Tourism Industry Analysis and Trends

This assignment delves into the multifaceted world of the tourism industry. Students are tasked with analyzing various factors shaping its landscape, such as tourism's impact on inequality, national competitiveness, and the emergence of the sharing economy. The analysis should encompass marketing strategies employed by tourism destinations and explore the operational challenges faced within the travel industry.

Finance and Funding in Travel and Tourism

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................4
a. Defining the concept of CVP analysis and its importance in financial management ............4
b. Analyzing the methods that can be used by CHTC for setting prices....................................4
c. Analyzing the factors that have high level of impact on the profit margin ..........................5
TASK 2............................................................................................................................................6
A. Assessing the different types of management accounting information that can be used by
CHTC for decision making ........................................................................................................6
b. Evaluating the use of investment appraisal techniques in decision making .........................6
TASK 3 ..........................................................................................................................................8
A. Interpreting the financial statements of Thomas Cook ‘........................................................8
TASK 4..........................................................................................................................................11
a. Analyzing the sources of funds that can be used by CHTC to obtain fund or finance ........11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................12

INTRODUCTION
Travel and tourism sector of UK is growing significantly as compared to the before
times. From data evaluation, it has been assessed worth of tourism industry worth of tourism
industry will over £257 billion at the end of 2025. Along with this, travel sector of UK makes
remarkable contribution in GDP such as 9% by offering employment opportunities to the large
number of people. Hence, effective management of fund in tourism sector is highly required to
achieve the aims and objectives(Ambrosie, 2015). The present report is based on Carib Happy
Tours Company (CHTC) which is planning summer holiday trips for the customers. In this, the

present report will describe the financial tools and techniques that aid in the profitable decision
making. Further, report will also shed light on the financial health and performance of Thomas
Cook which is the leading travel firm of UK.
TASK 1
a. Defining the concept of CVP analysis and its importance in financial management
Cost volume profit analysis can be used by an entity to determine the changes in volume
of operating income and net income due to change in cost and volume of product. This analysis
is supported through various assumptions. First of all this analysis theory assumes a constant sale
price per unit as well as it also assumes constant fixed cost(Becker, 2016). CVP analysis is very
useful for the management in order to control the factors which make changes in level of
revenue. The most important part of CVP analysis is that the point where the total revenue of
cited entity is equal to total cost of products which includes both fixed and variable cost. This
point is termed as Break Even Point, which means this is level of sales at which there is no loss
and no profit(Buhalis and Darcy,2011). There are three elements of cost volume profits analysis
i.e. cost, volume and profit. Cost means the expenses which occurred during the production and
selling process of product and services on the other hand volume means total number of units
which an entity manufacture in a certain period and profit is the excess of revenue over total
expenses. The importance of cost volume profit analysis is mentioned below :
 CVP analysis assist an entity to ascertain the contribution margin for the current period.
Contribution is the excess of sales over variable expenses.
 Through it a company can ascertain the its break even points which assist management
of cited entity to get acknowledged of the level at which total expenses get equal to total
revenue of cited entity(Cole and Morgan,2010). That means after that level the
organisation will start earning profit.
b. Analyzing the methods that can be used by CHTC for setting prices
There are different methods through which a firm decides it s price. The marketing
manager decides different techniques for setting up the price. Following are some methods on
which the prices are decided. Mark up price method: This is the most commonly used method for setting up the prices.

