Finance and Funding in Travel and Tourism

This report examines the financial management practices within the travel and tourism sector, including cost analysis, pricing techniques, and management accounting information. It analyzes the financial health of The Fulham Shore plc and discusses the sources and distribution of public and private funding for capital projects in the industry.

FINANCE AND FUNDING IN
THE TRAVEL AND TOURISM
SECTOR

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1.1Costs and volume analysis significance in financial management....................................1
1.2 Pricing techniques used tourism travel and sector...........................................................4
1.3 Factor determining profitably in tourism sector...............................................................7
2.1 Various management accounting information utilize in tour and travel industry............9
2.2 Use of Management accounting information in major decision making.......................12
3.1 The Fulham Shore plc's financial statements.................................................................15
Liquidity ratio.....................................................................................................................17
4.1 funding and sourcing of travel and tourism capital project............................................17
CONCLUSION..............................................................................................................................21
REFERENCES..............................................................................................................................22
APPENDIX....................................................................................................................................24
Yearly financial statement of Fulham Shore plc's................................................................24

INTRODUCTION
Financial management is techniques of arranging, organizing, governing and controlling the financial activities. In this branch
of management, manager makes decision to acquiring and best utilization of financial resources. Funding and finance are two
approaches to gain money in financial management. Finance is process of availing the financial resources for organization from
market, Where, funding is amount renders by an organization. Tourism industry depend on both option to acquire the financial
assistance. For firm's specific capital need, travelers arrange money by their own. But, when is huge amount needed they make efforts
for funding.
Present study describes the pricing strategy, cost analysis and management accounting system used in Carnival Corporation &
plc's decision making. Report also cover interpretation of The Fulham Shore plc's financial and type of sources and funding use for big
capital investments. Carnival Corporation plc Is a big name among leading traveling operators. Its net income is 17.5 billion (2017).
Restaurants are possessed run by The Fulham Shore plc's.
1.1Costs and volume analysis significance in financial management
CVP is a cost accounting tool which measure impact of different level of cost and volume on business's probability. It
measures breakeven point for varies cost and volume. It helps manager to take tactical and short-term decision. This technique gives
best result only when fixed cost of production remains same with different production quantities. Theory has assumptions like changes
in expenses are transpired because of increase and decreased level of production. It is pre-assumed that all produced quantity is sold
(Schaltegger and Zvezdov, 2015). Price per unit also remain same as well as cost per unit also constant. Contribution margin is the key
calculation done in CVP. Contribution margin is profit amount which is available in hand before deducting the fix cost.
CVP use fixed and variable cost both in assumption. According to CVP variable cost remain same for per unit but it gets
changes due to level of activity. The more is produces, the more is Variable cost occur. Variable cost also known as direct cost of
production like raw material, electricity, wages and supervision charges etc. Fixed cost is continual in nature, which is not affected by
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production volume. Volume is number of unit produced, when manager know the cost of produce specific unit, then calculated the
cost of desired production become easy.
Contribution margin= revenue – variable cost
Advantage of CVP:
 CVP help in determining of breakeven point. BEP assist manager in financial and production planning. Manager can make
efforts to increase production and reduce cost in order to maintain the probability (Said, 2016).
 It renders, close up of different activities like cost and amount of prediction. These snap shots help manager to predict required
amount of future variable alternative.
 Performance evaluation and controlling action can be taken on time.
 Required sale volume can be measure to achieve certain profit margin and amount.
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Sources: (Cost Volume Profit (CVP) Analysis,2019)
 Various taxes can be including in profit chart, which help in calculates incorporate tax for multi fold service and product, Like
Carnival Corporation & plc's earn sales form render accommodation as well as transportation facility given by it to tourism.
So, company can easily get the amount which it has to pay as income tax on both revenue by using CVP.
 CVP provide aid to measure risk associated with cost and volume.
 Carnival Corporation & plc's enable to practice most suitable and best cost, volume and profit combination (Huang and et.al.,
2015). This matching render point of safety, fair pricing, profit maximization and competitive advantage.
 Manager develop budget for different level of production and select the most money-making product and service.
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Ill
ustration 1: CVP graph

