Hotel Industry Performance Analysis

This assignment examines the performance of two businesses in the travel and hospitality industry: CC Plc, a tour operator, and Dalata Hotel Group Plc. The analysis involves evaluating their financial positions using metrics like profitability, liquidity, solvency, and efficiency. It also explores factors influencing profit margins for CC Plc, such as seasonality and trends, and suggests strategic recommendations for both companies, including competitive pricing and leveraging economies of scale.

Finance and Funding in Travel and Tourism Sector

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
TASK 1......................................................................................................................................3
1.1 Explaining the importance of cost and volume in the context of financial management
pertaining to Carnival Corporation & plc..............................................................................3
1.2 Analyzing pricing methods that can be used under travel and tourism...........................4
1.3 Assessing factors that affect profit margin of travel and tourism businesses..................5
TASK 2......................................................................................................................................6
TASK 3......................................................................................................................................6
3.1 Interpreting financial statements of Dalata Hotel Group Plc for the year ended on 2015
& 2016....................................................................................................................................6
CONCLUSION........................................................................................................................11
REFERENCES.........................................................................................................................13

INTRODUCTION
In the current times, travel and tourism industry of UK is growing significantly and
makes remarkable contribution in the economic growth & development. Thus, for attracting
high tourism companies operating in such sector needs to make focus on the aspects of
effective financial management. This in turn enables firms to invest funds in the innovative
practices and achieve success by influencing more visitors. The present report is based on the
case situation of Carnival Corporation & Plc which is recognized as the world’s largest
leisure travel company. Such business unit has built and maintained effectual portfolio of
cruise brands in several areas such as North America, Europe and Australia. In this, report
will entail the manner in which cost and volume aid in financial management. Further, report
will shed light on the factors which have an impact on the profitability of travel and tourism
units. It also provides information about the extent to which financial position Dalata hotel
has improved over the time frame.
TASK 1
1.1 Explaining the importance of cost and volume in the context of financial management
pertaining to Carnival Corporation & plc
For the purpose of effective financial management company must have information
about cost aspect. Determination of cost is highly significant which in turn further assists
Carnival Corporation & Plc in setting suitable prices. Specifically, there are mainly two types
of costs which business unit incur for ensuring smooth functioning of the business operations
and function such as:
Direct cost: Carnival Corporation & Plc incurs several direct costs for managing
business operations such as raw material, hotel rents etc. Hence, it refers to the expenditures
that are completely attributable to the production of specific products or services (Moutinho
and Vargas-Sanchez, 2018).
Indirect cost: This cost is not directly attributable to the object or particular function
but business unit has to incur the same for ensuring smooth functioning of operations. Hence,
indirect expenses can be further divided into two parts such as fixed and variable in the
following manner:

 Fixed cost: It implies for the one that remains fixed at each output level. In other
words, fixed cost is the one that does not change with an increase or decrease in the
level of output produced or offered. Hence, fixed costs associated with the Carnival
Corporation & Plc include promotional expenses, salaries of personnel etc.
 Variable cost: Such cost includes expenses that vary as per the level of input. On the
increase in the number of services offered such cost enhances to the significant level
(Titman, Keown and Martin, 2017). In the context of Carnival Corporation & Plc,
variable cost includes promotional, administration as well as selling & distribution
expenses.
Cost and volume are the main elements that ensure effective financial management in
the travel and tourism sector. Both such factors are inversely related with each other which
mean cost level decreases on the incline in volume. Hence, by doing break-even analysis
travel firm can assess the number of tour packages that it needs to plan for attaining the
situation of no profit and loss (Burtonshaw-Gunn, 2017). Besides this, CVP analysis also
provides high level of assistance in determining the number of customers or individuals to
whom tour package needs to be offered for getting the desired level of profit margin. Apart
from this, when travel companies including Carnival Corporation & Plc operate at large level
then it gets high economies of scale. Moreover, business unit gets discount and enjoys
reduction which takes place in fixed cost when tour packages are offered to the large number
of customers. Thus, Carnival Corporation & Plc should make focus on enhancing volume
which in turn helps in enhancing the level of profit margin.
1.2 Analyzing pricing methods that can be used under travel and tourism
Price determination is highly significant and required in the case of profit making
business unit. Moreover, price includes both costs of services and profit margin that firm
wants to earn via its offering. Hence, there are several method that can be used by Carnival
Corporation & Plc for setting appropriate prices of the offerings such as:
 Cost-plus pricing method: This is one of the simplest methods that CC Plc can
employ for price determination. On the basis of such pricing method, company needs
to assess unit cost of offerings. By dividing total expenses from number of offerings
unit cost can be determined (Long and Shi, 2017). Hence, by adding desired profit
margin, pertaining to each customer, CC Plc can set suitable price.

