Financial Management and Funding in Travel and Tourism Sector

This report provides a detailed analysis of finance and funding within the travel and tourism sector. It begins with an introduction to financial management, emphasizing the importance of cost and volume analysis, and explores various pricing techniques, including bundle pricing, competition pricing, and psychological pricing. The report then delves into factors determining profitability, such as cost of services, environmental factors, and currency exchange rates. It further examines management accounting information utilized in the tour and travel industry, including variance analysis and budgetary control, using The Fulham Shore plc as a case study. The report also covers funding and sourcing for travel and tourism capital projects and concludes with a discussion of the key takeaways from the analysis.

FINANCE AND FUNDING IN
THE TRAVEL AND TOURISM
SECTOR

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1.1Costs and volume analysis significance in financial management....................................1
1.2 Pricing techniques used tourism travel and sector...........................................................4
1.3 Factor determining profitably in tourism sector...............................................................7
2.1 Various management accounting information utilize in tour and travel industry............9
2.2 Use of Management accounting information in major decision making.......................12
3.1 The Fulham Shore plc's financial statements.................................................................15
Liquidity ratio.....................................................................................................................17
4.1 funding and sourcing of travel and tourism capital project............................................17
CONCLUSION..............................................................................................................................21
REFERENCES..............................................................................................................................22
APPENDIX....................................................................................................................................24
Yearly financial statement of Fulham Shore plc's................................................................24

INTRODUCTION
Financial management is techniques of arranging, organizing, governing and controlling the financial activities. In this branch
of management, manager makes decision to acquiring and best utilization of financial resources. Funding and finance are two
approaches to gain money in financial management. Finance is process of availing the financial resources for organization from
market, Where, funding is amount renders by an organization. Tourism industry depend on both option to acquire the financial
assistance. For firm's specific capital need, travelers arrange money by their own. But, when is huge amount needed they make efforts
for funding.
Present study describes the pricing strategy, cost analysis and management accounting system used in Carnival Corporation &
plc's decision making. Report also cover interpretation of The Fulham Shore plc's financial and type of sources and funding use for big
capital investments. Carnival Corporation plc Is a big name among leading traveling operators. Its net income is 17.5 billion (2017).
Restaurants are possessed run by The Fulham Shore plc's.
1.1Costs and volume analysis significance in financial management
CVP is a cost accounting tool which measure impact of different level of cost and volume on business's probability. It
measures breakeven point for varies cost and volume. It helps manager to take tactical and short-term decision. This technique gives
best result only when fixed cost of production remains same with different production quantities. Theory has assumptions like changes
in expenses are transpired because of increase and decreased level of production. It is pre-assumed that all produced quantity is sold
(Schaltegger and Zvezdov, 2015). Price per unit also remain same as well as cost per unit also constant. Contribution margin is the key
calculation done in CVP. Contribution margin is profit amount which is available in hand before deducting the fix cost.
CVP use fixed and variable cost both in assumption. According to CVP variable cost remain same for per unit but it gets
changes due to level of activity. The more is produces, the more is Variable cost occur. Variable cost also known as direct cost of
production like raw material, electricity, wages and supervision charges etc. Fixed cost is continual in nature, which is not affected by
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production volume. Volume is number of unit produced, when manager know the cost of produce specific unit, then calculated the
cost of desired production become easy.
Contribution margin= revenue – variable cost
Advantage of CVP:
 CVP help in determining of breakeven point. BEP assist manager in financial and production planning. Manager can make
efforts to increase production and reduce cost in order to maintain the probability (Said, 2016).
 It renders, close up of different activities like cost and amount of prediction. These snap shots help manager to predict required
amount of future variable alternative.
 Performance evaluation and controlling action can be taken on time.
 Required sale volume can be measure to achieve certain profit margin and amount.
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Sources: (Cost Volume Profit (CVP) Analysis,2019)
 Various taxes can be including in profit chart, which help in calculates incorporate tax for multi fold service and product, Like
Carnival Corporation & plc's earn sales form render accommodation as well as transportation facility given by it to tourism.
So, company can easily get the amount which it has to pay as income tax on both revenue by using CVP.
 CVP provide aid to measure risk associated with cost and volume.
 Carnival Corporation & plc's enable to practice most suitable and best cost, volume and profit combination (Huang and et.al.,
2015). This matching render point of safety, fair pricing, profit maximization and competitive advantage.
 Manager develop budget for different level of production and select the most money-making product and service.
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Ill
ustration 1: CVP graph

