Funding Sources for Tourism Capital Projects

This assignment analyzes various funding sources available for capital projects within the tourism industry. It examines national lottery commissions, regional development funds, European social funds, overseas investors, development banks, commercial banks, and government contributions. The focus is on how these diverse funding mechanisms contribute to the growth and development of the tourism sector.

FINANCE AND FUNDING
IN THE TRAVEL AND
TOURISM SECTOR

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Importance of costs and volume in financial management of travel and tourism............1
1.2 Analysis of pricing methods used in travel and tourism sector of Carnival.....................2
1.3 Analysis of factors influencing profit for travel and tourism of Carnival corporation and
plc...........................................................................................................................................3
TASK 2............................................................................................................................................5
2.1 Different types of management accounting information used by Dalata group...............5
2.2 Use of management accounting information as decision making tool.............................6
TASK 3............................................................................................................................................7
P3.1 Interpretation of financial accounts of Dalata groups of Hotel Plc................................7
TASK 4..........................................................................................................................................14
P4.1 Sources of funding for development of capital projects..............................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Finance and funding is essential in tourism and travel business. This helps to know if
operations of business are profitable or not. Prices in this sector are planned according to
requirements of customer and best priced business will help to cover overall cost and earn profits
which is required. Carnival plc is an American cruise operator headquartered in England with
combined fleet of 100 vessels across 10 cruise line brands. Dalata group are among the largest
hotel operators with most of their hotels in Ireland and UK.
The objective of this report is to interpret financial accounts of Carnival and Dalata group
which will help in decision making. This report covers about pricing methods used. This report
identifies various factors which affects profits.
TASK 1
1.1 Importance of costs and volume in financial management of travel and tourism
CVP (Cost, Volume, Profit) gives an insight picture of organization and shows relationship
between factors which affect profits. It is an important tool for profit planning and
budgeting (Seetanah and Sannassee, 2015). It helps to know quantity of sales required to
avoid losses and operations of business which are profitable.
 Cost- Fixed cost are those which remains same, it does not vary. No matter how many
people are traveling cruise the cost for everyone will remain same. The prices will not
change if there is a single passenger or more, charges will be same for everyone.
Variable cost is one which does not remain fixed and varies according to number of
passengers. Cost for a single passenger will be different as compared with that charged to
a group. At Carnival, prices of cruise are charged according to season and their costs vary
as per passengers. For eg: for a cruise odder 100 people per person charge is $100 but for
a couple it is $170 and for a group of 5 persons it is 400 only. The over all cost cruise
trip is $1500 which remain same retrospective of number of tourist but the rate do
changes with change in number of persons.
 Volume- Break even cost is that which is required for covering overall price in business
and reaches break-even point. It is a situation of no profit and loss. At Carnival, break
even depends on number of tourists and prices charged from them for a day to cover
complete cost. More customers get attracted to their attractive services which enhances
economies of scale. When company bundles all its services into a package then economy
1

of scale can be achieved more easily. For eg: the company charges differs with the
change in number of consumers and with lower number prices are high with higher
number prices are low.
 Profits- Profits of Carnival plc can be calculated by subtracting total cost from revenues
incurred. Company tries to reach needs and wants of its passengers by providing luxury
services. There are various factors which affect profits of company. If there is a situation
of recession in any economy then people will prefer to spend less and save more which is
condition of few profits (Baker and et.al., 2016). When it is holiday season and suitable
climatic conditions people will travel more which is beneficial for them. Advertisements
helps in giving broad picture of country and more people will visit that place which is
profitable for similar type of industries as they will use their services. For eg: changes in
the pricing strategy with change in season the profits of the organization are kept intact.
1.2 Analysis of pricing methods used in travel and tourism sector of Carnival
Prices varies for different countries. Various pricing methods which can be followed by
Carnival plc are as follows:
 Market led- Market led is a situation where company focuses on customer’s need and
wants and make efforts to meet them. Carnival relies on market research and tries to find
out its customers in order to fulfill their demands. This directly impact the consumer
relation of the company with its present and potential consumers which in turn enhance
the customer satisfactions.
 Seasonal price- Carnival charges their customers according to seasons. In off season
they keep prices of their service low. They have a mixture of pricing strategies and
charges according to time of traveling. This strategy helps in maintaining the profits level
as well consumers attraction in a balance. This is mix of price high and low with change
in season so as to keep the consumer engaged every season with keeping its profts intact.
 Last minute pricing- These are last minute pricing strategies in which company charges
their customers to fill the gaps at last time. These are type of instant charging methods.
Carnival offers last minute discount to its customers on their websites. This is the best
method to cover the profits and safety margin of the organization as with the firm never
get low on its revenues.
2

