“How do travel agencies make money?” This is a question I frequently encounter. The curiosity usually stems from individuals interested in pursuing a career as a travel agent or those who express surprise at the continued existence of travel agencies in today’s fast-paced, information-filled world! (Yes, they are still thriving, and in fact, they have become the preferred option for time-strapped travelers seeking guidance!)
The Revenue Generation Process of Travel Advisors
Let me delve into the details and outline the steps involved in how travel advisors earn their income:
Collaborative Planning: The traveler partners with a travel advisor to design and finalize their travel itinerary.
Comprehensive Booking: The travel advisor handles all bookings for the entire trip, including flights, accommodations, car rentals, tours, and cruises. To facilitate these bookings, the advisor utilizes a special travel agent portal or contacts vendors directly, providing their accreditation number. In certain cases, the advisor may also charge a separate consultation or service fee.
Vendor Recognition: Vendors recognize the travel agency through its accreditation number. This enables them to access information regarding the agency’s commission level and the address to which the commission check should be sent.
Accreditation Credit: The travel agent receives credit for the booking through their accreditation number.
Commission Payment: Once the client has completed their trip (in most cases), the vendor pays a commission to the travel agent. For cruises, the agent receives their commission after the final payment, typically 60-90 days prior to the sailing.
If you are seeking information on how travel agents employed by agencies earn money through salaries, you’re on the right website, just the wrong article! 🙂 We have another article that delves into travel agent salaries.
A Brief Historical Overview
To comprehend how travel agents generate income, it’s important to take a brief trip back in time. The transformation of the industry over the years is quite fascinating.
In the past, a significant portion of a travel agency’s revenue came from airline commissions. As tickets were costly, highly sought after, and exclusively available through agents or airlines, they formed the core income stream for travel agencies. Commissions from tours, hotels, and cruise lines were considered supplementary. These agencies served as agents of travel vendors and earned revenue through commissions from selling their products. However, in the 1990s, when airline commissions were reduced and capped, travel agents faced a major setback. The primary revenue source for travel agents had vanished, and it was a significant blow.
Airlines slashed their commissions because they could now directly reach travelers through the internet and online travel agencies (OTAs) such as Expedia and Booking.com. Travel agents, who were previously pampered by airlines, found themselves cast aside. Ouch!
Amidst this rapidly evolving travel landscape, travel agents had to swiftly find new ways to sustain their businesses. This marked the beginning of the modern-day story of “How Do Travel Agents Make Money?”
Evolving Business Models
With diminishing commissions and the ability of clients to book online, travel agencies had to adapt to the changing dynamics of travel planning and booking. This transition proved to be devastating for the travel agency community. Agencies that failed to adapt quickly enough were forced to close down.
But hold on! Before you shed a tear, let me assure you that the story has a happier ending. Stay with me. 🙂 Although smaller in scale compared to their heyday, the travel agency community has managed to find equilibrium.
From Storefront to Home-Based
Around 2013, the number of travel agents began to increase. Just when concerns arose about a shortage of agents to replace those retiring, a wave of fresh talent entered the industry, eager to embrace the flexibility and travel opportunities offered by a career as a travel agent.
Let’s take a look at some industry statistics:
According to the American Society of Travel Advisors (ASTA) in 2013, nearly 70% of the agency workforce was over the age of 55. Furthermore, the percentage of agents above 65 had almost doubled, rising from 17% to 32%, over the previous decade.
Our HAR’s income surveys consistently reveal that the median age of an agent falls in the early to mid-50s, with the majority working from home. In 2022, the median age stood at 55.
Did you catch that?!? In 2013, 70% of the workforce was above 55, whereas in 2022, the majority was below that age bracket! Although ASTA and HAR cater to different demographics — ASTA predominantly comprises larger retail storefront agencies, while HAR consists mainly of smaller non-storefront agencies — the trend is clear. Travel agents are no longer on the brink of extinction. (HUZZAH!!!)
The surge in new agents can be attributed to the rise of remote agents or solopreneurs who work independently from home or any location of their choice. Although not as visible as their storefront counterparts, this segment has become a formidable force within the industry.
The most popular agency model today primarily revolves around remote agencies, replacing the storefront agencies of the past.