 Competitive pricing: In the present era, customers become price conscious in nature
and prefer to purchase tour packages from the service provider which offers quality
services at suitable price. Along with this, some customers also do comparison of
prices with the quality of services (Barr, 2018). Hence, by reviewing the pricing
policies and frameworks of competitors CC plc can take suitable decision. In other
words, by setting prices in line with the competitors firm can influence more visitors.
 Marginal pricing: In accordance with such method, emphasis is placed on selling
products or services at a price which covers manufacturing cost rather than overhead.
The main benefit of such pricing method is that it helps in determining lower price
point which in turn helps in enhancing demand.
 Absorption pricing: Using such pricing method, both variable and proportion of all
fixed cost is considered while setting prices of the services (Tan and et.al., 2017). On
the basis of this, full cost is charged to the product or services. However, profit is not
necessarily factored into the price.
Referring overall evaluation, it can be presented that competitive pricing strategies prove
to be more beneficial for CC Plc. By setting prices according to the competitors business unit
can enhance customer base and generate suitable margin.
1.3 Assessing factors that affect profit margin of travel and tourism businesses
Attainment of high margin is one of the main objectives of business unit behind carry
out activities and functions. Moreover, enough profit margins ensure smooth functioning of
the operations and enables firms to explore activities by investing money in profitable
opportunities. In the context of CC Plc, there are several factors which have direct and
significant impact on the profit margin of travel & tourism businesses such as:
 Variations in seasonal aspects: Seasonal fluctuations are considered as the biggest
factor which has an impact on both sales and profit margin. Usually, people prefer to
visit outside places during vacations and when weather is pleasant (Li, Yao and Xu,
2017). Thus, changes which take place in weather conditions closely affects profit
margin of CC Plc.
 Current trends: Now, innovation becomes the key of organizational growth and
success. Moreover, customers prefer to spend money in the tour packages that are
unique and provide them with amazing experience (Melis and Piga, 2017). Thus,

failure of the company in relation to the compliance with current trends regarding
innovation, luxury and quality of services places adverse impact on profit margin.
 Bad debts: Level of bad debts take place within the firm closely influences its profit
margin or level (Arbelo and et.al., 2017). The main reason behind high bad debt is
liberal credit policies undertaken by CC Plc. Hence, in the case of ineffective credit
policy company will suffer from the situation of fewer profit margins.
 Ineffective planning: Effectual management of financial resources are highly needed
for the generation of high profit margin. Hence, if CC plc fails to invest money in
suitable investment projects or opportunities then it may result into low profit margin.
 Staff: In the service sector, profit margin of the company highly depends on the skills
and abilities of staff. Hence, if personnel of CC plc are not highly able to plan
innovative tour packages then it negatively affects revenue and margin.
 Political environment: For promoting tourism, political parties also take several
initiatives now days regarding promotional, maintenance of heritage sites etc
(Veretekhina and et.al., 2017). Hence, if government authorities lay low emphasis on
promotional aspects then business units have to spend money which in turn reduces
the level of profit margin.
TASK 2
Enclosed in power point presentation.
TASK 3
3.1 Interpreting financial statements of Dalata Hotel Group Plc for the year ended on 2015 &
2016
Ratio analysis is the process that business units undertake for comparing and
examining information contained in final accounts. Hence, such quantitative tool provides
high level of assistance in evaluating business performance from several perspectives such as
profitability, liquidity, solvency etc. Thus, measuring business performance in quantitative
terms Dalata Hotel group plc can take suitable measure for future improvements.
Ratio analysis of Dalata Hotel Group Plc for the year of 2015 & 2016 is as follows:
Profitability ratio analysis

