CHAPTER I

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1.1 INTRODUCTION TO TRAVEL AND TOURISM
Travel is as old as mankind on the earth. Man at the beginning of his existence roamed
about the surface of the earth in search of food, shelter, security and better habitat. However, in
course of time, such movements were transformed into wanderlust. About five thousand years
ago, changes in climate, dwindling food and shelter conditions hostile invaders made the people
leave their homes to seek refuge elsewhere like the Aryans left their homes in central Asia due to
climatic changes. Perhaps, this had made possible for Babylonia to invent money, which led to
the development of commerce, trade and industry. Incidentally almost at the same time, travel
trade developed inIndia, but money was already known in India. The main trade routes that were
followed by the businessmen were China-India-Arabia, India-South East Asia; and India-Tibet
etc. Thus, it was trade that first motivated travel in the real sense. The traditions and customs of
travel in India are the oldest in the world, their motive being primarily religion and trade. In
the ancient times, and even today, travel is recognized as a factor of cultural, religious, trade and
knowledge enrichment.
During the 16th Century, travel came to be considered as an essential part of the
education of every young Englishman. Travel, thus became a mean of self-development, and
education in its broadest sense. The educational travel was known as the 'Grand Tour.' The
'Grand Tour' signified the travels through Europe by which the wealthy people might acquire
socio-cultural refinement by exposure to continental, architecture, heritage, customs, manners and
systems.
The Industrial Revolution brought about significant changes in the, pattern and structure
of British society. Thus, the economy of Britain was greatly responsible for the beginning of
modern tourism. It also created a large and prosperous middle class and because of great
improvements in transportation systems in latter half of the 18th century and the first quarter
of the 19th century, increasing number of people began to travel for pleasure.
Travel was originally inspired by the need of survive (food, shelter and security), the
desire to expand trade and the quest to conquer. As transportation system improved the curiosity

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for transforming the vast and virgin world into a close neighborhood created a new industry i.e.
Travel and Tourism. However, the development of rails, roads, steamships, automobiles and
airplanes helped to spread technology across the globe. Earlier travel was a privilege only for the
wealthy people but with the industrial .revolution, the scenario altogether changed.
Transportation as well as accommodation became affordable to middle and working class citizens.
Essentially, with the development of jet travel, communication, new technology, the tourism and
travel became the world's largest and fastest growing industry.

The term travel industry, tourism industry and travel and tourism industry are used
interchangeably to refer to the industry made up of businesses that provide tourism and travel
related services. However, some scholars argue that travel is rooted in the ancient past while
tourism is a recent phenomenon of modern origin but for the present context both are same.

Paradoxically, defining exactly, what is meant by the term tourism is difficult one if not an
impossible task. Its multifaceted and complex nature has made tourism hard to define in precise
and comprehensive terms. According to early dictionary, tourism isthe metamorphosis of the word
trepasium means to travel as movement across space. Probably, travel in those days was torturous
and painful. According to Arrilaga, J.I.D., "Tourism in its first period was considered as a sport
or rather as a synthesis of automobiles, touring, cycling, alpinism, camping, excursions and
yatching."

In 1811 tourism was used as a "Theory and Practice of Touring, Travelling for pleasure,
usually, deprecatory." Further, Webster Dictionary defines travel as "a tour in which one returns
to the starting point, a circle trip usually made for business, leisure or education during which
many destinations are visited and for which a tour programme is actually planned." F. Freulor
(1905) defined tourism as a phenomenon of modern times, based on the increased need for
recuperation and change of air, the awakened and cultivated appreciation of scenic beauty, the
pleasure in, and the enjoyment of nature and in particular, brought about by increasing mingling
of various nations and classes of human society, as a result of the development of commerce,
industry and trade. Professor Hunziker and Krapt (1942) of Berne University have made the first
attempt to define tourism as "the sum total of the phenomenon and relationship which result from
the travel and stay of non-residents, in so far as they do not lead to permanent residence and are

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not connected to any earning activities." This definition covers almost all aspects of tourism and
that too in a precise and effective manner.

According to WTO (1993) "Tourism encompasses the activities of persons travelling to and
staying in places outside their usual environment for not more than one consecutive year for
leisure, business and other purposes."

According to Tourism Society of Britain "tourism is the temporary short-period movement

of people to destinations outside the places where they normally live, work; and activities during
their stay at these destinations." This definition includes movement of people for all purposes.

The above definitions conceptually reveal the fact that tourism by its very nature, activity,
industry and as a socio-economic instrument for development, is a discipline "that has varied
implications and is a rapidly growing concept perhaps which is very easy to explain and
understand than to define.

Technically, tourism comprises of activities undertaken by the tourists to satisfy their

respective urges during in and enroute their destinations and the touristic systems within which
tourism industry works.