 CVP helps in trend analysis by providing changes in production for different period.
1.2 Pricing techniques used tourism travel and sector
Travel and Tourism industry is one of the most cost sensitive sectors. Its price gets fluctuate because of speedy and frequent
changes in variable cost. Common factor impact service industry pricing are cost, competitor’s strategy, Commissions, judicial factor,
demand and supply, currency exchange rate, rack rate, seasonality, degree of marketing efforts, pricing objective, product
differentiation, firm's and product's like cycle phase, economic condition and Channel intermediaries (Mattila and Gao, 2016).
Carnival Corporation and plc has to increase its service price for last Minute reservation because cost of acquiring service in short
time span, are generally expensive. Environment factor and consumer behavior also contributes in pricing policy.
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Bundle pricing
It is the most widely pricing policy use in tourism industry. In this approach numerous product and service is offered to
customer in single agreed price. Like Carnival Corporation and plc render food, accommodation and transportation facility in tour
package. This approach Is most suitable pricing, where customer need complimentary good along with main service.
Competition pricing
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Illustration 2: Pricing approaches
(Sources: diagram of Pricing Strategies,2019)

In this techniques company priced its product according to its competitor pricing policy. In tourism sector customer can easily
switch their buying decision form another, so organisations try to retain its existing buyer by rendering them market prevailing price.
Firm also, target to transform its potential buyer into existing one (Schaltegger and Zvezdov, 2015). If company set low price
compared to competitor, it will raise question on quality of service. And, if high price is quoted, definitely customer will switch.
Psychological pricing
It is also known as charm pricing. Here, price is quoted slightly less than rounded figure. There is an assumption behind this
strategy, that people do consider odd digits as lower number than actual. Carnival Corporation & plc uses £499 instead of £500.
Company use this pricing when it wants to grab quick attention of buyer and to induce sale in occasion like New Year or Christmas.
Penetration pricing
Here, low price are offers to buyer for new service and product. Company use it when it wants to increase awareness for new
arrival. An existing company follow this price when it brings innovation in existing service.
Economical pricing
It is used to target medium income level segment or when economy is in its dark phase. In adverse economy condition, people
have less disposal income in hand. Lower income force them to avoid luxury expenses, which eventually affect the sale of tourism
organization. To solve this issue Carnival Corporation & plc cut down its non-essential expenses so that cost can be control.
Controlled cost leads to reasonable and lower pricing to buyers.
Cost led pricing
In this pricing strategy, Carnival Corporation & plc adds some profit margin in cost. It is a conventional method of pricing.
Like cost of transpiration for specific tour is £111 and for another trip is £172, in such case company obviously put a higher price for
second tour.
Market led pricing
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In this competitor-based pricing, company offer price to its customer after comparing the existing price with market privileging
price. If Carnival Corporation & plc adopt high price for same product (competitor's product), then customer can switch their buying
decision.
Contribution pricing
It is profit maximization tool, in which price of the production is determined as per its contribution to cover the fix cost.
1.3 Factor determining profitably in tourism sector
An organization's profit margin, is not only affected by general macro factor(PESTLE) but by industry specific elements as
well. Following are the influences which impact the tourism retain earning:
Cost of complimentary service
Accommodation, food facility, transportation cost (airways, waterways and railways) are the basis supportive services in
tourism sector. In case cost of these facilities raises, it would lead to compromised profit. For instance, Carnival Corporation & plc
promote its new tour package in £2500 but airline ticket cost now raises from £333 to £555, Which shrink its profit from £2167 to
£1945.
Environmental factor
Favorable environment dimensions render smooth service deliver, conversely adverse climate condition would enhance the
variable cost. For instance, Carnival Corporation & plc has to facilitate medical aid, safety measurement and equipment and
precaution tools to tourism in flood, earthquake, volcano eruption, hurricane and land slide condition. This safety tools increase the
