Financial Management in Travel and Tourism

The assignment involves analyzing the financial statements of DALATA hotel group to understand its growth and profitability in the travel and tourism sector. It includes interpreting the company's financial accounts for two years, highlighting significant trends such as exceptional growth in EPS, increased profit margin, and substantial increase in book value.

FINANCE AND FUNDING
IN TRAVEL AND TOURISM

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
1.1 Significance of cost and volume in financial management of travel and tourism................1
1.2 Pricing methods used in travel and tourism sector................................................................2
1.3 Factors influencing profit for travel and tourism..................................................................3
TASK 2............................................................................................................................................4
Covered in PPT...........................................................................................................................4
TASK 3............................................................................................................................................4
3.1 Financial statement of Travel and tourism sector.................................................................4
.....................................................................................................7
TASK 4............................................................................................................................................7
Covered in Leaflet.......................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Travel and tourism industry is one of the most rapid growing industries across world.
Most people now a days want to spend their leisure time in travelling around the world. This has
led to development of this industry (Buhalis and Darcy, 2011). It is important for all countries
around the world because it has become a major source of earnings for them and it brings money
and development to those countries. In this report we will consider the different pricing methods
used by various companies operating in travel and tourism sector to gain customers, grow
business and also cost volume profit analysis of business firms. The major sources of funds and
companies are growing their fund base to boost their business growth. The company that is taken
into consideration in this report is Carnival Corporation Plc. which is popular in travel and
tourism sector in North America, Australia and and Europe.
TASK 1
1.1 Significance of cost and volume in financial management of travel and tourism.
Carnival Corporation is a reputed company in travel and tourism sector and is well-
known for its services to customers in North America, Europe and Australia. There are various
other ancillary sectors which have developed overtime because of growth in travel and tourism
sector like beverages, hotel, food, etc. There are various costs involved in tourism industry which
are discussed as follows:
 Direct cost: It is the cost which can be determined by looking at the product or service
itself. It is the main cost that is involved for production of any goods or services.
Example of direct cost can be price of labour and raw material used in the manufacturing
of any goods or services.
 Indirect cost: These are the costs which cannot be ascertained by looking at the product
itself (Choi and Turk, 2011). These costs incur indirectly while providing goods and
services and are important because without it, a product or a service cannot be completed,
examples of such cost can be Overheads.
 Variable cost: These are costs which change as per the size of company increases or its
production capacity from year to year. Example of such cost can be cost of raw material
to be used for the production or salary paid to individuals.
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 Fixed cost: These are costs which remain fixed irrespective of output of afirm. Example
of such cost can be the price incurred by Carnival Corporation on machinery and
building.
 Allocation and Apportionment: The overhead or indirect cost incurred by company is
allocated to the concerned department. However, if such department to whom the cost
should be allocated cannot be ascertained properly, it should be apportioned to all the
departments on a suitable basis (Gibson, Kaplanidou and Kang, 2012).
 Break-even analysis: This analysis informs company about how much units exactly the
company should sell in order to break even to its cost. It is a no profit-no loss situation
for company. The break even analysis report can be generated on monthly, quarterly and
yearly basis.
 Economies of scale: When a company increases its business operations, it reaps the
benefit of economies of scale because various costs of factors of production goes down.
Carnival Corporation’s motive is to expand its business operations in a way which would
reduce it’s per unit cost.
 Diseconomies of scale: As size of operations of company goes up, it also faces certain
diseconomies of scale which would include lack of communication and co-ordination in
between the staff people (Heung, Kucukusta and Song, 2011). Carnival corporation is
spreading its business worldwide which leads to increase in its work force and it has
become difficult for company to effectively manage them.
1.2 Pricing methods used in travel and tourism sector
Travel and tourism industry is a rapidly growing sector and in order to sustain in the
growing competition, Carnival Corporation has to reconsider its pricing strategies and should
select the one which provides customers value for money in order to retain them for longer term.
Various methods of pricing which can be considered by company are as follows: Rack rates: This is the full rate before any discounts are applied. These rates are usually
provided to wholesalers and are printed on the brochure that are being provided to them.
