Finance and Funding in Travel and Tourism: A Comprehensive Analysis

This report delves into the crucial aspects of finance and funding within the travel and tourism industry. Using case studies of Carnival Corporation & plc and Dalata Hotel Group plc, it explores the importance of costs, volume, and profit in financial management, analyzes pricing methods, and examines factors influencing profitability. The report further investigates the types of management accounting used in the sector, assesses the use of management accounting information for decision-making, and interprets the financial accounts of Dalata Hotel Group plc. Finally, it analyzes sources and distribution of funding for capital projects associated with tourism development.

Finance and funding in travel and tourism
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Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................4
P1.1 Explains the importance of costs and volume in financial management of travel and
tourism businesses using Carnival Corporation & plc as your case study...................................4
P1.2 Analyse pricing methods used in the travel and tourism sector. You should use relevant
examples from different cruise brands of Carnival Corporation & plc.......................................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...............................................................................................................................................9
P2.1 Types of management accounting in travel and tourism business.......................................9
P2.2 Assess the use of management accounting information as a decision-making tool for
Dalata Hotel Group plc..............................................................................................................11
TASK 3..........................................................................................................................................12
P3.1 Interpret financial accounts of Dalata Hotel Group plc for the year ended 31st December
2017............................................................................................................................................12
Task 4.............................................................................................................................................15
P4.1 Analyse sources and distribution of funding for the development of capital projects
associated with tourism..............................................................................................................15
Conclusion.....................................................................................................................................18
Reference.......................................................................................................................................19
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Introduction
In Carnival Corporation & plc, the Cost-volume-profit analysis is an important tool for
enhancing decisions in their business activities. It offers the management of Carnival
Corporation & plc with detailed and objective methods that can be utilized in the assessment and
prediction of the course of the organization's business. This is for the benefit of both the
organization and its employees. The cost-volume-profit is important in the decision-making
process of Carnival Corporation & plc. It offers solutions to the various realistic questions that
are essential in the analysis of the business. Questions like the breakeven point of Carnival
Corporation & plc can help the organization's management to determine the success or failure of
the organization as regards to the future expenses and production. For example, if the
management is able to realize this breakeven point, it can then make the necessary amends so as
to cut down on the costs while amassing the production and hence the profitability. Cost-volume-
profit is basically based on models of statistics. This makes it possible to break down the
decisions into probabilities that can then make the decision-making process much easier.
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Task 1
LO1- Understand the importance of costs, volume and profit for management decision-
making in travel and tourism
Introduction
Cost plays a significant role in the business strategy for tourism and travel industry. This sector
provides services and hence there intangible elements like the facilities being provided by the
company or the way firm treat its customers which can be utilized as a differentiating factor.
Numerous travel companies charge exorbitant prices for their premium services. Therefore, the
company should be well acquainted with the service they provide to the customers and are
clients willing to pay for the service. This sector is very competitive, so to stay on top of the
game balance between the service and cost
There are various ways of coming up with the price of the service. Companies can utilize the
contribution concept, standardized costing or utilize any costing method. In addition to the same
token, this company has flexible costing where the expenses change depending on the demand
and supply and the period left to provide the service. As the deadline approaches rates tend to go
high for such companies. Cost can be determined depending on the nature, function and products
of the services being provided by the company.
To explain the concept of cost, Carnival Corporation & plc has been taken as an example to aid
in the explanation of the concept. In this case, the company follows the contribution pricing with
some tweaking. The firm charges higher costs for premium costing method and also it has a
flexible pricing system. The firm, Carnival Corporation has a high fixed cost of the planes and
the fuel. Therefore the pricing in this industry is flexible and also influenced by external factors.
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P1.1 Explains the importance of costs and volume in financial management of travel and
tourism businesses using Carnival Corporation & plc as your case study
Importance of cost in the financial management of travel and tourism business
Cost Reduction- The costs are the most significant factor to be considered in an enterprise as
they give cost reduction in the firm and nets huge profit to the business. The expenses can be
increased or reduced depending on the requirements of the business (Middleton et al, 2009).
Therefore the costs manage the financial account of the firm.
Enhancing management performance- The management performance can be enhanced if
adequate management is undertaken by the company for the growth and success of the business
organization.
Designing and managing financial structure- The financial structure is managed and designed
with various costs of tourism and travel activity.
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P1.2 Analyse pricing methods used in the travel and tourism sector. You should use
relevant examples from different cruise brands of Carnival Corporation & plc.
There are various forms of volume in the business. Businesses like tourism and travel the volume
analysis is of great importance:
Economies of scale- Tourism and travel enterprises can save the costs by utilizing economies of
scale.
Break-even analysis- It is the process in which the business determines the point where it will
cover its expenses. For tourism and travel, it is a crucial aspect to factor in the business to
analyse the break-even point to estimate the expense covering period.