cost (Margaretha and Supartika, 2016). Apart from it company now has to pay higher amount to avail basic service in such upset
environment.
Distribution cost
Large distribution channel renders low profit margin, where narrow distribution facilitates comparatively higher margin.
Tourism sector also have wholesaler and retailer. Some organization's own service direct from wholesaler and sale in to customer,
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where some are purchase product from retailer and sale to tourist. Carnival Corporation & plc should use wholesaler distribution
system to receive high marginal profit.
Value of currency
Currency exchange rate are bother in outbound tours. If domestic country's currency has high value, it will beneficial for
company. In case domestic currency's value is less, company has to pay more amount to avail the service. For instance, Carnival
Corporation & plc (UK) is at profit side when it sale its tourism packages to US people because currently 1 British Pound is equal to
1.29 US Dollars.
Seasonality and location
Carnival Corporation & plc earn more on boom season like in New Year and Christmas people have enough time for outing,
which eventually can be seen as increased sale. And, more sale volume expands the possibility of enhanced profit too. Tourist are
ready to pay high charges for exotic location. And, an expensive tour package render opportunity to company to earn high profit
margin.
Political factor
People make tour plan for relaxation, so they prefer peaceful and safe places to visit. Political instability can cause visa
problem and terrorism. Like middle east countries currently facing the Taliban terrorism, people avoid such sensitive place. It
eventually lowers the sale volume.
Current trend
This is the most prominent factor in tourism industry, people want to follow the trend to show up among their peer and friend
group. Like earlier tourist choose adventures tour but now they inclined towards nature tours as nature tour are followed by large
group of community.
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2.1 Various management accounting information utilize in tour and travel industry
Management accounting is also known as cost accounting. This branch of accounting system aimed to choose the best in
among alternatives. It accommodates manager to prepare effective policies, planning, evaluates the operational performance and
taking corrective action on time. Area covered in management accounting are Operational Budgeting, Cost-Volume-Profit Analysis,
MIS, Capital Budgeting, Incremental Analysis and cost variance analysis(Collier,2015). Cost accounting information also help in
trend analysis, inventory valuation, budget compliance and discover the cause of errors. The Fulham Shore plc practices following
accounting techniques
Variance analysis:
It is widely used techniques to control the cost. In this method actual operational performance is compared with planned
performance. Ample gap between actual and targeted outcome is taken into consideration for corrective actions. Narrow difference
indicates efficient utilization of resources. Type of different variance are Purchase price, labor rate, variable overhead spending and
direct material variance (Butterfield, 2016). For instance, The Fulham Shore plc practices set standard expenditure on avail the
transportation service is 555 per individual package, but in reality, company has to spend 888. Reason of increased cost can be hike in
fair. (hypothetical example).
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Budgetary control
Budget is a technique to issue money and set target for specific objective. Budgetary control is the techniques of utilization of
budget statement to evaluate and control the operational cost. An ideal operational budget of tourism company contains sales volume,
overheads, supportive, service cost, transportation cost, administrative cost, Service tax and other expenses. Cash flow budget
maintain the cash inflow- cash outflow management. Manager of The Fulham Shore plc also make Program budget. This budget is
made for particular activity and program like marketing research, promotional program and training and development cost. To get
effective result, a manager should use different budget for different purpose because every business activity is different from each
other in nature.
Management information system
MIS is a software, which collect data and information from multiple online sources then analyses the given data and make key
reports to facilitate business decisions. It is a central information system which render real time information to each department. It
retrieves data from functional unit of organization and give performance result to manager. MIS also compare the planned and actual
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Illustration 3: specimen of variance analysis
(Sources: Fixed Overhead Variance Analysis,2018)

