When conversations arise about my profession in the travel industry and my work with travel advisors, a frequently asked question is: “How do travel agents make money?”. People are curious to know if travel agents charge direct fees, or if their income is solely derived from commissions on bookings.
Often, these inquiries come from individuals considering a career becoming a travel agent or those contemplating using a travel advisor for their next trip and seeking to understand the financial structure of these services.
Let’s break down the primary ways travel agents generate income:
- Commissions: Earning a percentage of the total cost of travel products sold, such as flights, hotels, cruises, tours, and car rentals.
- Service Fees: Charging clients directly for services like itinerary planning, booking, and travel consultation.
- Net Fares and Markups: Applying a markup to net fares, especially common in corporate travel.
- Overrides and Incentives: Receiving bonus payments from suppliers for meeting sales targets or achieving specific performance metrics.
If you’re specifically interested in understanding the earnings of travel agents employed by agencies, that’s a related but distinct topic. You can explore that in our dedicated article on travel agent salaries.
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A Brief History of Travel Agent Income
To fully grasp how travel agents make money today, it’s beneficial to understand the historical evolution of their income models. The travel industry has undergone significant transformations, particularly in recent decades.
The Era of Airline Commissions
In the earlier days of travel, airline commissions were the cornerstone of travel agency revenue. Air travel was costly, highly sought after, and primarily accessible through agents or directly from airlines. Consequently, airline ticket sales were the financial backbone of most travel agencies.
Commissions from other travel components such as tours, hotels, and cruises were secondary, considered supplementary income. Travel agents truly acted as agents for travel vendors, with their income directly tied to commissions earned from selling these travel products.
The Commission Cuts and the Rise of OTAs
However, a significant shift occurred in the 1990s when airlines began to reduce and cap travel agent commissions. This change dramatically impacted the primary revenue stream for travel agencies. Airlines made this move as they gained the ability to reach travelers directly through the internet and online travel agencies (OTAs) like Expedia and Booking.com. Travel agents, once valued partners of airlines, faced a challenging new landscape.
This disruption forced travel agents to find new ways to generate income and adapt to the evolving travel market. This pivotal moment marked the beginning of the modern narrative of “How Do Travel Agents Make Money?”.
Explore current data on travel agent commissions to understand the contemporary landscape.
Evolution of Travel Agency Business Models
The reduction in airline commissions, coupled with the increasing accessibility of online booking for consumers, necessitated a significant adaptation in travel agency business models. The travel agency sector experienced a period of adjustment, and agencies that failed to adapt quickly faced closures.
From Storefront to Remote Agencies
While traditional storefront travel agencies have become less prevalent, a thriving and dynamic segment of the industry has emerged: remote travel agencies. There has been a substantial increase in the number of travel advisors, particularly following the pandemic. These professionals, often described as solopreneurs, home-based agents, or location-independent advisors, operate remotely, contributing to a less visible but increasingly influential part of the travel industry.
The dominant agency model has shifted from the traditional storefront to the contemporary remote agency. Research indicates that a vast majority of hosted advisors and independent advisors operate from home, highlighting this significant shift.
Around 2013, the travel agent profession began to experience a resurgence in numbers. Concerns about an aging workforce were alleviated by an influx of new professionals drawn to the flexibility and travel opportunities offered by a travel agent career. Industry statistics reveal a notable demographic shift, with a significant increase in younger professionals entering the field. This trend signifies that travel agents are not facing extinction; rather, the profession is evolving and attracting a new generation of advisors.
The rise of remote agents is a key factor in this resurgence. These adaptable professionals are reshaping the industry and demonstrating the enduring value of travel advisors in the modern travel landscape.
Considering a career in travel? Explore the travel agent career outlook for data supporting the industry’s growth and potential.
Diversifying Income Streams Beyond Commissions
In addition to the decrease in airline commissions, travel agents also face the challenge of non-commissionable fees (NCFs) imposed by many major cruise lines. NCFs are miscellaneous fees that are excluded from commission calculations, reducing the commissionable amount of a sale.
Travel agency business models, across both corporate and leisure sectors, are increasingly moving towards diversifying income sources beyond solely relying on commissions. This shift is driven by reduced commissions from airlines and other vendors, as well as significant industry and economic fluctuations, including events like 9/11, economic recessions, and global pandemics. These events have caused substantial volatility in commission-based income.
During the COVID-19 pandemic, for instance, travel advisors worked extensively to cancel trips, assist clients in returning home safely, navigate constantly changing travel regulations, and reschedule bookings, often without generating commission income. This period underscored the critical need for travel advisors to diversify their revenue streams to ensure income stability.
Diversification of income through service fees emerged as a key solution for travel advisors to mitigate the impact of diminishing and unpredictable commissions.
Charging fees allows agencies to reduce their dependence on vendor commissions and create a more stable financial foundation, especially in the face of fluctuating commission structures and unforeseen industry disruptions.
The Breakdown of How Travel Agents Make Money
It’s important to recognize that the methods by which travel agents generate income can vary depending on the type of agency. To provide a clearer understanding, we can categorize travel agencies into four main types:
- Corporate travel agencies
- Leisure travel agencies
- Agencies specializing in custom itineraries
- Large, high-revenue travel agencies
How Do Corporate Travel Agents Make Money?