Diseconomies of scale- In the business like tourism and travel, the analysis of the volume should
be undertaken to know how the business is operating (Xiang, 2015).
Different pricing techniques utilized in tourism and travel business.
Seasonal pricing- All through the whole year there are different seasons which include; high
season and low season. The seasonal pricing varies depending on the seasons and is based on the
tourists’ visits in that particular season.
Discounting- these are the rates which are based on the discounts offered to the tourists.
Rack rates- these are full pricing which does not include offers or discounts, and every expense
is described by the business its totality. These rates are indicated in printed brochures and are for
the whole season.
Last-minute pricing- these are the different rates of the tourism and travel business which vary
depending on the last-minute booking or forward bookings. The firm needs to work out the
pricing depending on the bookings (Backer, 2017).
Commission- This is an amount charged on the grounds of booking done by the third party.
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Package deals are the pricing method of the tourism and travel business depending on different
facilities given in the package to the tourist. This is the commonly used pricing method, and it’s
the most effective compared to other pricing techniques.
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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.
There are different factors which impact or influence the profit of the tourism and travel
enterprises, below are well-explained points:
Seasons- different seasons affect the profits of tourism and travel business as this aspect
describes the normal season and high/peak season welcomes the travellers in high seasons the
most to maximize the profits accordingly
Events- The events influence the tourism and travel industry profits as the event can trigger a
multitude of people to show up thus increasing profits. The event prepared and organized by
Carnival Corporation & plc aims at attracting tourists as well as profits.
Currency rates- The currency variation from country to country affect the profits. In Dalata Hotel
Group plc, the firm has several tourists from different countries thus have different methods of
payments and rates, therefore, maximising the profits.
Terrorism- terrorism attack on the area of business has severe if not long-term effect pushing
down the profits significantly.
Natural calamity- Tourist tend to avoid place which has had natural disasters before making this
factor big influence on the business and has a huge negative effect (Cliff & Page, 2015).
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Task 2
P2.1 Types of management accounting in travel and tourism business
Management accounting encourages the management to gather and deal with all the inside
working of the information time to time so that if any issue emerges then it can be illuminated
with no default. This is imperative as every one of the defaults, blemishes or whatever another
perspective that would influence the business is basically broke down before any punishment
(Zare, 2015). Distinctive kinds of management accounting are as per the following.
To be competitive tourism and travel sector need to utilize management accounting information.
It’s necessary for a company to understand its expenses like its equity, assets for it to arrive at
the best pricing during their decision-making. In the recent research done, it indicated that there
had been instances where a firm is unable to determine the real cost thus causing the company to
use incorrect pricing strategy which ultimately led to failures of the company (Mironiuc, et. Al.,
2015).
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Spending report-This is the report which is made with the motive to segreagate all the expendes
and be recorded at the aprticular area with the motive to earn profit. This is essential for the
success of the business as business grows with the better managmmenet (Hopper et.al, 2016).
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P2.2 Assess the use of management accounting information as a decision-making tool for
Dalata Hotel Group plc
A firm needs to understand its arithmetic of evaluating the expenses, and the best way of doing
this is by analyzing its accounting information accurately. The company can analyze its
liabilities, its assets, and its equity and critically compute these in the balance sheet of the
company. The analysis of the expenses can do by utilizing management accounting information.
The results would be used to arrive at the pricing during decision making.
Tourism and travel sector have seasonal sales mostly. Therefore, a firm should be prepared by
having a robust budget which aids the company incorporating seasonality. A company needs to
be very prepared during the times of the year when the sales are at their peak, and more tourists
or customers are anticipated to utilize the firm’s facilities and services
A well-drafted budget can aid the company receive ideas about the anticipated sales in the future
and how the company can get up their game to operate with the expected increase in the sales of
the firm. In addition to the same not but from a different perspective, it is necessary for the
company not to invest much and be cautious of low seasons during the year. Key to keeping your
customers, the company should never lack resources to serve the customers; it can lead to a bad
reputation of the company. Therefore budgeting is very significant for a company like Dalata
hotel group who are operating in the business of tourism and travel. An example of this can be
well-illustrated from the Dalata hotel group. Normally during the holiday season, people go on
vacation abroad, and travel industry sees numerous bookings. The firm is supposed to be
preparing prior anticipating such scenario different seasons during the year. A company has
various options to raise capital for distinct reasons. These options are majorly classified as
equity, debt and hybrid. Below, in each of the subtopic, there are various options available to the
company with the aid of which it can raise money.
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TASK 3
P3.1 Interpret financial accounts of Dalata Hotel Group plc for the year ended 31st
December 2017.
Interpretation of the financial ratios: The financial ratios are divided into solvency ratios,
liquidity ratios, efficiency ratios and investment ratios. There are three ratios of liquidity which
have been taken into consideration. First ratio Current assets subtract inventories divided by
liabilities. Finally, the third ratio is the total cash divided by current liabilities. In the normal
condition, all the three ratios should be 1. If for instance like in our case the current ratio is
below 1 (specifically 0.6) the company needs to work out a way to boost its short-term assets.
