rise of this market segment. This classification is commonly in purpose of
sightseeing, outdoor, cultural and honeymoon tours.

2. Family or group tour is another segment that, as the name implies, involves family and or other social
unit that shares the same purpose and interest to travel. Most of the purposes falling under this
segment are travelers in search for sightseeing, outdoor, adventure and special interest tours.

3. Business tour is a type of professional travel all too often related to an individuals or group's business
or work where travelers usually anjoy the privilege of a company-paid travel. The most common enjoy
ses are associated with affiliation such as MICE and leisure that includes sightseeing, outdoor, cultural
and heritage tours.

4. Educational tour is a large segment in the travel industry catering to the educational learning needs of
students usually from high schools, colleges and universities. This type requires a knowledge- gaining
travel usually in the aspects of cultural and ecological tours.
5. Institutional tour represents an even larger scale of account to handle. These are common to private
and public sectors of companies doing team-building activities and professional or social organizations in
which purposes are common to sightseeing, outdoor, MICE and SITS.

The following table shows a matrix of the classifications of tours based on purpose of travel fitting to the
varying market segment.

The classifications of tours according to purpose and based on market segment are important variables
to come up with strategically designed services that are tailored for particular characteristics of tourists
with varying and specific preferences to meet. These are being carefully studied by tour operator
companies in providing excellent tourist experience and satisfaction.

The Difference between Travel Agents and Tour Operators

As you already understand the difference between travel and tour discussed from the previous
chapters, you should also be able to distinguish the differences between a travel agent and a tour
operator, particularly in terms of service, specialization and scope of their businesses.

Both of them are travel arrangers and packagers of tour components, however, on one hand, a travel
agent is a person whose job is to arrange and book for services that are needed by a traveling client
including but not limited to airlines, hotels, transfer services, tours and travel insurance. On the other
hand, a tour operator is a company or a person who assembles and creates specialized services in details
and be sold as one product usually including transport service, meals, tour guide and planned itinerary
visiting destinations, which when combined is called
Tour operators are one of the "suppliers" of travel agencies. In a lighter description, tour operators are
"manufacturers" while travel agents are "merchandisers" of tour services. For you to simply envision the
industrial setting, let us put the transactions with these two in a scenario:

Scenario: A client is planning for a trip to Puerto Princesa, Palawan and wants to have a pre-packaged
travel and tour arrangement to avoid hassle and inconvenience during the trip. He wants to confirm the
trip inclusive of flight, accommodation, airport transfers services and tours to Underground River,
Crocodile Farm, Honda Bay and experience the Iwahig fire fly watching. Where would he ask for an
assistance from?

Based on the given travel requirements, the services needed can all be availed from a travel agency.
Travel agents have available designed and costed packages going to different domestic and international
destinations. With the client's requirement, a Puerto Princesa package inclusions and costing may
appear as:

With the above package and costing of Sample Travel & Tours (travel agency), the components shown
include a Cebu Pacific round trip flight, 2-night hotel accommodation at Hotel Centro and round trip
transfers services to be picked and dropped-off by City Wheels. The city tour provider Palawan Conquer
is the tour operator which is also a supplier. Travel agents have suppliers from different destinations and
as they merchandise the service offerings of these suppliers (tour operators), they put a mark-up
percentage or get a commission from it. The price options of the tours may also vary depending on the
inclusions and the type of service (e.g., joiner or exclusive).

On the other hand, the tourist may also ask for assistance from a tour operator. Apart from the above
scenario, alternatively, the client may just arrange the flight, accommodation and transfer service with
the travel agent and book the city tour separately and directly to a tour operator. This is made more
possible as tour operators nowadays have already available websites and online booking portals to sell
their services directly to clients. All too often, with the availability of options online, wise-buying clients
can now search, compare and choose the lowest-priced deal as to which services to avail. An ex of
arranged summary of city tour service to be that may be provided by An example a tour operator may
appear as follows.

Types of Tour Operator

In a wider industrial lens, tour operators can be categorized based on their scope, nature of business
and operations. They can be classified as inbound, outbound, domestic or ground operators.

1. Inbound Tour Operators are technically those who receive clients and handle tours of foreign tourists
coming in the host country. An example can be a tour operator that is based in Cebu accepting arrivals
of group of employees from Korea.