Particulars Formula 2015 2016
Gross profit 139 181
Net profit 22 35
Sales revenue 226 291
GP ratio Gross profit / net sales
* 100
61.5% 62.2%
NP ratio Net profit / net sales *
100
9.7% 12%
2015 2016
61.50% 62.20%
10% 12%
Profitability ratios
GP ratio NP ratio
Figure 1: GP and NP margin
The above depicted graph shows increasing pattern in the profitability aspect both
gross and net. In the accounting year 2016, GP margin of Dalata increased from 61.50% to
62.20% significantly. Along with the sales, COGS also inclined from 87 to 110 GBP million
which is the main cause behind slow growth takes place in GP margin. Hence, hotel unit
needs to develop strategic framework that exert control on direct expenses and thereby
enhances the level of profit margin. Further, NP ratio of the firm moved from 9.70% to 12%
significantly (Dalata hotel group Plc, 2018.). Increasing trend of net profit margin is the
result of reduction in interest expenses, high sales and moderate level of sales, general &
administration expenses. Thus, for the enhancement of sales revenue Dalata should focus on
undertaking promotional aspects or campaign. Besides this, budgetary control techniques
should be undertaken for controlling direct as well as indirect expenses and thereby

increasing profit margin. Overall, profitability of the hotel unit has improved over the time
frame.
Liquidity ratio analysis
Particulars Formula 2015 2016
Current assets 162 99
Stock 1 2
Prepaid expenses 3 5
Current liabilities 57 69
Current ratio Current assets / current
liabilities
2.84 1.43
Acid test ratio CA – (inventory +
prepaid expenses) / CL
2.77 1.33
2015 2016
2.84
1.43
2.77
1.33
Liquidity ratios
Current ratio Quick ratio
Figure 2: Current and quick ratio
It can be presented from the outcome of ratio analysis that liquidity position of Dalata
was good in both the concerned years such 2015 & 2016. In 2016, current ratio of decreased
from 2.84 to 1.43. This in turn considered as good indicator because high or excess working
capital management closely influences profitability of business unit. The rationale behind
this, when firm retains more money with itself then it loses profit associated with other
investment opportunities. Further, quick ratio of the hotel unit was also high in FY 2015 &
2016 as compared to ideal ratio such as .5:1. Thus, Dalata should focus on maintaining

current assets except prepaid expenses and stock in line with the ideal measure or standard.
Referring the current position, it can be stated that such hotel unit was highly capable in
relation to meeting obligations.
Solvency ratio analysis
Particulars Formula 2015 2016
Long term debt 250 265
Shareholders’ equity 537 620
Debt-equity ratio Long term debt /
shareholders equity
.47 .43
2015 2016
0.41
0.42
0.43
0.44
0.45
0.46
0.47
0.48
0.47
0.43
solvency or debt-equity ratio
solvency or debt-equity
ratio
The above depicted table shows that debt-equity ratio of the company was .47 and .43
respectively (Dalata hotel group Plc, 2018.). On the basis of capital structure theories
company should issue 2 equities in against to 1 debt. Referring such ideal ratio, it can be
depicted that capital structure of Dalata hotel group plc is optimal. Performance outcome
shows that business unit has ensured proper integration between debt and equity which in
turn entails that solvency position is good.
Figure 3: Debt-equity ratio
Efficiency ratio analysis
Particulars 2015 2016
Assets turnover ratio
(in times)
.39 .31