In this method the profit margin is added up in the price so the cost can easily be settled
up. Construction business, professions and consumer goods are most commonly fields in
which this method is used. It can only be used when company have a proper analysis
about the cost and the expected future sale(Dwyer, Forsyth and Dwyer,2011). Company
can be fixed upon their cost and also the cost of selling. Perceived value pricing method: The price is totally depend upon the consumer
perceived value for the product. The priority is given on the basis of consumers view.
Firms takes the consumers perception for setting the price not its own objectives. The
price is set on the basis of the market research not on their own will. Going rate pricing method: the pricing is set on the basis of the competitors and that's
why it is sometimes called competition oriented pricing. So the pricing decision is largely
based on competition.
 Target return pricing: it is one of the cost oriented method for setting up the prices. The
firm set that price on which they can earn maximum return. So the ROI is taken as the
base for setting up the prices. So attempts are made for recovering the investment.
c. Analyzing the factors that have high level of impact on the profit margin
There are a number of factors which makes a vital impact over the profit margin of
CHTC hence these factors needs to manage in a way so that these factors will not adversely
affect the profitability of cited entity(Eagles, 2014). Some of the factors which can impact over
the profitability are mentioned below : Level of Sales : level of sales decides the level of revenue as well as the level
profitability(Evans, Stonehouse and Campbell, 2012). Hence management of cited entity
requires to frame such strategies as well as they should employ such techniques in their
operations so that productivity could be increased as well as the level of revenue gets also
high. Variable Expenses : variable expenses are those expenses which changes as per the
change in level of production(Factors that affect business profitability. 2015.). Hence this
will affect the profitability as if the production gets high and variable cost are not
controlled then it will reduce the profit margin of CHTC. Fixed Expenses : Fixed expenses are those expenses which doesn't changes as per the
change in level or volume of production(Forno and Garibaldi, 2015). They remain fixed

hence high volume of production will not affect fixed cost but if the fixed expenses will
gets high then this will reduce the profit margin of CHTC.
 Market price : Profitability is ultimately affected by market price of product. If the total
market price for a product is high then there may be chance of high margin of profit if the
total cost of that product is controlled. But if the market price of any product offered by
CHTC is low as well as there is less control over the total cost.
TASK 2
A. Assessing the different types of management accounting information that can be used by
CHTC for decision making
Management accounting and its techniques assist a person in managing its funds and
available resources in an efficient way so that they can generate better return on investment.
There are different types of management accounting information which can be used by CHTC
for taking decisions : Relevant cost analysis : Managerial accounting information is used by any organisation
for the determination of what to sell and how they should sell it(Gabor, Conţiu and
Oltean, 2012). An accountant needs to analyse that which cost is needed to be controlled
so to control the cost involved in production and selling of products.
 Activity based costing techniques : After getting information about what to sell and how
to sale then the management needs to analyse to whom they should sell out their
products. They can identify various methods through which they produce their goods and
services(Leung, Leung, Bai and Law, 2011). This technique helps an entity to take
decisions regarding the production of goods and services.
b. Evaluating the use of investment appraisal techniques in decision making
Investment appraisal includes wide range of tools and techniques which in turn helps in
evaluating the attractiveness and viability of project. Such techniques include NPV, IRR and
payback period etc which in turn assists in making selection of suitable project. Usually,
investors face difficulty in making selection of profitable project when several other options are

available to them(Mancini, 2012). Thus, CHTC can employ money in the suitable proposal by
making assessment of returns which will be offered by it.
For instance: CHTC has two proposals such as option A and B with the initial investment of
£220000. In this, by evaluating cash flows business entity of CHTC can find most profitable
project.
Computation of payback period
Year Project A
Cumulativ
e cash
inflow Project B
Cumulat
ive cash
inflow
1 80000 80000 75000 75000
2 95000 175000 86000 161000
3 89000 264000 84000 245000
4 105000 369000 98000 343000
5 120000 489000 112000 455000
Payback period:
Project A: 2 + 45000 / 89000
= 2.5 years
Project B: 2 + 59000 / 84000
= 2.7 years
Calculation of Net present value (NPV)
Year Project A PV factor
@12%
Discounted
cash inflows
Project B PV factor
@10%
Discounte
d cash

inflows
1 80000 0.909 72727 75000 0.909 68182
2 95000 0.826 78512 86000 0.826 71074
3 89000 0.751 66867 84000 0.751 63110
4 105000 0.683 71716 98000 0.683 66935
5 120000 0.621 74511 112000 0.621 69543
Total
Discounted
cash inflow
(TDCF) 364334 338845
Initial
investment (II) 220000 220000
NPV 144334 118845
IRR 31.62% 28.05%
From the above calculation, it has been assessed that CHTC will recover the amount of
initial investment within the period of 2 years and 5 months if it selects project A. On the other
side, CHTC has to wait for 2 years and 7 months. On the basis of selection of selection criteria
business unit should select project with less payback period(Morrison, 2013). In addition to this,
NPV and IRR of project A is higher which entails that such proposal will give higher return to
CHTC. In this way, investment appraisal techniques help in making suitable decision regarding
investment.