 CVP helps in trend analysis by providing changes in production for different period.
1.2 Pricing techniques used tourism travel and sector
Travel and Tourism industry is one of the most cost sensitive sectors. Its price gets fluctuate because of speedy and frequent
changes in variable cost. Common factor impact service industry pricing are cost, competitor’s strategy, Commissions, judicial factor,
demand and supply, currency exchange rate, rack rate, seasonality, degree of marketing efforts, pricing objective, product
differentiation, firm's and product's like cycle phase, economic condition and Channel intermediaries (Mattila and Gao, 2016).
Carnival Corporation and plc has to increase its service price for last Minute reservation because cost of acquiring service in short
time span, are generally expensive. Environment factor and consumer behavior also contributes in pricing policy.
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Bundle pricing
It is the most widely pricing policy use in tourism industry. In this approach numerous product and service is offered to
customer in single agreed price. Like Carnival Corporation and plc render food, accommodation and transportation facility in tour
package. This approach Is most suitable pricing, where customer need complimentary good along with main service.
Competition pricing
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Illustration 2: Pricing approaches
(Sources: diagram of Pricing Strategies,2019)

In this techniques company priced its product according to its competitor pricing policy. In tourism sector customer can easily
switch their buying decision form another, so organisations try to retain its existing buyer by rendering them market prevailing price.
Firm also, target to transform its potential buyer into existing one (Schaltegger and Zvezdov, 2015). If company set low price
compared to competitor, it will raise question on quality of service. And, if high price is quoted, definitely customer will switch.
Psychological pricing
It is also known as charm pricing. Here, price is quoted slightly less than rounded figure. There is an assumption behind this
strategy, that people do consider odd digits as lower number than actual. Carnival Corporation & plc uses £499 instead of £500.
Company use this pricing when it wants to grab quick attention of buyer and to induce sale in occasion like New Year or Christmas.
Penetration pricing
Here, low price are offers to buyer for new service and product. Company use it when it wants to increase awareness for new
arrival. An existing company follow this price when it brings innovation in existing service.
Economical pricing
It is used to target medium income level segment or when economy is in its dark phase. In adverse economy condition, people
have less disposal income in hand. Lower income force them to avoid luxury expenses, which eventually affect the sale of tourism
organization. To solve this issue Carnival Corporation & plc cut down its non-essential expenses so that cost can be control.
Controlled cost leads to reasonable and lower pricing to buyers.
Cost led pricing
In this pricing strategy, Carnival Corporation & plc adds some profit margin in cost. It is a conventional method of pricing.
Like cost of transpiration for specific tour is £111 and for another trip is £172, in such case company obviously put a higher price for
second tour.
Market led pricing
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In this competitor-based pricing, company offer price to its customer after comparing the existing price with market privileging
price. If Carnival Corporation & plc adopt high price for same product (competitor's product), then customer can switch their buying
decision.
Contribution pricing
It is profit maximization tool, in which price of the production is determined as per its contribution to cover the fix cost.
1.3 Factor determining profitably in tourism sector
An organization's profit margin, is not only affected by general macro factor(PESTLE) but by industry specific elements as
well. Following are the influences which impact the tourism retain earning:
Cost of complimentary service
Accommodation, food facility, transportation cost (airways, waterways and railways) are the basis supportive services in
tourism sector. In case cost of these facilities raises, it would lead to compromised profit. For instance, Carnival Corporation & plc
promote its new tour package in £2500 but airline ticket cost now raises from £333 to £555, Which shrink its profit from £2167 to
£1945.
Environmental factor
Favorable environment dimensions render smooth service deliver, conversely adverse climate condition would enhance the
variable cost. For instance, Carnival Corporation & plc has to facilitate medical aid, safety measurement and equipment and
precaution tools to tourism in flood, earthquake, volcano eruption, hurricane and land slide condition. This safety tools increase the
