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Financial Decision Making for Travel and Tourism: Report based on Cox and Kings Ltd

Semester: E16

Module Code: FDMT4027

Module Title: Financial Decision Making for Travel and Tourism

Awarding Body: University of Plymouth


ASSIGNMENT BRIEF


Select a company of your own choice operating in the Travel and tourism industry. The company has a long term strategy to expand its operations and achieve competitive advantages in the industry by being a cost leader. 

You have recently been appointed as assistant financial advisor of company and you are required to prepare a draft report to be presented to the Board of Directors. 


Your report should include:

  1. A discussion of at least five sources of finance available to fund the expansion plan (LO1).
  2. An explanation of behaviour of costs and the importance of cost volume and profit (CVP) analysis. (Use graphs properly labelled to demonstrate your understanding) (LO2).
  3. A discussion of various pricing strategies available within the context of a travel and tourism industry (LO4).  



Learning Outcomes: 


  1. Identify major areas of consideration when looking at financing a Travel and Tourism ventures. 
  2. Define the scope and structure of profit and where it can be derived from.
  3. Explain the types of decisions and considerations a manager would need to make in order to ensure their venture is financially viable. 
  4. Outline the key characteristics and concepts of pricing and the tools in which to use in order to determine the price of a service. 


Answer

Executive summary

Cox and kings Ltd is one of the well-known companies within the travels and tourism industry and in order to expand the business of the company Cox and Kings Ltd must concentrate on the financial planning of the company. In order to do this company must focus on the pricing strategy of their packages and the company must concentrate on the cost structure of the organization. In addition to that, cost volume and profit analysis is also helpful for Cox and kings Ltd in order to expand their business.


Introduction

Cox and kings is one of the well-known companies within the travel and tourism industry. In order to expand the business the company has to follow some plan like financial planning, cost analysis and in addition to that, the company must concentrate on the pricing strategies of the service. In order to provide the better customer service and hold a large market share proper financial planning, a specific pricing strategy is required. Achieving a comparative advantage over all the competitors of the industry the company should bear some cost to develop an effective business plan (Bosun et al. 2014, p.75). In that business plan, financial planning should have the special emphasize to expand the business in the short period. In order to expand the business the company Cox and Kings Ltd should concentrate on the different kind source of finance and in addition to that, the company should consider the effective source of finance that is suitable for the company. Otherwise, the expansion of the business will not be complete in a short period.  


Explaining five sources of finance to fund the business expansion plan (LO1)

In order to expand the business source of finance is one of the basic conditions otherwise; the business expansion plan will not work. Therefore, to develop the business expansion plan Cox and Kings Ltd Company should focus on the source of finance properly. The source of finance depends on time; two types of sources of finance are there that is short-term source of finance and long-term source of finance. Short-term source of finance helps the company to start the company in the quickest possible time and it can be arranged in a short time. In case of short-term source of finance, there are different kinds of sources like bank credit, customer advances, trade credit, public deposits and so on.


1. Bank credit: It is one of the main sources of finance for the company because the Cox and Kings Ltd is a renowned companies in the travel and tourism industries so it will be easier to get the loan from the bank. In this context, the bank will depend on the brand name of the company and the loan will be arranged on a short period for the company. The higher amount of loan can be given to the company based on the brand name of the company.


2. Customer advances: In order to expand the business, the customer advances of the company are one of the major sources of finance. The company has many subsidiaries in different countries so it will be easier for the company to arrange a high amount of customer advance as the source of finance (Pastras and Bramwell, 2013, p.390).


3. Public deposits: It is also an important short-term source of finance for the company Cox and Kings Ltd. based on the brand name of the company, the people prefer Cox and kings Ltd to invest in the company so the public deposits will play a vital role to expand the business of Cox and Kings Ltd.


In case of long-term source of finance, several sources are there and among them some important source of finance are:

1. Equity shares: The Company must have some equity shares because it may be major source of finance for a company. In case of Cox and Kings Ltd equity shares plays an important role to expand the business of the company properly. Cox and Kings Ltd is one of the renowned companies within the industry of travel and tourism so the company holds a large amount of equity shares. In long term, it helps the company to run the business smoothly.


2. Long term loans: In case of financing long term, loans may play a vital role in order to expand the business of the company. It is one of the important sources of finance because in this case, the company can get a higher amount of loan from the bank and there will be enough time to repay the loan. Therefore, the company will prefer it as the source of finance. In this case, the Cox and Kings Ltd can get the loan from other financial institution and there the company can get the higher amount of loan based on the brand name of the company.


3. Fixed deposits: Fixed deposits are an elementary source of finance for a company so the Cox and kings is not the exception of this. In case of fixed deposits to get money in hand is a little bit time taking process so it consider as the long-term source of finance. In case of Cox and kings Ltd, there should be a large amount of fixed deposits because the company has many subsidiaries in different countries. It is clear that to arrange the source of finance to expand the business is not a hard task for the company.

Furthermore, the source of finance can be developed based on internal source of finance and external source of finance. In case of internal source of finance different types of source are there like retained earnings, depreciation funds and surplus of the company. In case of surplus Cox and Kings Ltd has a comparative advantage because the company has other branches from where they can earn profit and from this, they can develop a surplus earnings of the company.

