Finance for Travel and Tourism Assignment

Running head: FINANCE FOR TRAVEL AND TOURISM
Finance for Travel and Tourism
Name of the Student:
Name of the University:
Author’s Note:

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FINANCE FOR TRAVEL AND TOURISM
Executive Summary
The main purpose of this assignment is to analyse the market of a travel and tourism company.
The company which is selected for this assignment is The Ultimate Travel Company. The report
will be conducting a marketing research in order to estimate the market condition and comment
whether it will be favourable for the implementation of the expansion plan of the business. The
report will also be containing a Cost-Volume-Profit (CVP) Analysis and estimate the break event
point of the company. The report will be also suggesting the pricing option which is available to
the business. Lastly the report will be concluding with a recommendation and conclusion.

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Table of Contents
Introduction......................................................................................................................................3
Expansion Plan................................................................................................................................3
Market Research..............................................................................................................................4
Financing Options............................................................................................................................5
Analysis of Cost-Profit-Volume (CVP)...........................................................................................6
Pricing Techniques..........................................................................................................................9
Recommendation...........................................................................................................................10
Conclusion.....................................................................................................................................10
Reference.......................................................................................................................................11

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Introduction
The industry of Travel and tourism is flourishing in the developing business environment.
The world is big place where different destination sites are coming up rapidly as the government
of many countries have recognized that the travel and tourism industry brings about foreign
currency in the market and also ensure that the industry provides significantly to the GDP of the
country (Smith 2014). Moreover, it is being seen that more and more people are getting
interested in foreign destination weddings which makes it very favorable for the company
selected. The assignment will be considering various financing options which is available to the
Ultimate Travel Company it pursues its expansion plan.
Overview of the Business
Ultimate Travel company is engaged in the business of providing travel and tourism
services to the clients of the business. The company has operated for more than 26 years and has
acquired a lot of markets in the business. The company has attractive destination packages for
the customers and therefore it is the reason due to which the company is able to retain about 85%
of the customers of the business. The business is considering introduction of new packages of
destination which can be taken as combo offers. This is a strategy for market expansion and the
company is planning to provide for new destination spots to the customers and better facilities in
the business.
Expansion Plan
The current market condition for travel and tourism is quite favorable as the industry is
growing and developing. It is considered that if the management of Ultimate Travel Company is
able to effectively develop and implement the strategies appropriately then the business will
greatly benefit from such an expansion strategy (Shaheen et al. 2014). The plan of the company

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is to further expand its business and add new tour and destination spots for its clients which are
popular among client. The expansion in any new market will be requiring large amount of
capital. In addition to this, the new expansion plan must be prepared in such a way that they
cover all the area and looks into the taste and preference of the younger.
Market Research
The market for travel and tourism is growing at a rapid rate and therefore this serves as
an opportunity to the business to establish the business and gain market dominance. In most of
the countries, travel and tourism Industry contributes significant percentage in the GDP of the
Company (Buhalis and Foerste 2015). A recent study in UK showed that the travel and tourism
Industry of the country provides as much as 6.4% of contribution towards GDP. The thing which
is to be noted here is that the economic cycles and inflationary pressure impact the growth and
development of travel and tourism industry. Another favorable impact of the development of
travel and tourism business is that it brings in foreign capital in the country which is beneficial
for the economy as a whole. The travel and tourism company provide a variety of services such
as lodging and food, travelling for its customers. The contribution of travel and tourism industry
in the market of UK as per a research case study is shown bellowed:

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2012 2013 2014 2015 2016 2017
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0% 6.6%
4.2%
1.5%
4.8%
5.3%
6.4%
GDP Contribution in UK
Figure 1: (Chart showing Contribution to GDP by Tourism Industry)
Source: (Created by Author)
From the above chart, it is clear that the contribution which is provided by travel and
tourism industry is quite significant in UK. Similarly, in most of the countries the contribution of
tourism industry is more or less the same which proves that the travel and tourism industry as a
whole is at a growth phase and thus Ultimate Travel Company needs to take advantage of the
situation. It is to be noted that the travelling and vacation plans of most of the people takes place
in the year end or beginning of the years and this is considered as the season for travel and
tourism industry. In addition to this, the revenue which is earned by the business also increases
when there is an occasion or event which is nearby which requires family and friend’s reunion
such as Thanksgiving, Christmas. There has also been an increase in the number of destination
wedding which are taking place which also increases the revenue of the business.
Financing Options
Any new plan of the business needs to have financing in order to make the
implementation of the plan effective. In case of Ultimate Travel Company, the management of