1.2. TOURISM AS AN INDUSTRY

Today, tourism has been widely recognized as a global industry. However, recognizing tourism as
an industry is a debatable issue, because a few scholars are against it, whereas others consider tourism as
an industry. Chadwich (1981) argues that tourism industry does not exist because it does not produce a
distinct product. Kaiser and Helber (1978) opined that it is not properly an industry. Opposing this view, a
number of scholars take the position that tourism is an industry. Like other industries viz.
Fertiliser, agriculture, chemical, oil and power, tourism industry also dependents on the
continued availability of those resources upon which it is based. Robinson (1976) believed that
tourism is a dynamic industry; Smith (1988) and Medlik (1988) also accepted tourism as an
industry; Wahab (1995) says that, "any product, whether tangible, or intangible, that serves to
gratify certain human needs should be considered as an industrial product and that if a bond of
product unity exists between various companiesand organisations in a way that characterised
their overall function and determinestheir place in economic life, they should be considered as an

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industry." Robinson (1976) stressed, in economic terms, that tourism "creates a demand or
provides a market for a number of quite separate and varied industries. In some areas tourism
represents the major part Of market, in others a complementary, but frequently highly profitable
demand for accommodation, catering, transport, entertainment and other services designed largely,
perhaps even primarily for a residential or industrial community." , From the receiving country's
view point, tourism would be recognized as an industry which contributes to its economical and
social development and activates many productive sectors.
Thus, the application of the term 'industry' to tourism has also been justified because of the
"modern approach to the definition of industry as a group of companies/firms /organisations
producing identical goods, i.e. which the consumer regards as being perfect substitutes for one
another, although, they may be physically differed."

Practically, tourism is an agglomeration of various sectors of economy such as accommodation,

transportation, entertainment, travel trade and ancillary enterprises.

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 A SIMPLE STRUCTURE OF TOURISM INDUSTRY

Regional and Local Tourism Industry National Tourism

Tourism Organisations Organisations
Travel trade

Component / Sectors

Lodging Transportation Travel Trade Recreation and Ancillary

Companies Organisations Organisations Entertainment Enterprises
-Hotels -Air -Travel Agency
-Motels -Rail -Tour Operation
-Resorts -Road Public/Private Service Orgs
-Other Types of -Health
-Accommodation -Insurance
-Banking
-Finance
-Training and
Development
-Tourism and Hotel
Educational Industries

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1.3 TOURISM PRODUCT
Since travel and tourism industry is an agglomeration of too many sectors that promote
travel related services. These sectors are referred as travel vendors and their services and goods
are called 'travel products'. Moreover, a tourism product includes (in varying degree) five main
components such as physical plant, services, hospitality, freedom of choice, and sense of
involvement. The relative significance of each of thesecore components vary from destination to
destination and from tourist to tourist. Thus, whatever the natural and man-made resources,
services brought about the consumption for tourist is called tourism product. The end-
users/ultimate users are called tourists/ clients.

Tourism Product

Tourism Product Product Offered

Vendors / Suppliers

-Airlines -Seat
-Hotels -Room
-Transportation Tourists
-Road
-Rail -Seat
-Sea -Seat
-Travel Agencies -Package

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 A tourist product can be defined as the sum of the physical and psychological satisfaction
it provides to tourists, during their 'traveling and sojourn' en route at the destinations. We can
think of a 'tourist product'—focus in facilities and services designedto meet the needs of the tourist.
Mostly, travel product comprises a core of the following components:

 Attractions
 Access
 Amenities
 Ancillary Services

Now the crucial question is how the tourist product reaches the client/ultimate users. Of
course, it is the intermediaries who bring tourism buyers and sellers together, either to create
markets where they previously did not exist, or to make existing markets work more efficiently
and thereby to expand market size. The structure of intermediation is very complex and
complicated at the global level and India is no exception as some retail travel agencies and some
principal suppliers—airlines, hotels, cruise and transport operators, also act as Tour Wholesalers
and Tour Operators in India.

Taking into consideration this paradoxical situation, this chapter includes: the meaning,
concept, definition, types of travel intermediaries, their significance, role and contribution to the
Indian tourism and travel industry. Moreover, this chapter made an attempt to trace the historical
growth and development of travel agencies and tour operations, and How these players have
became the gatekeeper of tourism-industry.

Technically, travel refers to any journey or movement of one or more people from one point
to another, or one country to another, what ever the purpose or motive may be. In simple words
travel provides 'place utility' or remove the hindrance of place. Travel trade means activities
carried out by an undertaking to create market and sell the tourist product. Broadly speaking the
travel business middlemen are divided into two categories:

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 TRAVEL TRADE INTERMEDIARIES

Travel Agency Tour Operators

Retail Wholesale

Inbound Outbound Ground Domestic

Tour operators Tour Operators Operators Operators

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 1.4 TRAVEL AGENCY
Travel agent is a person who has full knowledge about tourist product—destinations,
modes of travel, climate, accommodation and other areas of service sector. He acts on behalf of
product providers/principals and in return gets commission. Technically, a travel agent is the
owner, or manager of an agency, but other employees are responsive for advising tourists and
selling package tours/individual components of travel product. However, a travel agent's job
involves not only making sales but also gathering travel information, researching travel
products, analysing options and making recommendations.

A travel agent may be an individual/firm or corporation which is commonly known as

travel agency. An agency means office of the travel agent or organization where all travel goods
and services are assembled and coordinated for the smooth conduct of travel agency business.
Travel agency is one of the most important organizations in the tourism private sector which
plays a significant and crucial role in the entire process of developing and promoting tourism in
the country or at the destination. It is a travel agency which packages and processes all the
attractions, accesses, amenities and ancillary services of a country and presents them to the
tourists. That's why travel agencies are known as 'image builder' of a country. A prospective
travel agency is one which makes arrangements of travel tickets (air, rail, road and sea); travel
documents (passport, visa and other documents required to travel), accommodation,
entertainment and other travel related services from the principal suppliers. It may also secure
travel insurance, foreign currency for the traveling people.

