Finance and Funding in the Travel and Tourism Sector - Finance Report

This report provides a comprehensive analysis of finance and funding within the travel and tourism sector. It begins by exploring the importance of costs, volume, and profit (CVP) in financial management, followed by an in-depth examination of pricing methods used by Carnival plc, including market-led, seasonal, last-minute, cost-plus, penetrating, price bundling, and markup/markdown strategies. The report then identifies factors influencing profitability, such as climatic, seasonal, natural disasters, social, economic, advertising, and political factors. Task 2 delves into management accounting information used by the Dalata group, including forecasting, budgeting, variance analysis, ratio analysis, MIS, and accounting data. The report also includes an interpretation of the financial accounts of the Dalata group, and concludes with a discussion of funding sources for capital projects in the travel and tourism sector. The report uses the financial information and accounting practices of the Carnival and Dalata groups to illustrate these concepts.

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 and tourism............1
1.2 Analysis of pricing methods used in travel and tourism sector of Carnival.....................2
1.3 Analysis of factors influencing profit for travel and tourism of Carnival corporation and
plc...........................................................................................................................................3
TASK 2............................................................................................................................................5
2.1 Different types of management accounting information used by Dalata group...............5
2.2 Use of management accounting information as decision making tool.............................6
TASK 3............................................................................................................................................7
P3.1 Interpretation of financial accounts of Dalata groups of Hotel Plc................................7
TASK 4..........................................................................................................................................14
P4.1 Sources of funding for development of capital projects..............................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Finance and funding is essential in tourism and travel business. This helps to know if
operations of business are profitable or not. Prices in this sector are planned according to
requirements of customer and best priced business will help to cover overall cost and earn profits
which is required. Carnival plc is an American cruise operator headquartered in England with
combined fleet of 100 vessels across 10 cruise line brands. Dalata group are among the largest
hotel operators with most of their hotels in Ireland and UK.
The objective of this report is to interpret financial accounts of Carnival and Dalata group
which will help in decision making. This report covers about pricing methods used. This report
identifies various factors which affects profits.
TASK 1
1.1 Importance of costs and volume in financial management of travel and tourism
CVP (Cost, Volume, Profit) gives an insight picture of organization and shows relationship
between factors which affect profits. It is an important tool for profit planning and
budgeting (Seetanah and Sannassee, 2015). It helps to know quantity of sales required to
avoid losses and operations of business which are profitable.
 Cost- Fixed cost are those which remains same, it does not vary. No matter how many
people are traveling cruise the cost for everyone will remain same. The prices will not
change if there is a single passenger or more, charges will be same for everyone.
Variable cost is one which does not remain fixed and varies according to number of
passengers. Cost for a single passenger will be different as compared with that charged to
a group. At Carnival, prices of cruise are charged according to season and their costs vary
as per passengers. For eg: for a cruise odder 100 people per person charge is $100 but for
a couple it is $170 and for a group of 5 persons it is 400 only. The over all cost cruise
trip is $1500 which remain same retrospective of number of tourist but the rate do
changes with change in number of persons.
 Volume- Break even cost is that which is required for covering overall price in business
and reaches break-even point. It is a situation of no profit and loss. At Carnival, break
even depends on number of tourists and prices charged from them for a day to cover
complete cost. More customers get attracted to their attractive services which enhances
economies of scale. When company bundles all its services into a package then economy
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of scale can be achieved more easily. For eg: the company charges differs with the
change in number of consumers and with lower number prices are high with higher
number prices are low.
 Profits- Profits of Carnival plc can be calculated by subtracting total cost from revenues
incurred. Company tries to reach needs and wants of its passengers by providing luxury
services. There are various factors which affect profits of company. If there is a situation
of recession in any economy then people will prefer to spend less and save more which is
condition of few profits (Baker and et.al., 2016). When it is holiday season and suitable
climatic conditions people will travel more which is beneficial for them. Advertisements
helps in giving broad picture of country and more people will visit that place which is
profitable for similar type of industries as they will use their services. For eg: changes in
the pricing strategy with change in season the profits of the organization are kept intact.
