Finance and Funding in the Travel and Tourism Sector: A Comprehensive Analysis

This report delves into the crucial aspects of finance and funding within the travel and tourism sector. It examines the significance of cost-volume-profit analysis, pricing strategies, and management accounting information in the context of Carnival Corporation & plc. and Dalata Hotel Group plc. The report also explores sources and distribution of funding for capital projects associated with tourism development in the United Kingdom.

Unit-2 Finance and Funding in travel and
tourism sector
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Contents
Introduction:...............................................................................................................................3
Task 1.........................................................................................................................................4
P1.1 Analyse the importance of cost and volume in travel and tourism business taking
Carnival Corporation as the case study..................................................................................4
P1.2 Analyse the pricing methods used in the Travel and tourism sector.............................6
P1.3 Analyse factors influencing profit for travel and tourism businesses using Carnival
Corporation & plc. cruise brands as your case study.............................................................8
Task 2.......................................................................................................................................10
2.1 Explain the types of management accounting information that can be used in the travel
and tourism business............................................................................................................10
2.2 Measure the uses of management accounting in the decision making...........................17
Task 3.......................................................................................................................................21
3.1 Interpret financial accounts of Dalata Hotel Group plc. for the year ended 31st
December 2017 showing at least two years performance (for example comparing 2017 to
2016)....................................................................................................................................21
Task 4:......................................................................................................................................27
4.1 Analyse sources and distribution of funding for the development of capital projects
associated with tourism........................................................................................................27
Conclusion:..............................................................................................................................29
References................................................................................................................................30
2