1.4.1 TRAVEL TRADE—A HISTORICAL PERSPECTIVE

The use of the term travel trade dates back from the early years of the 19th century, but
this should not obscure the fact that what we today describe as travel trade (travelagency and tour
operation business) was taking place much earlier in history. Throughout the history there were
travel middlemen who helped the merchants travelling for trade and others who travelled for
religious purposes. Let's trace the historical development in travel trade—in world as well as in
India.

1670: The 'grand tour' concept was developed especially for educational purpose.

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 1730: Health experts suggested that sea-water is found to be useful to 'cure' many diseases.
The result was that many resorts around the English coast were established to attract
visitors seeking `to cure' themselves both by drinking seawater and by immersing
themselves in it.
1815: Steamboat services were introduced from London to Gravesend. One effect of this
development was the construction in all major resorts of a pier to accommodate the
vessels on their arrival.
1820: The European cultural centres were opened to British travellers. 1830: The
rail link was introduced between Liverpool and Manchester.
1838: Peninsular and oriental steam (P and 0) company introduced steamship
services to India and Far East.
1840: Sir Rowland Hill introduced excursion trains.
1845: Four years later, he set up a 'World's First Travel Agency' to organize excursions. Due to this
innovative approach Mr. Cook is known as the Father of Travel Agency Business. His
co-ordinated railway and steamship excursions throughout England, Scotland and
Europe. However, the railways only gavehim 5 per cent commission which was not
enough to meet his overheads, so he decided to diversify this business into tour
operation.
1850: Thomas Bennett introduced first FIT for VIP's.
1855: Mr. Cook started operating package tours. He conducted the world's first international
Tour from England to the Paris. This was an 'inclusive tour'. In this way he developed
the concept of 'inclusive tour.' In the next year he developed the concept of the 'Grand
Tour' by organizing a grand tour to the European continent.
1856: Coined the concept 'Grand Tour' for tourists.

It was a sheer coincidence that in the same year 1841, Henry Wells started hisfreight
business in USA. Thomas Cook's company is still by the name Thomas Cook and Sons while
Henry Well's company is known as American Express Company.

1870: In order to eliminate payment in cash, Mr. Cook introduced two systems:
· Traveller Cheque
· Hotel Vouchers

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 While American Express introduced
· Credit Cards
· Traveller Cheques

1878: Mr. Cook brought the first British Group of tourists to India by the P and 0 steamship
company. The group landed in Mumbai, travelled to Agra by train to see TajMahal
and also visited Kashmir Valley.
1880: Thomas Cook and Sons, established offices in Mumbai and Calcutta and formed the
'Eastern Princes Department'. In 1887, this department arranged the visit of Indian
Princess to Queen Victoria's jublee Celebration.

In the beginning the Thomas Cook and Sons International (Ltd.) operated in India with its
main branches and offices in metros. The company later on felt that it was very difficult to operate
in India due to various restrictions imposed by the Indian Government under FERA (1973) and other
acts. In order to overcome these restrictions and difficulties, the company decided to establish an
Indian Company. In 1978, Thomas Cook India (Ltd.) was established under the Companies Act
1956. The company took over the assets and liabilities of Thomas Cook and Son's branches.

Till 1920, Thomas Cook and Sons and The American Express Company were the only big
names in travel trade business.

Today, Thomas Cook and Sons is operating in more than 150 countries whereas The
American Express is operating in more than 125 countries with 4306 office's. Thomas Cook India
Ltd. has 42 offices in India and has generated annual sales worth $ 38.7 billions (as on 1998).

Presently there are more than 90,000 travel agency locations operating throughout the world.
However, the maximum number of travel agency locations are in USA, UK, Germany. Canada etc.

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 1.4.1 TRAVEL TRADE IN INDIA

The travel agency business in India is relatively new. At the time of Independence, there
was hardly any travel company worth the name in the present context. The travelbusiness in
India, in an organized manner started with setting of 'The Travel Agents Association of India'
(TAAI) in Mumbai in 1951. Prior to it there were two major foreign companies—Thomas Cook and
Sons and The American Express with their main branches; and Indian Companies—jeena and Co.,
Lee and Muirhead India Pvt. Ltd., and N. Jainnadas and Co. Ltd., operating in India. However,
the bulk of International tourists were handled by Thomas Cook and Sons and The American
Express. In 1920 jeena and Company, the First Indian Travel Agency organized group tours
abroad and in India for Indian travellers and it handled the first group of foreign tourists in 1950.
However, Jeena and Company and the other two Indian Travel Agencies were merged into one
composite travel company known as 'Travel Corporation of India Ltd.' (TCI) in 1961. After this
there were a number of travel companies established in India such as SITA (1963), Thomas Cook
India Ltd., American Express, Cox and King, Ind. Travel, Indo Asia Tour and so forth.