Corporate travel agencies primarily generate revenue through service fees, net/private fares, and airline commissions.
Airline tickets are fundamental to corporate travel agencies, also known as Travel Management Companies (TMCs). Despite the reduction in airline commissions, TMCs continued to sell airline tickets, adapting their strategies to maintain profitability. To compensate for lower commissions, corporate agencies implemented service fees for booking airline tickets.
Research indicates that the median service fee charged by corporate travel agents in 2023 was approximately $60 for international air travel and $40 for domestic air travel. In addition to air travel, corporate agencies earn commissions on bookings for car rentals and hotels for business travelers, typically ranging from 8-10%. Corporate travel agencies also leverage overrides from Global Distribution Systems (GDS) and airlines, as well as net/private fares, to enhance their revenue.
The average service fee for air ticketing in 2022 was $39 for domestic and $63 for international air for agents specializing in corporate travel.
Depending on their airline contracts, travel agencies can earn commissions on both domestic (typically 0-5%) and international air travel (approximately 10-22%).
✈️ Learn more about airline fare types to understand the nuances of air travel pricing. ✈️ Interested in corporate travel? Discover how to become a corporate travel agent.
How Do Leisure Travel Agents Make Money?
Following the commission cuts, many travel agencies shifted their focus to leisure travel products, such as vacation packages and cruises, which continued to offer travel agent commissions. These agencies are now commonly known as leisure travel agencies and are often what people envision when they think of a travel agent.
Implementing service fees is a strategy for leisure travel agents to enhance their bottom line and be compensated for their expertise in travel planning.
Generally, leisure travel agents earn income from commissions paid by vendors on vacation packages, cruises, air travel, and ancillary services. However, consultation and service fees are becoming increasingly common as leisure agencies seek to diversify their income streams and reduce their reliance on supplier commissions.
Data reveals that in 2023, a significant percentage of hosted advisors and independent advisors reported charging fees, a substantial increase compared to previous years. This trend reflects the growing acceptance and implementation of fee-based services in leisure travel.
Confused about agency models? Understand the difference between a hosted advisor and an independently accredited advisor to navigate the agency landscape.
Charging fees enables agents to improve agency profitability and gain fair compensation for their expertise and time. Some agencies utilize “look-to-book” or “plan-to-go” fees, which are upfront charges for research and planning services. These fees may be partially or fully applied to the booking cost if the client proceeds with the agency, or retained if the client books elsewhere. Other agencies implement straightforward, non-refundable consultation fees.
For air-only bookings, service fees are almost always applied, reflecting the reduced commission structure for air travel. However, leisure travel agents also generate revenue by charging fees for various services, including custom itineraries (FITs), air-inclusive packages, tours, accommodation-only bookings, and cruises.
Top 5 Service Fees 2022
Learn from a travel agent who generates 80% of her income from service fees, highlighting the potential of fee-based revenue models.
How Do Travel Agents Make Money with Custom Itineraries?
Mass-market travel options like cruises, all-inclusive resorts, or group tours may not suit every traveler. For those seeking personalized and unique travel experiences, travel agents create custom itineraries, often referred to as FIT (Foreign Independent Tour) trips. These itineraries are tailored to individual preferences and needs, requiring more time and expertise to plan and execute.
Custom itineraries often involve bookings with multiple vendors, some of which may not offer travel agent commissions. To compensate for the increased complexity and time investment, agents specializing in FITs typically charge higher consultation, trip planning, and/or service fees.
FIT travel agents earn revenue through fees, net pricing markups, and commissions from various vendors involved in the itinerary. Fee structures for custom itineraries are highly variable, reflecting the bespoke nature of these services.
If you are interested in understanding fee structures for custom itinerary planning, explore resources that detail different approaches to service fees.
Discover creative fee structures employed by travel agents to gain insights into innovative pricing strategies.
How Do the Big Travel Agencies Make Money?
Large travel agencies, defined by tens of millions in sales revenue, operate in a distinct segment of the industry, representing the top tier of travel sellers.
While most agencies earn commissions based on sales tiers, these high-volume “big player” agencies earn overrides based on their total revenue, in addition to standard commissions. Overrides function as bonuses or incentives provided by vendors when agencies achieve predetermined sales targets or market share growth.
These overrides can be sourced from a wide range of vendors, including airlines, GDSs, cruise lines, tour operators, car rental companies, and more. Overrides represent a significant revenue stream for large agencies, rewarding high sales volumes and strong vendor partnerships.
In Closing
Now that you have a comprehensive understanding of how travel agents make money, perhaps you might consider a career in this dynamic industry. Join our free trial for the 7 Day Set Up Accelerator course to explore the possibilities.
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Next time someone asks, “How do Travel Agents Make Money?”, you can provide a detailed and insightful explanation of the diverse revenue streams in this evolving profession.
If you’re considering engaging with a travel agent or exploring a career in travel, this information should provide valuable context. For further questions about the travel agency landscape, feel free to ask in the comments below. With extensive experience in the travel industry, I’m here to assist you in understanding and navigating this exciting field. You can also reach out directly or connect on social media platforms like Facebook, Twitter, LinkedIn, or Instagram.
Editor’s note: This article was originally published in July 2012 and is updated regularly with current industry data.
