Pricing a School Alumni Group Tour Under Uncertain Numbers
Meera runs a small IATA-accredited travel agency in Panchkula. A school alumni association asks her to quote for a 40-person, 3-day/2-night group tour from Chandigarh to Kurukshetra and Pinjore in the last week of December. Her supplier costs are: 45-seater AC bus ₹40,000 for three days including tolls and driver allowance; hotel at Pinjore ₹2,400 per twin-sharing room per night; all meals ₹450 per person per day for three days; a local guide ₹2,500 per day for two days; monument and museum entry ₹50 per person. She plans 20 twin rooms and a 12% markup on total cost, rounded up to the nearest ₹10. Two days before signing, the association says only 28 people have paid; the other 12 may confirm a week later. The bus operator wants a 50% advance and the hotel will hold rooms only for 48 hours with a one-night cancellation charge.
1. Calculate the per-person selling price for 40 paying passengers and identify the largest cost component. Show your working.
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Total cost: rooms 20 × ₹2,400 × 2 = ₹96,000; bus ₹40,000; meals 40 × ₹450 × 3 = ₹54,000; guide ₹2,500 × 2 = ₹5,000; entries 40 × ₹50 = ₹2,000. Total = ₹1,97,000. Cost per passenger = ₹1,97,000 ÷ 40 = ₹4,925. Markup = 12% of ₹1,97,000 = ₹23,640; total selling = ₹2,20,640; per person = ₹5,516; rounded up to the nearest ₹10 = ₹5,520. The largest component is accommodation (₹96,000, about 49%), followed by meals (27%) and transport (20%). Therefore a small change in room rate or room count moves the price more than changing entry tickets. If the group shrinks, the fixed bus and guide costs per head rise sharply, so the quote must be reworked rather than simply divided by 28.
2. The association asks for a ₹400 per-person discount. Evaluate three ways to reduce the cost without cutting safety or misrepresenting the package, and state which you would choose.
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A ₹400 discount means selling at ₹5,120, or ₹2,04,800 for 40 people. That leaves only ₹7,800 over the ₹1,97,000 cost - a 4% markup, below the 12% target and too thin to absorb a supplier price rise or a cancellation. Three legitimate options: (1) negotiate the hotel from ₹2,400 to ₹2,200, saving ₹8,000, and the bus from ₹40,000 to ₹37,000, saving ₹3,000, plus one guide day instead of two, saving ₹2,500 - total ₹13,500, but dropping a guide day reduces interpretation at Kurukshetra; (2) reduce meals from ₹450 to ₹400, saving ₹6,000, with a simpler lunch disclosed in writing; (3) hold the price and offer a group rebate only if 44 or more pay, spreading the fixed bus and guide cost over more passengers. I would choose a combination of hotel negotiation and a 44-person rebate, not a silent cut in the guide or entry inclusions. The client must see exactly what changed, and licensed guide services, safety and insurance must not be removed.
3. Advise Meera on committing to suppliers when only 28 passengers are confirmed. Include the financial exposure and the safeguards you would put in writing.
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At 28 confirmed, the quoted ₹5,520 gives revenue of ₹1,54,560. Cost at 28 is: 14 rooms × ₹4,800 = ₹67,200; bus ₹40,000; meals 28 × ₹1,350 = ₹37,800; guide ₹5,000; entries ₹1,400; total ₹1,51,400. Margin is only ₹3,160 (about 2%), so the departure is not financially safe, and the 12 late joiners would need six more rooms that may no longer be held. She should not release a 50% bus advance or confirm 20 rooms on a verbal promise. Instead: collect a non-refundable ₹1,500 per head deposit; set a minimum of 34 paying passengers; obtain the hotel's 48-hour hold and cancellation charges in writing; ask the bus operator to hold the vehicle against a smaller refundable advance; and quote a higher per-person price for 28 (about ₹5,900) or disclose a reduction to one guide day. This protects cash flow and avoids cancelling at a loss. If the minimum is not met by the deadline, cancel before the hotel's free-cancellation window and refund deposits according to the written terms.