Presently, there are around 800 travel Agencies/companies on the approval list of the
Department of Tourism, Government of India. These are located in over 60 cities of the country
and many have promotional offices in abroad. In addition to this, there are a large number of
non-recognized travel agencies scattered all over the country. In India there are more than 500
Travel Agencies which has been approved by the International Air Transportation Association
(IATA) and a number of them have more than one office or branch.

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 1.5 TYPES OF TRAVELAGENCIES
1.5.1 Retail Travel Agencies
A retail travel agency sells tourist products directly to the public on behalf of the product
suppliers and in return gets commission. Some package tours are sold in two ways i.e., on a
commission basis and mark-up price. When a travel agency sells a tour on marked up price it
means that first it mark up the cost of a tour and then sell it at a higher rate. The mark up price is
the difference between retail price and whole sale cost.

Definitions
According to Airlines Reporting Corporation (ARC) a retail travel agency is defined as 'a
business that performs the following functions: quotes fares, rates, make reservations, arrange travel
tickets and accommodation, arrange travel insurance, foreign currency, documents and accepts
payments."
According SARC (1967), "retail travel agency business consists of the activities involved
in selling tourism products/services directly to the tourists and performs normal functions
such as issuing air ticket, making accommodation and transportation reservation, providing
specialised service, and accepting and making payments.

The main source of revenue for a retail travel agency is the commission receivedfrom the
vendors. However, the rate of commission differs from organization to organization and travel
component to travel component.
In India, retail travel agencies receive ninety five per cent of their revenue from
commission, and the remaining five per cent from consultancy services and others.

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 Airlines Ticket
• International—9 to 11%
• Domestic—5 to 8%
Lodging—10%
Indian Railway—
• Rail ticket—Nill (Agency is free to add
service charges)
• Ind. rail pass—10%
Tour Operators—10%
Package Tour—11 to 15%
Agency Commission Car
Structure Rental—10 to
20%
Transport Operators—10 to 15%
Escorted Tour—15%
Group/Convention Packages
—10%
Incentive Packages
Tour—10%
Cruise Companies 10 to 15%
Insurance Companies—20 to 30%
Banking Traveller Cheaque—2%

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1.5.2 Wholesale Travel Agency
These agencies are specialized in organizing package tours, which are marketed to the
customers/tourists through the network of a retail travel agency or directly to the prospective
clients (if the wholesale travel agency has a retail division). A wholesale travel agency purchases
tourist product components in bulk and designs package tours. Sometimes, a wholesale travel
agency buys travel components from a vendor in bulk and resells them to other travel business
organisations.

Wholesale travel agencies assemble package holidays and sell them to the clients through
retail travel agencies. A typical package tour includes—air ticket, accommodation, and
sometimes other services may also be included in it such as entertainment, sightseeing and
sports activities etc. These packages are referred as 'package tours' most of these tours include
the services of escorts but a few are sold to people who wish to travelindependently. Now the
question arises—how a wholesale travel agency generates profit? Generally a wholesaler
receives volume discounts from the principal suppliers because a wholesaler might agree to
purchase a large number of seats from a particular airline or reserve a large number of rooms at a
particular hotel and resort.

Practically, a wholesaler who sells package vacations/tours is called a tour operator.

However, technically there is a difference between a wholesaler and a tour operator. A wholesaler
who sells tourist products individually without assembling them into package tours is called a
consolidator. Mostly, these are specialised in a particular product component, such as air tickets,
accommodation and conference and conventions etc.

1.6 FEATURES OF TRAVEL AGENCY BUSINESS

 An important link between the clients and principal suppliers.
 Image-builder
 Ensures rapid travel service
 Provider of an authentic and reliable travel information
 A social and continuous process
 Establishes good relationship with clients and vendors.

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 1.7 TOUR OPERATOR

An organization, firm or company who buys individual travel components, separately

from their suppliers and combines them into a package tour, which is sold with their own price
tag to the public directly or through the middlemen’s, is called a tour operator. More precise tour
operators are primarily responsible for delivering and performing the services specified in a
given package tour. They can provide these services themselves as some have their own cars and
coaches, hotels and other travel related services or can obtain these from the other suppliers. That
is why they are called manufacturers of tourism products.

Tour operators are sometimes called as wholesalers but this is partially true because a
wholesaler buys goods or services in bulk at his own account to prepare a tour package and then
retails it through the travel agencies or directly to the clients. However, a tour operator who has
his own one or more tourist product components, (SOTC, TCI, Thomas Cook, Indo Asia KUONI
formulates a new tourist product for example 'inclusive tours.' Tour operators generally offer
variety of package tours to cater the needs of different kinds of travellers.

Definitions
Poyhter (1993) defines, tour operator is one who has the responsibility of putting the tour
ingredients together, marketing it, making "reservations and handling actualoperation,"
Holloway (1992) stated that tour operations undertake a distinct function in the tourism industry,
they purchase separate elements of tourism products/services and combine them into a package
tour which they sell directly or indirectly to thetourists.

Today, tour operators have become highly competitive. They endeavor to achieve high
volume of turnover, and maximum International and domestic market share- by effectively
operating. Moreover, the success of many developed and developing nations as tourist
destination depends heavily an tour operator's ability to attract tourists, development and
promotion of tourism plant, diversification of tourism product and their social responsibility to
develop remote and backward area-(2003).

