Financial Analysis: Funding in Travel and Tourism Businesses

This report delves into the critical aspects of finance and funding within the travel and tourism industry, focusing on Carnival Corporation & plc and Dalata Hotel Group as case studies. It explores the significance of cost and volume analysis in financial management, highlighting various cost types (direct, indirect, fixed, variable) and volume analysis tools like break-even analysis and economies of scale. The report also examines pricing methods used in the sector, including cost-led, market-led (skimming and penetration), and marginal cost pricing, alongside factors influencing profitability such as seasonal variations, political and economic environments, and social trends. Furthermore, it elucidates different types of management accounting information, such as financial statements, MIS, budgets, variance analysis, and forecasts, as decision-making tools. Finally, the report analyzes funding sources and distribution for capital projects associated with tourism, providing a comprehensive overview of financial strategies in the travel and tourism sector.

Finance and Funding in Travel
and Tourism

TABLE OF CONTENTS
Introduction......................................................................................................................................1
LO1..................................................................................................................................................2
1.1 Explain the importance of costs and volume in financial management of travel and tourism
businesses....................................................................................................................................2
1.2 Analyse pricing methods used in the travel and tourism sector............................................5
1.3 Analyse factors influencing profit for travel and tourism businesses....................................7
LO2..................................................................................................................................................9
2.1 Explain different types of management accounting information that could be used in travel
and tourism businesses................................................................................................................9
2.2 assess the use of management accounting information as a decision-making tool for Dalata
Hotel Group plc.........................................................................................................................10
LO3................................................................................................................................................11
3.1 Interpret financial accounts of Dalata Hotel Group plc.......................................................11
LO4................................................................................................................................................13
4.1 Analyze sources and distribution of funding for the development of capital projects
associated with tourism..............................................................................................................13
Conclusion.....................................................................................................................................15
References......................................................................................................................................16
Books and Journals....................................................................................................................16

LIST OF FIGURES
Figure 1: Relationship between types of cost..................................................................................2
Figure 2: Break even analysis..........................................................................................................4

Introduction
Finance and funding plays an important role in travel and tourism for its future development and
to increase the footfall of customers. Report will focus on business of Carnival Corporation &
plc and Dalata Group of hotels which provide travel and accommodation services respectively.
Report revolves around understanding the financial tools for management of funds in travel and
tourism. Report will focus on importance of cost volume analysis which will further support to
take effective decisions for business entities.
1

LO1
1.1 Explain the importance of costs and volume in financial management of travel and tourism
businesses
Costs in Financial management in Carnival Corporation & plc.
Cost in an accounting system can be referred to as monetary values of expenses on raw
materials, services, equipments, products, etc. It is basically the value of various products and
services that forms a part of internal system for various business activities and supports decision
making in context to operational activities in Carnival Corporation & Plc. Various types of costs
and its importance is explained below:
Figure 1: Relationship between types of cost
Source: Author
Direct Costs: Cost associated with objects that include activity, function, etc are referred to as
direct cost. In context to Carnival Corporation, direct cost can be defined as the expenses on
products to meet the desired demand of customers (Surbhi, 2015). They are basically leisure
holiday packages that include hotels, transportation, food facilities, etc.
2

Indirect Costs: Cost that is not directly associated with specific product or project rather they
support and benefit multiple costs of the objects. These are the expenses on advertisement that
support promotion of an organization, as well as amount spend on making client portal,
recruitment process, salaries, and many more.
Fixed Costs: The cost that remains constant at various operational levels is known as Fixed Cost.
This includes salary of employees, expenses for maintenance, etc.
Variable Costs: These are referred to as corporate expenses that changes in direct proportion to
the output of quantity. These expenses like profit margins vary when Carnival Corporation & Plc
offer higher salaries and wages to its employees to increase their efficiency. Also the cost of food
products can be increased by observing the high demand of customers.
Allocation and apportionment: Cost allocation is the process in which overhead charges are
assigned to various departments (Becker, 2016). On the other hand, apportionment of cost will
focus on distributing the cost to various departments. Cost of labour is an example of allocation
whereas canteen expenses can be considered as apportionment.
Volume in Financial management
Volume analysis will support an organization to identify the profitability and sales of an
organization. It supports travel and tourism sector to determine the actual cost as well as factors
for deciding the cost of various products. Below explained are some tools that support volume
analysis.
Break Even Analysis: This technique supports Carnival Corporation Plc in identifying the
profitability level. It provides an organization with targets to maximise the profit by covering the
cost.
3

Figure 2: Break even analysis
(Source: Bam, 2015)
Economies of Scale: This can be referred to as reduction in cost of per unit because of increased
product output. Carnival Corporation & Plc gain profitability from business operations at large
scale. Therefore, it is important to maintain relationship with suppliers which will lead to
increase in sales.
Diseconomies of Scale: This is disadvantageous situation which arises because of barriers that
complex structure, modifications in operations of organization as well as communication barrier.
Therefore, it is responsibility of management to take decisions to overcome the barriers that
resist growth (Crotti and Misrahi, 2015).
Therefore, by identifying the importance of cost and volume in financial management it can be
concluded that for better decision making as well as to control the expenses, it is essential to
forecast and fix the cost as per the volume of sales.
4

