Expanding TUI Travel PLC's Business Operations: Financing, Cost Behavior, CVP Analysis, Pricing Strategies - Essay.

Explain the types of decisions and considerations that the CEO of your chosen organisation would need to make in order to ensure their venture is financially viable.

Explain the types of decisions and considerations a manager would need to make in order to ensure their venture is financially viable.

Decisions and considerations for expanding TUI Travel PLC's business operations

In today’s growing business world, the presence of different kinds of businesses can be seen. One of such fast growing business industry is travel and tourism industry. There are huge numbers of travel and tourism businesses all over the world. At the same time, the existing businesses in this industry are planning for expansion all over the word.  In order to be expanded all over the world, it is required for these companies to have an effective expansion plan considering all the necessary aspects of expansion (McDonald et al. 2013). Promising growth can be seen in the travel and tourism industry of United Kingdom (UK). 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.

It needs to be mentioned that TUI Travel PLC is one of the major travel and tourism companies in UK (tuigroup.com 2018). The main aim of the company is to expand their business operations in order to grab more market share. The following graph shows the profitability of this company over the last four years starting from 2014 to 2017:

Figure 1: Profit Trend of TUI Travel PLC

(Source: As created by Author)

From the above graph, it can be seen that the company has been able to increase the net profit of their business over the four years; and thus, it can be considered as the perfect time for the business expansion of the company. The report takes into consideration the necessary aspects for the decision related to the expansion of TUI Travel PLC.

The definition of expansion financing can be provided as the capital used for enlarging the size of the business organizations with the help of different means.  There are different sources of finances are available for the business organization in order to raise the necessary capital for the purpose of business expansions. There is no exception of this fact in case of TUI Travel PLC. The following discussion shows the sources available for financing the business expansions:

Personal Investment: Personal investment refers to the process when the proprietors of the businesses invest their own cash in their business for the purpose of expansion. At the same time, the proprietors have the option to use their personal assets as collateral in the bank for raising the required capital for business expansion. In this process, the proprietors are needed to be ready to take long-term risks (Lee, Sameen and Cowling 2015).  

Sources of financing for TUI Travel PLC's expansion plan

Love Money: In this financing process, the business proprietors loan money from their family members an close relatives in order to invest them in the business for the purpose of expansion. Generally, this money is repaid later when the profitability of the business increases.

Venture Capital: It is considered as one of the most popular source of financing for business expansion. The venture capitalists use to take certain equity portion in the companies so that the expanding companies can carry out with the higher risk projects for expansion. However, it needs to be mentioned that the venture capitalists prefer to invest in high technology driven businesses. The venture capitalists expect healthy return from the businesses (Gage 2012).

Angel Investors: Angel investors refer to the wealthy individuals or retired wealthy company executives make investments in the business organizations for expansion purpose. Apart from required capital, these investors use to offer the companies with their expertise and experience for the expansion of the businesses. In return, they seek one of the positions in the management team or the board of directors of the expanding companies (Collewaert 2012).  

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. They provide the businesses with necessary capital and other supports in return of healthy return.

Government Grants and Subsidies: Many times, the government of the countries provides the businesses with different types of grants and subsidies for expansion. However, in order to avail this opportunity, the businesses are required to provide the government with the detailed description of their expansion plans.

Bank Loan: This is considered as the most common source of financing for the businesses for the purpose of expansion and the banks provide different kinds of advantage to the business organizations in order to support their expansion plan. However, in order to avail this opportunities, the companies are required to provide some assets as collateral to the banks (Casey and O'Toole 2014).

From the above discussion, it can be observed that there are different types of sources are available for TUI Travel PLC in order to finance their expansion plan. However, it is recommended to TUI Travel PLC that they should adopt these specific financing strategies; they are venture capitalists, bank loan, and government grant and subsidy and business incubators. The main reason behind suggesting this source is that the company can finance huge capital from this source for long-term basis. In addition, TUI Travel PLC can get the expertise and experience of the investors at the same time from these inventors. Thus, it is required for TUI Travel PLC to develop an effective expansion plan for their business so that it can attract the attention of these investors.  