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 1.8 TYPES OF TOUR OPERATORS

1.8.1 Inbound Tour Operators

These are also known as incoming tour operators. Technically, the operators who receive
guests/ clients/tourists and handle arrangements in the host country are called inbound tour
operators. For example a group of American Tourists is coming through TCI Ltd. to India and the
company makes arrangements and handles the group in India then TCI is called an inbound tour
operator. Incidentally, the inbound traffic to the country for the last two decades has been
decreasing. Essentially the tour operators need to adopt innovative marketing strategies and
should introduce special interest tours to cater the special needs of Japanese, Americans, French
and the British people.

1.8.2 Outbound Tour Operators

Tour operators, who promote tours to foreign destinations, may be business tours or
leisure tours are called outbound tour operators. Indian outbound tourist traffic is growing at a
rate of 10 per cent annually and this makes India the second largest country in the world with
regard to the travelling population. However, India's outbound tourism is not holiday oriented
only but it is business oriented too. There are many travel companies which offer outbound
packages such as Raj tours travel; SITA, TCI, SOTC, KUONI, Indo Asia, Cox and Kings,
Thomas Cook and Sons etc.

1.8.3 Domestic Tour Operators

Domestic tour operators are those who assemble, combine tourist components into
inclusive tours and sell it to the domestic travellers. In general, these tour operators provide
travel services within the tourist's native or home country. The domestic tour operators operate
within the boundary of home country and offer package tours to the traveller’s viz. Domestic
inclusive tours or independent tours.

1.8.4 Destination Management Companies/Ground Operators

These are commonly known as handling agencies and their main functionis to

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Organize tour arrangements for incoming tourists on behalf of overseas operators. Let us take the
case of India as a destination place that—has a varied culture.

When a tour operator himself promotes beach holidays, wildlife holidays, adventure
tours, heritage tours, cultural tours at different places, the difficulty arises. It is the ground
operator then who by handling the incoming travellers in the same season but at different places
ensures that the entire operation is according to the package tours or agreements. Sometimes
when a handling agency is at a prominent tourist place i.e., Delhi and it has to make
arrangements to Goa, then it contracts (If it has no office of its own) with a local operator
(known as excursion agent) to handle the arrangements on his behalf.

WHY GROUND OPERATORS?

Obviously, the tour operation companies do not have close contact with suppliers,
governments, destinations and so on. It leaves no choice with the companies but to appoint
handling agencies at the destinations. The main reasons are:

• Introduction of new product or plant to promote an exotic destination.

• Lack of Government regulations
• Lack of personal contract
• Language problem
• Company can not establish its own branch.

Recognizing the very facts that the reputation, performance and profitability of tour
company in its own market largely depends on the efficiency and effectiveness of ground
operators, it has become necessary for the company to consider various factors before the
selection of a handling agency, they are:
• Size of business
• Professional staff
• Length of business
• Reputation and membership, the agency has with international and national travel
and tourism associations.
• Area of operation/Product line

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 • Market share

• Turnover during last 5 years

• Credit facilities available.

1.8.4 (a) Function of Destination Companies

Over the years of functions and activities of destination companies have change
drastically to cope with the changing environment of tourism industry? In fact, today's
destination companies have become more professional and are bound to provide personalized
travel services to the tourists. The following functions are performed by the destination
companies:

• Land arrangement

• Contract and Negotiate with other vendors

• Handling of Arrival and departure procedure

• Planning and organizing local package tour

• Escorting the tourists

• Providing market information

• Costing and pricing package tour

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 1.9 DIFFERENCE BETWEEN WHOLESALE TRAVEL AGENCIES AND TOUR
OPERATORS
The wholesale travel agencies may offer or operate the package tours or may specialize in
developing tours for inbound as well as outbound travellers. They are often referred to as tour
operators, but these two essentially different:

1. Wholesale travel agency does not sell directly to the public, while tour operators
do sell directly to clients.

2. A wholesale travel agency usually combines, assembles and contacts for existing
travel services to formulate new package tours. Whereas a tour operator creates new
travel product a she has his own one or more components of travel product i.e.
'inclusive tours.'

3. Wholesale travel agencies are less inclined than tour operators to perform ground
services i.e. handling agency or ground operators.
4. A wholesale travel agency may deal with one component of travel product while a
tour operator offers a variety of tour programmes.

5. The size of business is large in case of tour operators in comparison to wholesale

travel agency.
Practically, if we see the working of travel agencies and tour operators in the industry we
find that most of the organizations are performing different types of activities like the retail travel
agency, wholesale travel agency and tour operator. TCI, Thomas Cook, Cox and Kings, SITA,
Ind Travel, American Express SoTC, Indo Asia tour, Kuoni and numerous other travel agencies
are performing such activities. They not only act as agents, wholesalers or tour operators but also
work as General Sales Agents (GSA), consolidators, and specially channelers. Thus, it is very
difficult to limit the scope of modern travel agency's activities.

The travel agency business is no longer amateurism. Over the last two decades, the pattern
and structure of travel agencies have changed to meet tough challenges in the international
market. Incidentally, the mom and pop organizations of yester years are rapidly evolving into
large scale professional travel agencies. Today, Small Scale Agencies are finding the travel
industry increasingly complex.