2. Outbound Tour Operators are basically those whose target market and specialization are focused to
international destinations catered for domestic market in which the most common purposes of travel
are business and leisure. An example can be a Manila-based tour operator company specializing on Tri-
city (TH-MY-SG) Tour.

3. Domestic Tour Operators are literally those who accommodate and sell domestic services. These are
operators who assemble and create domestic tour components designed for domestic market. An
example can be a tour operator based in Pampanga that offers educational tours designed for Filipino
high school students.

4. Ground Tour Operators also known as Destination Management Companies (DMCs) are commonly
tagged as the "handling agencies" as their function is to arrange tours for incoming foreign tourists on
behalf of overseas tour operators. Their role is very essential in the industry as traveling across
international bordere requires communication including geographical, cultural and legal knowledge. The
most common market segment that they accommodate are institutional tours in which motives of travel
are for convention and events.
Moreover, it is an advantage for local tour operators to be based on the destination as they have the
best knowledge about the area thus providing bases for a strategically-designed itinerary. The
familiarity, network of connections, time flexibility and service efficiency to come up with a well-planned
itinerary add up to the components of a satisfying tourist experience.

Chapter 5

COMMISSIONS AND SERVICE FEES

This chapter provides the reader understanding on what and how the travel agency make commissions
and service fees from travel and tour products and services

1. The Global Situation

Today's consumers are generally more experienced travelers and, as a result, more demanding. They
expect value and competitive prices for quality products and services. Companies, big and small, look for
ways to reduce their travel costs to maintain profit.

Travel businesses, including travel agencies, also need to control their costs and revenues and grow their
business. New technology, such as the Internet, has Introduced challenges and opportunities for travel
agencies. Consumer can buy their travel products directly from travel suppliers such as airlines and
hotels.

The travel agent today is not only a source of information to customers, but he or she is really more of
consultant, providing advice and solutions to meet customers travel needs. As a result we use the term
travel consultant interchangeably with "travel agent."

The travel agencies, like all other companies, must find ways to reduce their costs. Travel consultants
are expert who want to satisfy the needs of today's consumers, offering their experience and knowledge
and maintain at a profit.

2. The Commission System

Travel consultant revenues have traditionally depended on commissions paid industry suppliers on the
sale of travel products such as:

a. Airlines

b. Hotels

c. Cruises

d. Car rental companies

e. Tour operator

f. Insurance companies

g. Other suppliers

Understanding Travel and Tours Essentials

The following are important feature of the commission system:

communicating 1. The consumer pays the consultant for a product purchased, rather than paying for the
travel agent's service in researching, with suppliers, making reservations issuing documents and more.

2. Commissions earned by travel consultant are based only on the sale value of the product. Travel
agents are not compensated through commission on their time and efforts spent working on behalf of
the customer.
3. The commission revenues earned by travel consultants on low costs products are compensated or
balance by the commission revenues earned on higher value products. The higher the airfare sold, the
higher the commission amount paid to travel consultant.

4. There is no direct relationship between the commissions earned by travel consultant and the quality
of service they to customers. A travel consultant who spends days coordinating a complex flight itinerary
for a customer may earn less in commission than the consultant who is able to make a flight reservation
for another customer in a matter of a few minutes.

5. The travel consultant can us a portion of the commission earning received on a sale to discount the
product price charge to the client. For example, a travel agency who earns 9% commission, could decide
that he is able to retain only 6% and rebate the rest from the amount the passenger pays.

6. Also travel agent that receive an over commission from some suppliers, could use it as a discount for
his clients.

The following are some disadvantages of the commission system for travel consultant and consumers:

1. The travel agency has no motivation to offer the lowest priced products to customers. Therefore the
customers may not unnecessarily pay more for a travel a product. For example, a travel consultant could
be inclined to offer more expensive airfare because a lower fare seat is not available. He consultant may
not invest his/he time to look for alternative.

2. The travel consultant who longer and harder to find suitable products and the value earns the lowest
commission.

3. There is no direct relation between the commission earned by travel consultant and the quality of
travel consultant's service provided.

