Business plan of a travel agency
If there is one sector that has had to completely change its business model, it is the travel agency sector. The advent of the Internet has forever changed the way people buy train and plane tickets and even travel packages.
But, at the same time, the low-cost boom multiplied the number of travellers. That’s why it’s worth considering the business plan of a travel agency, which can be a profitable business, especially with some specialization.
Business model and value proposal
Until about fifteen years ago, to buy a plane ticket, it was usual to go to a travel agency’s office. The clientele was massive and very generalist, and therefore many agencies arose that were dedicated to selling flights, train tickets or tourist packages to these unspecialized clients.
An interesting commission was charged on each operation, and customers usually did not make many comparisons with the prices of the competition.
But little by little, the Internet was attracting the most generalist and price-conscious clientele. The appearance of search engines and low-cost companies that only sold on the Internet allowed many people to get good prices and investigate offers comfortably from their home couches.
At first, traditional travel agencies were confident, and thought that their personalized advice would retain customers. But since the concern of a good part of the clientele was to buy standard products at the best price, they could not compete and lost a lot of market share.
Today, the key is specialization, customized trip design and quality of service. It doesn’t make sense to compete only on price with online agencies.
Success lies in focusing on customers who are looking for advice and providing them with competitive prices, or even targeting niche markets, with totally tailor-made, totally original trips for customers with high purchasing power. Or opting for products such as cruises and holiday packages, which still work very well.
After a large drop in retail agency sales, the situation has been stabilizing and recovering year after year, although the weight of traditional agencies continues to decline in comparison to Internet sales, which represented 33% of total travel agency retail sales.
However, we are talking about a retail market (Internet excluded) of almost 10 billion euros of turnover in Spain, which means that there is room for innovative and specialized companies with premises at street level.
In our country, competence over travel agencies has been transferred to the Autonomous Communities, and therefore it is necessary to study the regulations of each region to ensure that they are complied with.
For more information, we recommend that you consult the page dedicated to legislation of the Business Federation of Territorial Associations of Spanish Travel Agencies. Before considering a travel agency’s business plan, knowing the local conditions is vital.
Perhaps the most notable point of the regulations is that agencies are required to deposit a deposit to cover liabilities with third parties. The amount involved is 60,000 euros (to give the example of Madrid), but it can be less if the agency is affiliated to an association and provides its deposit to a group that functions as an insurance company for all its members.
You cannot start the activity until you have the license, and this can be an impediment because sometimes the administrative deadlines are long.
We are talking about a local business, which seeks to sell a personalized advice service. Therefore the competition will also be local. The market study can be started from the Internet, taking out the list of businesses in a certain area, but then the ideal would be to go and visit each agency, preferably posing as a potential client looking to organize a trip.
In this way, the positioning of each competitor can be identified. Some may be specialists in certain areas, others in certain types of experiences, others more general. Prices are difficult to compare but if you always plan the same trip, you can start to see a trend.
Strategy of differentiation
Suppose we have a great deal of knowledge about an area of the world, and we have found that other travel agencies do not sell it, or do not promote it much because they are unable to offer informed advice. Perhaps we have found a differentiating product, and if this area has possibilities, we can dedicate our efforts to promote it, relying on the trips we have made in person.
That is just a strategy, supply-driven, but you can offer a price-oriented service, for example by ensuring that you get the lowest price. This would require us to have a person who specialises in finding the best deals on the net, and to charge a fixed commission for the service. Some agencies even practice flat rates with their best customers, a model that can be very lucrative.
Another option is to have direct agreements with some providers (especially hotels and leisure companies) to have unbeatable prices, focusing on a few destinations but looking to create volume for each one.
Without doubt, the deposit required by the authorities is one of the most significant amounts in the initial investment of opening a travel agency. Nor should we neglect the amount that the adequacy of well-located premises may entail.
It does not have to be very big, there is not much investment in equipment and furniture, but even so, among the possible preparation works, the two months of deposit, the furniture and computers the amount can exceed 5,000 euros.
The sales of the travel agencies are usually of great volume, because what they invoice to the client is the whole service, but in fact they stay with a very small margin of the invoiced. However, commissions are very variable, depending on the product.
In the case of holiday packages, cruises and hotels, agencies may have a commission of around 8% of the amount sold to the customer, often supplemented by a small management fee charged to the buyer.
For other products, such as airline or train tickets, the supplier’s commission is very low (sometimes less than 1%), and the agency compensates by charging management fees to the customer.
How much does a travel agency charge?
The turnover of a travel agency is very variable, depending on whether we are talking about the small neighborhood business or a large chain known nationally. As in many other sectors, the trend has been towards concentration, with fewer points of sale and larger agencies.
As an example, we can mention that in the turnover is similar to what it was before the crisis, with similar employment, but a significantly lower number of points of sale.
But, of that turnover we have to take into account that the agency only stays between 5 and 10%, so the operating margin of a typical agency would be 75,000 euros. For practical purposes for this business plan, let’s consider that this is the “real” turnover of the agency.