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 Thus, the small and medium scale travel agencies are disappearing or merging or falling
instead of rising. On the other hand a new concept has also emerged i.e. tour operation business.
The tour operation business is new but a maturing business at the global level.

Technically, in this volatile business environment, successful travel agency management will
change to meet competitive threats and opportunities and match the needs of a new travel
market, with the need to incorporate flexibility, creativity, innovation, determination and
professionalism into their operations. In the light of this the present text focuses mainly on large
scale travel companies.

1.10 INTEGRATION AND LINKAGES IN THE TRAVEL AGENCY BUSINESS

Today, the travel and tourism industry is becoming more and more competitive one at
globe. Such competition is often encouraged by government policies like deregulation of
airlines, transportation, communication and other sectors of the economy. But it has been noticed
that no other factor is more influential than the political change, social turmoil and world events
which has a profound impact on the travel agency business. The competitive forces compel the
travel companies to seek ways to become more efficient and profitable in this context, the
integrations offer significant benefits.

Integration means to grow by enabling a travel company to increase its market share and
simultaneously reduce the level of competitive forces. In other words, it is a concept used in
economics to describe formal linking arrangements between one travel agency organization and
the other. It is of two types:

1. Horizontal Integration

2. Vertical Integration.
1.10.1 Horizontal Integration
Firstly, Horizontal integration means two tour operators or two travel agencies or two hotels
or two airlines which are offering competitive product amalgamate either through merger or
through take over. For example, Thomas Cook, one of the best known names in the global travel
industry, strengthened its hand in the British market on October 6, 1998 when it announced plans
to merge its worldwide business with the UK arm of US owned Carlson Company. Secondly,

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Horizontal integration occurs between companies offering complementary rather than
competitive products like Hotels and travel agencies and other sectors. In Indian context, SITA
with KUONI is best example.

1.10.2 Vertical Integration

When an airline company or hotel company establishes its own travel division or agency
like British Airways, Lufthansa, ITDC and TCI it is called vertical integration. Today, many
multinational companies are sought to own and operate their own travel agencies, hotels, resorts
in key destinations in order to secure trading advantage over their rivals.

1.10.3 Benefits of Integration

• Economics of Large Scales

• Eliminates middlemen

• Protects the market position

• Secures the supply and increases the buying power.

• Quality Product(s)/Services

• Professional staff.

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 1.11 TRAVEL AGENCY—LINKAGES

Basically, a travel agency serves two types of clients: business travellers and leisure
travellers. Incidentally, the requirements of these tourists are different and an agency has to
assemble or purchase related components from the principal suppliers to cater their needs.
Essentially, travel agencies, maintain close ties with the Airlines, hotels, car rentals, banks,
insurance companies, railways, government, trade associations, foreign tour operators and travel
agents, ground operators, cruise companies and tourism educational institutes see figure—A brief
discussion of these undertakings.
Lodging cos.
Hotels,
Motels,
Resorts,
Others Cruise Cos.
Airlines
Domestic &
International

Transport

Tourism Road, Rail

Associations

Tour
TRAVEL AGENCY Wholesalers
Cultural and
Entertainment
organisations

Insurance Cos.

Govt. DOT

Foreign Travel
Cos.
Educational Banking
Institutions Companies

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1.11.1 Airlines

International Air Transport Association (LATA) operates a network by which travel

agencies sell airline tickets and receives commission. Thus, the sale of airline tickets is highly
regulated and strictly controlled. The agency's commission range from 5 to 11 per cent but most
major airlines offer additional incentives, i.e..cash bonuses arid override commission. However,
in some cases when a travel agency purchases airtickets in bulk, the margin of commission will
be high. This largely depends on the relationship between the two organizations.

The procedure of sale of domestic airline tickets is different from country to country and
even the rate of commission also varies. Today, airline ticketing and reservation is almost entirely
automated.

1.11.2 Accommodation Companies

Most hotels and other lodging companies, including major Indian and international hotel
chains, pay commission to the travel agencies. (The rate varies from hotel to hotel). However,
Hoteliers in dealing with travel agencies are more informal and less regulated than the airline
companies. Interestingly, many hotels and hotel chains participate in Computer Reservation
System (CRS), permitting hotel reservations to be made at the same terminal which is used to
sell airline tickets. The commission received from hotels is the second largest component of total
agency revenue. But if the purchase is made in bulk then the profit is based on the negotiated
prices and accordingly the profit may be higher or lower.

1.11.3 Cruise Companies

The Cruise companies are informally regulated by its own governing body, i.e., cruise
lines association, which must approve any travel agency that desires to sell booking on behalf of
any member of a cruise company'. The cruise companies also offer a complete package including
sea travel, accommodation, food, entertainment and sometimes air travel also. The commission
varies from 10 to 20 per cent. However, most cruise package tours are sold to the public through
travel agencies. It was Thomas Cook who brought first group of foreign tourists in India through
sea route.
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1.11.4 Insurance Companies
Today, many travel companies have included travel insurance in their package tours like
Thomas Cook. The company insured the travellers to protect them against accident, loss of
baggage and missed flights. Successful travel agency management has to make close contact
with insurance companies to obtain insurance policy for its clients. Recently, the Oriental
Insurance Company has introduced two new travel policies for domestic as well foreign tourists
i.e. 'Suhana Safar' for domestic travellers and 'VideshYatraMitra' (VYM) for foreign travellers.
Incidentally, the foreign policy is an upgraded version of 'overseas mediclaim insurance'.

