The hidden costs of cheap group tours - a case study of business practices in Australia

Abstract

This paper deals with an issue that has been identified in many markets where there are large numbers of package tourists. In Australia, there have been a number of studies undertaken into the use of a range of dubious business practices employed by Inbound Tour Operators (ITOs), particularly in the Korean market. The cause for this problem is identified as the minimization of the retail price of package tour by transferring part of the cost of the tour to ITOs in the destination country. Under this system, ITOs are paid a daily tour rate below their real costs and are forced to recover losses by employing a range of dubious business practices including forced shopping and kickbacks from shops. The paper models the normal operation of the package tour cycle where no business practices are used and compares this to the Korean package inbound market in Australia where the use of business practices of this nature is widespread.