Introduction:
The finance and funding in travel and tourism sector is crucial in order to continue the
efficient and effect8ve operations of the business. The type of industry is exposed to many
risk factor and the profitability is affected by many factors in this sector therefore it is
required to carefully analyse the various sources of funding and the cost of acquiring these
sources as a funding option. The report will help in demonstrating the use of significance of
cost volume profit analysis in the business of travel and tourism and the pricing strategies
which can be adopted can be effectively understood. The second part of the report will
involve a presentation in which use of management accounting in preparing and managing
the report will be analysed. The third part of the report will be associated with interpretation
of financial statements of the company for the year 2017 and the report will also include a
leaflet demonstrating the various sources of funding that can be utilized for developing the
capital projects.
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Task 1
Introduction:
The report will help the users in demonstrating the use of various techniques of cost volume
analysis, pricing strategy in travel and tourism industry and in the company Carnival
Corporation & plc. Which is the travel company operating in United Kingdom for several
number of years.
P1.1 Analyse the importance of cost and volume in travel and tourism business taking
Carnival Corporation as the case study
The technique cost volume profit analysis is the method by which the variability of profit of
company can be recognized and evaluated in reference to the change in volumes and the cost
structure of company. The analysis will provide a detailed description about the cost changes
in regard to change in level of activity for the company. In context of Carnival Corporation &
plc. The same can be utilized for the purpose of deciding the optimum level of activity that
can be performed by the company in order to achieve highest advantage (Peavler, 2017).
Types of costs:
Direct costs – The direct costs in reference to Carnival Corporation & plc. can be associated
with the type of cost that can be directly attributed to a single product or service of the
company in travel and tourism sector. These types of costs will include direct labour utilized
etc.
Indirect costs – These are the type of costs which are associated with producing the products
and services but can’t be directly attributed to a single product or service of the company.
Thus the type of costs has to be allocated based on some reasonable criteria and this will help
in recognising the appropriate costs. Example – Staff Salary, Rent expenses etc.
Cost classification based on cost:
Nature Description
Fixed cost The fixed cost is the type of costs that do not
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change with the change in the level of
production and it remain the same throughout
the period. Example of these costs includes
rent expenses etc (Peavler, 2017).
Variable costs The variable cost refers to the type of costs
that change directly with the change in
volume of production. The same will be
proportionate with the level of activity
performed in the company.
Cost volume profit analysis:
The type of evaluation provides a detailed description about the effect of changes in cost
volumes on the operating income and the net income of the company. It helps in determining
the breakeven point at the various sales volumes and cost structures achieved by the company
and the same can be utilized for the purpose of making decisions in the company. The cost
volume profit analysis includes an assumption that the sales price and the fixed cost and
variable cost will remain constant as per unit.
Application of cost volume profit analysis in Carnival Corporation & plc. – In context of
Carnival Corporation & plc. the evaluation of cost volume profit will help the business
mangers in identifying the breakeven point at which cost and profit will be appropriate and
the same level of activity will be achieved by the company in future.
Breakeven chart:
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(Source – Ready Ratios, 2018)
P1.2 Analyse the pricing methods used in the Travel and tourism sector.
The pricing strategy when adopted correctly will help the company in optimising the prices of
the products and accordingly customer satisfaction and profitability will be increased for the
company. The company Carnival Corporation & plc. is operating in travel and tourism sector
and offers a wide range of cruise brands and products which will help in generating revenues
for the company (Laudon & Laudon, 2016). The business managers need to choose an
appropriate policy which can bring enough revenues for the company while maintaining high
level of standards.
Pricing Strategy Use in context of Carnival Corporation &
plc.
Cost plus pricing The type of costing strategy will include
determining the cost associated with product
and then adding up a suitable margin of profit
that can help the company in achieving
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sustainable success.
Value based pricing The pricing strategy of the company will be
concerned with determining the value of
services or products offered and the
establishing the prices based on those
observations.
Marked led pricing The determination of prices in this pricing
strategy will include considering the various
competitor and market factors and analysing
the prices that are prevailing in the market for
similar products (Peavler, 2017).
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P1.3 Analyse factors influencing profit for travel and tourism businesses using Carnival
Corporation & plc. cruise brands as your case study.
Factors Explanation in context of Carnival
Corporation & plc.
Political factors The political factors in determining the
profitability of company operating in travel
and tourism sector will include the various
legislations and political announcements
which can affect the mind-set of individuals
visiting those places.
Seasonal factors The travel and tourism industry is highly
affected by seasonal variations concerned
with the company and this requires
determining the prices appropriate according
to season.
Social factor The social factors will involve interactions
with colleagues, friends and family members
who an advice regarding the decision of
making plans of travelling (Laudon &
Laudon, 2016).
Current rends The current trends will affect the decision in
a way that customers will opt the attraction
which is currently trending in the company.
Conclusion:
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Therefore it can be concluded that cost volume analysis together with determination of
contribution margin will help the company and business mangers to take important critical
decisions.
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Task 2
2.1 Explain the types of management accounting information that can be used in the
travel and tourism business
10

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The training objectives concerned with introducing management accounting as a management
tool for decision making is associated with taking important decision in this sector and
utilizing appropriate sources of funding.
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The various types of management accounting information will be concerned with providing
adequate and timely information to the management for analysing and evaluating the
performance and position for company.
13

The statement of financial position helps in depicting the position of various assets and
liabilities during the period and assisting users in taking decision about capital items.
14

The statement of profit and loss gives detailed information about the items of profits and loss
incurred to the company during the year and helps in controlling the operations.
15

The budgeting expense of Dalata Hotel Plc. will include channelizing the sources of funding
towards development of new products and providing high quality services in cruise.
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2.2 Measure the uses of management accounting in the decision making
The type of system will help the company in identifying the current position and performance
and based on the observations made above economic decision can be taken correctly.
17

The types of information will assist management in taking decision regarding the source of
distribution and the amount to be expended in order to achieve highest profitability and low
cost of capital.
18