1.2 Analysis of pricing methods used in travel and tourism sector of Carnival
Prices varies for different countries. Various pricing methods which can be followed by
Carnival plc are as follows:
 Market led- Market led is a situation where company focuses on customer’s need and
wants and make efforts to meet them. Carnival relies on market research and tries to find
out its customers in order to fulfill their demands. This directly impact the consumer
relation of the company with its present and potential consumers which in turn enhance
the customer satisfactions.
 Seasonal price- Carnival charges their customers according to seasons. In off season
they keep prices of their service low. They have a mixture of pricing strategies and
charges according to time of traveling. This strategy helps in maintaining the profits level
as well consumers attraction in a balance. This is mix of price high and low with change
in season so as to keep the consumer engaged every season with keeping its profts intact.
 Last minute pricing- These are last minute pricing strategies in which company charges
their customers to fill the gaps at last time. These are type of instant charging methods.
Carnival offers last minute discount to its customers on their websites. This is the best
method to cover the profits and safety margin of the organization as with the firm never
get low on its revenues.
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 Cost plus pricing- carnival uses various pricing strategies like charging per person.
Different charges for adults, aged and children to attract people and provide leisure. They
also charge according to number of days. They have fixed charges according to 2 persons
and number of days (Lunt, Horsfall and Hanefeld, 2016). Under this the charges differs
categorize wise and packages are arranged in such a way as per the need and requirement
of the consumers which seem feasible as well attractive to them.
 Penetrating pricing- Discounting is most common in service industry and can't be
neglected in travel and tourism sector. In off season Carnival provides discount to its
customers and add conditions to such discounted prices like minimum number of stay.
With this strategy consumers are attracted even in off season and the company maintain
its revenues and profit level with effective changing the pricing police and consumer
attraction.
 Price bundling- Several services are bundled with single price (Everett, Simpson and
Wayne, 2018). It includes bundling of various packages which a person requires while
traveling like programs on board, meals on cruise, comfortable rooms with balcony and
pool facility. Carnival offers different packages to its customers which includes all the
things which would attract a customer and encourage them to use their services again.
With this the services with lower and higher rate are combined with becoming more easy
and feasible for the tourist.
 Markup and markdown prices- Charge more from clients in order to ensure that
company makes profit every time to recover cost of establishment. It is a type of markup
price. When there is huge competition in market, carnival prefers to markdown prices to
attract more customers. The prices are lowered down in a phase of cut throat competition
in order to maintain consumer portfolio as well the revenues and gains margin of their
company.
1.3 Analysis of factors influencing profit for travel and tourism of Carnival corporation and plc
There are various factors which affects the profit margin of travel and tourism sector.
There are various positive and negative factors which affects prices. Positive factors help to
charge more and negative will sell inexpensive services. Some factors which have negative
impact and cannot be ignored are:
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 Climatic and seasonal factors- There has been a large change in climatic conditions in
world because of ozone depletion. Organisation face a huge problem because of
environment uncertainties like global warming and rise and fall in temperatures. This has
substantially affected profits of the company (Dzhandzhugazova and et.al., 2015). But it
is seen that global warming has benefited cruise industry as of northern hemisphere is
more desirable for travelling now. Many new destinations can be reached, as ice is
melting which has made easy to reach those places. Change in seasons largely affect
profits.
 Natural disaster factor- Areas which are prone to disasters, earthquake and tsunami
which affect loss of lives and property can become a serious concern. People think twice
before travelling to places which are at high risk. Carnival has to stop their services when
there are high tides and rise in water level.
 Social factors- There are various social factors such as age, lifestyle which changes
consumer behaviour to consume services and products. If there is improvement in
lifestyle of consumers, then they will prefer more luxury. They will prefer more
travelling (Hingtgen and et.al., 2015).
 Economic factor- Places where people have low earning power prefers to invest less in
travelling and focus on fulfilling their needs. This factor has huge impact on Carnival as
people will prefer to travel at nearby places and will not spend their money on high
priced cruises. This will lower down their profits.
 Advertisements and promotions- People will not travel to unaware places.
