Financial Analysis and Funding in Travel and Tourism Sector, UK

This report provides a comprehensive analysis of finance and funding within the travel and tourism sector, focusing on two companies: Carnival Corporation & plc and The Fulham Shore plc. It begins by exploring the importance of costs, volume, and pricing methods in financial management, including direct, indirect, fixed, and variable costs, as well as market-led, competition-oriented, and cost-plus pricing strategies. The report then delves into factors influencing profit, such as political and economic environments, tourism seasons, bad debts, and staff expenses. Furthermore, it examines different types of management accounting information, including budgets and variance analysis, and their application in decision-making. Finally, the report includes an interpretation of travel and tourism financial accounts, offering a detailed overview of the financial aspects of the industry.

Finance And Funding In
The Travel And Tourism
Sector

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Importance of costs and volume in financial management of travel business.................1
1.2 Pricing methods used in the travel and tourism sector.....................................................2
1.3 Factors influencing profit for travel and tourism businesses............................................3
TASK 2............................................................................................................................................4
2.1 Different types of management accounting information that could be used in tourism
businesses...............................................................................................................................4
2.2 Use of management accounting information as a decision-making tool .........................5
TASK 3............................................................................................................................................6
3.1 Interpret travel and tourism financial accounts ...............................................................6
TASK 4..........................................................................................................................................10
Covered in Leaflet................................................................................................................10
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Finance is the basic need of an organisation that supports in performing business
activities routinely. There are various sources available for the enterprise that assist in getting
sufficient level of capital for short and long term. Along with this, travel and tourism sector is
largest civilian industry around the globe that provide tourism services to the visitors. So,
organisations need sufficient funds for carrying out their activities and functions in appropriate
manner. For this report, given tourism business is Carnival Corporation & plc and The Fulham
Shore plc that provide tourism facility to the travellers. This report is divided into different parts
which includes importance of volume, costs and profit for management decision making.
Application of management accounting information is also covered in this study. At last,
financial details of both organisation, and sources and distribution of funding for public and non-
public tourism development also consider in this project.
TASK 1
For this task given organisation is Carnival Corporation & plc, it is a British American
cruise tour operator. It was founded in 1972 by Ted Arison in Miami, Florida, United States. At
the management level in such organisation, manager play vital role by understanding financial
practices and systems. This task covered significance of costs, profit and volume for
management decision making in Carnival Corporation & plc.
1.1 Importance of costs and volume in financial management of travel business
Costs and volume both are important factor for the financial management of Carnival
Corporation & plc. There are different parts of cost and volume which is necessary for the travel
and tourism sector to make strong strategies or policies to stand in marketplace in long run.
Costs: It is defined as the expenses which are used by the firms for developing the tours
and travel packages. (Ambrose, 2012). There are various types of costs such as fixed, indirect,
direct, variable etc. which are important for the firms to do their business activities in appropriate
manner. Cost is very essential for businesses in order to perform their various operations and
functions.
Indirect cost: This cost in the travel and tourism sector includes, making arrangement of
tour guide, arrangement of local bus services etc. all this are essential for the company to attract
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large number of visitors easily. Carnival corporation can use this cost for marketing and
advertisement, hiring professionals etc.
Direct cost: This cost in such sector covers expenditure occurred regarding giving
services and facilities to their clients related with resort or accommodation and theme park.
Carnival corporation can use this cost for providing effective services to their customers.
Fixed cost: In this the cost is fix in nature. This cost is important for Carnival
Corporation to reduce the overall prices or cost of their tour and travel packages.
Variable cost: Such kind of cost is variable in nature and can be modified according to
the change in the number of customers. This cost is of very high significance for the Carnival
Corporation to utilise the cost in an effective manner for getting high profitability. It can be
utilised for recruiting new workers, accommodation services and hiring cabs.
Volume: Travel and tourism business is a seasonal type of business in which firms needs
to consider the volume of their business in peak seasons for taking important strategic decisions
(Beeton, 2016). It is very important for management to determine the volume in order to frame
suitable strategies for controlling the cost and activities of firm. Volume is of various types such
as break-even analysis, economies of scale etc.
Break-even analysis: This analysis is used for determining the point at which a business
can recover the total occurred cost and from where the firm can gain appropriate profit. It is very
effective for the Carnival corporation to determine the cost of their operations in order to meet
their expenses.
Economies of scale: It is the cost benefit which a firm obtain by the scale of their
operations in which the cost per unit of the output is decreasing along with the increase in scale.
It is measured by the amount of the produced output.
The food that is made for the purpose of recognition of direct, indirect, fixed and variable
cost and also to check volume BEP is Brunch platter. The food includes 15 ingredients that are
subject to a direct cost of $67.45 which only includes only the raw materials also the cost of
burner would be included in this.
Indirect cost includes the cost that is not associated directly with cooking of food. These
type of indirect cost includes the cost such as labour and utensils in which the food would be
cooked this would cost around $36.
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The fixed cost that is related to making of the food is the rent of the area or the hotel or
the kitchen that is used for preparing food the fixed cost that is incurred for the purpose of the
product is $80.
Also variable cost includes the electricity and some labour cost that would be dependent
on the food that is made and in the quantity it is made, in the present case the variable cost
amounts to $25.
For this product the total cost would be around $208.45. Also for the company it is
important to analyse the break even point hence the break even point for the current product is
$208.45 any thing above this would be considered as profit and anything that is below this would
not be considered and would result in loss to the company.
1.2 Pricing methods used in the travel and tourism sector.
