Finance and Funding in the Travel and Tourism Sector

This report discusses the importance of costs and volume in the travel and tourism business, various pricing methods used in the industry, and factors influencing profit for tourism businesses. It also explores different types of management accounting information used in travel organizations and how it aids in decision-making.

Finance and Funding in the
Travel and Tourism Sector

INTRODUCTION
Tour and travel sector plays an important role in every business. It enhance the
performance level of every business. The present report deals with different situation and help to
know the deep meaning and importance of cost and volume in tourism sector. The report also
presents different pricing method used in this sector and which is the best method for Carnival
Corporation and it also deal with different factor that affect the company's profit. The report
presents different types of management accounting system and help in assessing the exact use of
management accounting that help in decision making. The report also interpret the financial
accounts of the company and analyses the source and distribution of funding. The report helps to
determine the use of management accounting information that help in decision making process.
TASK 1
P 1.1 Explaining importance of costs and volume in the travel and tourism business
The Carnival Corporation & plc is the world largest travel company whose brands in
North America, Europe and Australia. It also have 10 brands in different countries who offer
different services to its customers through online and offline services (Johnstone, 2018). The
company maintain its financial status by using cost, volume and profit which help in better
decision making for travel and tourism sector and they all are dependent on each other. The
importance of CVP for Carnival Corporation and plc is mention below:
Cost: it is the most important to know the exact price of the product or services which are
offered. Carnival Corporation provide services to customers and it is necessary to determine the
cost because direct cost of offered services help to increase the management performance and the
cost of offered services in a business can be reduces or increases as per the demand of market.
The variable cost of product and services changes according to output and help in increases in
the profit maximization (Pratheepkanth, 2018). It is necessary to know the exact price of the
products and services which are offered by a company.
For example: Carnival Corporation offer different types of seasonal packages at low cost in order
to attract more number of customers. As there price is quite low as compared to other tourism
sector.
Volume: For Carnival Corporation and plc, it is necessary to analysis the break even
analysis because it is a point which help to determine which services are to be offered in order to

attract more customers and to cover the price it is necessary to know the volume of customers as
well as business. As the volume of production increases the economy of scale is also enhances.
Huge volume of a business will help to increase the production level and travel sector always
contributes the big portion of its share to the economy in UK. Carnival corporation have a large
volume and it affect the economic as a result it also achieve its break even point where it
sometimes earn no profit and no loss situation (Nitzl, 2018).
There are different types of cost and BE analysis
 Direct cost: direct cost is directly related to goods and services and it includes material,
labour or expenses that are directly link with producing product.
 Indirect Cost: indirect cost are not directly related to products and services. Under this
method, fixed cost and variable cost are included where fixed cost do not vary with
number of goods that are produces by a company. On the other side variable cost are
fluctuated as the production changes.
Profit: to maximize profit, Carnival Corporation uses various method marginal and
absorption costing method. If the company done reduction in his cost then it will help to achieve
more profit. Sometimes factors like seasonal variation, political environment, planning, staff,
current market trends, economic environment may affect the profit margin of a company. Cost,
Illustration 1: BE Analysis

volume affect completely the profit of a company and using market- led, cost plus pricing, cost
led methods a company can improve its maximization power of profit (Miller, 2018). These all
CVP have its own importance and maintaining all three in proper ratio will help to improve the
performance of a company.
For example: if Carnival Corporation's price or cost of offering products is low then it
automatically affect the profit rate of a business. Low cost of offers will definitely maximizes the
profit level of a company.
The relation between cost volume and profit makes up complete profit structure of
Carnival corporation. At initial level first, profit is planned and it help to determine sales volume
which is used to avoid all losses. It is the best method which is used to find most profitable
combination of cost and volume. CVP has its own importance and it help to predicts short term
decision related to fixed cost, marginal cost and sales volume. The CVP relationship is mostly
used to analysis the sales volume in an industry.
P 1.2 Explaining various pricing methods used in travel business
Different pricing method shown below:
 Competition based pricing: this is the most common practice used in hospitality
industry and Carnival Corporation also uses this strategy. It is believed that sometimes
rival companies know about strategies and plans and many company follow this strategy
with a fear that there price is out in a market. The owners of companies usually follow
this strategy (Tan and et.al., 2017).
 Target Price Method: this method states that every product in a company contributed
some amount of profit for a company which is basically not possible. It is completely
based on break even analysis. Many hospitality industry try to reach the pint of break
even by lowering or increasing the price with variable cost but they did not find success.
This method is usually follow in food service industry because the generally divide the
total amount by the number of customer reaches at the time of meal.
 Cost based Approach: it is one of the simplest and easiest method used by travel and
tourism sector because it so easy to understood and to implement (Booth, 2018). It
simply adjust the price of a product in order to achieve cost. The method is based on
assumption that means other factors remain constant and unaffected in seasons. It is not