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the company needs to decide which source of capital is to be used for the purpose financing the
expansion plan of the business. The various options for financing which the company has
available with it are given below in details:
 Venture Capital: In this method, capital is provided by investors to finance projects or
bear start up costs of a projects which has a potential of earning returns in the long run.
Such type of capital is mostly on a long-term basis and is provided on the viability of the
project (Cumming and Johan 2013). This is a very useful method of sourcing of finance
as the amount is provided on the potential of the project and in this case the expansion
plan.
 Angel Investor: These are the person who provide long term capital for the purpose of
start up of a business or expansion of a business. However, such capital is provided by
the angel investor in exchange of debt capital or convertible equity (Bammens and
Collewaert 2014).
 Bank Loans: The most suitable option which is available to Ultimate Travel Company is
to apply for a long-term loan from banks. The amount of loan which will be taken will be
of a considerable amount and therefore it must be taken for a long-term.
 Private Equity: In this situation the company has to go to a private institution or a
financial institution for the purpose of acquiring capita; from such an institution. This is
also a form of equity capital which the business has acquired from a private source
(Bloom, Sadun and Van Reenen 2015).
Analysis of Cost-Profit-Volume (CVP)
The analysis of CVP is essential in determining the breakeven point on the basis of cost
and volume of the product. The breakeven point of the business will be considered on the basis

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of Breakeven sales and Breakeven for customers. The analysis is very useful when it comes to
the decision-making process for any development or expansion plan. The analysis takes into
consideration fixed costs, variable costs and selling price which enhances the relevance of the
analysis in decision making process (Lin, Wang and Qiao 2013). The components of fixed costs,
variable costs and selling price of a product is crucial in the decision-making process about the
performance of the business.
In the case of Ultimate Travel Company, the analysis of CVP and its results can be relied
upon if the results do not vary within a certain level of production. This method which forms a
core part of the analysis with the help of which the company can estimate the breakeven sales
which the business needs to achieve in order to achieve the growth level which is expected from
the expansion plan. With the help of CVP analysis, the business would be able to anticipate the
contribution margin and the profitability of the services or packages which is provided by the
business (Ryzhova et al. 2015). In addition to this, it is a general requirement that the
contribution margin needs to be more than the fixed cost which is incurred by the business so
that the expansion plan as formulated by the business can be successful. Moreover, the
contribution margin is useful in computation of break-even point and break-even sales (Hill and
Alexander 2017). This could be obtained by dividing the overall fixed costs by the ratio of
contribution margin. The various assumptions which are taken for the CVP analysis which is to
be conducted are given below in a table format:
Basic Assumptions:
Particulars Units

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Average revenue per customer £ 80
Average variable cost per customer £ 35
Contribution margin per customer £ 45
Incremental fixed cost £ 20,000
Number of customers 1,000
As per the basic assumptions which are taken in the above table are based on judgements.
The average revenue per customers is estimated to be £ 80 and the average total cost which is the
summation of the average variable cost and incremental fixed costs are also depicted in the table
above. The calculation for the same is also demonstrated in a table which is given below:
Break-even calculation:
Particulars Units
Revenue £ 80,000
Total variable cost £ 35,000
Contribution margin £ 45,000
Incremental fixed cost £ 20,000
Total profit £ 25,000
Break-even (in customers) 444
Contribution margin ratio 56.25%
Break-even (in sales) £ 35,556
The number of customers is estimated to be 1000 and therefore the revenue comes by
multiplying average revenue per customer with the total number of customers. Similarly, the
costs associated with the business are also calculated in the same way. The contribution margin
is calculated to be 56.25% and the breakeven in customers is 444 customers and that of sales is £
35,556. In case of a breakeven sales there is no profit no loss situation prevalent as shown in the
table above.
An example of different period fixed cost, revenue, variable costs and profits are depicted
in a chart format which is given below:
Revenue Contribution Fixed cost Profit