1.2 Analyse pricing methods used in the travel and tourism sector
Pricing methods in travel and tourism sector are based on brand and location of an organization
which provides services to customers (Law et.al.2015). Pricing policies supports Carnival
Corporation & Plc to set up the price of products so that reasonable profitability can be achieved
by covering the cost. There are various pricing methods which are explained below:
Cost led pricing method: Under this method, prices are set as per the volume and cost of the
businesses. The process will calculate the breakeven point to gain sufficient profit on its business
investment. When business sets price above breakeven point gives an impression of making
higher profits.
Market led pricing method: This is also referred to as competition based strategy in which
Carnival Corporation & plc will evaluate and analyse the prices of same products in the market.
The method will consider similar products for comparing the number of features to set the
further prices. Market led pricing method is based on skimming and penetration pricing.
 Skimming Pricing: An organization is at good position and sets higher prices as they have
competitive advantage in the market.
 Penetration Pricing: An organization focus on setting lower prices to form strong
customer base and to survive in competitive market.
Marginal Cost: This practice will enable an organization to set prices which will include
manufacturing cost but not overhead charges. Advantage gained by an organization by setting
lower prices will increase the demand of customers. In context to travel industry, marginal
pricing is utilised to fill the capacity of airlines, resorts, hotels, etc (Gerald, 2018). However in
case of under booking, an organization will fail to generate revenue which will lead to failure in
giving salary to staff as well as maintenance of properties.
Return on investment: The method is utilised by monopolists or market leaders who focuses on
fixing the prices of products in such a manner that directly or indirectly it supports an
organization to achieve goals and objectives as well as return on employed capital.
5

However, different pricing methods are adopted as per their market position. For an instance,
Carnival Cruise line utilises cost oriented approach and on the other hand P&O cruises focus on
market led pricing methods (Moutinho and Vargas-Sanche, 2018).
6

1.3 Analyse factors influencing profit for travel and tourism businesses
Gaining profitability for Carnival Corporation & Plc is important as it shows business ability to
gain fund from investors for the future growth of business. Profit in business can be defined as
advantage or benefit in monetary terms that business gains after all the expenses and costs that is
deducted from overall sales of an organization. There are various factors that affect the
profitability of various businesses like hotel industry, transportation, restaurant and many more
which are explained below:
Seasonal Variations: Major of the tourist destinations and footfall of tourists are highly
influenced by low and high seasons. Unpleasant and unfavourable season will lead to cheaper
flights and lower rates will result in less profitability and vice versa for pleasant weather
conditions. However, tourism business must make strategies as per the seasonal changes to gain
maximum of profit and revenue generation.
Political environment: Government act as a strong source of funding for travel and tourism
sector. The government generates tax from the industry by investing in tourism campaigning and
local business (Robert Morello, 2018). At the time of crisis, political parties support local
business to grow which influence the status of destination amongst tourists.
Economic Environment: Business of suppliers as well as marketing of destinations is highly
affected by variations in currency rates of various countries. For an instance, if the prices of
dollar are low against the Pound, then UK will suffer from low footfall of US travellers. The
only way to overcome the situation is to invest a lot on marketing.
Social Environment: This will consider the taste as well as preferences of tourist that influence
the products and services. Therefore, Carnival Corporation, Plc must focus on segmenting the
market as per the classes in society.
Current Trend: Preferences of tourists fluctuates by changing time which highly influences the
profitability of Carnival Corporation & plc. However, strong marketing campaigns as per the
need of customers will minimise the negative impact of fluctuations in trend.
7

Bad Debts: When customers do not pay for availed services, then business suffers from loss and
these are referred to as bad debts. This will further result in reduction in fund for paying salaries
to employees.
Planning: It is estimation for investments on future by observing the status of current profit. If
the market situation is varied, then profit level will be increased with the support of future
planning strategies.
Staff: Inefficient and unskilled staff will lead to decrease in customer satisfaction which is the
key aspect of travel and tourism industry (Maguire, 2018). However, to overcome the issue,
Carnival Corporation & plc have organized training sessions to develop the skills of employees
which will directly affects the business profitability by satisfying the needs of customers.
8

LO2
2.1 Explain different types of management accounting information that could be used in travel and tourism businesses
9
Management Accounting Information involves partnering in decision making, planning as well as performance of management system. It supports an
organization to provide expertise related to financial reporting as well as to assist management in controlling and formulation of strategies.
Management accounting information in Dalata Group relies on internal managers as well as decision makers. The major function is to provide data
related to finances as per the operation of manager that supports them to take effective decisions.
Types of management accounting information in travel and tourism
Forecasts: It is an act of utilisation of past financial data of business
to identify the appropriate direction for future portioning of business.
Dalata Group use forecasting method to identify the process on how
to allocate the plan for anticipating the expenses for future period of
time.
Variance Analysis: It can be defined as the quantitative analysis of
difference between planned and actual behaviour which supports Dalata
group to control various business activities. Variance between actual
cost as well as planned cost will direct support an organization to adjust
business strategies, goals and objectives
Budgets: It is a financial plan that includes revenues and volume of
planned sales of Dalata Group. Budget is formulated to plan the cash
as well as receipts for handling and managing the cash and payments
as per the strategies developed by business. It will support an
organization to overcome the risk and barriers in future
MIS: Management Information system supports business managers at all
the levels in Dalata Group as well as assistant managers and executives to
evaluate their daily ongoing business activities or barriers that resist them
to take effective decisions and supports them to track their current
process. It helps in analysing sales, profit as well as loss bear by an
organization per month.
Financial Statements: These are the formal record
that depicts the financial position and activities of
business or entity of an organization. The basic
financial statement includes balance sheet, income
statement as well as cash flow statement. Balance
sheet helps to reflect the assets as well as liabilities of
Dalata Group whereas financial statement shows the
net earnings of business over a specific period of time.
Cash flow statement helps to identify the cash outflow
and inflow by an organization at the time of its
operations.