 Cost plus pricing- carnival uses various pricing strategies like charging per person.
Different charges for adults, aged and children to attract people and provide leisure. They
also charge according to number of days. They have fixed charges according to 2 persons
and number of days (Lunt, Horsfall and Hanefeld, 2016). Under this the charges differs
categorize wise and packages are arranged in such a way as per the need and requirement
of the consumers which seem feasible as well attractive to them.
 Penetrating pricing- Discounting is most common in service industry and can't be
neglected in travel and tourism sector. In off season Carnival provides discount to its
customers and add conditions to such discounted prices like minimum number of stay.
With this strategy consumers are attracted even in off season and the company maintain
its revenues and profit level with effective changing the pricing police and consumer
attraction.
 Price bundling- Several services are bundled with single price (Everett, Simpson and
Wayne, 2018). It includes bundling of various packages which a person requires while
traveling like programs on board, meals on cruise, comfortable rooms with balcony and
pool facility. Carnival offers different packages to its customers which includes all the
things which would attract a customer and encourage them to use their services again.
With this the services with lower and higher rate are combined with becoming more easy
and feasible for the tourist.
 Markup and markdown prices- Charge more from clients in order to ensure that
company makes profit every time to recover cost of establishment. It is a type of markup
price. When there is huge competition in market, carnival prefers to markdown prices to
attract more customers. The prices are lowered down in a phase of cut throat competition
in order to maintain consumer portfolio as well the revenues and gains margin of their
company.
1.3 Analysis of factors influencing profit for travel and tourism of Carnival corporation and plc
There are various factors which affects the profit margin of travel and tourism sector.
There are various positive and negative factors which affects prices. Positive factors help to
charge more and negative will sell inexpensive services. Some factors which have negative
impact and cannot be ignored are:
3

 Climatic and seasonal factors- There has been a large change in climatic conditions in
world because of ozone depletion. Organisation face a huge problem because of
environment uncertainties like global warming and rise and fall in temperatures. This has
substantially affected profits of the company (Dzhandzhugazova and et.al., 2015). But it
is seen that global warming has benefited cruise industry as of northern hemisphere is
more desirable for travelling now. Many new destinations can be reached, as ice is
melting which has made easy to reach those places. Change in seasons largely affect
profits.
 Natural disaster factor- Areas which are prone to disasters, earthquake and tsunami
which affect loss of lives and property can become a serious concern. People think twice
before travelling to places which are at high risk. Carnival has to stop their services when
there are high tides and rise in water level.
 Social factors- There are various social factors such as age, lifestyle which changes
consumer behaviour to consume services and products. If there is improvement in
lifestyle of consumers, then they will prefer more luxury. They will prefer more
travelling (Hingtgen and et.al., 2015).
 Economic factor- Places where people have low earning power prefers to invest less in
travelling and focus on fulfilling their needs. This factor has huge impact on Carnival as
people will prefer to travel at nearby places and will not spend their money on high
priced cruises. This will lower down their profits.
 Advertisements and promotions- People will not travel to unaware places.
Advertisement is an important tool of promotion which gives a short description about
that place and is that place suitable or not. Carnival plc invests in advertising in order
increase its profits.
 Political factors- Whether the organisation is located in rural or urban area political
factors has a great impact on every business. Carnival faces various challenges from
government and other ruling parties as they have increased taxes.
TASK 2
2.1 Different types of management accounting information used by Dalata group
Management accounting information comes in various forms. Such as financial ratios,
forecasting, variance analysis etc. Management accounting helps in making correct decisions.
4

