Financial Decision Making for Travel and Tourism Expansion Plan Report

This report focuses on financial decision-making within the travel and tourism industry, specifically examining expansion plans for TUI Travel PLC. It explores relevant sources of finance, including personal investment, venture capital, and bank loans, recommending a strategic mix for the company. The report delves into cost behavior, differentiating between fixed and variable costs, and emphasizes the importance of Cost-Volume-Profit (CVP) analysis in managerial decision-making. Furthermore, it outlines appropriate pricing strategies such as rack rates, seasonal pricing, and discounting, tailored to attract customers and enhance profitability. The report concludes with recommendations for TUI Travel PLC, stressing the importance of a comprehensive approach to financial planning and strategic decision-making for successful business expansion in the competitive travel and tourism market.

Running head: FINANCIAL DECISION MAKING FOR TRAVEL AND TOURISM
Financial Decision Making for Travel and Tourism
Name of the Student
Name of the University
Author’s Note

1FINANCIAL DECISION MAKING FOR TRAVEL AND TOURISM
Table of Contents
Introduction......................................................................................................................................2
Relevant Sources of Finance...........................................................................................................3
Cost Behavior and Cost Volume and Profit (CVP) Analysis..........................................................5
Cost Behavior..............................................................................................................................5
Importance of CVP Analysis in Decision-Making......................................................................7
Appropriate Pricing Strategy...........................................................................................................8
Conclusion and Recommendations..................................................................................................9
References......................................................................................................................................11

2FINANCIAL DECISION MAKING FOR TRAVEL AND TOURISM
Introduction
In today’s growing business world, the presence of different kinds of businesses can be
seen. One of such fast growing business industry is travel and tourism industry. There are huge
numbers of travel and tourism businesses all over the world. At the same time, the existing
businesses in this industry are planning for expansion all over the word. In order to be expanded
all over the world, it is required for these companies to have an effective expansion plan
considering all the necessary aspects of expansion (McDonald et al. 2013). Promising growth
can be seen in the travel and tourism industry of United Kingdom (UK). The main aim of this
report is to develop an expansion plan of one of the travel and tourism companies of UK for
facilitating the decision-making process. For this reason, TUI Travel PLC, one of the travel and
tourism companies of UK is taken into consideration.
It needs to be mentioned that TUI Travel PLC is one of the major travel and tourism
companies in UK (tuigroup.com 2018). The main aim of the company is to expand their business
operations in order to grab more market share. The following graph shows the profitability of
this company over the last four years starting from 2014 to 2017:
2017 2016 2015 2014
0
100
200
300
400
500
600
700
800
900
1000 910.9
464.9 407.6 332
Profit/(Loss) (€)
Profit/(Loss) (€)

3FINANCIAL DECISION MAKING FOR TRAVEL AND TOURISM
Figure 1: Profit Trend of TUI Travel PLC
(Source: As created by Author)
From the above graph, it can be seen that the company has been able to increase the net
profit of their business over the four years; and thus, it can be considered as the perfect time for
the business expansion of the company. The report takes into consideration the necessary aspects
for the decision related to the expansion of TUI Travel PLC.
Relevant Sources of Finance
The definition of expansion financing can be provided as the capital used for enlarging
the size of the business organizations with the help of different means. There are different
sources of finances are available for the business organization in order to raise the necessary
capital for the purpose of business expansions. There is no exception of this fact in case of TUI
Travel PLC. The following discussion shows the sources available for financing the business
expansions:
Personal Investment: Personal investment refers to the process when the proprietors of the
businesses invest their own cash in their business for the purpose of expansion. At the same time,
the proprietors have the option to use their personal assets as collateral in the bank for raising the
required capital for business expansion. In this process, the proprietors are needed to be ready to
take long-term risks (Lee, Sameen and Cowling 2015).
Love Money: In this financing process, the business proprietors loan money from their family
members an close relatives in order to invest them in the business for the purpose of expansion.
Generally, this money is repaid later when the profitability of the business increases.

4FINANCIAL DECISION MAKING FOR TRAVEL AND TOURISM
Venture Capital: It is considered as one of the most popular source of financing for business
expansion. The venture capitalists use to take certain equity portion in the companies so that the
expanding companies can carry out with the higher risk projects for expansion. However, it
needs to be mentioned that the venture capitalists prefer to invest in high technology driven
businesses. The venture capitalists expect healthy return from the businesses (Gage 2012).
Angel Investors: Angel investors refer to the wealthy individuals or retired wealthy company
executives make investments in the business organizations for expansion purpose. Apart from
required capital, these investors use to offer the companies with their expertise and experience
for the expansion of the businesses. In return, they seek one of the positions in the management
team or the board of directors of the expanding companies (Collewaert 2012).
Business Incubators: This type of investors uses to help the businesses in the process of
expansion by providing different kinds of supports in different development stages. They provide
the businesses with necessary capital and other supports in return of healthy return.
Government Grants and Subsidies: Many times, the government of the countries provides the
businesses with different types of grants and subsidies for expansion. However, in order to avail
this opportunity, the businesses are required to provide the government with the detailed
description of their expansion plans.
Bank Loan: This is considered as the most common source of financing for the businesses for
the purpose of expansion and the banks provide different kinds of advantage to the business
organizations in order to support their expansion plan. However, in order to avail this
opportunities, the companies are required to provide some assets as collateral to the banks
(Casey and O'Toole 2014).