In case of external source of finance there are also some other kind source of finance that helps the company to expand the business of Cox and kings Ltd. Among all the external source of finance, the important are share capital, debenture, public deposits, loans from banks and other financial institutions. Public deposits is the part of short term source of finance and it has been discussed above and loans from banks and from other financial institutions is the part of  long term source of finance and it also has been discussed earlier.


Explaining the behavior of cost and importance of cost volume profit analysis (LO 2)

According to the cost volume, profit analysis a company can get an idea about the change in volume according to the change in the cost and profit of the company. In this cost volume profit analysis the cost of a company, the profit of the company and the volume of the company will be discussed differently. In case of cost volume and profit analysis the profit, cost and volume of Cox and Kings Ltd will be discussed separately. In this context, the volume of Cox and Kings Ltd will be the number of subsidiaries of the company. There will be different profit and cost for all the subsidiaries but overall profit is necessary for the company.

In order to analyze the cost volume and profit of the company the cost has the different importance and the cost behavior of the company will be discussed here. In case of Cox and Kings Ltd different type of costs are there like fixed cost of the company, variable cost of the company, marginal cost of the company, annual business cost of the company and so on. In case of fixed cost of Cox and Kings Ltd several kind of costs are there like thecost of own a bus is one kind fixed cost of the company, the cost of development of a hotel is one of the example of fixed cost of the company. Other daily cost can be considered as the variable cost of the company. These fixed and variable costs are depending on the number of tours that are arranged by the company. In case of annual business, cost different types of costs are there like accounting and legal fees, advertisement and promotion, business loan payment, depreciations, interest and bank charges and so on (Kimbu and Ngoasong, 2013, p.235).

In order to analyze the cost volume profit of the company the profit equation is one of the important elements for Cox and Kings Ltd. In this case, the analysis of profit equation is required and in order to do this total revenue of the firm and total cost of the company is required. In addition to that the break-even volume analysis and target volume analysis is required. The profit equation of the firm is P = TR-TC (P= profit, TC= total cost and TR = total revenue) from this the break-even volume analysis can be done in case of break-even volume analysis X = F/P-V (where X = break-even volume, F = fixed cost, P = Profit and V = variable cost). By doing the cost volume and profit analysis, the company can expand the business in a proper way.


Discussing various pricing strategies within the travel and tourism industry (LO 4)

In order to boost the business share the company Cox and Kings Ltd should consider the proper pricing strategy otherwise it would be difficult for the company. In addition to that, proper pricing strategy is also important for the company to gain the comparative advantage over other competitors of travel and tourism industry. In this industry, different kind of pricing strategies are there like seasonal pricing, day of week-pricing, time of day pricing, surcharge or peak pricing and last minute pricing.


Seasonal pricing: In this pricing strategy, the company first identifies the some seasons to conduct a tour and then Cox and Kings Ltd should charge the price according to the season. In effect of this the Cox and Kings Ltd can identify a season in that the people prefer to book a tour most. In case of seasonal pricing different kind of people can book the tour because in this case, price of some tour is higher and the price of some tour is lower. With the help of this, pricing Cox and Kings can maximize the profit and increase the sale of their traveling package (Moscardo and Murphy, 2014, p.2538).


Day of week-pricing: In case of this strategy, the company will take the advantage of busy schedule of the people. People has some little free time in hand to go for a holiday so the company can develop a pricing strategy where the company can give the specific discount to the customer. Therefore, this type of pricing strategy helps the company to hold the customer ion long run. In this case, Cox and Kings Ltd charge special price for a particular day of a week.


Time of day pricing: this pricing strategy is probably the best pricing strategy for Cox and kings Ltd because it helps the company to maximize the profit. In this case, the company can set a special price for a particular time of day to maximize the sell. In this context, a special offer in a particular time of a day may attract a huge number of customers. In this case, the company can increase its sell by adopting this pricing strategy.


Surcharge or peak pricing: Through the help of seasonal pricing, the company can identify a peak season of the tourism and Cox and Kings Ltd can set a specific price of that season. In this case, the company can charge high price because there are enough demand of the traveling package of Cox and Kings Ltd. Furthermore, the company can charge lower price for their traveling package in order to gain a comparative advantage over other competitors of traveling and tourism industry.


Last minute pricing: In this case, before close the booking the company can announce a special offer or charges the relatively lower price in order to fulfill the booking of traveling package. It is not a proper pricing strategy for company like Cox and Kings Ltd. This type of pricing strategy is used to fill the booking of traveling package not to earn profit. 

In order to maximize the profit Cox and Kings Ltd should choose a proper pricing strategy and it helps the company to gain a comparative advantage. In addition to that with the help of proper pricing strategy the company can achieve a financial stability within the organization and able to expand the business (Boukas and Ziakas, 2013, p.329).


Conclusion

It is clear from the above analysis that Cox and Kings Ltd can expand their business with the help of a better financial planning. In that financial planning the source finance is one of the basic elements, where the concentration of the company is needed in addition to that proper pricing strategy of Cox and kings Ltd is also an important element that is required to expand the business.  


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