The 'Suhana Safar' covers accident and Baggage loses—excluding money, jewellary,
cheques and other costly items. The policy is valid for a period of 60 days and it could be served
and claims settled in any one of the 953 offices of the company.

The 'VideshYatraMitra' contains—Medical Expenses and repatriation covers up to $ 5

lakh worldwide including US and Canada and up to $ 2,5 lakh worldwideexcluding US and
Canada. It also covers a total loss of checked-in baggage by an international airline and a cover
of upto $ 100 for purchases enforced by the delay of check-in baggage. Even the loss of passport
is covered upto $ 250 and personal liability is covered up to $200,000. Insurance companies
allow 20 to 30 per cent commission on insurance policies to travel companies.

1.11.5 Banking Companies

Travel agencies offer banking facilities to the travellers like clearance of traveller cheques
and arrangement of foreign currency. Only those travel agencies, which are authorized by the
Reserve Bank of India (RBI) under Foreign Exchange regulation Act 1973 (New amendment
FERM1998) can deal with Foreign currency. Banking companies give commission to travel
agencies on traveller cheques and currency exchange.

1.11.6 Educational Institutions

An agency's success depends almost entirely on the competence of management and
expertise of the staff. It develops manpower planning in such a way that will help to conduct on

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campus selection and match the students to the requirements of the company. The linkage
between travel companies and tourism education institutions will solve the problem of human
resource requirements of present and future. Therefore, a travel company needs to maintain close
contact and interface with tourism education institutions. Many Chief Executives from the
industry are the members of the advisory board of the institutions.

1.11.7 Travel Trade Associations

These associations provide a common platform to solve many problems of the members
such as training, common code of conduct, airlines commission or any other. There are a number
of travel trade associations like TAAI, IATO, ASTA, IATA and PATA which are quite active in
the promotion of travel trade at global. Essentially, every travel company should be approved by
these associations to avail financial and non-financial incentives and commissions from the
Airlines, hotels, railways etc.

1.11.8 Other Organisations

The travel agencies need to maintain close ties with many other organizations offering
travel related services like cultural and entertainment organizations, foreign tour companies,
regional passport office, department of tourism both at centre and states, sports operators,
transport operators, food and beverage business etc. In fact, these organizations play a vital role
in making travel a complete product.

Travel companies provide business to above cited organizations and in return receive
commissions. However, there are few other organizations that help the agency to run travel
business smoothly and promote India as a tourist destination. Technically,a travel company
cannot work in isolation but is interdependent with other travel related enterprises.

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 1.12 FUNCTIONS OF TRAVEL AGENCY AND TOUR OPERATION

Today, Travel Agencies have been recognized as a vital component of travel and tourism
and have become an integral part of travel and tourism industry at global. They Account for more
than 90% of international and 70% of domestic tourist traffic. Further, more than 60% of all
travel agency revenues are derived from the business travel. Most travel agencies sell both
commercial and leisure travels but there are many travel agencies which only specialize in one
sector or the other.

The operation of each travel agency is based on the scope of its activities and
organizational size. In this chapter we will discuss the functions of a large scale travel agency
that performs all types of activities such as retail TA, wholesaling and tour operations etc. The
main functions of a large scale travel agency are (See fig.).

Functions of a Travel/Tour Company

(1) (2) (3) (4) (5)

Travel Information Itinerary Airline ticketing Accommodation Tour packaging
Preparation and reservations reservation and costing
Counseling
Immigration Various types of International Hotel Liaison with
Passport itinerary of special Domestic Motel providers
Visa interest tourists Resorts Market Research
Custom Clearance Others Costing and
Health and Security Pricing
Checks Promotion of
Landing permits Package
certificates Executive of Tour
package

(6) (7) (8) (9) (10)

Reservation of Travel Insurance Foreign Currency Organisations of Reservation for
Surface/Sea
transport Personal Seminars Entertainment
Baggage Symposium Cultural
Rail Conference Programmes
Road Exhibitions Others
Sea

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1. Travel Information

What ever the size of a travel agency, it has to provide necessary travel information to the
tourists. This task is utterly difficult and very complicated. A travel agency must give up-to-date,
accurate and timely information regarding destinations, modes of travel, accommodation, sight-
seeing, shopping, immigration, passport, visa, custom clearance and procedure, health and
security rules and about various permits required to travel in particular areas etc. Further, we can
say that travel agencies are image builders of a country. Therefore, they should present an
accurate picture of various tourist resources and potentials of a country to the tourists.

2. Itinerary Preparation
The term tourist itinerary is used to identify the origin, destination and all the stopping
points in a traveller(s) tours. It is a composition of various elements and designed after detailed
study of market. Practically, a travel agency prepares two types of itineraries (a) general itinerary
(b) special-tourist-interest itinerary i.e. Delhi-Agra-Jaipur-Delhi, Pilgrimage tourists, mountain
tourists, Buddhist tourists etc. Preparation of different types of itinerary is a very important,
function of travel agencies/touroperators. A prospective travel agent also gives advice to
intending tourists in various types of tour programmes, which they may choose for their leisure
or commercial travel.

