Tour Operators. What do Tour Operators do Internet and the economics role of Tour Operators

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Tour Operators. What do Tour Operators do? Internet and the economics role of Tour Operators. 1. Introduction A tour operator typically combines tour and travel components to create a holiday. The most common example of a tour operator's product would be a flight on a charter airline plus a transfer from the airport to a hotel and the services of a local representative, all for one price. Niche tour operators may specialise in destinations, e.g. Italy, activities and experiences, e.g. skiing, or a combination thereof. The original raison d'etre of tour operating was the difficulty of making arrangements in far-flung places, with problems of language, currency and communication. The advent of the internet has led to a rapid increase in self-packaging of holidays. However, tour

operators still have their competence in arranging tours for those who do not have time to do DIY holidays, and specialize in large group events and meetings such as conferences or seminars. Also, tour operators still exercise contracting power with suppliers (airlines, hotels, other land arrangements, cruises, etc.) and influence over other entities (tourism boards and other government authorities) in order to create packages and special departures for destinations otherwise difficult and expensive to visit. The three major tour operator associations in the U.S. are the National Tour Association (NTA), the United States Tour Operators Association (USTOA), and the American Tour Association (ATA). In Europe, it is the European Tour Operators Association (ETOA), and in the UK, it

is the Association of British Travel Agents (ABTA) and the Association of Independent Tour Operators (AITO). The primary association for receptive North American inbound tour operators is the Receptive Services Association of America (RSAA). What is the future of tour operators after the advent of internet? Does the tourist vertical chain move towards des-intermediation, whereby consumers will access directly final suppliers, getting cheaper prices in a very comfortable way? Or, rather, usage of internet will simply change some of the practices in the industry while maintaining others, among which there is intermediation? The aim of this paper is precisely to provide a tentative answer to these questions on the future of the tour operator industry, by means of laying out its

economic foundations. To do so, our aim is to understand which has been the traditional role of tour operators in the intermediation of the tourist vertical chain and, then, we should be capable of foreseeing which of its functions, if any, will remain with internet (and other ICTS), and which others will disappear due to a new organization of the value chain of the tourist product. We review in section 2 why transaction costs in the tourist vertical chain have (apparently) often been lower with a TO, at least previous to the advent of internet. Summarising our exposition, TOs enhance and facilitate tight coordination thus reducing the costs of broken coordination in a market exchange. Also, TOs facilitate the search for information to tourists, regarding the characteristics of

the several services that compose the package tour (flight, accommodation, etc). TOs do so by avoiding duplication of search effort by tourists and also by filtering information. Intermediation by a TO arises also because the tourist product is an ‘experience good’ rather than a ‘search good’. An ‘experience good’ (as opposed to a ‘search good’) is that whose quality can only be known by consumers after or during consumption. Our focus throughout the paper are tour operators, even though intermediation in the tourist sector is also undertaken by travel agencies. In our analysis, we subsume travel agencies within tour operators role, considering them as a single intermediary. As it will become clearer below, it doesn’t affect the main message of our paper since