A travel agency’s main function is to act as an agent, selling travel products and services on behalf of a supplier. Consequently, unlike other retail businesses, they do not keep a stock in hand. A package holiday or a ticket is not purchased from a supplier unless a customer requests that purchase. The holiday or ticket is supplied to them at a discount. The profit is therefore the difference between the advertised price which the customer pays and the discounted price at which it is supplied to the agent. This is known as the commission. In many countries, all individuals or companies that sell tickets are required to be licensed as a travel agent. In some countries, airlines have stopped giving commission to travel agencies. Therefore, travel agencies are now forced to charge a percentage premium or a standard flat fee, per sale. However, some companies still give them a set percentage for selling their product. Major tour companies can afford to do this, because if they were to sell a thousand trips at a cheaper rate, they still come out better than if they sell a hundred trips at a higher rate.
This process benefits both parties. It is also cheaper to offer commissions to travel agents rather than engage in advertising and distribution campaigns without using agents. Other commercial operations are undertaken, especially by the larger chains. These can include the sale of in-house insurance, travel guide books and timetables, car rentals, and the services of an on-site Bureau de change, dealing in the most popular holiday currencies. The majority of travel agents have felt the need to protect themselves and their clients against the possibilities of commercial failure, either their own or a supplier’s. They will advertise the fact that they are surety bonded, meaning in the case of a failure, the customers are guaranteed either an equivalent holiday to that which they have lost or if they prefer, a refund.
Many British and American agencies and tour operators are bonded with the International Air Transport Association (IATA), for those who issue air tickets, Air Travel Organisers’ Licensing (ATOL) for those who order tickets in, the Association of British Travel Agents (ABTA) or the American Society of Travel Agents (ASTA), for those who sell package holidays on behalf of a tour company. A travel agent is supposed to offer impartial travel advice to the customer. However, this function almost disappeared with the mass-market package holiday and some agency chains seemed to develop a ‘holiday supermarket’ concept, in which customers choose their holiday from brochures on racks and then book it from a counter. Again, a variety of social and economic changes have now contrived to bring this aspect to the fore once more, particularly with the advent of multiple, no-frills, low-cost airlines.
Several areas of a travel agency’s focus pay commissions to the agency which becomes it’s principal income. These mainly are: car rentals, cruise lines, hotels, railways, sightseeing tours, tour operators, etc. A fixed percentage of the main element of the price, is paid to the agent as a commission. Commissions are not paid on the Tax component of the price. With regard to Air Travel however, commissions are becoming a thing of the past. In the United States, most airlines pay no commission at all to travel agencies. In this case, an agency usually adds a service fee to the net price. Reduced commissions have taken place since 1995, when first commission reductions hit North America: a cap of $50 on return trips and $25 on one way.  In 1999 European airlines began eliminating or reducing commissions, while Singapore Airlines did so in parts of Asia. In 2002 Delta Air Lines announced a zero commission base for USA and Canada; after a few months United Airlines, American Airlines, Continental Airlines, Northwest Airlines, US Airways and American Trans Air joined Delta.
Types of agencies
There are three different types of agencies in the UK: multiples, miniples and independent agencies. The former comprises a number of national chains, often owned by international conglomerates, like Thomson Holidays, now a subsidiary of TUI AG, the German multinational. It is now quite common for the large mass-market tour companies to purchase a controlling interest in a chain of travel agencies, in order to control the distribution of their product. (This is an example of vertical integration.) The smaller chains are often based in particular regions or districts. In the United States, there are four different types of agencies: mega, regional, consortium and independent agencies.
American Express and the American Automobile Association (AAA) are examples of mega travel agencies. Independent agencies usually cater to a special or niche market, such as the needs of residents in an upmarket commuter town or suburb or a particular group interested in a similar activity, such as sporting events, like football, golf or tennis. There are two approaches of travel agencies. One is the traditional, multi-destination, out-bound travel agency, based in the originating location of the traveler and the other is the destination focused, in-bound travel agency, that is based in the destination and delivers an expertise on that location. At present, the former is usually a larger operator like Thomas Cook, while the latter is often a smaller, independent operator.
Airline consolidators and other types of travel consolidators and wholesalers are high volume sales companies that specialize in selling to niche markets. They may or may not offer various types of services, at a single point of access. These can be hotel reservations, flights or car-rentals. Sometimes the services are combined into vacation packages, that include transfers to the location and lodging. These companies do not usually sell directly to the public, but act as wholesalers to retail travel agencies. Commonly, the sole purpose of consolidators is to sell to ethnic niches in the travel industry. Usually no consolidator offers everything; they may only have contracted rates to specific destinations. Today, there are no domestic consolidators, with some exceptions for business class contracts.