19

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Task 3
3.1 Interpret financial accounts of Dalata Hotel Group plc. for the year ended 31st
December 2017 showing at least two years performance (for example comparing 2017 to
2016).
The financial statements of Dalata Hotel Group plc. are presented below for the year
ending 2017:
Income statement of the year ended 2017:
(Dalata PLC. 2017)
Statement of financial position for the year ended 2017:
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(Dalata PLC. 2017)
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Ratio Calculation:
Profitability ratios:
Analysis –
The profitability ratios of the company for the two years shows that the company has
achieved a sufficient level of profits that are required for sustainable success I the industry.
The return on capital employed is 11% for the year 2016 which has increased significantly to
17% in the year 2017. The return on assets however needs to be optimised as the assets
employed have not been sufficiently used by the company (Pulmanis, 2015).
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Liquidity ratios:
Analysis – The liquidity ratios are concerned with analysing and evaluating the working
capital or cash position of the company and this will require calculation of current ratio and
quick ratio. The current ratio indicates that the company has achieved a sound position in
year 2016 but the major decline has been seen in current ratio which requires company to
invest more capital in current assets (Pratt, 2016).
The quick ratio however has been much lower for the company and the same has to be
increase after increasing the high liquid assets of company.
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Debt ratios:
Analysis – The debt equity ratio shows that the company has employed more equity in the
capital structure of company instead of employing the long term debt in company. The
optimum ratio which is suitable for the company to achieve while operating in this industry is
2:1 and the same will be achieved after employing more long term debt in company
(Pulmanis, 2015).
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Operating ratios:
Analysis – The sales to administrative ratio of the company has been much lower in the
current year 2017 and this has to be optimised for the purpose of acquiring sound operating
position in the market. Thus a suitable policy is required by the company to be implemented
and the same will be associated with optimising the expenses of the company (Pratt, 2016).
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Task 4:
4.1 Analyse sources and distribution of funding for the development of capital projects
associated with tourism.
The development of capital projects helps the economy to grow and earn higher revenues.
The economic growth of the country is concerned with growth in employment as well as
growth in businesses of the country. The travel and tourism sector will thus play a crucial role
in development of economic growth of United Kingdom as the economy is highly dependent
on the travel and tourism industry in UK (World travel & tourism council, 2017).
The development of different types of capital projects in UK will help in attracting the
tourists and making the economy stronger. The projects will include Pedestrian Fingerposts,
tourism information in which will help the visitors in getting accurate information about the
places to visit. There are various kinds of sources that will be required to finance these capital
projects and the section of appropriate source will be dependent on the availability of funds
as well as on the cost associated with acquiring funds. Thus in order to obtain maximum
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advantage the appropriate source depending in the project under consideration should be
chosen by the company.
Private sources – The private sources of funding will be concerned with acquiring funds form
private channels across the country and this will help in obtaining short term as well on term
sources of funding (World travel & tourism council, 2017).
Public sources – The public sources of funding will be associated with obtaining investments
from public funds and institutions and these will help the company to acquire long term
funds.
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Conclusion:
The above report concludes that finance and funding in travel and tourism sector requires
careful use of management accounting tools and techniques which will be supported by
accurate reporting and presentations which are required by managers for decision making
purposes. The use of techniques like cost value profit analysis and pricing policy will allow
the company to optimise the sales transactions and the same will help in achieving highest
profitability. The sue of management accounting in training and setting standards will assist
in achieving high level of performance and reporting. The financial analysis conceding the
form of ratio analyses will help the company in tang important business decisions and this
will also allow the company to set a standardized position in financial terms.
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References
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 Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting:
Vision, Tool, Or Threat?. Routledge.
 Peavler, R., 2017. How to Do Cost-Volume-Profit Analysis - An Introduction. The
balance. [Online]. Also available at https://www.thebalance.com/how-to-do-cost-
volume-profit-analysis-an-introduction-393475. [Accessed on 29-06-2018]
 Peppard, J. and Ward, J., 2016. The strategic management of information systems:
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 Pratt, J., 2016. Financial accounting in an economic context. John Wiley & Sons.
 Pulmanis, E., 2015. Micro-Economical Aspects of Public Projects: Impact Factors for
Project Efficiency and Sustainability.
 Ready Ratios, 2018. Break-even Point. Ready Ratios. [Online]. Also available at
https://www.readyratios.com/reference/analysis/break_even_point.html. [Accessed on
29-06-2018]
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 Stankich, D. B., 2018. Economies of Scale vs. Diseconomies of Scale. Chron.
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 World travel & tourism council, 2017. Travel & tourism economic impact 2017
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