Three Challenges Facing Tour Operators on Line
For a long time now, prospective travelers have had the ability to search, find and make their basic flight and hotel reservations on-line. Only recently has it been possible for these same travelers to book their destination products, such as sightseeing tours and attraction tickets on line as well. Despite this trend, however, there is still no primary distribution system; which means that most travelers have to visit many different individual websites in order to purchase their destination products.
For a tour operator, one of the most important goals is to sell seats. The challenge is how to sell more seats and what systems to use to manage those sales. There are several challenges facing individual tour operators providers when choosing to sell their products through their website or through a booking portal. The first challenge is deciding what kind of solution to use. There are primarily two types of on line booking systems available. One is stand-alone, which means that it is installed directly on a website, the other is hosted, which means it is installed and managed by another company. Generally speaking, stand-a-lone booking engines require an upfront license fee and require the tour operator to have access to a hosting facility, IT expertise, and the ability to install and manage the software.
The key benefit to a stand-alone solution is that the tour operator has complete control of their system and can customize it to fit their specific needs. The biggest disadvantage of a stand-a-lone system is that the tour operator’s products are only available from their website and cannot be distributed openly. Stand-alone systems can also be very costly, requiring both software and specialized hardware. Hosted solutions are sometimes referred to as “software as a service” solutions and are rented on a monthly basis. Because hosted solutions are shared by many users, they are generally lower cost, although not always, and do not support customizations. Although some solutions support distribution of products through a branded portal website, very few actually allow for the open distribution of destination products through some kind of global distribution system.
The second major challenge for tour operators is deciding whether to use a system that charges a flat fee or a commission. This can be a tougher challenge to overcome because both hosted and stand-alone systems charge both flat fees and commissions. So once the tour operator has chosen a technology, they must decide if the cost of the system is appropriate. The benefit of a commission based system is that there is generally very little cost to the tour operator until a sale is made and then the tour operator pays on average about a five percent commission on the sale of their products through the system. In some cases, the commission can be as low as one percent or as high as twenty-five percent. This may seem attractive because there are no upfront or ongoing costs, but the costs of a commission based system can quickly add up. Flat fee systems are more difficult to find because, for some reason, they are not the norm for the travel industry. Flat fee systems charge a regular monthly fee and a flat booking fee, generally between twenty-five cents and one dollar per booking. When compared with a commission based system, one might see why the the flat fee system is so attractive. A tour operator selling ten bookings a week with a retail value of a $350 per booking using a commission system which charges 10% would cost the tour operator $1,400 per month, compared to a flat fee system charging forty dollars per month and seventy-five cents per booking.
The third and perhaps most important challenge is how to distribute products through multiple on line and off line sales channels while managing inventory. This challenge is surprisingly not that difficult to overcome, primarily because there are so few choices for tour distribution systems. The major GDSs do not currently support destination products and are focused almost exclusively on the distribution of major airlines, hotels, and cruises. There are other consumer based tour product websites that will sell products on behalf of tour operators, however in almost all cases, these tour booking websites are simply travel agencies that charge a hefty commission or require exclusive net pricing. The best option for the tour operator is to find a system that allows them to manage their inventory, streamlines their sales process, gives them the ability to sell through their own website, and provides an underlying distribution network that allows them to resell their products through both on line and off line sales channels.
In summary, there is an immense number of tour operators who have not yet taken the leap to software based solutions for inventory, sales, and customer management. Although the number of solutions that provide some or all of these requirements is growing, they all present their own strengths and weaknesses. The best and most flexible solution would present itself as a hosted solution with an integrated distribution system. The solution would allow tour operators to manage their inventory, bookings, customer information, and provide lots of reporting. Ideally it would be a flat fee system that charges a monthly fee based on the operator’s volume of bookings rather than charging a commission.
The system would, however, still allow the operator to set commissions on products that are sold through third party resellers, so that they can compensate their sales peoples appropriately. It would have an integrated consumer booking engine that would give the tour operator options for customizing the look of their website. Lastly, the system would also have an open application interface that would allow more technologically savvy operators to totally customize their consumer booking experience and integrate products in unique and interesting ways.