Finance and Funding in the Travel and Tourism Sector Assignment
Added on 2020-06-04
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Finance and Funding in the Travel andTourism Sector
INTRODUCTIONImportance of managing financial resources in every business is significant. Anorganization can provide better services to their customers but if they fail to manage theirmonetary resources in an effective way then they may need to cope up with various kinds ofhurdles (Evans, Stonehouse and Campbell, 2012). Travel and tourism sector has seen aremarkable growth in the past few decades. Most of the companies of this sector earned hugerevenue as they focused on two areas, that is, is to reduce the cost of business and other isincrement in the sales by expanding enterprise. This report will discuss about the importance offinancial management and its elements. Pricing methods which are used in this industry will alsobecome a part of this assignment. Factors that affect the profit of firms will be explained in thisreport as well. Along with that, use of management accounting system and information will becovered. Further, important ratios and other financial data will be calculated at the end of thisreport with discussion on sources and distribution of funding. TASK 11.1 Significance of cost and volume in travel and tourism sectorProper management of financial resources is essential for gaining long term benefits.Tourism industry has many parts, hotel, tour operations, etc. which are its significantcomponents. Carnival Corporation & plc are operating their business in different countries. (Choiand Turk, 2011). They have a popular cruise brand and they take position of largest travelorganization in the world. Importance of costs and profits are-Indirect cost – The expenses are not related with profit generating tasks. Its examples areadministration expenses, rent, etc. This importance of this kind of expenditure is high becausewithout same, an organisation can provide better facilities to their clients.Direct cost – These are the expenses done on production of goods or services provided tothe customers. Managing this cost in an effective manner is crucial for increasing the profit oforganisation. Purchasing tickets of different travelling places are most suitable examples ofdirect expenses in travelling and tourism industry. Variable cost – These types of expenses fluctuate every year. They can be less in thepresent year but this does not mean that they will not increase in the coming future . This cost4
changes with the alteration in output (John and Susan, 2015). Carnival corporation company paidsalary to staff members is example of this cost. Fixed cost – It does not matter whether the output goes down or up, this kind of cost doesnot change. Rent paid by this company is an example of fixed cost. Whether they provideservices to more people or shrink their operations, this expenditure does not fluctuate.Allocation and apportionment – Overheads are the costs which are not connected withmaterial or direct labour. There are different techniques of allocating expenses. This can bedone by marginal or absorption costing. Initially the fixed cost are not divided in every unitwhich is produced and later they are allocated in every produced unit. Break even analysis – This technique of management emphasise on the units which aresold by firm. Thus could be made monthly,quarterly and yearly. This is a point where companycovers its cost and after the cross of this level they will start earning profit (Morrison, 2013). Economies of scale – When an organisation increases their output, the cost of productiondecreases due to various factors like allocation of different expenses in various units. This iscalled economies of scale. Main reason behind success of company is that they want to reduceexpenses of business and hence they can enhance their outcome.Diseconomies of scale – It is related with increase in marginal costs as output increases .These issues can arise when company cannot manage the employees in proper manner. Forexample if firm reduces speed of one task then they have to maintain pace of another if companyis involved in two tasks. 1.2 Analyse of pricing methods used in travel and tourism sectorDeciding an suitable price is tough activity for many companies. Sometimes firm feelsthat they can charge higher price from customers and in remaining times consumers thought thatprices are high according to their expectations so company have to bear the losses. Through thesepricing techniques, company could earn huge revenue and increase number of their permanentclients: Cost led pricing – This is a traditional concept where they first make total of the costincurred in producing unit or service and then desired profit is added to it for reaching at finalprice (Buhalis and Darcy, 2011). Some brand of Carnival corporation and plc is using this thismethod of pricing, they analyse the cost which is incurred in a cruise trip and then they add5
desired profit for ascertaining the price which they have to charge from their consumers.Carnival corporation brand P & O have followed this pricing method. Price led costing – Now company knows that earning capacity of consumers haveincreased. Evaluation of services can be done through money which buyers can spend. The costwhich is to be incurred is also decided by final price. Some brands of Carnival corporation andplc know that their clients are ready to any amount for better facilities, their method of pricing isdifferent. They first determine the amount which rich clients can pay and then determine the costwhich they are going to incur for providing them desired service. Holland America line isexample of a brand of above discussed firm who is applying this technique. Seasonal pricing – Companies which are running their business under tour and travelindustry cannot charge same prices in all seasons. (Gibson, Kaplanidou and Kang, 2012). Inpeak season ,which can be winter in some nations are summer in other, they charge more moneyform the client because of high demand. But in off season, when the demand is low, they do notask more money money because they know that they will fail to get desired number ofcustomers. Rack rate – This form of pricing is very popular in tourism sector. Under this pricing, anorganisation like Carnival corporation and plc decide office price for their service and it is notlast rate as it can be changed. Contribution margin based pricing – Under this technique price can be calculated throughvariable expenses. Contribution margin can be calculated through differences between fixed andvariable costs per unit. Fixed costs are not considered as they do not changes with level ofoutput. Market based pricing – It is also known as competition based pricing. The prices ofproducts and services can be calculated through market rate of different products. Evaluatingprices of rival are crucial part in this method. (utra and Edwards, 2012). Last minute pricing –In this pricing method there is sell of goods which are existed in lastminutes. This is applied as to fill gap and prices are decided on routine basis. Firms applies thismethod in peak season. 6
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