5FINANCIAL DECISION MAKING FOR TRAVEL AND TOURISM
From the above discussion, it can be observed that there are different types of sources are
available for TUI Travel PLC in order to finance their expansion plan. However, it is
recommended to TUI Travel PLC that they should adopt these specific financing strategies; they
are venture capitalists, bank loan, and government grant and subsidy and business incubators.
The main reason behind suggesting this source is that the company can finance huge capital from
this source for long-term basis. In addition, TUI Travel PLC can get the expertise and experience
of the investors at the same time from these inventors. Thus, it is required for TUI Travel PLC to
develop an effective expansion plan for their business so that it can attract the attention of these
investors.
Cost Behavior and Cost Volume and Profit (CVP) Analysis
Cost Behavior
Cost behavior refers to the way in which specific costs change in certain activity level.
Thus, based on the change in activity, costs may stay same or change. Two types of costs can be
seen; they are Fixed Costs and Variable Costs (Cannon 2014). Fixed costs refer to the costs that
remain same regardless of the change in production unit. Straight line method for depreciation
can be considered as the example of fixed costs as the deprecation expenses will be the same in
case of the production of 1000 units or 10000 units. On the contrary, variable costs refer to the
costs that change based on the change in production unit. Direct material expenses can be
considered as the example of variable costs. The total cost of material of a chain will be €10 in
case it takes one yard of fabric at a cost of €10 per yard. However, the total material cost of 10
chairs will be 10*€10 that is €100 (Boardman et al. 2017).

6FINANCIAL DECISION MAKING FOR TRAVEL AND TOURISM
Figure 2: Cost Behavior
(Source: As created by Author)

7FINANCIAL DECISION MAKING FOR TRAVEL AND TOURISM
From the above graphical representation of both of these costs, it can be observed that the
total fixed costs look like a straight horizontal line, but the total variable cost like looks like
upward slope. This specific variation can be seen due to the presence of cost behavior. At the
time of the development of the expansion plan, the management of TUI Travel PLC is required
to consider these aspects of cost behavior.
Importance of CVP Analysis in Decision-Making
The Cost Volume Profit Analysis, commonly known as CVP analysis, refers to a
particular planning process used by the management of the companies for the prediction of future
volume of activity costs incurred, sales and profits. It needs to be mentioned that the CVP
analysis plays an integral part in the decision making process of the management team (Drury
2013). The mathematical equation of CVP provides the management of the companies with the
insight about the effect of change in cost and sales on the future income of the companies. Thus,
it can be said that the CVP analysis provides a detailed snapshot of the cost activity of the
companies. With the help of this, the management of the companies becomes able to answer
some major pragmatic questions like the break-even point of the company. In case the
management knows the break-even point of the business, they can increase or decrease the
production in order to increase the profitability. Thus, on an overall basis, CVP analysis helps the
management of the companies with the decision-making process (Hilton and Platt 2013). For this
reason, it is recommended to the management of TUI Travel PLC to consider CVP analysis for
the decision-making of their business expansion plan.

8FINANCIAL DECISION MAKING FOR TRAVEL AND TOURISM
Appropriate Pricing Strategy
Pricing strategies refer to the methods used by the companies to price their products and
services. Thus, it can be understood that the adoption of effective pricing strategies is a vital part
of the expansion plan of the companies and there is not any exception of this fact in case of TUI
Travel PLC. There are different pricing strategies available for the travel and tourism companies.
The following discussion shows the description of the recommended pricing strategies for TUI
Travel PLC:
Rack Rates: Rack rates refer to the full rate of the products and services before applying any
discount rate. These rates are provided in the printed brochures of the companies. It is
recommended to the management of TUI Travel PLC to have the rack rates of all of their travel
and tourism products and services. This can be considered as an important part in the pricing
strategy of TUI Travel PLC as it will help the company to cope with the changing price of the
industry (Davcik and Sharma 2015).
Seasonal Pricing: Seasonal pricing can be considered as another attractive pricing strategy for
the products of TUI Travel PLC as it will help TUI Travel PLC to attract the attention of large
number of customers. Under this strategy, the company is required to mix the prices throughout
the year in order to cover high, low and shoulder season.
Last Minute Pricing: Last minute pricing is another recommended strategy for the expansion
plan of TUI Travel PLC as it will help the company to promote their business. Under this pricing
strategy, the management of TUI Travel PLC is required to make discount on the daily prices of
their products based on the forward booking (Jobber and Shipley 2012).