These rates change based on the market demand. Last minute pricing: It is another way of pricing in which last minute inventory is
considered for discounting daily prices according to forward bookings and promoted on
last minute booking websites.
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 Seasonal pricing: There are different seasons for travelling on which customers want to
travel, these are called high, low and shoulder seasons. The company also considers this
type of pricing technique to make the services and products more effective. Discounting: It is the most common way of attracting customers. In this, a discount is
given to the customer on MRP of service (Papatheodorou, Rosselló and Xiao, 2010). This
is generally offered to gain customer loyalty and to retain them for longer term. Such
pricing method can lead to reduction in the profitability of company.
 Package deals: A package of complimentary services bundled with main service which
is given to customers for attract and retain them. It can be a good pricing strategy in case,
when there is a lack of demand for necessary services.
Other methods of Pricing
The other methods of pricing that are available can be described as follows:
Market oriented method: In this method, company fixes the prices of its goods and services
according to the prices that are prevailing in market. This company relies on market demand and
let market to fix price. It can be beneficial for company as it does not have to come up with a
pricing strategy and just have to follow the market demand.
Cost oriented method: Under this, business firms fixes the price of its services according to the
cost incurred by company in production of that service. To arrive at the sale price, the cost
incurred is added with a predetermined profit margin. There is a win-win situation for both
company and customers, as from this customers will get a fair price and the company also will
gets desired profit margin on its cost.
1.3 Factors influencing profit for travel and tourism
Travel and tourism sector is influenced by various internal and external factors which
affects its profitability. Proper analysis of these factors allows them to attain their aims and
objectives. Carnival corporation takes into account these factors and frames policies accordingly
to attract customers with their schemes and packages. Example of such factors which influence
the profitability and sales are festival time, special event etc. These factors are described in
details as follows :
Festive season : A tourism company like carnival corporation prepares well for the festive
season as it is the the peak business season for the company and the company would like to
increase its sales as much as possible in this festive season.
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Income : Tourism and travel is not a necessity for any individual it is just another way to spend
leisure time, Hence high income individuals are considered to be more frequent customers of the
company than low income groups ( Sharpley, 2016).
Technology : Tourism sector is also influenced by the advancement in technology, it has resulted
in better communication and transportation facilities available to customers. Internet has allowed
customers to book their tickets online and as per their demands and specifications without any
delay.
Leisure Time : People want to travel in free time that they get from their high paced life. Leisure
time is increasing people has understand the requirement of taking break from their busy life and
enjoying. This has resulted in growth of this sector.
Foreign exchange rates : The rate of currency prevailing in the market will have an impact on the
decision of the consumer whether to travel or not ( Spenceley, 2012). People of countries who do
have a weaker domestic currency are mostly reluctant to travel abroad in developed countries as
it would be costly for them, this decreases demand and hence profitability of the company.
Terrorism : Profitability of the company is also affected by terrorist activities in countries.
People don't like to travel into places where terrorist activities are high which affects sales of the
company.