cost (Margaretha and Supartika, 2016). Apart from it company now has to pay higher amount to avail basic service in such upset
environment.
Distribution cost
Large distribution channel renders low profit margin, where narrow distribution facilitates comparatively higher margin.
Tourism sector also have wholesaler and retailer. Some organization's own service direct from wholesaler and sale in to customer,
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where some are purchase product from retailer and sale to tourist. Carnival Corporation & plc should use wholesaler distribution
system to receive high marginal profit.
Value of currency
Currency exchange rate are bother in outbound tours. If domestic country's currency has high value, it will beneficial for
company. In case domestic currency's value is less, company has to pay more amount to avail the service. For instance, Carnival
Corporation & plc (UK) is at profit side when it sale its tourism packages to US people because currently 1 British Pound is equal to
1.29 US Dollars.
Seasonality and location
Carnival Corporation & plc earn more on boom season like in New Year and Christmas people have enough time for outing,
which eventually can be seen as increased sale. And, more sale volume expands the possibility of enhanced profit too. Tourist are
ready to pay high charges for exotic location. And, an expensive tour package render opportunity to company to earn high profit
margin.
Political factor
People make tour plan for relaxation, so they prefer peaceful and safe places to visit. Political instability can cause visa
problem and terrorism. Like middle east countries currently facing the Taliban terrorism, people avoid such sensitive place. It
eventually lowers the sale volume.
Current trend
This is the most prominent factor in tourism industry, people want to follow the trend to show up among their peer and friend
group. Like earlier tourist choose adventures tour but now they inclined towards nature tours as nature tour are followed by large
group of community.
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2.1 Various management accounting information utilize in tour and travel industry
Management accounting is also known as cost accounting. This branch of accounting system aimed to choose the best in
among alternatives. It accommodates manager to prepare effective policies, planning, evaluates the operational performance and
taking corrective action on time. Area covered in management accounting are Operational Budgeting, Cost-Volume-Profit Analysis,
MIS, Capital Budgeting, Incremental Analysis and cost variance analysis(Collier,2015). Cost accounting information also help in
trend analysis, inventory valuation, budget compliance and discover the cause of errors. The Fulham Shore plc practices following
accounting techniques
Variance analysis:
It is widely used techniques to control the cost. In this method actual operational performance is compared with planned
performance. Ample gap between actual and targeted outcome is taken into consideration for corrective actions. Narrow difference
indicates efficient utilization of resources. Type of different variance are Purchase price, labor rate, variable overhead spending and
direct material variance (Butterfield, 2016). For instance, The Fulham Shore plc practices set standard expenditure on avail the
transportation service is 555 per individual package, but in reality, company has to spend 888. Reason of increased cost can be hike in
fair. (hypothetical example).
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Budgetary control
Budget is a technique to issue money and set target for specific objective. Budgetary control is the techniques of utilization of
budget statement to evaluate and control the operational cost. An ideal operational budget of tourism company contains sales volume,
overheads, supportive, service cost, transportation cost, administrative cost, Service tax and other expenses. Cash flow budget
maintain the cash inflow- cash outflow management. Manager of The Fulham Shore plc also make Program budget. This budget is
made for particular activity and program like marketing research, promotional program and training and development cost. To get
effective result, a manager should use different budget for different purpose because every business activity is different from each
other in nature.
Management information system
MIS is a software, which collect data and information from multiple online sources then analyses the given data and make key
reports to facilitate business decisions. It is a central information system which render real time information to each department. It
retrieves data from functional unit of organization and give performance result to manager. MIS also compare the planned and actual
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Illustration 3: specimen of variance analysis
(Sources: Fixed Overhead Variance Analysis,2018)