result of each business unit. For instance, in case Fulham Shore plc marketing fails to meet the sale target, manager, department itself
and other departments can know the declining sale. Accordingly, they can take corrective action as a whole.
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Financial statements
P&L account, balance sheet, Trading accounts are made by every organization to keep the record. These statements also help
in controlling the financial and operational activities. For instance, profit and loss account gives information about income and
expense of one year, which can be compare with previous P&L statement. Manager can check the variance of overall and each head.
Forecasting
Financial forecast is very much similar to budgeting, but these two have thin line difference. Budget tell the anticipated
amount, where forecast gives about future achievements on the basis of past analyses. Managers generally use forecast, to correct
present actions for future objective. For instance, manager can predict the tourist inflow in different weather condition. They can make
arranges resources according to prediction.
2.2 Use of Management accounting information in major decision making
Like every business, The Fulham Shore plc also has to take strategic, tactical and operational decision time to time. Strategical
decision are long termed decisions which include changes in organization structure, procedure and culture, where tactical decision is
short term. Tactical decision is taken for any short-term objective like marketing strategy training & development. Operational
decision is focused on production, but in tourism sector it includes acquiring cost of different services and expenses made by
organization. These decisions are taken by manager after analyses and interpretation the available data.
Comparison with trends:
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Information of different time period are being collected and compared in this technique. Manager can compare data of one
service and group of service. Sale volume, sale times, inventory level, purchase frequency and reorder detail are used by manager to
identifies the pattern. It enables manager to predict future requirements by analyzing the current situation. Risen curve shown hike in
activities, where declining one indicates downfall. Manager takes major decision on fits line. For instance, The Fulham Shore finds
that people are now interested more in adventures tours than culture tourism (Nielsen,Mitchell and Nørreklit, 2015). It can be
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Illustration 4: Specimen of Trend analysis curve
(Sources: Interpret all statistics and graphs for trend analysis,2017)

concluded on the basis of increase sale for The Great Barrier Reef of Australia, Costa Rica and The Amazon forest and Inca sites of
Bolivia.
Capital budgeting
It is a financing decision in which organization decides which capital sourcing is best for it. Manager takes this decision after
considering the cost which include interest rate. Management accounting render information like whether company has enough cash
inflow and assets to pay the obligation or not. Cash outflow information provides profitability of particular investment.
Forecasting
Effective financial planning is done by manager by the help of accounting management because this render essential
performance reports, cost data and expense amount. Manager use this information to predict monetary and non-Monetary risk. Also,
profit for different level of activities been determined by the help of CVP. For instance, The Fulham Shore plc's now can forecast its
next coming sale target for adventures tour. Foresight help in advance inventory procurement (here services), arrangement of fund,
profit and cost determination etc.
Strategic formulation
Management accounting information also help in major strategic decision making. Strategic decision is related with
improvement in process, organization structure and capability, business environment, resources, administration and operational.
Managers identifies area of improvement with the help of accounting information and then find alternative for correction. For
instance, high cost of service demands re-engineer of service and product, total quality management, innovation, staff and activity
restructuring.
Planning and Control
Accounting starts from journal entry and end up with balance sheet. These all statement render different- different information.
Like trading, tells about production related information, P&L gives data of income and expenses, lastly balance sheet enable
organization to know about its overall financial performance. Managers can observe the difference in each account. These financial
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tools also inter connect to each other. As, trading account's final amount, is used as opening balance of P&L. Manager can know the
area of errors and control it.
3.1 The Fulham Shore plc's financial statements
Financial health of any organization is measured by its financial position, efficiency and capacity. Financial ratio renders this
information to business's stakeholders. Investor made their investment decision after go through these data. So, it becomes important
task for company to present its key financial indicator's accurately otherwise its image and creditworthiness can be questioned
(Williams and Dobelman, 2017). Even manager also use these ratios to make withdraw, investment, operational control, receivable
and payable arrangement etc.
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Probability ratio
From the above table it can be interpreted that GP of Fulham Shore plc's is has fallen from 43.9% to 41.8%, it shows Firm's
operational expenses risen over the time. It is required for manager to take cost controlling measures as soon as possible. Sale should
be increases to get more revenue. Declined profit from 2.4% to -1.8% demand to review the pricing policy currently uses because this
issue Aries when product's cost is not covered by its pricing or have less profit margin.
The Fulham Shore plc's current assets have strengthened by 23 to 32. Company is able to utilize its current assets and liabilities pretty
well.
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Liquidity ratio
It is also known as quick ratio. Business ability to pay short term and long-term obligation is measure by this. Cash and cash
equivalents items are coming under in ratio. Here, company's current ratio has enlarged from 0.07 to 0.25. But the Fulham Shore plc’s
fail to meet ideas 2:1 ratio of assets and liabilities, which is point of concern (Zorn and et.al., 2018). Ratio can be improvising by early
submission of invoices, use more of long term finance of sourcing and control the variable expenses.
4.1 funding and sourcing of travel and tourism capital project
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FUNDING AND SOURCING OF TRAVEL AND TOURISM CAPITAL PROJECT
INTRODUCTION
Sourcing is act to acquire the financial resources for business. An
organization need money to pay its short-term obligation and long-term objective.
Every business can avail money form public and private sources of fund. Public
funding is generally given by government. State pools this money form through
taxes. This money reinvests in maintenance of project. The State invests this
money for capital and public welfare projects. Taxes, fine, fee and duties are the
sources of income on these. In private funding money is gather form individual
and group of investors. It also can be received as grant, donation and gifts.
The manager takes finance decision after analyzing the acquiring cost,
flexibility, interest rate, risk and cash flow position of company. Business can get
short term and long-term finance from both public and private medium. Capital
project are need huge money as they aimed to improve infrastructure, expansion,
large size construction and replace the existing system. Normally funding word is
used when organization money form state. Sourcing word is used when money is
obtained from private financing option.
Sources of public funding
Department of culture
To promote tourism and culture of country. Government provides
monetary and non- monetary aid to tourism business agents and company.
Like tourism company can get short term and long run financial assistance
from government. Government also bear the cost of training and development
of personnel associate in this industry. State invest in capital project which
directly and indirect attract the customer.
National lottery commission
National lottery commission works as supervisory, protector and
mentor for participating parties. Here, Pool of money is created out of money
contributed by participator. Judges write names of people on chits and they
select chits randomly, whose name is appeared on paper become authorized to
get money.

