What are Tour Operators?

Q: I run an independent hotel and am fairly new to the industry; working in hospitality is something I have always wanted to do, but am perhaps not all that experienced in. The other day, I received a call asking for my Tour Operator Rates for 2018 and I had absolutely no idea. I fudged it this time, but want to be more prepared for next time. What do you suggest?

A: Tour Operators work to combine a group of different suppliers into one package, enabling their client to book a pre-set experience with one supplier. This means that Tour Operators usually work on net rates, adding their own margin on top in order to make a profit. They therefore need rates which are better than general sale rates, to ensure their consumer prices are competitive.

Never underestimate the power and benefit of working with tour operators; they may reduce your average RevPAR on the nights that they book, but their bookings are consistent, lucrative and you only have to invoice one business. You also aren’t paying a fee to work with them, or commission on their sales. It’s like having an incredibly loyal customer who comes back every week. What you need to decide is a rate that you are happy with, that is profitable all-year-round, but offers the Tour Operator a saving on general rates of sale. You then need to decide if you have or want any ‘ground rules’ in place for working with a tour operator; for example whether their clients are always in a specific standard of room, or in the best standard available etc. If you are really confident in your partnership with a tour operator, which may happen in future years, you can also provide them with rooms ‘on allocation’, which are guaranteed pre-booked rooms that they can fill without notice; again, you can add guidelines for how far in advance they must be filled before they are returned to general sale, but this approach is great for guaranteed income, without any booking fees or commission at the same time reducing the admin and uncertainty for the tour operator.

My husband Steve runs Compass Holidays, a walking and cycling activity company; it is interesting how much hotelier policies vary in terms of working with tour operators. The best ones are happy to provide flat-rate fees on the basis that they receive first refusal of bookings; on average, his businesses probably placed £10k-£12k with each of these hotels. There are others who provide a tour operator rate, but only if less than 50% of their rooms are booked at the time of booking, and then there are those who opt not to provide tour operator prices at all.

I appreciate that you will have a market price, which fluctuates according to season and day of the week, and it may seem counterintuitive to provide a flat-rate that ignores this all; but it does mean in off-season you are being paid more than your average rate, and in peak season only slightly less. Tour operators usually provide more consistent business because they are dealing with customers all the time, so for example for Steve’s business, the busiest months are May and September which many hotels consider ‘mid-season’. Any business which doesn’t provide tour operator rates and margins is his last resort, meaning hotels are missing out on a potentially lucrative, year-round revenue stream.

The additional advantage of working with tour operators is that you gain access to markets that you will struggle to reach on your own. For example, 90% of Steve’s business is overseas visitors, who you will struggle to reach directly without a huge budget, and who are always likely to book through a tour operator anyway. Over the years, I have worked extensively with Circle Hotels, which is a marketing consortium for independent hotels and B&Bs, helping independent businesses to gain bookings from overseas. Accessing overseas guests on your own will be nearly impossible, unless you can make the hotel itself a destination – that is a topic for another day – but being part of a consortium creates power in numbers and means that Circle Hotels for example can negotiate and build relationships with overseas tour operators, and you in turn can benefit. Circle Hotels need tour operator rates, and in exchange places bookings from every corner of the Globe – a brilliant, steady income stream for hoteliers to capitalise on.

When I ran my hotel, I always worked on the basis that if I could increase my occupancy with limited additional work, I was onto a winner. I was then free to concentrate on the customer experience, the spend per stay, and driving direct bookings from clients to drive up my RevPAR. For me, tour operators represented some surety and stability for my bookings, leaving me free to concentrate on the rest of the business, without worrying about having an empty hotel.

This feature first appeared in the August 2017 issue of Hotel Owner