Diversification of Income Streams
In addition to the reduction in airline commissions, travel agents face the challenge of non-commissionable fees (NCFs) imposed by many major cruise lines. These fees, as the name suggests, are miscellaneous charges that cannot be commissionable. While a cruise sale may amount to $2,000, the commissionable portion might only be $1,400. However, advisors are still required to invest their time and effort into booking these non-commissionable items for their clients.
To tackle diminishing commissions and navigate the ups and downs of the industry, including events like 9/11, recessions, and pandemics, travel agency business models (both corporate and leisure) have shifted away from relying solely on commissions. Commissions from airlines and other vendors have dwindled over time. These major challenges have prompted travel advisors to acknowledge the importance of diversifying their revenue streams to stabilize their income.
How Travel Agents Earn Money: A Breakdown
To simplify matters, let’s categorize travel agencies into four main types: corporate, leisure, custom, and “the big players.”
Corporate Travel Agents
Corporate agencies, also known as travel management companies (TMCs), rely heavily on airline ticket sales. Despite the decline in commissions, TMCs did not cease selling airline tickets. Instead, they got creative and introduced service fees for each ticket they booked.
In addition to airfare, corporate travel agencies earn commissions from booking rental cars and hotels for business travelers. Service fees, net/private fares, and airline commissions drive the revenue of corporate travel agencies.
Depending on the airline contracts they have access to, travel agencies can earn commissions ranging from 0-5% for domestic air and approximately 10-22% for international air.
According to our 2022 Travel Agent Fee Report, the average service fee charged by agents who booked corporate travel was $39 for domestic air and $63 for international air.
Leisure Travel Agents
Following the commission cuts, many travel agencies shifted their focus to selling high-value products that still offered commissions to travel agents. These products primarily include vacation packages and cruises. These agencies are what we typically refer to as leisure travel agencies.
Leisure travel agencies primarily generate revenue through commissions paid by vendors for vacation packages, cruises, flights, and additional add-ons. However, consultation fees and service fees have become more prevalent as agencies strive to diversify their income sources and reduce their dependence on supplier commissions.
According to our comprehensive fee surveys, 53% of advisors reported charging fees in 2022. In 2017, only 33% of advisors charged fees. This represents a significant increase in fee-based revenue.
Charging fees allows agents to increase their earnings and receive compensation for their expertise. For those apprehensive about imposing fees, some advisors implement a “look-to-book” fee or a “plan-to-go fee.” This fee is collected upfront for research and is later applied to the booking. Other agencies charge non-refundable fees for consultations.
Air ticketing service fees are typically the most common among advisors. When considering non-air ticketing fees, the following services were among the top five areas where advisors applied fees:
Mass-market trips such as cruises, all-inclusive resorts, or group bus tours may not suit every traveler. In cases where clients desire a personalized itinerary, travel agents refer to it as an F-I-T trip, which stands for a custom itinerary. However, arranging custom itineraries involves more time and effort and may involve booking elements that do not offer travel agent commissions.
Agents specializing in custom itineraries frequently charge higher consultation fees, trip planning fees, and/or service fees to compensate for their efforts. In addition to these fees, FIT travel agents earn money through net pricing mark-ups and commissions from the various vendors involved.
The fees associated with custom itineraries are not standardized. If you are interested in determining suitable fees for your particular niche, consider consulting the appropriate resources.
The Big Travel Agencies
Before discussing how the big players generate income, let’s establish what constitutes a big travel agency. These agencies generate tens of millions in sales revenue, and while there is no specific threshold for being classified as a big player, those within this circle are well aware of their status. They represent the top 1% of the travel agency world. 🙂
Most agencies earn commissions based on their sales tiers. However, the big players have the opportunity to earn overrides based on their sales revenue, in addition to regular commissions. When these agencies achieve pre-determined sales goals or gain market share, they receive additional compensation from vendors. Overrides can come from various sources, including airlines, global distribution systems (GDSs), cruise lines, tour operators, car rental companies, and more.
Now that you have a comprehensive understanding of how travel agents generate income, you’re ready to jumpstart your career as a travel agent and make some money! Sign up for our free 7-Day Setup Travel Agency Challenge, where we’ll guide you through the necessary steps to get your agency up and running.
The next time someone inquires about how travel agents make money, you can dazzle them with a lengthy, informative answer. If you have any more questions about how the world of travel agencies operates, feel free to ask in the comments below. I have extensive experience in the travel industry and have assisted numerous agents in launching and growing their travel agencies. If you still have queries, drop us a line, join the conversation in the comments section, 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 incorporate the latest data.