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, but here's the basic step-by-step of how most travel agents make money:
- A traveler works with a travel agent and finalizes their itinerary.
- The travel agent books the various vendors (air, hotel, car, tours, cruises, etc) used in the traveler's itinerary through a 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 their 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 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 any agency.
What about commissions from tours, hotels, 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 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 Travelocity. 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 on their own, selling airline tickets was no longer profitable for many travel agencies. 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. Where there was once a worry that there wouldn't be any travel agents to fill the shoes of those that were retiring, we now have 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, and the percentage of agents over age 65 had nearly doubled, from 17% to 32%, in the past decade.
- And stats from our 2018 Travel Agent Income Survey reported that the average age of an agent was 52 years, 80% of respondents were younger than 60, and 96% worked from home.
Did you catch that?!? We went from 70% of the workforce being over 55 in 2013, to 80% of the workforce being younger than 60 in 2018! While ASTA and HAR do tend to attract different demographics, 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
The travel agency business model (both corporate and leisure) is moving to become less dependent on commissions. Why the change? The easy answer is that commissions from airlines and other vendors are lower than in the past.
So how do travel agents make money in a world where their commissions are lower? One travel agency solution to diminishing commissions was to diversify their income and begin 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.
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 Breakdown of How Travel Agents Make Money
Okay, before we go into things, it's important to understand that different sectors of the travel agency field 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?
Airline tickets are the lifeblood of corporate agencies. Not selling airline tickets after commission cuts was out of the question. To offset the loss of the airline commissions, corporate agencies implemented a service fee when they booked a ticket.
In addition to air, corporate travel agencies earn commissions from booking car and hotel for business travelers. Corporate travel agencies make money mainly from service fees, net/private fares, and from airline commissions. While the majority of airline tickets don't pay commission, travel agencies have contracts for commission on tickets that fall into a certain classes of service or certain routings.
So how much are corporate travel agencies charging? According to the 2016 ASTA Service Fee Report, the average fee for corporate air was $33. 1 (The report did not breakdown the fees according to international or domestic.)
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 probably think of when you think of a travel agent.
Generally, leisure travel agencies' main revenue is from commissions vendors pay on vacation packages, cruises, 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 our annual Travel Agent Fee Report. In 2018, we reported that 53% of agents did not charge a fee.
Charging a fee helps agents boost their bottom line and discourage 'tire-kickers' (price shoppers). For agents hesitant to charge fees, some agents implement a 'look-to-book' fee—an up-front fee for research, which is applied to the booking when its made. Some agencies charge a straight up non-refundable fee for consultations.
The top 5 service fees among hosted agents who took our latest fee survey were fees for domestic air (55.7%), international air (51.5%), FIT (28.7%), Rail (15.9%) and Air-Inclusive Packages (15.3%). You can see more info on the graph below!
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 FIT trip (Flexible Independent Travel) — 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 agents may also make money 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 on 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 agent is before we talk about how they make money. When we're talking 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' earn overrides based on their revenue. 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.
- The American Society of Travel Advisors (ASTA), “2016 Service Fee Report”. Alexandria, VA: The American Society of Travel Advisors ↩