While it may seem like a tour operator makes more money when more tickets sell for a summer vacation, shipping and other delivery expenses can add up. For companies with a small number of busy months each year, every confirmation represents new revenue and potential profit, and also potential loss, especially after deducting shipping costs.
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A booking confirmation shows the sale, but not the full cost of delivering the tour. Later on, at the end of the season, when it’s all over, guides’ salaries, cars’ service, refunds to guests, suppliers’ statements – all have to be settled. Sometimes, the best season ever brings little to no profit. Many people assume high demand translates into high profits for tour operators. It doesn’t.
Why More Bookings Don’t Always Mean Higher Profits
For example, a sightseeing company might normally operate two daily trips using one driver and one guide. The company might therefore see huge potential in a third daily trip at half capacity. But the more it runs that trip, the more it costs and the more it adds to its delivery expenses.
Booking totals alone cannot show whether the extra trip was worthwhile. Operators need to compare the revenue from each departure with expenses such as guide payments, fuel, and vehicle costs. Using accounting software for small businesses can help them keep these financial records organized, but they still need to assign costs to individual tours to determine which departures are profitable. Without that comparison, a week of strong sales can hide activities that barely cover their costs.
Distribution is another layer to consider when assessing a tour operator’s income. Many independent operators list their tours and activities on booking platforms like Viator (now part of Trip Advisor) or GetYourGuide.
These listings let passengers search for tours and activities across many tour operators and find what might otherwise be a hidden product on a tour operator’s own website. In some cases, the tour operator also pays the supplier a commission on the booking, set by the supplier. This will be different for direct sales and supplier bookings at the same price.
What a Fully Booked Week Actually Earns
A tour company might be completely booked during a busy summer week, generating $15,000 in gross bookings. After cancellations, the company is left with $14,250. Its weekly accounts might look something like this:
| Financial item | Illustrative amount |
|---|---|
| Gross booking value | $15,000 |
| Cancellations and refunds | -$750 |
| Booking and payment fees | -$2,100 |
| Guides and seasonal employees | -$4,200 |
| Transportation, fuel, and supplies | -$2,700 |
| Allocated fixed operating costs | -$1,600 |
| Remaining before taxes and other costs | $3,650 |
These figures are just examples. The retained amount of $3,650 is not cash the owner can withdraw from the bank account. The illustration also fails to identify funds the corporation must set aside for maintenance, debt repayment, and future reserve requirements.
Comparing individual departures is more useful. A single 2-hour walking tour might generate fewer revenue dollars than a 3-hour boat tour. But in terms of fixed assets and labor needed to deliver that tour, the walking tour is an extremely low-cost activity to offer.
The Cash Flow Problem That Arises After Peak Season
A tour operator may receive a large amount of money during peak season, but that does not necessarily mean they will have enough cash when things slow. Suppliers, such as cruise lines and transportation providers, may require tour operators to pay in full before a trip departs, while tour operators may not receive payment for services such as guides and activities until after the trip.
When customers, such as platforms or large corporate clients, pay late after an expedition has finished, this can leave the guides and transportation providers who have carried out the services to pay for things like fuel in the lurch and have to be paid by the tour operator, who in turn may not have received payment for the booking in full from the client.
Most payment options today have delayed payout times. In a recent article, eTurboNews wrote about the cashless tourism impact on the small tourism enterprise, listing transaction fees and delayed payouts as major problems for independent professionals and small businesses. The article also noted that although digital payments make reservations easier for consumers, cash may not reach the owner’s bank account instantly.
The impact of Seasonality is exacerbated by the fact that remaining cash from a busy season can be dissipated quickly by implementing a range of annual costs (e.g. insurance), which can also be deemed to be required for the forthcoming season (e.g. equipment storage and servicing), as well as a host of ongoing software subscription costs and loan repayments, and even major, unpredictable repair costs.
Cash flow and profit should therefore be analyzed separately. Profit shows whether the services offered were financially worthwhile, while a cash flow forecast indicates whether enough money will be available when payments are due. This distinction matters most for businesses that receive most of their revenue over a relatively short period.
How Tourism Businesses Can Measure a Successful Season More Accurately
Tourism businesses should conduct an end-of-season review using information they already have. Operators should compile all reservations for the season, including refunds and booking payments. They should also gather supplier invoices, payroll records, and information on overhead expenses incurred throughout the season. Reconciling these records helps them assign costs accurately to individual activities.
Three measures can make that review more useful:
- Revenue retained per booking: The amount remaining from each booking after accounting for refunds and relevant booking or payment fees.
- Contribution per departure: This calculates retained revenue minus direct costs such as guides, fuel, entry tickets, and other supplies, and covers fixed operating costs.
- Seasonal operating profit: This is the gross profit earned during the peak season, minus the business’s overall operating expenses (overhead costs).
These three measures offer different perspectives on a tourism business’s financial success. Revenue retained per booking shows how much money remains after refunds and booking fees, while contribution per departure reveals how much each activity generates toward covering fixed operating costs. Seasonal operating profit provides a broader view by accounting for the expenses incurred throughout the season.
When analyzing tourism data, it is essential to look at more than just a company’s customer count. In The Profitable Operator, Arival examines tourism companies’ profitability and the strategies of successful ones. Arival uses data from over 5,000 operators worldwide across more than 50 countries. The information covers companies’ financial performance and highlights key reasons for their success and failure.
Reviewing last season’s financial results can also help tour operators make better decisions for the following year. For example, they can determine how many passengers each departure needs to be profitable, whether frequent discounts are reducing earnings, and whether adding more trips is worth the extra operating costs. They should also compare expected customer payments with upcoming supplier expenses to make sure enough cash is available when bills are due.
Conclusion: A Successful Season Needs More Than Full Bookings
Attracting large numbers of customers generally benefits tour operators, but it does not guarantee a profitable season. High visitor volumes can also create additional costs that reduce the financial benefits of increased demand.
At the end of the season, tour operators need to determine whether they generated enough cash to pay outstanding bills, replenish equipment, and maintain sufficient reserves for the quieter months. A busy season does not necessarily mean a successful business season.