4. Events that reduce revenues or increase costs for airlines and other travel suppliers such as increased
fuel costs, variations in currency exchange rates, natural disastel price competition and lab our
problems, also affect retail travel shops (such as the travel agency) and wholesaler (tour operator or
agency consolidators). As a result of such financial losses, suppliers attempt to recover their losses by
reducing or eliminating the payment of commission fees for travel agencies.

5. A travel agency that is dependent on commission earnings cannot control income flow, as income is
only based on a percentage of the customer's price.

6. There I no guarantee that commission offered by travel suppliers will cover the costs of running a
travel business, such as an agency and bring some profit too.

7. In the case of airlines tickets sold, when a passenger requests the cancellation or change of travel
plans and requires a complete or partial refund of the airline ticket paid the travel consultant must
return to the airline all commission originally earned. Thus the travel consultant may have worked very
hard to meet the customer's need, but since the customer has change his travel plans, the consultant is
left with no reward for that effort.

The commission system does not guarantee that the a consumer will receive good service from a travel
consultant. The commission system does not guarantee stable revenues for the travel agency.

Calculating Commission on the Sale of Airline Ticket:

The following are examples of how to calculate commissions on the sale of airline new tickets. For each
scenario, consider that a customer is purchasing from a travel agent a ticket with base value of
USD599.00, without taxes.

Standard commission:

Suppose that the airline supplier in this example offers the travel agency 9% commission on the sale of
airline reservations. The travel agency would earn USD$53.91. $599.00x9%=$53.91

Commission override:

Suppose that the travel agent is entitled to the base commission of 9%, plus an added (override)
commission of 3% because of the high volume of customers this travel agency reserves on the services
of this airline. Therefore the total commission offered to the agency is 12%(9%+3%). $599.00x
12%=$71.88

Capped Commission:

Suppose that the airline offers 9% commission capped at $USD50.00. As a result, the travel agency can
only earn a maximum of USD50.00 on any flight ticket sold on this airline. $599.00x 9%=$53.91-
maximum (cap) $50.00

Zero Commission:

Suppose the airline offer 0 (Zero) commission to travel agents that sell its seats, then is no commission
earned by the travel agency. How will the travel agency cover the costs related to service this customer?

Since the middle 1990's travel industry suppliers, mainly the airlines slowly started to reduce
commission paid to travel agencies, as a cost-saving measure. The first action taken was to reduce
commission percentages and/or se a maximum commission on the sale of any airline seat. The reduced
commission affected small-size travel agencies most. This practice started in North America and spread
to European and beyond.

Commission reduction has now turned into "zero commission", meaning that no commissions are paid
by many major airlines. The situation today is quite the same in every geographic region. Obviously,
travel consultants have had to learn how to replace their revenues after the loss of supplier
commissions.
customers Today, travel agencies can no longer afford to provide their services to much like accountants
and lawyers do. These "service fees" compensate for the revenues lost from zero-commission policies.

In an effort o stay profitable, the travel agency today must review its business focus (what it sells),
target market (who it wants to sell to) and client base (who it already sell to). It must decide how to
price its products and how to implement a service fee system in order to maintain and improve
profitability.

The travel agency must learn to prioritize the quality of the service it provides to customers in order to
earn their professional service fees. Travel agents also need to att as professionals, able to provide
valuable advice. They must believe they are selling travel solutions, not just travel products.

The Services Fee System

This business model for travel agencies is based on customers paying a fee for a professional service
received. The concepts very simple: the travel consultant, who is a service provider, is paid by a
customer to perform a service (research, advice and sale of a travel product). Understanding that a fee is
a fixed charge for a professional service, the travel consultant will certainly see that his or her whole
activity must offer the performance "professional service".

Generally, companies already pay fees for:

1. Cleaning and security

2. Outsourcing customer service functions

3. Distribution and delivery of products

4. Consulting service

5. Computer software and hardware maintenance

In the travel industry, consumer already pays charges or fees for:

1. Fuel

2. Security

3. Airport improvement

4. Ticketing

5. Embarkation
6. Rerouting

7. Cancellation

8. Refunds

9. Meals on board

10. Tourism

11. Environment protection

12. No show

13. Advance seat selection on coach class

(New fee charged by some airlines)

Fees and the Corporate Customer

Collecting service fees in the and tourism industry is not a totally new concept.

