TOPIC 3

THE STRUCTURE AND ORGANISATION

OF THE TOURISM INDUSTRY

Outcomes
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.

Introduction
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.

Chain of distribution for tourism

Producers

wholesale
rs

Retailers

Consume
rs

Producers
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

Wholesalers
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

Brokers
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

Retailers
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.

Ancillary provider
Public sector
organisations

Tourist offices
Publicly owned
airports & seaports
Passport and visa
documentation
Public education
and training
institutes, etc

Ancillary provider
Privately owned
Privately owned
airports &
seaports
Freelance guides
Travel insurance &
financial service
Travel trade
newspapers and
journals, etc

Common interest organization

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 organization
Destination organization
Tourism organization

Trade bodies
Group of independent
firms
Exchanging views
Cooperation (e.g.
marketing)
Representation and
negotiation with other
organisations

Professional bodies
Composed of individuals
Establishing educational
or training qualifications
of the industry or sector
Devising codes of conduct
Controlling entry to the
industry

Sectoral organization
Trade bodies
International Air
Transport Association
(IATA)
The International
Federation of Tour
Operators
British Federation of
Tour Operators (FTO)
Association of British
Travel Agents (ABTA)

Professional 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

Destination organization
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)

Tourism 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)

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 markets 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

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?