Travel business models Travel technology glossary

Tour operatorPackage organiser

Also called package organiserpackage holiday companytour company

Definition

A tour operator is a travel company that combines two or more travel services, such as flights, accommodation, transfers and tours, into a package sold at one price. It contracts the components, takes responsibility for delivering the package, and sells it directly to travellers or through travel agencies.

What Tour operator means

The tour operator is the business that designs the trip. It buys or contracts flights, hotel rooms, coaches, guides and activities, puts them together as a product, sets one selling price, and publishes it through brochures, websites or agency systems. A traveller who books a seven-night beach holiday with flights and hotel included is usually buying from a tour operator, even if they paid a travel agent.

In the EU, the Package Travel Directive (EU) 2015/2302 calls this role the organiser: a trader who combines and sells packages. The organiser is responsible for performing all the services in the package, even when other suppliers deliver them, and must provide insolvency protection so travellers get refunds and, where flights are included, repatriation if it fails. In the UK, holidays that include a flight are protected through the ATOL scheme run by the Civil Aviation Authority.

Tour operators differ from neighbouring roles. A DMC is based in one destination and delivers ground services there, often for tour operators. A travel wholesaler sells products only to the trade. Many tour operators also act as wholesalers by letting retail agencies sell their packages, and some build trips on demand through dynamic packaging instead of fixed itineraries.

How Tour operator works

A tour operator turns separate supplier contracts into a single product with one price and one point of responsibility.

  1. Plan the productThe operator chooses destinations, dates, itineraries and target customers for the season or a specific trip.
  2. Contract suppliersIt negotiates hotel allotments, airline seats or charter capacity, transfers and excursions, often through DMCs in each destination.
  3. Price the packageComponent costs are combined, a margin is added and a single selling price is set, often with seasonal variations.
  4. Distribute and sellPackages are sold on the operator's own website and through retail travel agencies, which earn commission or add a markup.
  5. Deliver and supportThe operator issues documents, handles changes and is responsible to the traveller for the package during the trip.

Tour operator in practice

Illustrative example: a Dhaka-based tour operator creates a five-night Malaysia package for families. It holds a block of seats on a scheduled flight, contracts rooms at a Kuala Lumpur hotel and a Langkawi resort, and buys transfers and island tours from a local DMC. The package is sold at one per-person price through its own website and through partner agencies, which receive commission.

If a family books and the Langkawi resort later overbooks, the operator, not the family, must arrange suitable alternative accommodation. In EU markets, the Package Travel Directive places that responsibility on the organiser by law, and the operator must also hold insolvency protection for the money it collects in advance.

Who uses it

Leisure travellersBuy a complete holiday at one price with a single company responsible if something goes wrong.
Retail travel agenciesSell tour operator packages on commission without contracting hotels, flights and transfers themselves.
Hotels and airlinesSell committed blocks of rooms and seats to operators, often at lower rates in return for volume.
Religious and specialist travel companiesPackage Umrah, Hajj, education or adventure trips that need several services coordinated under one contract.

Advantages and limitations

Advantages

  • Bundling lets the operator hide individual component prices and earn margin on the whole package.
  • Volume commitments give access to hotel and airline rates that individual travellers cannot get.
  • Travellers get one point of contact and, in many markets, legal protection for the whole trip.
  • Agencies can sell a ready-made product without building it themselves.

Limitations

  • Prepaid allotments and charter seats leave the operator with unsold inventory risk.
  • Organiser liability means the operator answers for failures by hotels, airlines and ground suppliers.
  • Insolvency protection, licences and bonds add cost and paperwork in regulated markets.
  • Fixed brochure packages are less flexible than dynamic, build-your-own trips that travellers increasingly expect.

Frequently asked questions about Tour operator

Is a tour operator the same as a travel agent?

No. A tour operator creates the package by contracting the services and takes responsibility for delivering it. A travel agent mainly sells products made by others, such as packages, flights and hotels, and earns commission or a markup. Some companies do both, acting as operator for their own packages and agent for others.

Who is responsible if part of a package holiday goes wrong?

In the EU and the UK, the organiser of the package, usually the tour operator, is responsible for delivering every service in it, even those performed by hotels or airlines. The traveller can claim against the organiser, which may then recover costs from the supplier at fault. Rules elsewhere vary by country.

Do tour operators need a licence?

It depends on the country. Many markets require a tourism or travel trade licence, and EU and UK package organisers must provide insolvency protection. In the UK, companies selling holidays that include flights usually need an ATOL from the Civil Aviation Authority. Check local rules before selling packages in a new market.

How do tour operators make money?

Mainly from the margin between the contracted cost of the components and the package selling price. Lower negotiated rates for hotel blocks and flight seats create that margin. Some operators also earn from optional extras such as excursions, upgrades and insurance sold alongside the package.

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Sources and further reading

  1. legislation.gov.uk — Directive (EU) 2015/2302, Article 3: definitions
  2. legislation.gov.uk — Directive (EU) 2015/2302, Article 13: responsibility for performance
  3. legislation.gov.uk — Directive (EU) 2015/2302, Article 17: insolvency protection
  4. ATOL (UK Civil Aviation Authority) — What does ATOL protection mean?
  5. Introduction to Hospitality (McLean, McGuire, Senter) — 4.2 Today's travel trade