SIC 4725 Tour Operators

Encyclopedia of American Industries | 2005 | Copyright

SIC 4725
TOUR OPERATORS

This classification comprises establishments primarily engaged in arranging and assembling tours for sale through travel agents. Tour operators primarily engaged in selling their own tours directly to travelers are also included in this industry.

NAICS Code(s)

561520 (Tour Operators)

Industry Snapshot

Within the entire U.S. travel and tourism industry, the packaged tours industry constitutes the second largest revenue-producing sector of the travel services group, bringing in about half the revenues of air carriers alone. As of 2001, the entire travel and tourism industry was the nation's leading services export and the third-largest retail industry, following automotive dealers and food stores. To provide some perspective on the enormity of the economic impact of travel and tourism on the U.S. economy, in 2001 alone the U.S. travel industry received more than $555 billion from domestic and international travelers. The industry has provided some 7.9 million jobs in the United States with a payroll totaling $174 billion.

From this enormous market, tour operators earn their revenue by providing a host of travel services to a travel agent, who then sells these services to tourists. The types of tours provided vary widely according to the type of tour operating business concerned, ranging from arranging transportation, lodging, meals, and a guide for a week-long, gorilla tracking expedition in Africa, to the simple service of providing newly arrived guests to Hawaii with ceremonial leis. Tour operators frequently offer the following advantages: cheaper price, grouped travel with others with similar interests or same socio-economic level, predetermined costs, and pre-planned activities.

Historically, tourists who have chosen to arrange their vacations through a tour operator rather than through a travel agency do so for several different reasons, which, over the course of the modern travel industry's existence, have fluctuated in their relative importance to the tour operator industry. Initially, tourists were attracted by the cheaper total price of their vacations when purchased from a tour operator; they also preferred to travel with a group, have the trip's budget determined beforehand, and not having to worry about what to do, where to go, and how to get there. These benefits, economy, and ease of travel that motivate a consumer to consider a tour package essentially predicate the industry's existence. Throughout the tour operator industry's development, these advantages attracted a certain portion of those contemplating travel, although the number of tourists motivated by economy and ease of travel has varied during different phases of the industry's history.

As time progressed and more people found the time and the extra finances to travel, the tour operator industry also began to attract a new type of customer not necessarily interested in traveling with a group or particularly interested in saving money. These tourists had traveled to numerous destinations numerous times, becoming somewhat inured to the attraction of a particular destination. Instead of traveling, for example, to France for the seventh time, a tourist might consult with a tour organizer to arrange a trip to France specifically tailored to the tourist's interests. These types of tourists represented a growing part of the industry's customer base and led to the creation of fantastic, sometimes eccentric, tours.

Organization and Structure

On a broad level there are two types of businesses that generate revenue from arranging transportation and entertainment for tourists: wholesale travel businesses and retail travel businesses. Tour operators generally function as wholesalers, although like travel agencies, they may operate as retailers or both. Wholesalers in the travel industry secure large blocks of hotel rooms, or sections of seats on an airplane, or large volumes of any other travel-related commodity by paying a deposit for such reservations. By reserving, for example, 200 rooms in a particular hotel, the wholesaler receives a discounted price from the hotel operator, primarily because the wholesaler has assumed the risk of having the 200 hotel rooms remain vacant, a risk the hotel operator would otherwise assume. To generate revenue and mitigate its newly assumed risk, the wholesale concern then attempts to occupy these 200 hotel rooms with tourists by selling the rooms through a retail concern. The distinction between the wholesaler selling through the retailer rather than to the retailer is an important one, because the retailer, usually a travel agency, does not pay for the block of rooms (thereby assuming the inherent risk), but only attempts to occupy the rooms for the wholesaler, for which the retailer receives a commission from the wholesaler.

Frequently, as a result of the vertical integration by the travel industry, a travel wholesaler also may own a travel retail business and, if so, functions as a wholesaler and a retailer, reserving large blocks of transportation or lodging space, then selling these reservations directly to tourists through its retail travel agency. Some tour operators operate as such, selling tour packages directly to...

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