good according to the criteria of markets because generally customers are more concern
about what they get in return of their pay, they did not care about the prices or services
which are offered.
 Marginal costing: to increase or decrease in actual cost and this is done to maximize
more profit. It is analyses that marginal cost are variable cost which varies from labour to
expenses and in estimated portion of fixed cost. It is also called as choice cost or
differential cost (Miller, 2018).
 Absorption cost: to calculate the overall cost and it also include all the indirect expenses
as well as administration expenses. Generally travel and tourism sector do not apply this
method because it is very hard to understand and implement on the company so that is
why they avoid to suing this method.
 Price Bundling: It is the most common method usually follow in hotel sector. A tour
operator wrap accommodation, food, entertainment and sightseeing facilities in one
single charge (Nitzl, 2018). This method help to gain economies of sale because people
attract the bundle of services offered in such a low rate. Hotels offer weekend packages in
such a cheap rate which include lodging, dinner and entertainment facilities.
 Cost led pricing method: this method is also used by Carnival Corporation. This pricing
method, help to determine the actual selling price of a product by a company. The cost of
product is determine by adding some percentage of profit into actual cost of products.
 Top down pricing method: It is a pricing method which include approx price of clients
budget and after analysing price of competitors price as well as the offered price by a
company.
It is advised to Carnival Corporation to use competitive pricing method because it will
help to attract more number of customers and using this method company maximizes its profit
during a year.
P1.3 Analysing factors influencing profit for tourism business
Different factors that affect the profit for Carnival Corporation and these are mention
below:
Seasonal variation: it is the most important factor that affect the profit of a company. Off
season for a company will sometime create big loss and Carnival Corporation makes plan

according to season such as it offer old people for touring in summer vacations because the
generally dislike to enjoy in freeze monsoon (Johnstone, 2018).
Economy: it is the main factor which affect the sales and profit of a company because saving
money for a people is the main agenda due to economic recession. They generally avoid to travel
at this time and if there is a fluctuation in currency rate of UK then the company has to face a big
loss.
Planning: when the destination spot has a special event like marriage or festivals then the media
coverage the whole attention and at that time travel and tourist sector does not plan for those area
at that time to maximize the profit and this planning is helpful to organize events there.
Insufficient promotions and advertisement: sometime this factor is also affect the profit and
revenue of sale. Carnival Corporation if offer some bundle of package to the people then it is
necessary to let people know about their offering and it will only done through proper
promotions and advertisement process. Using social sites and website is the another way to let
people know about the services and products (Pratheepkanth, 2018). Inform about the offer tours
to people will definitely help to increases its selling power and maximizes its profit.
Natural Disasters: this are not controlled by humans as it is a creation of god. During any
natural disaster heavy loss is occur which lead to damages to various properties and loss of
human as well as animal. Due to this tourist sometime cancelled the booking and protect
themselves from any disaster and it lead to loss financially to a company.
Bad debts: sometime bed debts may decrease the profit margin because the company may deal
with those people who did not pay their fees on time (Nitzl, 2018). In hospitality industry, hotel
hire their suppliers on commission basis but they also did not pay all the amount to a company at
that time profit margin is affected and the revenue is also not increases because of having
number of bed debts. In this situation, company should not deal with those people and do not
offer such services which may affect the profit in future times.
Cost: it is the most affecting factor that affect the profit of a Carnival Corporation. Under this
method, if the company offer its services at higher rates then it will definitely affect the profit
margin of a company. So it necessary to balance the overall cost of products and services that are
offered to their customers.

