How Do Travel Agents Make Money?
"How do travel agents make money?" This is a question I hear often. Usually, the people asking are either those who are interested in becoming a travel agent or it's coming from those who find out I work in the travel industry and they can't believe travel agencies are even still around! (Um, they are, and they're the new darlings of the time-starved, information-overloaded travelers of today!)
I'll go more in-depth in just a second, here's a list of steps that show how travel advisors make money:
- A traveler works with a travel advisor to plan and finalizes their travel itinerary.
- The travel advisor books the entire trip (each vendor used for the air, hotel, car, tours, cruises, etc) used in the traveler's itinerary. Advisors use their accreditation number to book each segment of the trip in a vendor's special travel agent portal (or by calling the vendor and giving their accreditation number). Depending on the booking type and the agency, the agent may also charge the traveler a separate consultation or service fee.
- The vendor recognizes the travel agency through its accreditation number. Using the accreditation number, the vendor pulls up information about the agency, including the travel agency's commission level and the address where the commission check is to be sent.
- The travel agent makes the booking and is credited with the booking via their accreditation number.
- The commission is paid to the travel agent. For most trips, the vendor pays a commission to the travel agent after the client has traveled. For most cruises, the travel agent is paid their commission after final payment (typically about 60-90 days before the sailing).
Now, if you're looking for how travel agents make money that are employees of an agency, that falls more into the territory of travel agent salaries. You're at the right site, just the wrong article. :) Here's our article that deep dives into travel agent salaries.
A Short History
To give you an answer on how travel agents make money, 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.
In the good 'ol days, a large portion of travel agency income came from airline commissions. Since tickets were expensive, in demand, and could only be ticketed by agents or the airlines, they were the bread and butter of every agency.
What about commissions from tours, hotels, and cruise lines? Those were 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 and capped in the 1990s — sad face! — the main revenue base for travel agents disappeared. It hurt. A lot.
Airlines cut their commission because they could now reach travelers via the web and online travel agencies (OTAs) like Expedia and Booking.com. Travel agents, who were once wined and dined by airlines, were left out in the cold. Ouch.
With this rapidly changing travel landscape, travel agents needed to find a new way to make money . . . and fast. 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 online, agencies needed to adapt to the new landscape of planning and booking travel. The travel agency community was, quite honestly, devastated by this. Many agencies that didn't adapt quickly enough had to close their doors.
Okay, okay. Before you blow through a whole box of tissues, I want to assure you that the ending is a happier one. Stick with me. :) While smaller than in its glory days, the travel agent community has found an equilibrium.
From Storefront to Home-Based
Starting around 2013, travel agents started to see their numbers increase. When there was once a worry that there wouldn't be any travel agents to fill the shoes of those retiring, there was an influx of new blood, eager to take advantage of the flexibility and travel opportunities a travel agent career provides.
Check out these industry stats:
- In 2013, according to the American Society of Travel Advisors (ASTA), nearly 70% of the agency workforce was older than 55. Not only that, but the percentage of agents over age 65 had nearly doubled, from 17% to 32%, over the prior decade.
- Year after year, stats from our HAR's income surveys indicate that the median of an agent lands in the early to mid-50s, with the majority working from home. (In 2022, the median age was 55).
Did you catch that?!? We went from 70% of the workforce being over 55 in 2013, to 50% of the workforce being younger than 55 in 2022! While ASTA and HAR do tend to attract different demographics — ASTA was traditionally larger, retail storefronts and HAR is typically smaller, non-storefront agencies — but even so, the trend is clear. Travel agents are no longer in danger of going extinct. (HUZZAH!!!)
A big reason for this new influx? The rise of the agent that works remotely. Call them solopreneurs/home-based/location-independent — whatever hip term you want to use. They may be harder to see without a storefront, but this new segment of the industry is now a force to be reckoned with!
By and large, the most popular agency model has switched from the storefront agencies of the past to the remote agencies of today.
Moving to Diversify Income
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-explanatory: They're miscellaneous fees that are not commissionable. While a cruise sale may be $2,000, it's possible only $1,400 of it will be commissionable. The kicker is that an advisor will still put a lot of elbow grease into booking those NCFs for their client.
Travel agency business models (both corporate and leisure) are moving to become less dependent on commissions alone. Why the change? Not only did commissions from airlines and other vendors lower than in the past, but the industry has experienced huge industry and economic ups and downs including 9/11, recessions, and pandemics. (Am I missing any? PHEW, travel agents sure are resilient!)
Commission income went on rollercoaster rides during these times. During the coronavirus pandemic, for example, advisors were working overtime canceling trips, bending over backward to get their clients home safe, spending oodles of time to keep up to date with constantly-changing travel regulations, and rebooking trips despite the fact that commissions came to a halt. That's right, they were working overtime for essentially no pay. These major pitfalls helped advisors realize the importance of diversifying revenue streams to help stabilize income.
