Financial Management in Travel and Tourism: A Comprehensive Report

This report provides a comprehensive analysis of finance and funding within the travel and tourism sector. It begins by exploring the significance of cost and volume in financial management, including direct and indirect costs, variable and fixed costs, allocation and apportionment, break-even analysis, and economies and diseconomies of scale, with a focus on Carnival Corporation. The report then delves into various pricing methods employed in the industry, such as rack rates, last-minute pricing, seasonal pricing, discounting, and package deals, as well as market-oriented and cost-oriented approaches. Furthermore, it examines factors influencing profit, including festive seasons, income levels, technological advancements, leisure time, foreign exchange rates, and terrorism. The analysis extends to financial statements, using the Maldron Hotel (Dalata Hotel Group) as a case study, including a detailed balance sheet and financial ratios to assess performance and growth. The report concludes with a discussion of the financial health and growth of the travel and tourism sector.

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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