How Do Travel Agents Make Money?
I often hear the question, "How do travel agents make money?" Usually the people asking are either those who are interested in becoming a travel agent (more on travel agent salaries), or those who respond incredulously when I tell them the industry I work in. To answer the question, it's important to know a little history. I promise to keep it short—it's actually pretty fascinating how the industry has changed over the years. For those that just can't wait? The short answer is most travel agents make money through commissions and service fees. But that's boring, so here's everything you ever wanted to know about, "How do travel agents make money?"
Travel Agent Commissions—A Short History
In the good 'ol days, a large portion of travel agency income came from commissions from airlines. Since tickets were expensive, in demand, and could only be ticketed by agents or the airlines, they were the bread and butter of any agency. What about commissions from hotels, cruise lines, etc.? Just icing on the cake.
They were travel agents in every sense of the word because they were agents of travel vendors. Their revenue came from the commissions earned from selling travel products. However, when airline commissions were cut in the 1990s, the main revenue base of travel agents disappeared. It hurt. A lot. (>>> Check out current data on air commissions here)
Now, couple that with consumers' and businesses' growing reliance on the internet. This meant travel agents were no longer the only ones with access to—and the ability to book—airline fares. Consumers could access fares, comparison shop, and book online. Because of this, travel agents needed to find a new way to make money. And that's where our modern day story of 'How Do Travel Agents Make Money?' begins.
A Shift in Business Models
With commission cuts and clients' ability to book on their own, selling airline tickets was no longer profitable for many travel agencies. The travel agency community was severely disrupted. Many agencies that didn't adapt quickly enough had to close their doors.
Quick side note: I should mention the travel agency community, while much smaller than in its glory days, seems to have found an equilibrium. Though demand now for travel agencies is much lower than it was pre-internet, there are still plenty of opportunities (more on why a travel agent career is full of opportunity). After many years of a declining number of agencies, there is now a healthy balance of supply and demand. The industry has adapted, becoming more fragmented with the rise of home based travel agents.
The travel agency business model is becoming less dependent on vendor commissions (more on how commissions work). But why the change? With lower profit margins, travel agencies are relatively unique in the world of big ticket items. Low profit margins are partially due to lower commissions but also because, when a mistake is made, it can be very expensive for the agency. Moving away from reliance on vendor commissions toward administering service fees helps travel agencies pad a bottom line that was once cushioned by generous airline and vendor commissions.
Along with the loss of airline commissions, travel agents face the challenge of many major cruise lines' non-commissionable fees (NCFs). Yup, it's self-describing. They're miscellaneous fees that are not commissionable. The cruise sale may be $2000 but only $1400 of it is commissionable.
The Breakdown of Who Makes What
Different sectors of the travel agency field make money in different ways. We've broken down the question of how do travel agents make money into 4 main types of travel agencies: corporate, leisure, custom, the big players.
How Do Corporate Travel Agents Make Money?
Airline tickets are the lifeblood of corporate agencies. Not selling airline tickets after commissions cuts was out of the question. A service fee was implemented offset the loss of airline commissions.
In addition to air, corporate travel agencies earn commissions from booking car and hotel for business travelers. They make money mainly from service fees, from net/private fares, and from airline commissions for certain classes of service or certain routings.
So how much are corporate travel agencies charging? The 2012 ASTA Service Fee Report 1 listed the average corporate agency service fee for domestic tickets at $30 via phone and $26 via internet booking engine. For international tickets, the average service fee registered at $44 and $39, respectively.
How Do Leisure Travel Agents Make Money?
After the commission cuts, many travel agencies shifted to selling high-ticket products that still paid travel agent commissions—essentially, vacation packages and cruises. Now days, these are your leisure travel agencies—the ones you find on Main Street and increasingly home based!
Generally, leisure travel agencies' main revenue is from commissions of vacation packages, cruises, and other add-ons. Consultation fees and service fees are becoming more common as agencies try to diversify income sources to become less dependent on supplier commissions. This helps boost their bottom line. To discourage 'tire-kickers' (price shoppers), some agencies may even have a 'look-to-book' fee. This fee charges clients up-front fee for research and the fee is refundable when a booking is made. Some agencies charge a straight up non-refundable fee for consultations.
The 2012 ASTA Service Fee Report has 42% of agencies charging a service fee for air/hotel/car packages, 23% for tour packages, and 21% for cruises. The most common service fee charged in all these areas was $25 (except for cruise booking service fee, which was $50).
Leisure travel agencies seem to be less rigid in the charging of service fees than corporate agencies. 74% of agencies waive service fees for large tour/cruise packages and 46% waive service fees for loyal clients.
According to ASTA's Service Fee Report, leisure travel agencies airline service fees are nearly identical to their corporate agent counterparts.
How Do Travel Agents Make Money with Custom Itineraries?
Travel agents can book packages or create custom itineraries. Custom itineraries are more time intensive. Agents that build custom trips (FITs) typically charge higher consultation, trip planning, and/or service fees to compensate.
Travel agents that specialize in custom itineraries may also increase revenue through net pricing mark-ups and commissions.
How Do the Big Travel Agencies Make Money?
The top tier of travel agencies have generous revenue streams beyond commissions and fees. Based on their revenue, they can earn overrides from vendors if sales goals are met. These overrides can come from any number of vendors including airlines, GDSs, cruise lines, tour operators, car rental companies, and more.
Ready to start making money as a travel agent, stat?! Sign up for our 7-Day Setup Travel Agency Challenge. Our daily emails for a week will walk you through the process of what you need to do before signing on with a host.
Next time someone asks you 'How do Travel Agents Make Money?' you can now give an amazingly long answer, full of information that will blow their mind. If that's where you're at right now, great. That was my goal.
Feel free to ask any other questions about how the land of travel agencies work in the comments below. I grew up in the travel industry and have worked with many agents to start and grow their travel agencies. If you still have questions, drop us a line, join the conversation in the comments below, or connect with me on Facebook, Twitter, and Google+.
Editor’s Note on "How Do Travel Agents Make Money?": This post was originally published July 23, 2012 and was completely updated and revamped on Feb. 2, 2016 to make sure we’re giving you up-to-date info. Enjoy! Photo Credits: RapidFire, M. Tawsif Salam
- The American Society of Travel Agents (ASTA), “2012 Service Fee Report”. Alexandria, VA: The American Society of Travel Agents ↩