The fee system began when private companies and government offices negotiated the services of a
travel agency to handle all of its business travel needs for its employees. These travel agencies
specialized in managing the travel budget of typically large companies. Such a corporation or company
might employ an internal travel manager who negotiates a contract or an agreement with a dedicated
travel agency to evaluate the company's travel needs and expenses and to make recommendation on
which travel suppliers to use. The dedicated travel agency becomes a consultant for the corporation,
working on behalf of the corporation to negotiate benefit from travel suppliers such as price reduction,
special incentives or flexible payment deadlines. In return, the corporation pays the travel agency a
service fees for performing this consultative service and for handling all the corporation's travel
business. The fee is a value that covers the total cost of the agency to perform the service and the
benefits it receives for this especially in savings.

The advantages for such corporate travel agencies are that:

1. The travel agency establishes a value for its expertise and professionalism.

2. The fees can be charge according to the value (volume) the client represents for the travel agency.

Each travel consultant can freely decide the amount of the service fee charged

according to:
1. The volume of business handle

2. The type of the product sold

3. The level of service and attention required

4. The profit situation by knowing the savings and benefits earned by the corporation as a result of the
efforts made by the travel agency to negotiate on behalf of the corporation, the travel agency can
charge the corporation of the portion of the difference between profit and loss as a service fee. In other
words, the corporation is happy to pa the agency a share of the savings on travel costs.

Advantage for the corporate customer that uses the service of a dedicated travel agency is:

1. The travel agency is fully aware of the corporation's negotiated agreements with travel suppliers such
as airlines and hotels.

2. The travel agency respect and applies the company's travel policies.
3. The travel agencies ensure that the company receives the best value, such as the lowest airfares or
hotel rates, or the best products for their money.

4. The payment of predetermined service fees agency that meet the corporation's budget needs.

5. Regular reports detailing the corporation's travel costs and recommendations,

6. A commitment from the travel agency to consistently provide the best advice and service.

How to Apply the Service Fee System /

The first step travel consultant considering a service fee policy for customers is to redefine his or her
role as a professional. Today's travel agent is not simply an "order taker waiting for customer to come to
him or her to purchase a travel product. Today's travel agent is a professional, offer experienced
knowledge and advice to customers in need of a travel service.

Then the travel agent must convince customers that he or she is an expert in travel, provides value and
that the customer benefit from receiving this professional service in return for the service fees.

The travel consultant must be aware that he or she has operating furniture expenses, telephone
communication costs, marketing expenses, automation charge, etc. the travel agent's remuneration in
the form of service fees must cover these costs and create profit too. The way for a travel agency to be
financially successful in the travel industry today is by charging service fees.

In order to apply the fee system the travel agency must provide high quality service and be aware of its
operating costs.
Most agencies charge a variety of service fees, depending on the services required and the customer.
Often a combination of service fees is charge to customer.

The following are example of service fees commonly charge to cooperate the customers traveling for
business reasons, but can be applied to leisure as well.

1. Management Fee: A fees charge to customers for managing his travel budget.

2. Transaction Fee: A fixed charge for an executable transaction, also called a "ticketing fee".

3. Flat Fee: A fee that is charged for a combination of service during a set period of time. The amount
charge depends on the client profile and the service provided.

4. Success Fee: a fee charge for the travel costs reduction.coлконы

5. Mixed Fee: this fee is a part of official agreement and corporate accounts, combining a variety of
services for one fee.

Example of service fees charge to any retail customer, such as vacationing or leisure customers:

106

1. Service Fee: a fee charge for any service provided by the agent, even when no product is sold like
providing information on a destination or visa and passport requirements, or for managing a customer's
loyalty membership. "Frequent Flyer" account and use of mileage reward points.

Explanation of a Management Fee

If charging a management fee, the customer is a company or corporation. It pays the price of the
tragent's overall conservices made for its business travelers, plus pays the rate for time of sales as to
services. This normallycalculated plus a monthly on the volume of sales as agreed to by the travel
agency and the corporation or complage Any chare to the management fee structure requires the
approval of the companympany manager or administrator.