9FINANCIAL DECISION MAKING FOR TRAVEL AND TOURISM
Discounting: Discounting can be considered as the most popular pricing strategy in the travel
and tourism industry and for this reason; this pricing strategy is highly recommended to TUI
Travel PLC. However, there are many instances where excessive discounting had led to the
reduction in profitability. Thus, the company needs to be careful while adopting this strategy for
the purpose of their expansion plan. It needs to be mentioned that this particular strategy has the
capacity to attract large number of customers towards the products and services of TUI Travel
PLC (Armstrong et al. 2015).
Package Deal: This can be considered as another major pricing strategy for the expansion of the
business of TUI Travel PLC. This strategy helps in adding value to the customers by developing
tour and travel packages with complementary services and this strategy can be considered as a
major strategy to boost the profitability of the company without having any discount (Kotabe and
Helsen 2014).
These are the recommended pricing strategies for the expansion plan of TUI Travel PLC
as these strategies will attract more customers towards the products and services of the company
that will contribute towards higher profitability.
Conclusion and Recommendations
From the whole discussion, it can be understood that the management of any organization
needs to consider certain crucial aspects while making expansion decision of their businesses.
Some of them are the decision related to the source of finance, cost behavior, the importance of
CVP analysis for decision-making and the adoption of correct pricing strategies. After
considering all these aspects, the management of TUI Travel PLC will be able to make effective

10FINANCIAL DECISION MAKING FOR TRAVEL AND TOURISM
decisions on their expansion plan. Based on the above study, some recommendations are
provided below:
 It is recommended to the management of TUI Travel PLC to use venture capitalists, bank
loan, and government grant and subsidy and business incubators for raising the required
capital of their expansion plan.
 It is recommended t TUI Travel PLC that they should consider the effects of cost
behavior while making major cost decisions about the expansion plan. At the same time,
it is also recommended to them to use CVP analysis as a major tool for decision making.
 TUI Travel PLC is recommended to adopt certain pricing strategies for their products and
services; they are rack rates, seasonal pricing, discounting, complete packages and others.

11FINANCIAL DECISION MAKING FOR TRAVEL AND TOURISM
References
Armstrong, G., Kotler, P., Harker, M. and Brennan, R., 2015. Marketing: an introduction.
Pearson Education.
Boardman, A.E., Greenberg, D.H., Vining, A.R. and Weimer, D.L., 2017. Cost-benefit analysis:
concepts and practice. Cambridge University Press.
Cannon, J.N., 2014. Determinants of “sticky costs”: An analysis of cost behavior using United
States air transportation industry data. The Accounting Review, 89(5), pp.1645-1672.
Casey, E. and O'Toole, C.M., 2014. Bank lending constraints, trade credit and alternative
financing during the financial crisis: Evidence from European SMEs. Journal of Corporate
Finance, 27, pp.173-193.
Collewaert, V., 2012. Angel investors' and entrepreneurs' intentions to exit their ventures: A
conflict perspective. Entrepreneurship Theory and Practice, 36(4), pp.753-779.
Davcik, N.S. and Sharma, P., 2015. Impact of product differentiation, marketing investments and
brand equity on pricing strategies: A brand level investigation. European Journal of
Marketing, 49(5/6), pp.760-781.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Gage, D., 2012. The venture capital secret: 3 out of 4 start-ups fail. Wall Street Journal, 20.
Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.

12FINANCIAL DECISION MAKING FOR TRAVEL AND TOURISM
Jobber, D. and Shipley, D., 2012. Marketing-orientated pricing: Understanding and applying
factors that discriminate between successful high and low price strategies. European Journal of
Marketing, 46(11/12), pp.1647-1670.
Kotabe, M. and Helsen, K., 2014. Global marketing management.
Lee, N., Sameen, H. and Cowling, M., 2015. Access to finance for innovative SMEs since the
financial crisis. Research policy, 44(2), pp.370-380.
McDonald, R., Shalloo, L., Pierce, K.M. and Horan, B., 2013. Evaluating expansion strategies
for startup European Union dairy farm businesses. Journal of Dairy science, 96(6), pp.4059-
4069.
Tuigroup.com. (2018). About us. [online] Available at: https://www.tuigroup.com/en-en/about-us
[Accessed 15 Mar. 2018].
Tuigroup.com. (2018). Annual Report 2015/16. [online] Available at:
https://www.tuigroup.com/damfiles/default/tuigroup-15/en/investors/6_Reports-and-
presentations/Reports/2016/TUI_AR_2015-16_withMagazine.pdf-
4572fe3dec10f0196450291182933f8c.pdf [Accessed 15 Mar. 2018].
Tuigroup.com. (2018). Annual Report 2017. [online] Available at:
https://www.tuigroup.com/damfiles/default/tuigroup-15/en/investors/6_Reports-and-
presentations/Reports/2017/TUI_AR_2017.pdf-7661895445c56eebea39a5b74aa9e5b3.pdf
[Accessed 15 Mar. 2018].

13FINANCIAL DECISION MAKING FOR TRAVEL AND TOURISM