Financial Decision Making for TUI Travel PLC: An Expansion Plan

This report analyzes the financial decision-making process of TUI Travel PLC, a major UK travel and tourism company, for expansion planning. The report examines the company's profit/loss trends, relevant sources of finance including personal investment, venture capital, angel investors, and government grants. It delves into cost behavior, differentiating between fixed and variable costs, and discusses the importance of cash flow management, including a mention of the company's cash flow loss and increase in capital. The report highlights the significance of Cost-Volume-Profit (CVP) analysis in decision-making and suggests appropriate pricing strategies such as rack rates, seasonal pricing, and discounting. Recommendations are provided for TUI Travel PLC, including the use of various funding sources, consideration of cost behavior, CVP analysis, and strategic pricing. The report is supported by several academic references.

Financial Decision Making
for Travel and Tourism
An Analysis on TUI Travel
Plc

INTRODUCTION
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

ABOUT THE COMPANY
TUI Travel PLC is one of the major travel and tourism
companies in UK. The company was established on 3
September 2007 and the company is headquartered at
Crawley, England. TUI Travel Plc has their operations in
central Europe, northern Europe and western Europe.

PROFIT/LOSS TREND
There has been major increase in the
profitability of TUI Travels Plc over the
period of last four years

RELEVANT SOURCE OF
FINANCE
Personal Investment: Proprietors of the businesses invest their
own cash in their business for the purpose of expansion
Love Money: The business proprietors take loans from their
family members an close relatives in order to invest them in the
business for the purpose of expansion
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

RELEVANT SOURCE OF
FINANCE
Venture Capital: These types of investors invest money in the
businesses and take certain equity portion in the companies so
that the expanding companies can carry out with the higher
risk projects for expansion. They expect healthy return from
the businesses
Angel Investors: Angel investors refer to the wealthy
individuals or retired wealthy company executives make
investments in the business organizations for expansion
purpose

RELEVANT SOURCE OF
FINANCE
Government Grants and Subsidies: The government of
the countries provides the businesses with different types
of grants and subsidies for expansion
Bank Loan: The banks provide financial support and
different kinds of advantage to the business organizations
in order to support their expansion plan

COST BEHAVIOUR
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 COST
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

VARIABLE COST
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)

CASH FLOW
Cash Flow refers to the net amount of cash received and
disbursed by a business entity during a specific period of
time. In order to make business sustainable, business
entities are required to maintain a positive level of cash
flow. There are three sources of cash flow in the
companies. They are as follows:
• Cash Flow from Operating Activities
• Cash Flow from Financing Activities
• Cash Flow from Investing Activities

CASH FLOW
Particulars 2017 (€
million)
2016 (€
million)
Cash Inflow from Operating
Activities
1583.1 1034.7
Cash Outflow/Inflow from
Investing Activities
-687.7 239.0
Cash Outflow from Financing
Activities
-733.8 -662.1

LOSS OF THE COMPANY
2017 (€
million)
2016 (€
million)
Loss
Total
Comprehensive
Income
728.1 1234.2 506.1
The company has lost € 506.1
million

INCREASE IN CAPITAL
2017 (€
million)
2016 (€
million)
Amount Increased
Capital 3533.7 3248.2 285.5
The capital has increased by €
285.5 million

Importance of CVP Analysis in
Decision-Making
• 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. CVP
analysis provides a detailed snapshot of the cost activity of
the companies
• 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

Appropriate Pricing Strategy
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
Seasonal Pricing: Seasonal pricing can be considered as
another attractive pricing strategy that mixes the prices
throughout the year in order to cover high, low and shoulder
season
Last Minute Pricing: This strategy provides discount on the
daily prices of their products based on the forward booking
(Jobber and Shipley 2012)

Appropriate Pricing Strategy
Discounting: This particular strategy has the capacity to
attract large number of customers towards the products
and services
Package Deal: This strategy helps in adding value to the
customers by developing tour and travel packages with
complementary services

RECOMMENDATIONS
• 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

REFERENCES
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