Explanation of a Transaction Fee

This fee is charged per airline ticket sold travel document issued or per travel arrangement made such as
an airline reservation. Transaction fees may vary because the travel agency may set different service fee
levels for such transaction type as issuing domestic air ticket versus international, hotel booking or car
rental reservations. This is because not all transactions incur the same costs. Travel agencies typically
establish an average costs per activity. This service fee model requires a real balance between the real
cost of the agency and the quality of the service provided.
Explanation of a Flat Fee

This is a set fee that the travel consultant charges, for almost any service performed. The charge can be
based on a company's total monthly expenditure for travel, divided by the number of the corporation's
travelers. A flat fee can be applied to the company for all its travelers.

For instance, let us imagine that a corporation or company needs about 100 monthly international trips
and about 500 monthly domestic trips. Based on these numbers and costs for the services required by
the agency, the flat fee can be set per month for serving all of the agency. The method for collecting flat
fees from corporate customers is defined in the agreement signed by both company and the agency. If
suddenly, due to charges in the company's business, the travel profile changes, the fee must be
recalculated and the agreement revised.

Explanation of a Success Fee

This represents incentives for the travel consultant when a corporate customer has benefited from an
extra cost reduction in travel expenses, having a positive effect of the company's travel budget. In other
words, the company's has saved more money from its travel activity than expected or required. The
travel agency receives a percentage of the difference between the actual price paid and the usual price
paid for the product.

For example, the travel agency or consultant may negotiate on behalf of the customer a better pample,
the travel agencyate, lower than the expected applicable or negotiate price. Sometimes a travel agency
uses its incentive or discount privileges with a supplier a Sometimes a uses its inproduct and agency to
service customer. The like an airline or a hotel reduce the price of the product and agency to service
customers. The company's travel budget. The success fee charged by the travel agency is based on the
degree of savings. The more money that is saved by the company, the higher the success fee can be.

Mixed Fee

A Mixed Fee represents a combination of two or more fees forming part of the agreement between the
travel agency and the corporation in the same contract.

For example, when handling a company's domestic travel needs, the agency may not need to hire highly
specialized or experienced travel consultant. As a flat fee could be charge o such customer accounts. For
other corporate customers the agency may need the services of more experienced and knowledgeable
staff, especially when he agency arranges for international travel. For such corporate accounts, solutions
that save the company money may require success fees to be charge by the agency. In case arranging
for hotel accommodation, a management fees may be the best solution for the agency. All these fees
together from part of the same professional or service fees arrangement between the travel agency and
the corporation.

Service Fee
This fee type is used by any retail travel agency and collected from any customer, typically leisure
customer traveling for the pleasure or personal reasons.

These are various amounts set by the travel agency or consultant for travel products sold (airline ticket,
cruises, hotel accommodation, car rentals, travel insurance), for other service offered to the
costumer(application for travel documents such as visas and passport, or for advice from itinerary
planning to destination information such as attractions, activities or travel trips). Travel agency service
fees are also collected from individual customers to make changes to their airline ticket and for
processing or issuing other travel vouchers.

These service fees set by a travel agency are usually based on two factors: the total revenues or sales
and percentage of this total that every product and service represent and the related cost to the travel
agency in providing the product or service.

Tables 5.1 through 5.3 illustrate an example of how service fee levels are generally determined by travel
agency's owner. The first step is to complete such a grid with details of the travel agency's revenues and
costs in a year.

The next step is to determine how many tickets are issued (E), to calculate this divide the total air sale
(B) by the average price ticket-the example show $500 as the ticket price.

The travel agency must charge a Service Fee that cost of issuance and also leave some profit.

In order to implement a successful service fee policy, the agency or consultant must considered all costs
and plan service fees that will offer a return or profit on investing in this costs. The travel agency must
know its customer profile, calculate the costs of delivering the necessary service to those customers and
secure some profit.

The Process of Collecting Travel Agency Professional (Service) Fees

Travel agent fees collected independently of the product or service sold. In other words, agency fees do
not appear in airline or hotel reservation, on airline electronic or paper tickets, nor on hotel or car rental
reservation voucher. Usually, a separate invoice with the service fee is issued to the costumer. There is
no need to report agency service fees. A simple receipt from that is also used for many other purposes is
issued to costumers for service fees. Basically service fees are the price charge for the travel consultant's
services expertise and skills. They belong to the travel agency.

However, the fee as all the other income amount of the travel agency subject to income taxes.

Every country may apply a different policy for Service fees application.