Advertisement is an important tool of promotion which gives a short description about
that place and is that place suitable or not. Carnival plc invests in advertising in order
increase its profits.
 Political factors- Whether the organisation is located in rural or urban area political
factors has a great impact on every business. Carnival faces various challenges from
government and other ruling parties as they have increased taxes.
TASK 2
2.1 Different types of management accounting information used by Dalata group
Management accounting information comes in various forms. Such as financial ratios,
forecasting, variance analysis etc. Management accounting helps in making correct decisions.
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 Forecasting- In order to fight competition in market strategic planning in important. It
involves process of planning for future operations by method of forecasting (Castaño-
Isaza and et.al., 2015). Tools like trend analysis helps to forecast future operations.
Dalata group considers the fact that if people traveling in summers are more in a year
then in next year they will increase substantially.
 Budgeting- Forecasting factor helps in building an imaginary model of future revenue
and expenses of any company. Budgeting begins after forecasting. By this, profits can be
allocated to different required places. Budgeting gives an estimation of future cost and
liabilities. At Dalata budgeting process helps to make budgets based on current cash and
revenues from hotel.
 Variance analysis and Cost accounting- This analysis can be defined as process of
comparing actual with budgeted price and finding out deviations. If any variance or
deviations are found, then actions are taken to correct them. It consists of factors such as
man, machine, material which affects budgeting decision and profits of company. Dalata
groups take immediate and corrective actions to remove deviations from their cost.
 Ratio analysis- It helps to find organization structure and power to overcome their long
term and short term debts. Ratios can be calculated for monthly annually or quarterly.
Dalata group uses ratio analysis to find out company’s liquidity position, solvency ratio,
turnover ratio and profitability.
 MIS or management information system- It is a computer based system which helps to
manage flow of information. Use of MIS helps Dalata group in achieving high efficiency
for managing its operations. It helps in decision making and to keep record of customers
visiting hotel and their feedback.
 Accounting data- Use of accounting data helps in taking decisions based on various
ratios and trends. A business operation always involves a financial risk. Dalata uses
accounting data to take better decisions.
 Balance-sheet: This is financial report that present financial position of the company
defining it's the asset and property owned by organization along with all the liabilities
and obligation of the firm.
 Trading P&L account: This statement present the net profits earned by the entity after
deducting all financial and non Financial expense from the sales revenue of the business.
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2.2 Use of management accounting information as decision making tool
Management accounting information tool are important for taking decisions.
Management accounting uses information from business to show performance. It provides
relevant information to take financial decisions. Some tools are-
 Comparison- Forecasting helps in comparing two trends. It helps to compare actual with
standard data and find out deviations and take actions to correct those variances.
 Forecasting- This helps in forecasting future and taking decisions accordingly. It helps
to find out number of people who will visit hotels. Company uses various tools and
techniques to forecast future and take correct decisions.
 Investment- Accounting information helps in making investments. Dalata group uses
various information about revenue and expenses from accounts to invest in construction
of more hotels worldwide (Badulescu and et.al., 2015). The company is earning huge
amount of income from last few years which helps to take investment decisions and
increase profits.
 New Products and Services- An organization is required to find out who are their
potential customers and then plan accordingly and make strategies to reach customers.
They should focus on introducing new products and services and make changes in their
services. Dalata group has improved their services by improving performance training
employees. Keeping a check on employees helps to correctly utilise food and beverage in
restaurants and avoid wastage. They have expanded their service of hotels in various
parts. They provide three and four star rooms to its clients.
 Current Issues- Dalata had raised around 250 million euro and got itself listed on
securities exchange by issuing their ordinary shares to public. This is a positive sign
which will help organisation to raise more capital and attract potential investors. Though
there is growth and development, they face obstacles from competitors in Ireland.
 Against Set Criteria- They perform various human resource planning to take correct
decisions. Management accounting information help managers to keep record of profits,
solvency. It helps to know liquidity position of company. It helps employees to take
efficient decisions regarding booking.
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TASK 3
P3.1 Interpretation of financial accounts of Dalata groups of Hotel Plc
Financial Statements of Dalata groups of Hotel:
Income statement:
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Balance sheet:
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Cash flow statement:
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