Pricing methods are the techniques which are used by the companies in order to set the
prices of their products and services for increasing the growth and sales. The competition in the
travel and tourism sector is very high in UK. Some of pricing methods for developing various
tour packages in order to attract more customers are discussed below:
Market-led pricing method: In this method, firms need to evaluate the price of the tour
packages which exists in the market by the rivals. In this, the management must analyse the price
of products and services provided by the rivals and set the price of their products based on the
analysis of tour package of competitor (Buckley, 2018). For example: Asia Odyssey is a travel
firm who is using this type of pricing method in order to decide the honeymoon package for
customers.
Competition oriented pricing: In this the price and cost of products and services are
decided on the basis of analysis of market. In this the pricing strategies adopted by the
competitors of firm are analysed for setting the prices. For example: Carrier holidays is a firm in
tour and travel sector who is using this method for dealing with their competitors in the industry.
Cost- plus Pricing: In this method, the cost of packages is calculated by the company
including indirect and direct expenses and then adds a limited amount of margin and profit to it.
For example: Ryanair is a travel firm who is using this strategy for determining their selling price
of the services provided by the firm (Drehmann and Nikolaou, 2013).
Carnival corporation is using the market led pricing method for effectively deciding their
price of tour packages. Carnival corporation is using this strategy but also they need to consider
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the various factors such as political, economic and social environment etc. before deciding the
prices of their packages and services.
1.3 Factors influencing profit for travel and tourism businesses
Profit is known as the financial gain which can be utilised in the future activities and
operations of firms and businesses. There are various factors which can affect the profit of the
Carnival corporation and of other firms in the travel and tourism sector. These factors can
influence the companies in an effective way. Some of these factors are discussed below:
External factors
Political environment: The political stability, taxation policies etc. comes under this
which can affect the profit of the firms. Political environment also effects the profit of the
Carnival corporation. Management must determine that the firm is following the rules such as
taxation policies, trading rules etc. which can impact the cost and profit. Also management must
regularly check for changes in such laws and regulations which can influence the profit badly.
Economic environment: In time of recent recession, tourists were more concerned on the
way in which they are spending their money on the travelling (Engeset and Elvekrok, 2015).
Saving their budget and income is the main motive of customers for spending it on the grocery
and household shopping. Due to this, the profit of the Carnival corporation can be effected.
Management of Carnival corporation must determine such changes in the preferences of their
customers for providing suitable and affordable tour packages to them. This will attract more
customers even in times of recession which will improve the profit of the firm.
Tourism season: Carnival corporation can earn huge profit when the tourism season is at
highest peak. Whereas when the season is at low peak then firm can't meet their expenses due to
less amount of profits. So, the season is also a major factor which can affect the profitability of
the company due to which the firm won't meet their occurred expenses.
Internal factors
Bad Debts: This is the pending amount or payment which are unpaid by consumers after
taking the services and products of companies. When these payments are not transferred to firms
then such payments become bad debts and charged in profit and loss account of company. As a
result, the profit of the company can decrease in future.
Staff: Expenses of staff such as salary and wages also effect the profitability of firm.
These costs are associated with the employees (Fayos-Sola, 2012). Unskilled employees can lead
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to more costs and if such cost will increase then the profit of the Carnival corporation will
decrease. Management of the firm must evaluate the performance and productivity of the
employees for enhancing the profit.
Carnival corporation must determine these above discussed factors for identifying the
influence of such factor on the profitability of the company. They must set effective prices using
various techniques and methods for attaining high profit in the UK.
TASK 2
2.1 Different types of management accounting information that could be used in tourism
businesses
Management accounting is the process of developing management and account reports in
order to provide the reliable and accurate financial and statistical information which is essential
for managers to take decisions. Some types of the management accounting information which
can be used by the firm for non-financial managers of Fulham Shore plc are given below:
Budget: It is the statement which is used by the companies for estimating their expenses
and income. This statement is of two types in which one is associated with revenue and other is
associated with cost (Graham, 2013). In budget, the expenses are removed from the revenue and
remaining cash is transferred to opening balance of new year. Non-financial managers of Fulham
Shore plc can regularly prepare and update their budget for keeping the expenses and cost in
control which is necessary to enhance the profit of the firm.
Variance analysis: It is a type of management accounting information which is
extensively used for calculating the variance associated with employees and material. Based on
the variance, firm can determine whether its performance is good or worst. Through this
analysis, management of Fulham shore can identify the negative variation related with the
employees and then can take suitable course of action for ensuring that the variance will not
occur in future activities.
MIS: Management information system is computer system consist of software and
hardware and serves as backbone for the operations of firm. MIS collects the data from various
online sources and systems and analyse it for reporting the data to management to take effective
decision for the betterment of the organisation (Masiero and Nicolau, 2012). Through this,
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management of Fulham shore can take proper and effective decision based on the analysis
provided by the MIS.
Job costing report: It is prepared to determine the revenue and cost which can influence
the potential candidates into job provider. Management of Fulham shore can use this method for
determining the profitability of their business and of the decisions taken by the management to
determine the needs and goals of company.
Training package:
Type of training Amount(£)
Internship 400
Induction 200
Safety 550
Promotional 700
TOTAL 18500
From these above discussed types, Carnival corporation can provide the training to the
non-financial managers of The Fulham Shore plc in order to effectively use the management
accounting information for taking important decisions.
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From the above balance sheet of the company named Fulham shore PLC it has been seen
that the company is able to generate more assets as compared to the previous year of 2017. Also
it is seen that there is consistent growth in the companies tangible assets of the company.
Company has also increased the liability of borrowings in the current year and they have been
doubled during the year which should be reduced in the coming year. Also the total equity of the
company in the current year has been reduced as compared to the previous equity figures.
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Illustration 1: balance sheet