Cost behavior and its importance in TUI Travel PLC's expansion plan

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 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. On the contrary, 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).

Figure 2: Cost Behavior

(Source: As created by Author)

From the above graphical representation of both of these costs, it can be observed that the total fixed costs look like a straight horizontal line, but the total variable cost like looks like upward slope. This specific variation can be seen due to the presence of cost behavior. At the time of the development of the expansion plan, the management of TUI Travel PLC is required to consider these aspects of cost behavior.

The Cost Volume Profit Analysis, commonly known as CVP analysis, refers to a particular planning process used by the management of the companies for the prediction of future volume of activity costs incurred, sales and profits. It needs to be mentioned that the CVP analysis plays an integral part in the decision making process of the management team (Drury 2013). 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. Thus, it can be said that the CVP analysis provides a detailed snapshot of the cost activity of the companies. With the help of this, the management of the 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. Thus, on an overall basis, CVP analysis helps the management of the companies with the decision-making process (Hilton and Platt 2013). For this reason, it is recommended to the management of TUI Travel PLC to consider CVP analysis for the decision-making of their business expansion plan.

CVP analysis for TUI Travel PLC's expansion plan

Pricing strategies refer to the methods used by the companies to price their products and services. Thus, it can be understood that the adoption of effective pricing strategies is a vital part of the expansion plan of the companies and there is not any exception of this fact in case of TUI Travel PLC. There are different pricing strategies available for the travel and tourism companies. The following discussion shows the description of the recommended pricing strategies for TUI Travel PLC:

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. It is recommended to the management of TUI Travel PLC to have the rack rates of all of their travel and tourism products and services. This can be considered as an important part in the pricing strategy of TUI Travel PLC as it will help the company to cope with the changing price of the industry (Davcik and Sharma 2015).

Seasonal Pricing: Seasonal pricing can be considered as another attractive pricing strategy for the products of TUI Travel PLC as it will help TUI Travel PLC to attract the attention of large number of customers. Under this strategy, the company is required to mix the prices throughout the year in order to cover high, low and shoulder season.

Last Minute Pricing: Last minute pricing is another recommended strategy for the expansion plan of TUI Travel PLC as it will help the company to promote their business. Under this pricing strategy, the management of TUI Travel PLC is required to make discount on the daily prices of their products based on the forward booking (Jobber and Shipley 2012).  

Discounting: Discounting can be considered as the most popular pricing strategy in the travel and tourism industry and for this reason; this pricing strategy is highly recommended to TUI Travel PLC. However, there are many instances where excessive discounting had led to the reduction in profitability. Thus, the company needs to be careful while adopting this strategy for the purpose of their expansion plan. It needs to be mentioned that this particular strategy has the capacity to attract large number of customers towards the products and services of TUI Travel PLC (Armstrong et al. 2015).   

Package Deal: This can be considered as another major pricing strategy for the expansion of the business of TUI Travel PLC. This strategy helps in adding value to the customers by developing tour and travel packages with complementary services and this strategy can be considered as a major strategy to boost the profitability of the company without having any discount (Kotabe and Helsen 2014).

Pricing strategies for TUI Travel PLC's travel and tourism products

These are the recommended pricing strategies for the expansion plan of TUI Travel PLC as these strategies will attract more customers towards the products and services of the company that will contribute towards higher profitability.

Conclusion

From the whole discussion, it can be understood that the management of any organization needs to consider certain crucial aspects while making expansion decision of their businesses. Some of them are the decision related to the source of finance, cost behavior, the importance of CVP analysis for decision-making and the adoption of correct pricing strategies. After considering all these aspects, the management of TUI Travel PLC will be able to make effective decisions on their expansion plan. Based on the above study, some recommendations are provided below:

• 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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