Terrorism: it is another factor that affect the overall profit of a company and sudden terrorist
attack will somehow cancel the plans of Carnival Corporation which greatly affect the profit
margin. Sudden terrorist attack will definitely minimize the profit of a company.
TASK 2
P 2.1 different types of management accounting information used in travel organisation
Dalata Hotel Group is the largest hotel operator in Ireland's who have four star hotel
including 7700 rooms. The company uses different management accounting information in order
to know its financial status such as financial statement, budgets, variance analysis, Management
Information system, forecast and this are describe below:
Financial Statement: this statement are used to determine the exact financial status of a
company. This statement include three basic statements such as
 Balance sheet: it shows the net profit or loss of a company and it shown asset and
liability side of a company and prepared in last.
 Income statement chart: it is also called profit and loss account which include all the
information related to profit and loss during a particular financial year (Miller, 2018).
 Cash flow Statement: this statement show the how much cash flows during a time in a
company.
This is the most important management accounting system because it decides the company is in
loss or profit as compared to last year and it help to determine the capability of a company to pay
its debt and how much cash is generated and its expenses during a period.
Budget: it is an estimation of finance which is used in future period of time. Deciding
budget for different departments in a company is necessary because it will help to controlling on
extra expenses (Quinn and et.al., 2018). The Dalata Hotel Group have master budget and then it
divide that budget into different departments in order to run a company in better way. Usually
budgets are decided in meeting in order to face future risk and to run a company in effective
way.
Management information System: MIS collect all the information and system and
hardware that all work together to produce the correct information for the company (Booth,
2018). It help in decision making and through this management system employees are able to
communicate their views to the outside of the organization. It produces data reports which help
the management team to take correct decision for a company.

Forecast: management accounting help to make assumption for future expenses. With
the help of present financial statement, the owner can easily judge the future outcomes of a
company and it also prevent in some mistakes done in future (Jacob, 2017). Through forecasting
futute decisions are made which help to maximizes the future profit and increases its present
revenue so that it will help in future generations.
P 2.2 Assessing use of management accounting information in organisation for decision-making
Management accounting tools are help in decision making in many ways such as :
 Management accounting information help in decision making by collection all the
information (Management Accounting in decision making,2018) .
 By preparing financial statement reports, can easily determine the actual status of a
company and it will help in future decisions.
 Through management accounting information, the effective decision can be make
because it help to keep all records safe during a period.
 Budgetary control planning will help to control on the price or cost of the products which
are offered to the customers. It also help to make effective decision planning.
 Through forecasting, an effective decision are taken. Because it help to determine the
exact position of a company and also determine the future estimation required for a
company (Morgan, Harrill and Dioko, 2017).
 To provide best result and maximum return and profit, investment are help to take better
decision for their company and it will help to make future estimations.
 Management accounting information is helpful in provide complete information about a
company and by make and buy analysis, owner can easily determine the choice of
customers and it help to make effective decision power of a company.
 Budgetary control, financial statement and activity based accounting are always help in
taking better decision for a company and achieve all the target objectives (Tan and et.al.,
2017).
 There are so many current issue which affect the decision making of a business such as
profitability of a company, solvency and to control all the assigned budgets of different
departments etc.

TASK 3
P 3.1 Interpreting financial accounts of Dalata Hotel Group plc for two years

