Finance And Funding in Travel and Tourism Sector (Pdf)

Finance and Funding in the Travel and Tourism
Sector

INTRODUCTION
Management process of making any decision is a process of selecting best out of many from set
options. Decision making can be affected by individual emotions and pressure built up by time.
From the given case study of Carnival Corporation & plc. the information about the best
management decision and advices for earning greater profit margins in the business of travel and
tourism are stated briefly (Cabral, Grilo and Cruz- Machado, 2012). This present report is a
detailed study of decision making in the field of tourism. A brief analysis on cost- volume- profit
in hospitality sector is also stated in the present report. Further, analysed pricing methods and
profit influencing factors of the given case study i.e. Carnival corporation & plc.
P1.1 Significance of volume, profit, costs for making decisions in the business tourism.
Relation between three basic elements of any business production; costs, volume, profit,
the evaluation process of these three is known as cost-volume-profit analysis. Hospitality
industry is one of the most dynamic sectors of the economy (Clemen, and Reilly, 2013). There
are mainly three types of costs:
 Direct costs- These are the functions or work that benefit a project of its kind. These are
similar to variable costs; they are directly with the production of output.
 Indirect cost- These costs are similar to fixed costs. They are indirectly accompanying the
output and production function.
 Fixed costs- Fixed costs are those costs which are fixed and do not change with level of
output. It is also known as overhead costs.
Hence, cost is very important element to determine pricing of tourism services provided
by the Carnival Corporation & plc (Elwyn, and et.al., 2012). Cost determines the prices of
packages offered by the company for tourism. Volume in any business is equally important like
volume and cost analysis is conducted to regulate the services to be sold and to how much
number of customers in the business of tourism. Following are some analysis done to prevent
company from suffering losses and to maintain volume of services:
 Breakeven point analysis: It is analysis of a point where business suffers no profit and no
losses, that point is known as breakeven point of any organization (Cabral, Grilo and
Cruz- Machado, 2012).

 Economies of scale: It is a type of cost advantage that an organization obtain due to their
operation of scale which is typically measured by amount of output produced.
From the above two analyses, it is confirmed that the volume analysis is important for
Carnival Corporation & plc. To prevent losses. Cost and volume analysis can help Carnival
Corporation & plc. To retain their profits in business. It is very important as well, in the
hospitality business to implement cost and volume analysis in this dynamic sector of economy.
P1.2 Pricing methods used in tourism sector
An organization has various methods and options for selecting the best pricing method
for their firm (Provost, and Fawcett, 2013). Pricing is based on the three dimensions i.e. demand,
competition and cost. Following are the pricing methods: -
 Cost based pricing: It mentions pricing in which some share of profits are added up in the
value of goods to obtain final price. There are 2 types of pricing based on cost: cost plus
pricing and markup pricing. Cost Plus pricing is also known as average cost pricing in
which a fixed amount of share in total value is added to the overall cost to set the market
value [P=AVC+AVC(M)]. Mark-up percentage means pricing in which fixed share of
cost of goods are added to the price of product.
 Demand Based pricing: Valuing technique in which value of product is finalised
according to its market demand. High market demand higher the prices of the goods,
vice-versa.
 Competition based pricing: Pricing method in which prices are set by considering product
price set by competitors.
 Value pricing: When an organization tries to gain customers and to win their loyalty by
lowering down prices of products with higher rates, this type of pricing is known as value
pricing.
According to the above presented pricing methods; Cost based pricing and value pricing are the
two best type of pricing methods that could be utilised by Carnival Corporation and plc. for
pricing.