TASK 3
A. Interpreting the financial statements of Thomas Cook ‘
For this task, Thomas Cook has been selected which is one of the leading travel firm of
UK. It frames highly attractive tour packages and holiday plan by considering the expectation
level of customers(Robinson and et. al., 2016). Such business unit places high level of emphasis
on offering tour packages to the customers at affordable prices.
Ratio analysis of Thomas Cook for the year of 2014 and 2015 are as follows:
Particulars Formula 2014 2015
Liquidity ratios
Current assets (CA) 1829 2035
Current liability (CL) 3894 3702
Stock 34 32
Prepaid expenses 390 317
Liquidity ratios
Current ratio CA / CL 0.47 0.55
Quick ratio
CA –
(inventory
+ prepaid
expenses)
/ CL .36 .46
Profitability ratios
Gross profit (GP) 1868 1772
Sales 8588 7834
Net profit (NP) -118 23
Gross profit ratio (GPR) GP / sales 21.75% 22.62%

revenue
*100
Net profit ratio (NPR)
NP / sales
revenue
*100 -1.37% 1.3%
Efficiency ratio
Net profit -118 23
Capital employed 247 340
ROCE
NP /
Capital
employed - 0.07
Fixed asset turnover ratio
Net sales
/ fixed
assets 11.04 10.03
Inventory turnover ratio
COGS /
inventory 216.08 183.70
Receivable turnover ratio 32.87 34.59
Debt-equity ratio
Sharehold
ers
equity /
long term
debt 3.49 3.49
 Profitability ratios: Profitability ratios- it is one of the types of ratios which analyse the
profitability of the firm(Spencer and Zembani, 2011). It is used by the firm to have an
analysis of a business capability to generate earnings compared to its expenses and other
relevant cost, Incurred during a specified period of time. Some of the examples of
profitability ratios are:

 1. Return on assets – in this profitability is assessed according to the costs and expenses
and then, further analyzed in comparison to assets so that effectiveness of company in
deploying assets
 2. Return on equity- it is the ratio that concerns a company's equity holders the most, as it
measures the ability of earning return on their investments.
 Liquidity ratios- these ratios measures the company's ability to pay debt obligations and
also its margin of safety through the usage of ratios of current ratios , quick ratios and
operating cash flows(Standing, Tang-Taye and Boyer, 2014). These ratios are responsible
to identify the time in which company can pay off the current liabilities.
 Investment ratios- this is an another type of ratio which can be used by the investors to
estimate the attractiveness of a potential or existing investment. it is used by the company
to assess the performance of the shares of company. The ratios which are included in this
are ; price earning ratios, earning per ratios and earning yield.
TASK 4
a. Analyzing the sources of funds that can be used by CHTC to obtain fund or finance
On the basis of the cited case situation, CHTC is planning to construct its own hotel in
Caribbean rather than hiring others. The main motive of firm behind such project is to develop
standardization and maintain or reduce the cost level. For this purpose, business unit can meet its
financial need of requirements in relation to £25 million by taking into account both internal and
external sources are:
Internal sources
 Retained profit: Business unit can also meet monetary requirements by making use of
retained profit. Moreover, with the aim to contingent situation CHTC places high level of
emphasis on retaining some amount of profit with itself. This source of finance will assist
CHTC in generating funds at low cost(Vance, Sibeck, McNulty and Hogenauer, 2011).
However, when business unit makes use of retained profit then it is not in position to