3. Airline Ticketing and Reservation

A travel agency sells variety of tourism products. Airline ticketing and reservation is still
a major source of revenue. Today, recognized travel agencies and tour operators issue and sell
more than 90 per cent of International Air Tickets and 60 per cent of domestic tickets in India.
Airline ticketing, however, is not an easy job, as the range of international Airline fares is very
complex, varied and requiring complete up-to-date knowledge of various schedules and airfares
of airlines worldwide.

The Computerized Reservation System (CRS) has changed the entire scenario of travel
industry. Today, using this system (CRS) the travel agency may serve a wide variety of clients
and fulfill their needs and requirements.

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4. Tour Packaging and Costing
A tour package is a combination of various tourism services/goods like transport,
accommodation and other facilities at and en route destination. However, in reality it has only
two basic components (a) travel and (b) ground services. Travel agency prepare a package
keeping in view the preference of target market, which is based on different factors like modes
of travel, client choice, income, age group, country and region. After the identification of target
market the travel agency liaisons with service/goods providers and enters into a contract with
them.

The costing and pricing of tour packages depend to a large extent on the ability of a travel
agent/tour operator as to how effectively he is able to negotiate with theprincipals. Thus,
negotiation is also an important function of the travel agency. The cost of a tour is calculated on
the basis of what he has negotiated with the producers. Some extra cost is added for the
unforeseen/further contingencies. Thus, costing is done by adding each element of cost i.e.
transport, accommodation, and sightseeing, guiding, administrative and fixed expenses. For
fixing the price of a tour package, one has to add some percentage of profit margins to the cost
(which is based on organization objective, pricing policy and competitiveness of the product).

Once the package is formulated and priced it means that it is ready for sale. The travel
agent/tour operator needs to promote its package so that the targeted clients may come to know
about it and are motivated to purchase it. Technically, this is known as marketing of tour
package, which involves different methods and techniques.

5. Reservation
It is a very important function of all types of travel agencies. A travel agency consistently
makes linkage with accommodation sector, transport sector and other entertainment
organizations to reserve rooms, and seats in the cultural programmes and transportation.
However, prior to reservation, a successful travel agency must understand the needs and
requirements of the individual clients.

One client may demand a five star deluxe whereas another may want a two star or a one
star or different types of rooms, rates, meal plans and so on. A travel agency makes a reservation

30
for the tourists by giving complete information regarding the number of tourists, date and time of
arrival, length of stay and what is required by the individual/crop. Travel agencies use different
types of reservation techniques. However, today Computerized Reservation System (CRS) is
widely used today worldwide to make insistent reservation.

6. Travel Insurance
Some large scale travel agencies perform additional functions to serve its clients. Travel
Insurance protects the traveler(s) against the personal as well as baggage losses resulting from a
wide range of travel related happenings or problems. A tourist, who purchases travel insurance
(sometimes included in tour packages), receives a contract, called a policy, issued by the
insurance company. The policy is based on the client(s) needs, price and type of tour etc. Travel
insurance generally covers (a) personal accidents (b). Medical and related expenses (c) baggage
loss and (d) trip cancellation and interruption etc.

7. Currency Services
Travel agencies/tour operators which are permitted by the RBI and Foreign Exchange
Management Act 1973 (FEMA) to deal with Foreign Currency, offer currency services (currency,
traveller cheque and other documents) to the intending clients. This is a veryimportant facility to
the tourists as it saves their time and energy. However, for this the travel agencies charge certain
percentage ofcommission.

8. Organization of Conference/Convention

Today, organizing conferences conventions and seminars have become a profitable

business for many travel agencies. Even in some large scale travel agencies we find separate
convention and conference departments to perform this vital function. Whenever, a commercial
organization desires to hold a conference/convention to discuss the future plans and strategies of
undertaking or to conduct seminars/training programmes for its employees or to introduce new
product in the market and so on, it contacts the travel agency and asks for the recommendation of
suitable destinations/ venues where such services and facilities are available. Many travel
agencies (Cox and Kings, TCI, Thomas Cook and Sons) offer a complete convention/conference
package including registration of participants at the venue to be picked up for dropped to the
airport/ hotel, overhead projectors, slide projectors, TV, VCR, information counter, sight

31
seeingetc. The company(s) executive is always available on the venue during the conference/
seminar period to ensure rapid and quality services.

Technically, when national or international events are announced every travel agency
tries to collect all the relevant details on the events such as date, duration, place and other
formalities. Once the agency knows about these facts it works out a package plan.

Generally a Conference/Convention Package includes

• Travel to and from the venue;

• Accommodation at the venue;

• Registration fees and facilities;

• Conference room with audio-visual devices and other services;

• Secretarial services;

• Sight seeing and cultural entertainment, and

• Shopping.

9. Travel Agency as Handling Agency/Ground Operator

Industry experience has shown that the reputation, efficiency and profitability of the
travel company (Indian or foreign) in its own tourist market largely depends on the performance
of its ground operators. A handling agency may be an individual, a firm or a company making
ground arrangement on behalf of another travel company. Today, the Indian large scale travel
agencies acting as ground operators, for foreign tour companies are TCI, SOTC, Orbit and
Thomas Cook etc.

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