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£ 20,000 £ 11,250.00 £ 20,000 -£ 8,750.00
£ 40,000 £ 22,500.00 £ 20,000 £ 2,500.00
£ 50,000 £ 28,125.00 £ 20,000 £ 8,125.00
£ 60,000 £ 33,750.00 £ 20,000 £ 13,750.00
Revenue Contribution Fixed cost Profit
-£20,000
-£10,000
£-
£10,000
£20,000
£30,000
£40,000
£50,000
£60,000
£70,000
Chart Title
Series1 Series2 Series3 Series4
Figure 2: (Chart showing components of CPV Analysis)
Source: (Created by Author)
Pricing Techniques
Pricing Techniques are those techniques which are used to determine the prices which are
to be charged on a product (Adetiloye and Eke 2014). The various pricing techniques available to
the business are given below:
 Full Payment: In this technique, full amount of fee is provided to the company before
receiving the services from the company. This method is used by some companies
engaged in Travel and tourism business.

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 Profit Percentage: In this method, a certain percentage of profit is added to the overall
costs which is due for the trip. The percentage of profit which is added to the cost figures
of the company is estimated on the judgement of the company.
 Advance Payments: As per this technique the client will be liable to pay a certain
amount of expenses as advance to the company when they book trips. The advance
payment method can be used by business in order to receive part payment for the trip
from the customers.
Recommendation
The recommendation which can be given to the management of the Ultimate Travel Company
regarding the expansion plan are given below:
 The business should move forward with its plan of expansion of business and improve
their destination packages further.
 The management should choose venture capital as a source of financing as it is less risky
and very popular source of financing.
 The management should choose advance payments as this will not only be easier for the
management for early collection of money and also convenient for the customers.
Conclusion
From the above discussions it is clear that, the market is quite favorable for the growth
travel and Tourism Industry. The management of Ultimate Travel Company must consider the
expansion strategy which is formulated by the business which deals with getting more
destination spots for the customers and introducing better offers for the customers. The company
should move ahead with its plan to expand and for the purpose of such expansion plan the
management need to acquire funds which are necessary for expansion plan. The company should

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choose venture capital funding as it is a secure source of funding. In addition to this, out of the
different pricing options which are available to the company, the company has selected advance
payment system.
Reference
Adetiloye, K.A. and Eke, P.O., 2014. A Review of Real Estate Valuation and Optimal Pricing
Techniques. Asian Economic and Financial Review, 4(12), pp.1878-1893.
Bammens, Y. and Collewaert, V., 2014. Trust between entrepreneurs and angel investors:
Exploring positive and negative implications for venture performance assessments. Journal of
Management, 40(7), pp.1980-2008.
Bloom, N., Sadun, R. and Van Reenen, J., 2015. Do private equity owned firms have better
management practices?. American Economic Review, 105(5), pp.442-46.
Buhalis, D. and Foerste, M., 2015. SoCoMo marketing for travel and tourism: Empowering co-
creation of value. Journal of Destination Marketing & Management, 4(3), pp.151-161.
Cumming, D.J. and Johan, S.A., 2013. Venture capital and private equity contracting: An
international perspective. Academic Press.
Hill, N. and Alexander, J., 2017. The handbook of customer satisfaction and loyalty
measurement. Routledge.
Lin, C., Wang, S. and Qiao, Z., 2013. Product Profitability Analysis Based on EVA and
ABC. International Journal of Business and Management, 8(12), p.73.
Ryzhova, L.I., Nikolaeva, L.V., Kurochkina, N.V. and Lebedeva, M.E., 2015. Optimization of
Methods and Systems for Strategic and Operational Management Accounting in Agricultural
Enterprises. Review of European Studies, 7(8), p.119.

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Shaheen, S.A., Martin, E.W., Cohen, A.P., Chan, N.D. and Pogodzinski, M., 2014. Public
Bikesharing in North America During a Period of Rapid Expansion: Understanding Business
Models, Industry Trends & User Impacts, MTI Report 12-29.
Smith, S.L., 2014. Tourism analysis: A handbook. Routledge.