offer dividend to the shareholders which in turn directly influence the image or goodwill
of firm.
 Sales of land, plant & machinery: CHTC can also enhance fund by selling unused assets
at their disposable value such as land & building, plant & machinery etc. Moreover, each
business unit has some assets which are not used by it in the productive activities.
External sources
 Issue of shares: CHTC can generate enough amounts of fund by issuing shares to the
general public. It is the most effectual sources of finance which in turn enables firm to get
funds at low cost. Now, with the aim to make significant value addition in the money
investors prefer to employ money in highly growing venture. Hence, by offering shares to
both existing and potential shareholders CHTC can meet its financial requirements. In
such source business unit pays dividend to the shareholders only when it earns enough
amount of profit(Wong, Mistilis and Dwyer, 2011). However, such source increases the
interference level of customers to a great extent.
 Bank loan: By taking fund from monetary or financial institution CHTC can enhance
fund. Moreover, such source offers high level of benefits to the firm in terms of tax
deductions, easy installment payment system etc. Along with this, now companies are
ready to provide fund to others whose business plan and existing performance level is
sound. Thus, by approaching to the banking institution on the basis of collateral security
CHTC can invest money in the construction project.
CONCLUSION
In this report, from the above mentioned facts and figures it can be concluded that
management should utilize various techniques of management accounting which can be used by
CHTC for managing its available limited sources of finance. Through this they can be ensured
about better return on investment. Entity can use various sources of funds i.e. internal and
external financial sources for the funding of their proposed projects. This report also contains

financial reports of Thomas cook through which a person can analyse the financial position of
cited entity.
REFERENCES
Books and Journals
Ambrosie, L. M., 2015. Sun & sea tourism: Fantasy and finance of the all-inclusive industry.
Cambridge Scholars Publishing.
Becker, E., 2016. Overbooked: the exploding business of travel and tourism. Simon and
Schuster.
Buhalis, D. and Darcy, S. eds., 2011. Accessible tourism: Concepts and issues (Vol. 45). Channel
View Publications.
Cole, S. and Morgan, N. eds., 2010. Tourism and inequality: Problems and prospects. CABI.
Dwyer, L., Forsyth, P. and Dwyer, W., 2011. The travel and tourism competitiveness index as a
tool for economic development and poverty reduction. Strategic Management in
Tourism. pp. 33-52.
Eagles, P. F., 2014. Fiscal implications of moving to tourism finance for parks: Ontario
provincial parks. Managing Leisure. 19(1). pp 1-17.
Evans, N., Stonehouse, G. and Campbell, D., 2012. Strategic management for travel and
tourism. Taylor & Francis.
Forno, F. and Garibaldi, R., 2015. Sharing Economy in Travel and Tourism: The case of home-
swapping in Italy. Journal of Quality Assurance in Hospitality & Tourism. 16(2). pp
202-220.

Gabor, M.R., Conţiu, L.C. and Oltean, F.D., 2012. A comparative analysis regarding European
tourism competitiveness: emerging versus developed markets. Procedia Economics and
Finance. 3. pp. 361-366.
Leung, D., Leung, R., Bai, B. and Law, R., 2011. Asian wave in travel and tourism research.
Journal of Travel & Tourism Marketing. 28(2). pp. 196-209.
Mancini, M., 2012. Access: Introduction to travel and tourism. Nelson Education.
Morrison, A. M., 2013. Marketing and managing tourism destinations. Routledge.
Robinson, P., Fallon, P., Cameron, H. and Crotts, J. C. eds., 2016. Operations management in the
travel industry. CABI.
Spencer, J. P. and Zembani, P., 2011. An analysis of a national strategic framework to promote
tourism, leisure, sport and recreation in South Africa: tourism, leisure, sport and
recreation. African Journal for Physical Health Education, Recreation and Dance. 17(2).
pp. 201-218.
Standing, C., Tang-Taye, J.P. and Boyer, M., 2014. The impact of the Internet in travel and
tourism: A research review 2001–2010. Journal of Travel & Tourism Marketing. 31(1).
pp. 82-113.
Vance, C.M., Sibeck, G., McNulty, Y. and Hogenauer, A., 2011. Building global competencies
through experiential coursework in international travel and tourism. Journal of
International Education in Business. 4(1). pp 30-41.
Wong, E.P., Mistilis, N. and Dwyer, L., 2011. A framework for analyzing intergovernmental
collaboration–The case of ASEAN tourism. Tourism Management. 32(2). pp 367-376.
Online
Factors that affect business profitability. 2015. [online]. Available
through:<https://www.tutor2u.net/economics/reference/strategies-for-improving-
business-profitability>. [Accessed on 6th March 2017].