Pricing a Golden Triangle Group Against a Direct Corporate Offer
A Jaipur-based tour operator has quoted for a five-day Golden Triangle group of 20 paying passengers plus one tour leader who travels free. The confirmed cost sheet is: 27-seat AC coach ₹48,000 for the trip; 10 twin hotel rooms at ₹2,200 per room per night and one single room at ₹3,000 per night for four nights; lunches at ₹300 per person for 21 persons for five days; monument entries ₹400 per person for 21 persons; a local guide at ₹2,000 per day for five days; and a tour leader allowance of ₹3,000. The operator normally sells through an OTA charging 15% commission and paying within seven days, at a published price of ₹12,400 per person. A corporate client now offers to book the same departure directly at ₹10,600 per person, but asks for 30-day credit and free cancellation up to 15 days before departure. The date is in peak season and the coach cannot be resold if the group cancels.
1. Work out the total trip cost, the cost per paying passenger, and the contribution per passenger at the current OTA price. What does the result tell you about the operator's margin?
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Build the cost sheet by category:
- Coach: ₹48,000 (fixed for the departure)
- Hotel: 10 × ₹2,200 × 4 = ₹88,000; single room 1 × ₹3,000 × 4 = ₹12,000
- Lunches: 21 × ₹300 × 5 = ₹31,500
- Entries: 21 × ₹400 = ₹8,400
- Guide: ₹2,000 × 5 = ₹10,000
- Leader allowance: ₹3,000
Total = ₹2,00,900. Cost per paying passenger = ₹2,00,900 ÷ 20 = ₹10,045; the leader's cost is carried by the group.
At the published price of ₹12,400 the OTA keeps 15% (₹1,860), so the operator nets ₹10,540 per passenger. Contribution = ₹495 per passenger, ₹9,900 for the group - under 5% of cost. That is too thin: one room-night renegotiation or two cancellations wipes it out. Note that coach, guide and leader allowance (₹61,000) are fixed, while only lunches and entries (₹1,900 per passenger) vary. The operator should target a 12–15% net margin, i.e. a net realisation near ₹11,250–11,550, and treat ₹10,045 as an absolute floor rather than a target.
2. Should the operator accept the corporate offer? Compare it with the OTA booking on net realisation, risk and cash flow, and state the conditions you would attach.
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Compare net realisations, not headline prices.
- OTA at ₹12,400: net ₹10,540; margin ₹495 × 20 = ₹9,900; cash in seven days; cancellation risk sits with the customer's own booking.
- Corporate at ₹10,600 direct: margin ₹555 × 20 = ₹11,100; but ₹2,12,000 is outstanding for 30 days. At roughly 12% annual cost of funds, 30 days costs about ₹2,120, so risk-adjusted margin falls to about ₹8,980 - marginally worse than the OTA. The free cancellation up to 15 days is a free option given to the client: in peak season the coach and rooms might be resold, but probably not at the same price.
The offer is acceptable only if the risk is priced. Counter with: 40–50% non-refundable advance (₹84,800–1,06,000), balance seven days before departure, cancellation charged on a sliding scale (50% within 30 days, 100% within 15 days), and rooms held only against the advance. Cut cost first - lunches to ₹250 (saves ₹5,250), hotel to ₹2,000 (saves ₹4,000) - which lowers per-passenger cost to about ₹9,580 and gives a real margin at ₹10,600. If the client refuses any advance, keep the OTA booking.
3. Two passengers cancel ten days before departure after paying a 25% advance. What should the operator do, and what is the financial exposure?
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Revenue at risk = 2 × ₹10,600 = ₹21,200. Advance held = 2 × ₹2,650 = ₹5,300.
Variable cost saved = lunches ₹300 × 5 = ₹1,500 + entries ₹400 = ₹1,900 per passenger, so ₹3,800 for two.
If the twin room is released and resold, no room cost is added: net loss = ₹21,200 − ₹5,300 − ₹3,800 = ₹12,100. If the hotel charges the room for all four nights (₹8,800), the loss becomes ₹20,900.
Actions in order: (1) try to resell the two seats at a small discount through the waitlist and the OTA; (2) ask the hotel to release or part-charge the room, since the group still occupies nine rooms; (3) apply the published cancellation policy and retain the advance, which exists precisely to cover fixed costs; (4) recalculate the group margin, because ₹12,100 may exceed the ₹9,900 OTA margin on the whole trip. Do not refund the advance as a gesture; offer a credit note for a future departure instead, which retains the customer and defers the cost.