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TASK 2
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TASK 3
3.1 Financial statement of Travel and tourism sector
The main aim of the financial statement is to know the financial position of the company
and the profitability that the company is generating from its business operations. There are
various ratios which depicts companies performance efficiency. The Maldron hotel is one of the
brand owned by the DALATA hotel group (Swarbrooke and Horner, 2010). The brand has done
exceptionally well between 2015 and 2016. An analysis of its financial statement for the
particular period is as follows:
BALANCE SHEET 2015 2016
Fiscal Year Ends 31/12/15 31/12/16
Assets
Non Current Assets
Intangible 34.5 46.32
Tangible 476.17 704.81
Investments 0.02 0.01
Other 4.53 5.67
Total 515.22 756.81
Current Assets
Stock 1 1.55
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Debtors 8.68 13.55
Cash and Securities 109.93 69.21
Total 119.6 84.31
Held for Disposal 0 0
Total Assets 634.82 841.12
Liabilities and Equity
Liabilities
Current 41.45 58.75
Non-Current 197.38 252.81
Total 238.82 311.56
Equity
Share Capital 372.15 431.02
Reserves 23.85 98.54
Shareholders Funds 396 529.56
Minorities 0 0
Total 396 529.56
Total Liabilities and
Equity 634.82 841.12
Net Borrowings 177.58 197.02
Investment Ratios
Net Tangible Asset
Value Per Share 196.03 259.95
ROCE 6.77 7.23
ROE 6.7 7.28
Net Gearing 44.84 37.21
Gross Gearing 49.53 45.2
Cash 4.69 8
Interest Cover x 6.12 8.75
Quick Ratio r 2.86 1.41
Current Ratio r 2.89 1.44
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2015 2016
Fiscal Year
Ends 31/12/15 31/12/16
Net Tangible
Asset Value
Per Share p 196.03 259.95
Profitability
Operating
Margin % 23.28 22.47
Profit Margin % 19.7 20.1
ROE % 6.7 7.28
ROCE % 6.77 7.23
Financial
Health
Net Gearing % 44.84 37.21
Gross
Gearing % 49.53 45.2
Dividend
Cover x 0 0
Interest
Cover x 6.12 8.75
Quick Ratio r 2.86 1.41
Current
Ratio r 2.89 1.44
Growth
DPS Growth % - -
Norm EPS
Growth % 247.31 19.42
Reported % 262.82 47.48
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EPS Growth
Cash Flow
Cash Flow
Per Share p 19.87 30.36
CAPEX PS p 13.96 48.61
From the above financial statement, It can be observed that the company has seen
exceptional growth in the year 2016 as compared to the year 2015, The per share EPS of the
company has grown from 19.87 to 30.36. This shows growth in profitability of the company. The
profit margin of the company have increased by .40%. In absolute terms the profits of the
company has grown by 65 million Euro which is a very good number for the company (Tribe,
2015). There is a substantial increase in the book value of the company from 196 to 259 euro. It
is a increase of around 63 euro in only one financial year. Thus all these financial indicators of
the company depicts higher growth and profitability in the travel and tourism sector.
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TASK 4
Covered in Leaflet
CONCLUSION
It has been concluded from the above given report that travel industry is one of the most
developing sector in all over the world. It gives its contribution in increasing economic level of
United Kingdom country. Under this given report studied about the significance of volume and
costs in financial management of travel and also tourism. Under this discussed about an
interpretation of the financial accounts of DALATA hotel group and its performance level of two
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years. Travelling firms doing their business for providing employment opportunities to the local
people and also give better destination places to tourist.
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REFERENCES
Books & Journals
Buhalis, D. and Darcy, S. eds., 2011. Accessible tourism: Concepts and issues. (Vol. 45).
Channel View Publications.
Choi, H. C. and Turk, E. S., 2011. Sustainability indicators for managing community tourism. In
Quality-of-life community indicators for parks, recreation and tourism management (pp.
115-140). Springer, Dordrecht.
Gibson, H. J., Kaplanidou, K. and Kang, S. J., 2012. Small-scale event sport tourism: A case
study in sustainable tourism. Sport management review.15(2). pp.160-170.
Heung, V. C., Kucukusta, D. and Song, H., 2011. Medical tourism development in Hong Kong:
An assessment of the barriers. Tourism Management.32(5). pp.995-1005.
Papatheodorou, A., Rosselló, J. and Xiao, H., 2010. Global economic crisis and tourism:
Consequences and perspectives. Journal of Travel Research.49(1). pp.39-45.
Sharpley, R., 2006. Travel and tourism. Sage.
Spenceley, A. ed., 2012. Responsible tourism: Critical issues for conservation and development.
Routledge.
Swarbrooke, J. and Horner, S., 2001. Business travel and tourism. Routledge.
Tribe, J., 2015. The economics of recreation, leisure and tourism. Routledge.
Online
REPORTS, RESULTS AND PRESENTATIONS. 2015. [Online]. Available through;
<http://dalatahotelgroup.com/investors/reports-and-presentations/?date=2017>.
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