Tourism-related businesses include everything from the gas station outside a national park to the individual tour operators and guide services. According to the International Trade Administration, U.S. travel and tourism generated more than 1.5-trillion dollars in economic output for 2016. Margins vary widely among businesses operating within the tourism space. This article focuses on tourism-specific business models and leaves the support businesses for another segment. The primary business models include hospitality, as well as tour operators and travel services.
Hospitality margins vary by property and pricing structure. An all-inclusive property factors tour operations, rooms, food and additional services into one single price. According to CSI Market research, the average gross margins for the hotel and tourism industry businesses is 38 percent for Q1 in 2018. The net margins fall into the 12- to 16-percent range within the same study and time period.
Generally, tour operators are seasonal and specialized. Food-tour operators have low equipment overhead, and can run large groups for high-margin returns. A rafting outfitter will experience somewhat lower margins, because boat space is limited. Permits are expensive, employee training is intensive, and equipment is expensive. Fees are paid to state agencies, to National Forest administrators, as well as to other regulators for many outdoor tour operators. A consistent margin is not available for this industry, outside of the general 38- to 46-percent figure associated with all hotels and tourism.
Travel and booking agencies have evolved significantly, because of the rise of booking engines that make flight scheduling and price comparisons easily accessible. The margins for travel agents used to come from booking flights and hotels, and adding service fees for the time spent. Agents still receive margins on this service, in the form of commissions from booking engines, such as Expedia. Hotel chains, guest ranches and resorts have referrals and booking fees for travel agency partners, as well. Expedia offers a 5-percent commission on vacation packages with more than three days. Booking activities and attractions through their service delivers an 11-percent booking fee. Agents can work through partnerships of this nature or pursue direct partnerships with individual tour operators and properties.
