In this Managing Finance Travel Tourism Sector we have analyzed travel and tourism industry with the help of taking British Airways as an example. Different aspects of finance like costing methodology adopted by the firms in the industry, usefulness of the management accounting information, making use of budget, interpretation of the financial ratios of the firm and lastly the financing options available with such firms have been explored below. An in depth analysis of all these aspects has been done keeping in mind British Airways. This Managing Finance Travel Tourism Sector has helped to gain an insight about the travel industry.
Analyse and discuss the methods of costing and the concept of cost, volume and profit in the travel and tourism industry using the given company as the example. Discuss how the pricing strategies are adopted in the travel and tourism sector using the case study example.
Cost is an important part of the business strategy for travel and tourism industry. This industry provides services and hence the products are not tangible. There are intangible elements like the way staff treats its people or the facilities being provided by the firm which can be used as differentiating factor. Many travel firms charge higher cost for their premium services. Thus the firm need to understand on what services are they providing to the customers and are the customers willing to pay for these services. This industry is also very competitive. There are many players in the market who are trying to woo the customers and hence cost also becomes a factor for the customers to decide from where they want to take the services. Thus a balance between cost and service becomes an important factor in this industry.
There are different ways of deciding on the price of the services. Firms can use the standardized costing, contribution concept or can use ABC costing technique. In addition to this firm also have flexible costing where the cost changes according to the supply and demand and time left to provide the service. As the date draws near prices tend to increase for such firms. Cost can be classified according to the products, function and nature of the services being offered by the firm. Here we industry being considered is travel and tourism and they mostly provide services else for firm selling products, cost can be divided into production and non production costs.
Here British Airways have been taken as the example to explain the concept of cost. Here the firm follows the contribution pricing with some modifications. It also has the flexible pricing system and charges higher cost for premium costing technique. British Airways have high fixed cost which is of the fuel and the planes. However it tries to incorporate the variable cost into the pricing and tries to increase the volume of the customers so as to cover the fixed costs. Also it provides different services depending upon the cost. Hence the customers who are willing to pay more can do so and take the benefit of premium services. Thus the costing in this industry is flexible and is also affected by external factors (Dyson , 2003)
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Analyze the role of management accounting information as a decision making tool in your case study organization and Identify and discuss the objectives of a budget and assess its importance generally with special emphasis in the travel and tourism industry:
Tourism and travel industry need to use management accounting information in order be competitive. Firm needs to understand its costs like the cost of its assets, equity in order to pricing decision making. There have been many cases where a firm is not able to identify the real costs and thus has led to firm adopting incorrect pricing strategy which led to failures of the firm. Firm need to understand its cost and the best way to do is to analyze its accounting information. Firm can analyze its assets, its equity, liabilities and thus come up with the cost of these in the balance sheet of the firm. Analysis of the cost can be done using this management accounting information. This cost would be used to make pricing decisions.
Important information which the firm can use to make important decisions is the budget of the firm. Travel and tourism industry mostly have seasonal sales. As a result the firm needs to have a strong and robust budget which helps the firm incorporates seasonality in decision making process of the firm. Firm need to be ready during the times of the year when the sales are expected to increase and more number of customers are expected to use firm’s services.
A good budget can help the firm gather idea about the expected sales in the future and how should the firm ramp up their services in order to serve the expected increase in the sales of the firm. Similarly firm need to understand when the sales are expected to go down and hence they need to cautious and not invest too much in their resources as it can lead to wastage. Thus the firm should always be ready to serve its customers. Lack of resources to serve the customers should never become an issue for the firm as it can lead to loss of reputation for the firm. Thus budgeting becomes very important for the firm like British Airways who are in the business of the travel and tourism.
An example of this can be taken for British Airways. Firm needs to analyze the periods during the year in which the no of people travelling peaks and this will be repeated phenomena for the firm. Hence the firm needs to prepared when the this part of the year arrives. Normally during holiday season a travel industry sees more bookings and hence the firm normally charges higher than the normal rates. However they also need to have their resources so that they can service the customer better.