Inventory conversion
period (in days)
4.08 5.26
Creditors payment
period (in days)
38.58 42.33
Assets turnover ratio (in times) Inventory conversion period (in
days) Creditors payment period (in
days)
0.39
4.08
38.58
0.31
5.26
42.33
Efficiency Ratio Analysis
2015 2016
Figure 4: Efficiency ratio
Assets turnover ratio of Dalata declined from .39 to .31 times which in turn exhibits
that hotel unit failed to generate enough sales from the combination fixed and current. Thus,
for making optimum use of assets Dalata hotel group plc needs to come with the sound
strategic and policy framework. Thus, firm should focus on organizing training session for
personnel. This in turn enables them to perform activities more efficiently and thereby make
optimum use of assets. In addition to this, stock turnover period inclined from 4.08 to 5.26
days. It shows that company was taking more time in 2016 for selling and replacing its
inventory. Thus, for effectual stock management firm should focus on undertaking methods
such as EOQ etc which in turn helps in reducing cost and enhancing the level of profit
margin. Along with this, creditors payment period also inclined from 39 to 42 days which in
turn recognized as good indicator and it places positive impact on working capital. Hence, for
improving performance in area of efficiency Dalata needs to make focus on assets and
inventory management.

Investment ratio analysis
Particulars 2015 2016
Earnings per share
(EPS)
.14 .19
2015 2016
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0.2
0.14
0.19
Earnings per share (EPS)
Earnings per share (EPS)
Figure 5: Investment ratio
Column graph depicted above shows that in the accounting year 2016 high profit was
allocated to the outstanding shareholders. The rationale behind such increasing trend that
profit margin of Dalata was inclined in 2016 over the past years.
Conclusively, it can be mentioned that performance of Dalata, in quantitative terms,
has improved over the time frame. For strengthening financial position company should take
effectual action that enhances both assets and inventory turnover ratio (in times).
CONCLUSION
It can be summarized from the above report that CC Plc can attain high economies of
scale by offering travel packages or tour services to the large number of visitors. Further, it
has been articulated that CC Plc should focus on undertaking competitive pricing strategy
which in turn helps in attracting more customers. Besides this, it can be inferred that
seasonality, current trends, planning etc are the main factors that influences profit margin of

CC plc. Every year several inbound and global customers visit London for seeing its beauty
as well as making their vacations memorable. Thus, by placing emphasis on effectual
planning CC Plc can get the desired level of profit margin. It can be seen in the report that
monetary position of Dalata Hotel group Plc was good in 2016, as compared to prior years,
from several perspectives such as profitability, liquidity, solvency and efficiency.

REFERENCES
Books and Journals
Arbelo, A. and et.al., 2017. Cost and profit efficiencies in the Spanish hotel industry. Journal
of Hospitality & Tourism Research. 41(8). pp.985-1006.
Barr, M. J., 2018. Budgets and financial management in higher education. John Wiley &
Sons.
Burtonshaw-Gunn, S. A., 2017. Risk and financial management in construction. Routledge.
Li, S., Yao, Y. and Xu, L., 2017, August. Evolutionary game analysis of online travel agency
and hotels' pricing strategy. In Grey Systems and Intelligent Services (GSIS), 2017
International Conference on (pp. 306-311). IEEE.
Long, Y. and Shi, P., 2017. Pricing strategies of tour operator and online travel agency based
on cooperation to achieve O2O model. Tourism Management. 62. pp.302-311.
Melis, G. and Piga, C. A., 2017. Are all online hotel prices created dynamic? An empirical
assessment. International Journal of Hospitality Management. 67. pp.163-173.
Moutinho, L. and Vargas-Sanchez, A. eds., 2018. Strategic Management in Tourism, CABI
Tourism Texts. Cabi.
Tan, S. H. and et.al., 2017. The impact of the dimensions of environmental performance on
firm performance in travel and tourism industry. Journal of environmental
management. 203. pp.603-611.
Titman, S., Keown, A. J. and Martin, J. D., 2017. Financial management: Principles and
applications. Pearson.
Veretekhina, S.V. and et.al., 2017. Current Trends Influencing the Competitiveness of
International Tourism. Journal of Advanced Research in Law and Economics. 8(2 (24)).
pp.658-669.
Online