 Forecasting- In order to fight competition in market strategic planning in important. It
involves process of planning for future operations by method of forecasting (Castaño-
Isaza and et.al., 2015). Tools like trend analysis helps to forecast future operations.
Dalata group considers the fact that if people traveling in summers are more in a year
then in next year they will increase substantially.
 Budgeting- Forecasting factor helps in building an imaginary model of future revenue
and expenses of any company. Budgeting begins after forecasting. By this, profits can be
allocated to different required places. Budgeting gives an estimation of future cost and
liabilities. At Dalata budgeting process helps to make budgets based on current cash and
revenues from hotel.
 Variance analysis and Cost accounting- This analysis can be defined as process of
comparing actual with budgeted price and finding out deviations. If any variance or
deviations are found, then actions are taken to correct them. It consists of factors such as
man, machine, material which affects budgeting decision and profits of company. Dalata
groups take immediate and corrective actions to remove deviations from their cost.
 Ratio analysis- It helps to find organization structure and power to overcome their long
term and short term debts. Ratios can be calculated for monthly annually or quarterly.
Dalata group uses ratio analysis to find out company’s liquidity position, solvency ratio,
turnover ratio and profitability.
 MIS or management information system- It is a computer based system which helps to
manage flow of information. Use of MIS helps Dalata group in achieving high efficiency
for managing its operations. It helps in decision making and to keep record of customers
visiting hotel and their feedback.
 Accounting data- Use of accounting data helps in taking decisions based on various
ratios and trends. A business operation always involves a financial risk. Dalata uses
accounting data to take better decisions.
 Balance-sheet: This is financial report that present financial position of the company
defining it's the asset and property owned by organization along with all the liabilities
and obligation of the firm.
 Trading P&L account: This statement present the net profits earned by the entity after
deducting all financial and non Financial expense from the sales revenue of the business.
5

2.2 Use of management accounting information as decision making tool
Management accounting information tool are important for taking decisions.
Management accounting uses information from business to show performance. It provides
relevant information to take financial decisions. Some tools are-
 Comparison- Forecasting helps in comparing two trends. It helps to compare actual with
standard data and find out deviations and take actions to correct those variances.
 Forecasting- This helps in forecasting future and taking decisions accordingly. It helps
to find out number of people who will visit hotels. Company uses various tools and
techniques to forecast future and take correct decisions.
 Investment- Accounting information helps in making investments. Dalata group uses
various information about revenue and expenses from accounts to invest in construction
of more hotels worldwide (Badulescu and et.al., 2015). The company is earning huge
amount of income from last few years which helps to take investment decisions and
increase profits.
 New Products and Services- An organization is required to find out who are their
potential customers and then plan accordingly and make strategies to reach customers.
They should focus on introducing new products and services and make changes in their
services. Dalata group has improved their services by improving performance training
employees. Keeping a check on employees helps to correctly utilise food and beverage in
restaurants and avoid wastage. They have expanded their service of hotels in various
parts. They provide three and four star rooms to its clients.
 Current Issues- Dalata had raised around 250 million euro and got itself listed on
securities exchange by issuing their ordinary shares to public. This is a positive sign
which will help organisation to raise more capital and attract potential investors. Though
there is growth and development, they face obstacles from competitors in Ireland.
 Against Set Criteria- They perform various human resource planning to take correct
decisions. Management accounting information help managers to keep record of profits,
solvency. It helps to know liquidity position of company. It helps employees to take
efficient decisions regarding booking.
6

TASK 3
P3.1 Interpretation of financial accounts of Dalata groups of Hotel Plc
Financial Statements of Dalata groups of Hotel:
Income statement:
7

8

Balance sheet:
9

Cash flow statement:
10

Ratio analysis: in this study a ratio analysis of two years that is 2016 and 2017 of Dalata
Group of Hotels Plc is carried out in order to find out its growth and changes in its financial
performance in a one year period.
11

