THE STRUCTURE AND ORGANISATION OF THE TOURISM INDUSTRY

TOPIC 3

• Identify the integral and associated sectors of the travel and tourism industry

• Explain the chain of distribution and how this applies within the industry

• Understand the relationships, formal and informal, between each industry sector

• Be aware of the extent of integration within the industry and the reasons for this

• Identify the factors leading to change within the industry and predict likely directions it may take in the future.

Outcomes

• Distribution channels in tourism create the link between the suppliers and consumers of tourism services, providing information and a mechanism enabling consumers to make and pay for reservations.

Introduction

Producers

wholesalers

Retailers

Consumers

Chain of distribution for tourism

• Transport – Air, waterborne, road, rail, etc

• Accommodation– Hotel and other forms of tourist accommodation

• Attraction – Stately homes, heritage sites, amusement parks,

conference and exhibition venues, etc

Producers

• Tour operators buy a range of tourism products such as airline seats, hotel rooms, etc in bulk the package these for subsequent sale to travel agents or to the tourist direct.

• Some theorist claim them as producer of a new product rather than wholesalers of an existing one

Wholesalers

• Who bulk buy tourist products and sell in small quantities.

• Consolidators are specialists working in airline brokerage who bulk purchase unsold charter aircraft seats to sell through intermediaries, thereby helping airlines to clear unsold ‘stock’

Brokers

• Travel agents sell most travel products within the distribution chain, buying packages and travel services according to client demand.

• Retailing through the Internet is a threat to them.

• Act as an intermediary between consumer and the supplier.

Retailers

Ancillary provider

• Tourist offices• Publicly owned airports

& seaports• Passport and visa

documentation• Public education and

training institutes, etc

Public sector organisations

Ancillary provider

• Privately owned airports & seaports

• Freelance guides• Travel insurance &

financial service• Travel trade newspapers

and journals, etc

Privately owned

• Sectoral organization– Based on the interests of a particular sector of

industry• Destination organization– Concerned with a specific tourist destination,

whether country, region or resort• Tourism organization– Concerned with travel or tourism activity as a

whole

Common interest organization

Sectoral organizationDestination organization

Tourism organization

Common interest organization

Trade bodies Professional bodies Group of independent firms Exchanging views Cooperation (e.g.

marketing) Representation and

negotiation with other organisations

Composed of individuals Establishing educational or

training qualifications of the industry or sector

Devising codes of conduct Controlling entry to the

industry

• International Air Transport Association (IATA)

• The International Federation of Tour Operators

• British Federation of Tour Operators (FTO)

• Association of British Travel Agents (ABTA)

Sectoral organizationProfessional bodiesTrade bodies

• Chartered Institute of Transportation (CIT)

• Institute of Hospitality• The Chartered Institute of

Marketing (CIM)• Chartered Institute of

Marketing Travel Industry Group (CIMTIG)

• Educational Professional Bodies

• Objectives:– To foster cooperation and coordination between the

various bodies that provide, or are responsible for, the facilities or amenities making up the tourism product

– To act in concert to promote the destination to the travel trade and tourists.

• Most are trade, rather than professional bodies– E.g.• Pacific Asia Travel Association (PATA)• European Travel Commission (ETC)• MMPRC

Destination organization

• Aims at compilation of national and international statistics on tourism

• E.g. United Nations World Tourism Organisation (UNWTO)

• Organisation for Economic Cooperation and Development (OECD) – has a tourism committee

• World Travel and Tourism Council (WTTC)

Tourism organization

Integration in the tourism industry• Horizontal integration – taking place at any one level

in the chain

• Vertical integration – describes the process of linking together organisations at different levels of the chains

• Diagonal integration – links between complementary businesses within each level in the chain.

The benefits of scale• Benefits of economies of scale by producing and

selling more of a product

• The savings can pass on to clients in the form of lower prices. Making the product more attractive

• Vertical integration offers economies of scale through the integration of executive and administrative functions.

The benefits of a changed distribution system

• The World Wide Web is replacing the need for traditional method of distribution

• Beds can be sold direct via a website and in any number of foreign languages to meet the world market’s needs.

• In so doing, distribution prices can be held down

The benefits of size

• Large businesses attracts advantages • Suppliers are anxious to do business with them• In an overbooking situation, suppliers cannot let

large tour operator down• Hotels uniting into large groups will be able to

negotiate better deals with the suppliers• Larger airlines have negotiation strength when they

deal with foreign governments.

Horizontal integration

• Two companies offering similar products• Mergers and takeovers• Voluntary unions

(consortiums)• Two companies offering

complimentary products• E.g. airline + a hotel chain

• Interlining agreements • Allows airlines to benefit

from connections globally

• Integration in the travel agencies level is also common, e.g. miniples

• Tour operating has also experienced growth through integration• Thomas Cook and Thomson

Holidays are both in German hands

• Thomson Holidays are now under TUI

Vertical integration

• Takes place when an organisation at one level in the chain of distribution unites with one at another level

• Forward integration – e.g. where a tour operator buys its own chain of travel agents

• Backward integration – tour operator buys its own airline

Integration leads to control

• Companies carry on integration to ensure the availability of service and to influence prices

• This integration can be achieved by direct purchasing or by setting up joint ventures

• Operators wish to have control of the properties through a franchising scheme or branding.

Conglomerates and international integration

• Companies wish to spread the risk of operating in tourism business by going conglomerate.

• The long term growth prospects of leisure has attracted different companies to this industry

• Travel companies must look beyond their own national borders to understand the nature of the competition they face

Can you recall?

• In a tourism context, who are the followings?• Producer• Wholesaler• Retailer• Consumer

• What does it mean by ancillary provider?• How do you differentiate between trade bodies and professional

bodies?• What do you mean by integration?• How does a business gain when it achieve growth in size? How

would you explain the phrase “small is beautiful”?