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Sources of private funding
Equity share
In this type of sourcing organization owns money by making
creditors its partners in profits. Shareholders are eligible to get profit
percentage in total profit. Demerit of this source is company has to allow
shareholder to take participation in decision making by empower them
voting rights.
Debenture
They are also shareholder of company but company do not share its
profit with these creditors. They are authorized to get fixed dividend amount
on particular date. Disadvantage of making money form debenture is, firm
has to pay their amount even it does not earn sufficient return.
Distribution of fund
Public fund is distributed in development and strengthen the
infrastructure so that more and more people come to visit the traveling
places. For heath-row airport' is now able to manage high air traffic and flow
of people because it is restructured by UK government recently. Apart from
it pedestrians, integrated bridleways interpretation boards and bridges also
been made and maintained by public money.
Private fund is used in research and development, marketing
efforts, new product development, T&D of traveling agents, make new hotel
building, enhance the personal transportation capacity of company like
TAXI, bus and tempo travelers etc.

CONCLUSION
From the above study it has been summarized that cost accounting not only help in organizing the data but it also helps in
major decision making. Carnival Corporation & plc 's overhead cost is impacted by season, environment, trend and competitor. So,
Firm should not relay on one pricing policy. Pricing strategies should change according to situational elements than only it is able to
sustain itself for long run. The Fulham Shore plc's has both private and public sourcing fund but company should look upon its major
key financial indicators like liquidity, current assets and liabilities, then only it can smoothly able to pay cost of sourcing without
compromising the dividends and daily working capital requirements.
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REFERENCES
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Fixed Overhead Variance Analysis. 2018. [Online]. Available through <
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APPENDIX
Yearly financial statement of Fulham Shore plc's
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