Profitability ratio:
Interpretation: There is an increase in sales revenue of Dalata Groups of Hotel Plc from
2016 to 2017 by 57 which resulted in increase in gross profits of the hotel from 181 to 220.
Gross profit margin has increased by 1.02% from 2016 to 2017. There is an increase in
administrative cost but not with same percentage as sales revenue which resulted in increasing
operating profit margin from 18.90% to 25%. Net gains increased from 12.03% to 19.54%. This
12

indicates that with increase in sales revenue the hotel group have gained a control over its
administrative which have resulted in increased operating and net profits with higher percentage
as compared to gross profit margin (Kallala and et.al., 2015). Return on their equity have raised
to 9.23% from 5.65% in a one-year time which reflects that hotel group have earned a good
profit for their shareholders in 2017. Earning on capital employed have also been increased in
2107 leading an increment in return on capital employed ratio from 10.18% to 11.8%. There is
an increase in administration expenses with a rise in sales revenue but increment in expenses is
not with same percentage as revenue. This shows a control over cost and expense and leading to
higher operating and net profits.
Liquidity ratio:
Interpretation: These ratios are calculated to determine the position of Dalata hotel
group for availability of immediate cash resources to meet obligation of liabilities in near future.
There is huge decrease in current assets of hotel group from 99 to 38 which resulted in
decrement of current ratio from 1.43 to .45. A decrease of 1 point can be seen current ratio that
Dalata group of hotel have lost its strong liquidity position in 2017 as compared to 2016. Other
than a fall in current assets there is no major changes in other figures of this calculation such as
prepaid expenses and inventory. A decrease in current assets can be defined as a fall in cash
holdings by hotel group and a tumble in short term investments (Purnus and Bodea, 2015). The
short term investment held by hotel group were also either dis-invested or reached to maturity. A
fall in current assets also resulted in decreasing quick ratio from 1.33 to .034 this was because
there was no change in prepaid expenses and inventory increased by just 2. A standard current
ratio is 2:1 and quick ratio is 1:1. in 2016 company was at good liquidity position but in 2017 it
tumbled down in both ratios. For reaching at that position again Dalata group of Hotel must
increase its cash holdings and with this it also increases its short term investments.
Efficiency ratio:
Interpretation: these are the ratios which reflects efficiency in using assets and liabilities
by Dalata group of hotel for generation of revenues and income (Kazan and Ozdemir, 2014).
This determines efficiency of an organization, as how effectively it is using its assets and
liabilities for generation of high profits. Asset turnover ratio have increased from 0.29 to 0.31
which reflects that hotel group have increased its efficiency in using its assets for generation of
13

revenues. This can be said with the fact that sales revenues have increased from 291 to 348 from
2016 to 2017.
The stock holding period have also increased by 9 from 2016 to 2017. This reflects
movement of average inventory with respect to cost of goods sold, there is an increase in COGS
by 18 but inventory is at same level of 2 for both years. This leads to increase in stock turnover
ratio. Debtor collection period have increased by 2 days which means that payment will be
received 2 days later from previous time of receiving money -payment. Same is case with
accounts receivable period it has increased from 171 to 183, this means that payments made to
creditors after 12 days from previous period. In 2016 it was made in 171 days and in 2017
payment are made to creditors in 183 days.
From the above ratio analysis, it can be concluded that Dalata group of hotels have
gained good position in profitability as there is an increase in revenue, all profit margins and it
using all its assets and liabilities efficiently to generate income. But along with this it has lost its
liquidity position and does not hold much cash and short-term investments. Payment time to
creditors and collection time from debtors both have increased.
TASK 4
P4.1 Sources of funding for development of capital projects
Sources and distribution of capital project funding:
 Governments: The government always have interest in development of all the industry
of the nation along with tourism sector. Government allocates budgets, provides capital
assistance along with subsidies to carry on the capital projects, development of
infrastructure, tourist destination etc.
 Developments and commercial banks: Loans are disbursed from development banks
for promotion and development of tourism sector. The commercial banks also render
assistance by giving loans and advances to organization in tourism sectors for distribution
in the capital project for its enhancement.
 Overseas investors: This comes in from of foreign direct investment in the tourism
industry. This is invested from foreign nation through bank and other overseas
organization, government grant in order to develop tourism in the nation.
Enclosed in leaflet
14