Financial ratios of Dalata Hotel Group Plc shows it has good financial performance. It
can be seen from ratios that profitability earning position is quite good. On the other hand,
solvency, efficiency and liquidity position are assessed with the help of calculation of ratios. It
can be said that position of firm can be evaluated in a better way by computing ratio analysis.
Dalata Hotel Group Plc is one of the biggest company in hospitality industry and has large
customer base leading to gain higher profits. Starting with profitability ratio such as gross profit
margin was 62.20 % in the financial year 2016 and maximised to 63.20 % in 2017 which is
raised to around 1%. It shows that organisation is being successful in reducing expenses
particularly on operational one and hence, gross profit has been maximised quite effectually.
On the other hand, Net profit margin has been hiked up to a high extent as it was 12.02 %
in 2016 and increased to 19.60 % in 2017. This clarifies that company is controlling its expenses
in effective manner and which has given fruitful results. Furthermore, Return on Capital
Employed (ROCE) is calculated which in 2017 was 4.53 % and reached to 7.56 % in 2017 which
means that sales are produced by fully utilising investment in a better way. ROE is computed
which was 6.03 % and increased to 10.06 %. This shows that organisation is able to generate
sales by using shareholders' investment up to a high extent. Hence, profitability position of
company is good and is earning well. Liquidity ratios are calculated to highlights whether
organisation will pay for liabilities in shorter period usually of one year or not.
It can be said that current ratio of Dalata Hotel Group Plc in 2016 was 1.44 : 1 which
reduced in next year to 0.46 : 1. This shows that firm will face issues to make payment to
external parties. On the other side, acid test ratio means whether firm would be able to pay
current obligations with help of liquid assets or not. The ratio of company was 0.83 : 1 in 2016
and then reduced to 0.35 : 1 in 2017. This means that firm will attain problem in paying from
liquid assets. Efficiency ratios shows whether funds are attained in appropriate manner.
Inventory turnover ratio 69.4 in 2016 and reached to 71.61 in 2017. This ratio shows how
effectively organisation is using its inventory to generate production. The inventory ratio should
be lower which shows firm is quickly using stock for productive activities.
On the other hand, Creditor payment period is calculated which shows how quickly firm
is making payments to suppliers on goods supplied on credit basis. It can be interpreted that
lower the period, better for the firm as it shows efficiency in paying off outstanding money

quickly. In this case of Dalata Hotel Group Plc, period in 2016 was 42.33 which reduced in 2017
as it reached to 38.98 highlighting hotel is able to pay faster. The debtors turnover ratio was
42.04 in previous year and decreased to 41.53 in 2017 which highlights that company has
maintained strict credit policies which has led to collecting quicker outstanding amount from
debtors. This shows efficiency of firm to be collecting money from customers.
Furthermore, solvency ratios shows how effectively company is using debt and finance in
a better way. The Debt to total assets ratio was 0.25 in earlier year and reached to 0.22 in next
year which shows that company has more debt in comparison to total assets. On the other side,
financial gearing ratio was 0.43 in 2016 and reached to 0.33 in next year. This shows that firm
has reduced debts in comparison to equity. It is good as solvency position will be good. Hence,
overall financial health of Dalata Hotel Group Plc is remarkable as profits are attained in a better
manner and as such, expenses are controlled as well. Thus, it has good financial position in the
hospitality industry.
Interpretation of cash flows
Particulars Formula 2017 2016
Operating Cash Flow
Revenue- Operating
expenditures 95 78
Free Cash Flow
Cash flow from
operations- Capital
expense -41 -31
Free Cash Flow Per
Share
Free Cash Flow / Shares
Outstanding -0.02 0.02
It can be interpreted from cash flow ratios that firm is able to perform well as operating
cash flow is increased from 78 in 2016 to 95 in 2017. Furthermore, free cash flow is decreased as
it became negative in both years. It means that cash is reduced and shareholders cannot be paid

from such cash balance. Free cash flow per share was 0.02 in 2016 and decreased to -0.02 in next
year. Overall operational cash flows are good but free cash flows are low.
TASK 4
P 4.1 Analysing sources and distribution of funding for developing capital projects in relation to
tourism
Enclosed in leaflet
CONCLUSION
From summing up above report it is concluded that management decision making process
help in business forecasting. The present report focus on different situation of a company related
to travel and tourism sector and help to determine the importance of CVP in this sector. The
report deals with various types of situation and every case concluded that financial practices play
an important role in business. It help to determine the exact position of a business and also help
in taking good and effective decision. The report concluded that for Carnival Corporation Group,
competition pricing method is best method for attracting more number of customer. It also
describe factors which influence the profit for a business. The report help to understand the deep
meaning of management accounting in the sector of travel and tourism and how this information
help in decision-making process. The report also concluded that financial accounting is used to
determine the exact position of company and it present different types of pricing method thet
help to maximizes its profit.