FINANCING IN TRAVEL AND TOURISM

Financing in Travel and Tourism

Financing in Travel and Tourism

Introduction

Decision making in any industry or any field for that matter is perhaps the most complex and arduous process. Effective decision making would involve the employment of statistical data and information of relevant indicators, and a comprehensive assessment and comprehension of such information and data. The purpose of this process is to be able to accurately interpret the data and its meaning. However, decision making does not imply that it should be solely based on statistics and facts and figures alone. In this assignment, we would attempt to analyse the “three quarters” portion of data and information evaluation for the purposes of decision making in travel and tourism industry.

Discussion

Task 1) Understand the importance of costs, Volume and profit for management decision-making in travel and tourism

In this task we would attempt to comprehend the importance of cost, volume and profit for decision making for the travel and tourism.

Importance of Cost in Travel Industry

Analysis of cost is primarily essential in any industry. Cost analysis can be described as having a fundamental significance in the decision making process. The aim of any business in any industry is to achieve maximum profit on lowest possible cost. Hence, the key to profit maximising lies in minimising costs, as profit is the amount remaining after costs have been deducted from revenues (R. Scarlett, Pp.181-233). In order to minimise costs, they need to be analysed comprehensively as all costs are not avoidable.

There are two main types of cost which are as followed:

1. Fixed costs

Fixed costs are those that will remain consistent and fixed regardless of the production level (CIMA, p.23). The reason is that the costs have no relevant affect on production. In context of travel industry, fixed costs would include airport charges, basic salaries of management, office rent etc. Fixed costs are not related to the productive capacity of travel and tour businesses. They remain fixed and do not fluctuate. Hence, they cannot be altered and are therefore unavoidable.

2. Variable costs

Variable costs vary with the level of production. These costs are directly related to the productive capacity of the tour and travel business (CIMA, p.33). An instance of this is the fuel of the aircraft. It has a direct proportion relationship with the number of miles an aircraft has to travel. The more an aircraft has to travel, the higher would be the variable costs attached with it. It also increases with the number of aircraft. The other instance of variable cost is that of labour cost. These are the wages that are paid to workers. It would also increase as per the productivity levels. Hence, in this case, it can be seen that variable costs can be subject to reduction and avoidance. For example, if the travel business is to employ a capital-intensive production method, it would be able to save on its labour cost and hence, variable costs would decrease. This would increase the profit levels for the ...