15
Sources of funds for capital project
various sources of funds
National lottery commission: In UK, the lottery is governed and
operated by national lottery commission and it is authorized by
government. In this data is regulated by DMSR (department of
media and sport regulation). The amount of lottery winning with
this department are used for great causes. In UK is used for
development of cycles paths and footpaths.
Regional development funds: these are the funds invested by
European union for infrastructural developments. These funds are
used for improvement of bridle ways and road and connectivity of
remote areas.
Introduction: for a nation main attraction and major source of revenue
generation is tourism. People around the globe come to visit nation with
a history and geographical beauty. For continue generation of revenue
with an increment continuous effort for its development and
improvement are required by government. In 2018 a capital investment
of 1.18 GBP is expected to be made for tourism industry.
European social funds: funds are allocated
for betterment and improvement of tourism
one such project was taken by railway
board, it started new community rail which
goes through heritage sites of UK in order to
explore heritage of nation.
Overseas investors: This comes in from of
foreign direct investment in the tourism industry.
This is invested from foreign nation through bank
and other overseas organization, government
grant in order to develop tourism in the nation.
Developments and commercial banks: Loans are disbursed from
development banks for promotion and development of tourism sector. The
commercial banks also render assistance by giving loans and advances to
organization in tourism sectors for distribution in the capital project for its
enhancement
Governments: The government always have interest in development of
all the industry of the nation along with tourism sector. Government
allocates budgets, provides capital assistance along with subsidies to carry
on the capital projects, development of infrastructure, tourist destination
etc

CONCLUSION
From the above report it can be concluded that financing and funding are essential in
travel and tourism. The report has covered about cost, volume and profits of Carnival plc which
further helps in decision making process. It covers about various sources of funding and
allocation of resources. In this report, we have analyzed various sources of funding for
development of capital projects. Method of forecasting helps Dalata group to predict future and
make budgets to earn profit. The report ends with interpretation of financial accounts by
calculation of ratios.
16

REFERENCES
Books and Journals
Badulescu, D. and et.al., 2015. Rural tourism development and financing in Romania: A supply-
side analysis. Agricultural Economics/Zemedelska Ekonomika. 61(2).
Baker, T and et.al., 2016. Policies on the move: The transatlantic travels of Tax Increment
Financing. Annals of the American Association of Geographers. 106(2). pp.459-469.
Castaño-Isaza, J., and et.al., 2015. Valuing beaches to develop payment for ecosystem services
schemes in Colombia’s Seaflower marine protected area. Ecosystem services. 11. pp.22-
31.
Dzhandzhugazova, E.A., and et.al., 2015. Methodological aspects of strategic management of
financial risks during construction of hotel business objects. Asian Social Science. 11(20).
p.229.
Everett, H., Simpson, D. and Wayne, S., 2018. Tourism as a river of Growth in the Pacific; A
Pathway to Growth and Prosperity for Pacific Island Countries.
Hingtgen, N. and et.al., 2015. Cuba in transition: Tourism industry perceptions of entrepreneurial
change. Tourism Management. 50. pp.184-193.
Jong, R., 2017. The Impact of New Accounting Standards for Leases and Revenue Recognition
on the Real Estate Strategy of Listed Hotel Firms.
Kallala, R. F and et.al., 2015. Financial analysis of revision knee surgery based on NHS tariffs
and hospital costs: does it pay to provide a revision service? The bone & joint
journal. 97(2). pp.197-201.
Kazan, H. and Ozdemir, O., 2014. Financial performance assessment of large scale
conglomerates via TOPSIS and CRITIC methods. International Journal of Management
and Sustainability. 3(4). p.203.
Lunt, N., Horsfall, D. and Hanefeld, J., 2016. Medical tourism: A snapshot of evidence on
treatment abroad. Maturitas. 88. pp.37-44.
Purnus, A. and Bodea, C. N., 2015. Financial management of the construction projects: A
proposed cash flow analysis model at project portfolio level. Organization, technology &
management in construction: an international journal. 7(1). pp.1217-1227.
Seetanah, B. and Sannassee, R.V., 2015. Marketing promotion financing and tourism
development: The case of Mauritius. Journal of Hospitality Marketing & Management.
24(2). pp.202-215.
17

Yin, Y., Yu, Z. and Jiang, Z., 2018. Research on the Financial Service System for Development
of China’s Cruise Industry. In Report on China’s Cruise Industry (pp. 195-222).
Springer, Singapore.
Online
Community rail. 2018. [Online]. Available through:
<https://www.gov.uk/government/news/new-1-million-competition-to-boost-rail-
tourism>.
18