1. Planning, negotiating, contracting, marketing, and successfully administering a package holiday is a complex management task and takes place over a long period of time.
2. Contracting with hoteliers and airlines can begin two year in advance of the holiday.
3. Hotel costs are a substantial proportion of the brochure price – usually around 40 to 50 per cent for a typical package holiday.
4. There are two types of contract used.
5. With the so-called allocation (or sale and return) contract, tour operators only pay the hotelier for the beds they use.
6. For example, they may contract 100 beds weekly, but use and pay for 80 beds one week, 70 beds another, and 100 the next week.
7. An alternative is the fixed (or guaranteed) contract, Where the tour operator pays for a fix number of beds throughout the peak season, irrespective of how many are sold.
8. With a fixed contract, the risk to the tour operator is obviously increased.
9. Typically, 50 per cent of contracted beds are fixed, but this can rise to 100 percent when a destination is in very high demand allocation contracts, however, are also popular with hoteliers.
10. They usually do business with several tour operators from different countries, and usually they contract for slightly more beds than they have available.
11. As tour operators vary in their success in selling an individual hotel, the hotelier is able to have a very high occupancy rate, which keeps prices competitive for the customer.
12. Allocation contracts usually include a clause requiring the tour operator to confirm the number of beds sold several weeks before the customers arrive, at which point the hotelier may take some of the room back.
13. This is called the release date.
14. This enables the hotelier to sell off any beds not required or to stop the tour operator from taking late bookings if the hotel is full.
15. Tour operators have similar contracting arrangements with airlines.
16. However, if the number of passengers booked on the airlines is lower than expected, tour operators and airlines may operate a system of consolidation.
17. This is where two planned flights are combined, either with two different tour operators or two separate departure (or destination) airports.