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What are the risks of starting a travel agency franchise?

What are the risks of starting a travel agency franchise

A travel agency franchise gives aspiring entrepreneurs the opportunity to start their own travel agency. This involves booking holidays, flights, insurance and accommodation for their clients while taking a commission for each booking made. There are many reasons for the rising popularity of travel franchises.

Some of these include incredible advantages such as extensive head office support, excellent commissions, training and know-how and being fully equipped to handle the business from day one of its launch.

While there are numerous benefits to starting a travel agency, there are also certain risks of buying a franchise. Keep reading as we explore what these risks are.

What is a travel agency franchise?

A travel franchise is a type of business structure where a franchisor has established a travel agency business and gives franchisees the right to operate under the brand name, while also giving them access to the franchise’s intellectual property and proprietary systems. 

A travel agency franchisee, on the other hand, is responsible for complying with the franchisor’s business model with minimal risks. Apart from this, low overheads and start-up costs, great commissions, an established industry brand, extensive training and a great support structure are just some of the many reasons why owning a travel agency business under an established brand is so attractive. 

The general appeal of the franchising sector cannot be ignored. It offers aspiring business owners the chance to be in business for themselves and receive support at the same time. Furthermore, lenders are much more inclined to lend to prospective franchisees because of the franchisor’s established and proven business model. 

What are some of the risks in a travel agency business?

Every industry operates with a certain level of risk. And the travel franchise industry is no different. Some of the franchise risks worth considering include financial, market, operational and brand and reputational risks. We explore each one in more detail below.

#1 – Financial risks

One of the main risks of a franchise in the travel industry is the financial risk involved. This can be further broken down into the initial investment, ongoing fees and economic fluctuations. Knowing about and taking precautionary measures can help you mitigate these risks with greater clarity and confidence.

  • Initial investment: buying into a travel agency franchise business involves a financial investment. This includes the initial franchise fee that gives prospective franchisees the chance to obtain access to the franchisor’s brand, business model and proprietary systems. Apart from the initial franchise fee, there are also business set-up costs, which may include office space, utilities, equipment and other overheads. As such, many franchisees need to have a certain amount in liquid capital to fund the franchise fee and the initial investment.
  • Ongoing fees: in addition to the initial investment, franchising also involves recurring costs such as royalties and marketing fees. Royalties can be either a fixed amount or a percentage of total revenue earned within a specific period, which are paid to the franchisor as part of gaining access to their business model and trading under their established brand name. Marketing fees, on the other hand, are the contribution that a franchisee makes to a national marketing fund that is administered by the franchisor at head office, which the franchisee can take advantage of. 
  • Economic fluctuations: economic changes can impact travel spending and franchisee profitability. A distant example is that of the 2008/9 financial crisis, which led to a 4% drop in tourist arrivals. However, this risk was quickly mitigated and figures increased just one year later. Another example of a financial risk is the recent COVID-19 pandemic, which saw multiple countries implementing strict travel restrictions. Not only did this put a halt on tourism but it also affected many travel-related businesses that experienced a sharp decline in bookings.

#2 – Market risks

Examples of some market risks related to the travel franchise industry include competition, consumer trends and seasonality.

  • Competition: the travel industry is fraught with competition as different vendors seek to offer better pricing, products and experiences to boost their financial performance. In addition to competition between brick-and-mortar travel agencies, there are also online travel agencies, which come with a major competitive advantage as they have lower overheads, offer higher commissions and a plethora of opportunities for interested aspiring travel agency owners.
  • Consumer trends: following the COVID-19 pandemic, certain consumer trends emerged as a way for consumers to overcome travel restrictions. These have manifested themselves in terms of “revenge travel”, where consumers seek to make up for lost time travelling. In addition, consumer trends such as business leisure have also emerged. With new trends constantly emerging among consumers, travel agency owners need to be aware of such risks and be prepared to cater to changing consumer demand.
  • Seasonality: whether their aim is to hit the ski slopes or to lounge in a hammock at some exotic island destination, travellers have different expectations and demands when it comes to travel and these are often associated with peak travel periods. This can mean that travel has a seasonal nature, which can impact a travel agency owner’s operations as more bookings can be expected over the summer months as opposed to winter.

#3 – Operational risks

Management challenges emerge as one of the main sub-factors in mitigating against operational risks.

  • Management challenges: managing a travel agency comes with numerous day-to-day challenges. These include staffing, inefficient travel software, difficulty in managing inquiries, challenges in managing customer expectations, complex booking processes, offering common tour packages without differentiation, competition and maintaining credibility. 

#4 – Brand and reputation risks

The final risk that needs to be mitigated against relates to a travel agency franchise’s brand and reputation. Examples of common challenges include brand limitations, reputation dependency and innovation restrictions.

  • Brand limitations: when a travel agent operates under a franchise brand, they are legally required to abide by the terms of the franchise agreement, which stipulates the way in which the franchisee should interact with and promote the parent brand. This can feel constraining to some because aspects, such as the business location, operating hours, holidays, pricing, signage, products and advertising and marketing will need to be strictly adhered to as part of the franchisor’s requirements. 
  • Reputation dependency: being a part of a franchisee network means that every franchisee must comply with the terms of the franchisor’s franchise agreement. However, even a single franchisee who fails to comply can affect the business’ reputation. That’s because the lack of consistency and the brand dilution can result in a poor customer experience and a loss in reputation.
  • Innovation restrictions: when it comes to running a travel agency franchise, franchisees must adhere to the systems, processes and procedures of the franchisor. There are certain restrictions that the franchisor places on the franchisee in terms of innovation and decision making, resulting in the need to follow an established business model as opposed to innovating, which is often left to the franchisor to determine for the entire franchisee network.

Is it worth buying a travel franchise?

Every business sector and industry faces a certain level of risk that needs to be mitigated against and which is often unpredictable. The travel franchise industry is no different. 

However, what sets this industry apart is the sustainability and resilience of the franchise business model. Franchises are much more likely to succeed over the long term as opposed to independent start ups and they offer remarkable potential for growth and both personal and professional development within the franchise system.

Certain travel franchise opportunities emerge as lucrative and highly rewarding. One example of this is The Travel Franchise and its business model. Joining The Travel Franchise’s network of travel agency owners, you can avail of a number of important opportunities and benefits including:

  • Unlimited earning potential
  • Flexibility to work from anywhere
  • More opportunities to travel
  • Excellent perks
  • A great product to sell
  • A work-from-home opportunity with few overheads
  • No formal education or a degree is required
  • No experience in the travel industry required
  • And much more!

Conclusion

While no business sector is immune from various risks, some business opportunities give you the chance to mitigate such risks and enjoy greater benefits all round. The Travel Franchise offers just that

With a low initial investment, excellent commissions and ample perks, it’s the ideal opportunity for any aspiring travel agency owner to embark on the road to business ownership with an incredible support structure and uncapped earning potential.

Curious about what The Travel Franchise can offer you? Watch our Discovery Tour to discover exciting opportunities.

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