From the income statement of the company it has been analysed that Revenue of the
company has increased in the current year by around 13%. Also the gross profit of the company
has increased to the extend of 25%. As finance cost of the company in the year has come forth so
due to this they have accessed loss in the current year. The current Earning per share is also
decreased and resulted in loss for the current year.
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Illustration 2: Income statement of the company'

2.2 Use of management accounting information as a decision-making tool
The management accounting information can be used as a decision making tool by the
Fulham shore plc. The types of management accounting information which are discussed above
are very important for taking important decisions. The firm must consider such management
accounting information to take proper decisions and to get better results from the decision in
future.
Financial statements: These are very helpful for the Fulham shore plc in taking proper
decisions by analysing the needs and demands of business in future (Saha and Yap, 2014). Firm
can take better decision by determining the financial position and stability of the firm.
Budgets: Budget are mainly prepared for planning the transactions which can be done by
the company in future. The budget is very helpful for the managers of the Fulham shore plc to
take effective decision by providing the future plan for carrying out the various activities of the
firm and to plan for the finance of the company.
MIS: This system is helpful for the managers of Fulham shore plc in order to collect the
different data of various transactions in an effective manner. Through the gathered and recorded
data, managers can take effective and better decisions for the benefit of the company (Tarlow,
2014).
From the above statements of Fulham Shore PLC it is seen that the managers of the
company believes in competitive everyday menu pricing and not discounting. The company
focuses on its resources by giving them a best way to live the life. The management of the
company focuses on the increasing the service quality and customers complaint by rectifying the
problems that has been detected while performing the task on immediate basis. This is the best
way that helps them to increase the customer base and bring loyalty among them.
Different types of decisions
Strategic decisions: These decisions are the major choice for actions which can impact
the business firm. These decisions directly contribute in accomplishing the desired organisational
aim. These decisions have long-term implications on the firm's business. These decisions are
unstructured so the managers of Fulham shore plc needs to analyse their decision according to
the problem based on their knowledge of various dynamic environmental factors. These are
mostly taken by the higher authorities.
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Tactical decisions: These decisions are related with implementing of the strategic
decisions. These decisions are used for developing the structure workflow, divisional plans,
establishing distribution channels etc. Such decisions are taken by the middle level management.
Fulham Shore plc can use these decisions for implementing new strategies and policies in the
betterment of firm.
Operational decisions: These decisions are associated with the daily activities of
business firms. These are taken repeatedly due to having short-term horizon. Such decisions are
based on the facts which does not needed the business judgements. Such decisions are taken by
lower level management. Fulham shore plc can use operational style in their decisions for taking
short term decisions using the facts and figures.
TASK 3
3.1 Interpret travel and tourism financial accounts
Income statement and balance sheet of Fulham Shore plc
Income Statements
Particulars 2016-17
(million £)
2017-18
(million £)
Revenue 41 55
Cost of revenue 23 32
Gross Profit 18 23
Operating expenses:
Sales, general and administration expenses 13 19
Other operating expenses 1 1
Total Operating expense 15 20
Operating Income 3 2
Interest expense 0 0
Other expense -2 -2
Income before tax 1 0
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