There are two ratios in profitability ratios net income margin and operating profit margin. The
net income margin is 2.8%, and the operating profit margin is 6.4%. This percentage is less, and
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the company needs to work on improving the margin. Low margin profits turn out into a very
low profit. Solvency ratios are the long-term ratios. They convey information about the long-
term solvency of the firm. Ratio of debt to equity ratio should be less. In this case, the ratio is
below the red flag level of 2. Interest leverage ratio is utilized to check the capacity of a
company if it can pay the interest with the aid of the operating income. If the ratio here is above
1, it means that the firm can pay its interests comfortably.
The debt ratio is also another ratio. This ratio provides the information to the company whether
the firm assets are enough to pay fully the debt of the company in case of any issues. In the case
of Dalata Hotel, has a ratio of 0.29, it indicates the company has enough assets to cater for its
debts in case there are any issues. Investment and efficiency ratios are another set of ratios. This
ratio provides information to the user can make significant steps to utilize its assets and if the
company is providing enough so that investors can plough back to the company (Xiang, 2015).
Return on capital. The ratio alerts the user to know if the company can make appropriate
utilization of its capital. In this case of Dalata Hotel ratio is 11:26. This seems okay for such
companies although there is still room for improvement.
Return on assets is the total assets by the net income of the company. In this case, the return on
assets is 2.34%which is relatively less. The company needs to find mechanisms and generate
more net income provided by the asset size of the company.
Therefore, we have pointed out different financial ratios and made recommendations in each of
the ratios.
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Task 4
LO4 – Understand sources and distribution of funding for public and non-public tourism
development
P4.1 Analyse sources and distribution of funding for the development of capital projects
associated with tourism.
The industry of travelling and tourism is different from other industries, and therefore managing
and computing finance of such companies is also different. In this case, Dalata Hotel has been
utilized as an example to comprehend dynamics of the industry. It was seen, in the sectors of cost
methodologies, the firm shows how the company utilizes accounting information and how it can
effectively utilize the budget to its costs and probably increase customer experience (Backer &
Ritchie, 2017).
A company is required to keep watch and balance of the two options. In normal circumstances,
equity tends to be more costly as compared to debt. Also, debt has an added advantage because
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there interest payment is tax deductible. Dividends, for equity, are not tax deductible and thus
they are incorporated after net income in the balance sheet (Xiang, et. Al., 2015).
Equity
A firm can raise money by issuing equity to investors; this is if the business is willing to dissolve
its stave. This is the best option for a firm to raise money, as it is less risky than debt
Loan from Bank
Another commonly known source of funds is a loan from a bank. The bank will charge interest
on the loan depending on the past business performance your firm. For instance, a bank can loan
for a short-term purpose that is if your firm’s working capital management has a good overall
credit score.
Bonds
Another rarely preferred source of funding is issuing bonds to the public. Nonetheless, to achieve
this form of funding, investors in the firm should be aware of the firm and independently
reviewed to decide on the interest rate.
Other unconventional sources of funding a firm other than the common one mentioned above
include:
Leasing
Leasing is another option firms widely utilize. This source of funding, the company pays a
regular annual amount to another company on equipment taken on lease.
Hire Purchase agreement
It is more of the same as leasing but the difference come at the end of the contact where the
company is required to buy the equipment. In leasing at the end of the contract, the company has
an option whether to buy the equipment or not.
Asset-based borrowing
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Investors can get funds by borrowing money using their assets.
As highlighted above the two primary means to raise capital are equity and debt. Nonetheless,
piling up debt in the balance sheet increases the riskiness of the company. In case the company
piles up its debt to a particular point it may incur liquidity issues (Moutinho & Vargas 2018).
Debts tend to boost long-term liability of the company and increases the costs specifically
interest payments, although, this expense is tax deductible. In leasing, if the company is
acquiring the lease, then it will depend on conditions and terms of which places the lease as
operating or capital lease it has a different impact on the income statement and the balance sheet.
Operating lease will be like equipment on rent while capital lease will be simply like a debt.
The financial ratios of the firm were analyzed and finally, the distinct funding options available
to the company were computed. Therefore a complete overview of the company was taken.
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Conclusion
An effective management is done regarding the finance and funds of Dalata hotel group and
Carnival Corporation. With the conclusion of this report, it can be consider that finance is
essential in the tourism organization at all levels. This can be undertaken by the companies such
as Carnival Corporation and Dalata Hotel Group. This can be consider that employment
opportunity is also enhanced through proper funding in the tourism sector. As this sector is one
of the fastest growing sector in every manner in the economy. It can also be taken into account
that management accounting should be essential for the better reporting of all the relevant data in
an effective and efficient manner.
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