One solution for advisors to counteract diminishing commissions was to diversify their income by charging fees.
So how do travel agents make money in a world where their commissions are lower (and even unpredictable at times)? One solution for advisors to counteract diminishing commissions was to diversify their income by charging fees. This helped agencies steer away from complete reliance on vendor commissions, helping them pad a bottom line that was once cushioned by generous airline and vendor commissions.
The Breakdown of How Travel Agents Make Money
Okay, before we really dig into things, it's important to understand that different kinds of travel agencies make money in different ways.
To make it easier, we've broken down the question of how travel agents make money into 4 main types of travel agencies: corporate, leisure, custom, and 'the big players'.
How Do Corporate Travel Agents Make Money?
Corporate travel agencies make money mainly from service fees, net/private fares, and from airline commissions.
Airline tickets are the lifeblood of corporate agencies (also known as TMCs or travel management companies). Were TMCs going to stop selling airline tickets just because airlines stopped commission? No way. They had to get creative to offset lower commissions. What did these corporate agencies do? They implemented a service fee when they booked a ticket.
In addition to air, corporate travel agencies earn commissions from booking cars and hotels for business travelers. Corporate travel agencies make money mainly from service fees, net/private fares, and from airline commissions.
The average service fee for air ticketing in 2022 was $39 for domestic air and $63 for international air for agents who booked corporate travel.
Travel agencies, depending on the airline contracts they have access to, are able to earn commissions on both domestic air (typically 0-5%) and international air (roughly 10-22%).
So how much are corporate travel agencies charging? According to our 2022 Travel Agent Fee Report, the average service fee for air ticketing in 2022 was $39 for domestic air and $63 for international air for agents who booked corporate travel.
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. These products were essentially vacation packages and cruises. Nowadays, these are your leisure travel agencies (the ones you probably think of when you think of a travel agent.)
Charging a fee helps agents boost their bottom line and compensates them for their expertise.
Generally, leisure travel agencies' main revenue is from commissions vendors pay on vacation packages, cruises, air, and other add-ons. However, consultation fees and service fees are becoming more common as agencies try to diversify income sources to become less dependent on supplier commissions.
If you're wondering how many travel agents make money by charging a fee, you'll want to take a peek at HAR's complete fee survey archive here!
In 2022, 53% of advisors reported charging fees. Just to compare to the days of yore, only 33% of advisors charged a fee in 2017. Holy smokes, that's a big increase
Charging a fee helps agents boost their bottom line and compensates them for their expertise. For agents hesitant to charge fees, some agents implement a 'look-to-book' fee or a "plan to go fee." This is an up-front fee for research, which is applied to the booking when it's made. Other agencies charge a straight-up non-refundable fee for consultations.
Air ticketing service fees are typically the most common among advisors. When you focus on non-air ticketing fees, these services ranked in the top 5 for advisors to apply fees:
How Do Travel Agents Make Money with Custom Itineraries?
Mass market trips like cruises, all-inclusive resorts, or group bus tours around Europe aren't for everyone. When you want an itinerary built just for you, travel agents call that an F-I-T trip — in plain-speak, you'd call that a custom itinerary. But why be simple like that when you could come up with an acronym, right?! ;)
Custom itineraries are more time intensive and may involve booking places that don't pay travel agent commissions. Agents that build FITs typically charge higher consultation, trip planning, and/or service fees to compensate.
FIT travel agents make money not only through the fees mentioned above but also through net pricing mark-ups and commissions from the different vendors they're booking.
There's no one-size-fits-all fee when it comes to custom itineraries. But if you're curious about learning more about what kind of fee would make most sense for your niche, check this out:
How Do the Big Travel Agencies Make Money?
Let's first define what a big travel agency is before we talk about how they make money. When we're talking about a 'big player', we're talking about an agency that has tens of millions of sales revenue. There isn't really a cut-off on when you hit this threshold. The reality is that if you're in this circle, you'll know it. They're the 1% of the travel agency world. :)
While most agencies earn commission based on their sales tiers, these 'big players' can earn overrides based on their revenue on top of commissions. When they meet a pre-determined sales goal or move market share, the vendor compensates them. These overrides can come from any number of vendors including airlines, GDSs, cruise lines, tour operators, car rental companies, and more.
Now that you're aware of how travel agents make money, you've got to be ready to start making money as a travel agent, stat! Sign up for our free 7-Day Setup Travel Agency Challenge. Our daily emails for a week will walk you through the process of what you need to get your agency off the ground and running.
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, LinkedIn, or Instagram.
Editor's note: This post was originally published in July 2012 and has been updated annually to keep up with current data.