Formulating An Expansion Strategy For Viator Company In The Travel And Tourism Industry

Viator Company and its Business Model

Discuss about the Finance for Travel and Tourism.

The main purpose of this assignment is to formulate an expansion strategy for a travel and tourism Industry. The company which is selected for this assignment is Viator company which is a trip advisor company. The assignment will be considering various financing options which is available to Viator company as it pursues its expansion plan.

In most of industries around the world, development and growth have been seen, travel and tourism industry is no exception in such an area. The industry has been rapidly developing due to the various new spots that are coming up for tourists. The demand for tourism industry is at peak in today’s world as the younger generation always wants to explore new areas and location for the thrill and adventure it serves them.

Viator company is engaged in travel and tourism business and also serves as a trip advisor for its client. The company operates in countries like UK, other parts of Europe, Australia, US and some parts of North America. The company has a plan for travel to any destination which is desired by the clients. The business model of the company is to provide the best travel experience to the customers (Viator.com. 2018). The name of the company itself in Latin means travel. The company has a strong and well develop website which has ten different languages and books tickets for any destination place.

The company is planning to further planning to expand its business and add new tour and destination spots for its clients. The prospect of expansion in any new market will require adequate amount of resources and capital to establish links with hotels, tour guides, Visa and passport clearings and other similar activities (Finch 2016). The business attracts the younger generations more and therefore the plan of the management is to add destination spots which are known for its parties or adventure sports to which such a generation is attracted.

The market of travel and tourism industry have been developing and growing for a decade now and this significantly add to the GDP growth of the country. However, it is to be noted that such an industry is affected by the economic cycles and inflation. Another research shows that if the government of the country takes necessary steps like beautification projects, maintenance of sites which has historical importance. The general services which are offered by any tourism company are booking of flights or train or any travelling tickets, booking of hotels and restaurants for the stay and foods, hiring of a tour guide, arrangements for adventure sports for younger generation and similar other activities. A recent market survey which was conducted for the purpose of finding the additions which Tourism Industry makes to GDP in UK. The results of the survey are depicted

Expansion Plan

Tourism industry by the contribution which it makes to the GDP of the country. It is also known from the analysis of the market, that tourist or in general people like to travel whenever there is an event or a favorable season for leisure purposes. It is seen that the people like to travel towards the end of a year such as November, December. However, in case of an occasion or an event, tourists do not consider the season. Such events may be like a sports tournament, family destination weddings and similar other occasions. Therefore, it can be said that the travel industry is still developing and Viator company wants to achieve such a development and hence they are planning on expansion of the business further by introducing new destination in countries and further improve the services which are provided by the business.

In order to come up with an effective expansion plan and also implement the same, Viator company will be requiring resources which is mainly financial resources (Caglayan and Demir 2014). For the purpose of meeting the financial requirements which the expansion plan demands, the various option for acquiring funds are given below in details:

1. Bank Loan: The most suitable option which Viator Company has to apply for a long-term loan from banks. The loan will be of a considerable amount and therefore it must be taken for a long-term (Hardie et al. 2013). The advantage of taking a loan is that the business can take a large amount of loan which allows the business to meet all its expenses effectively.
2. Sponsorship: The business can also acquire a sponsor which can finance the activities of the business. A sponsor is an institution or other companies which finances other business for advertisement and promotional activities. this source of financing is an efficient source without bearing any significant risks to the business (Grohs and Reisinger 2014).
3. Issues of Shares: The company can also issue fresh shares in the business so that the financing requirements of the business are meet. Moreover, this is the method which is followed by most of the companies as it efficient in acquiring capital in a quick period of time.
4. Tie up Partnership: In many cases tourism Companies enter into an agreement with a hotel business or restaurant service chain to bring in tourist and in exchange such businesses will be providing a certain portion of commission to the tourism company. This tactic can also be applied by Viator company in expansion plan. In the new country the business needs to establish links and enter into agreements with hotels, restaurants and adventure sports centers. In this way the business will be able to earn more profits through commission (Gbandi and Amissah 2014).

As per Masterman (2014), CVP analysis is very useful in determining the breakeven point on the basis of cost and volume of the product. The analysis is very useful when it comes to the decision-making process for any development or expansion plan (Masterman 2014). The analysis takes into consideration fixed costs, variable costs and selling price which enhances the relevance of the analysis in decision making process. In order to conduct this evaluation, various equations are required and such could be developed with the help of cost, price and other variables which are associated with the analysis (Klemstine and Maher 2014).  Hence, it is a process of cost accounting related to the impact of varying levels of costs and sales in terms of operating income of the organisation.

In the case of Viator Company, the company can rely on CVP analysis if the results do not vary within a certain level of production. With the help of this analysis the company can estimate the breakeven sales which the business needs to achieve in order to achieve the growth level which is expected from the expansion plan. The cost of tickets for travel will be considered to be part of variable costs as this depends on the destination of the client. With the help of CVP analysis the business can estimate the contribution margin and the profitability of each category of products which are introduced by the business. Moreover, the expansion plan’s contribution margin needs to be more than the fixed costs associated with the product in order determine the success of the expansion plan. Moreover, the contribution margin could be used for ascertaining the break-even point and break-even sales. This could be obtained by dividing the overall fixed costs by the ratio of contribution margin (Georgiev 2017).

Financing Options for the Expansion Plan

In order to compute the breakeven point of the company certain assumptions have been made which are depicted in the table given below:

Basic Assumptions:
Particulars	Units
Average revenue per customer	£            55
Average variable cost per customer	£            25
Contribution margin per customer	£            30
Incremental fixed cost	£     10,000
Number of customers	1,500

The number of customers which are assumed is 1500 and the incremental fixed cost is assumed to be £ 10,000. The number of customers which is shown in the table above are expected to avail the travel program in a new country or tourist location site. The average revenue is also on an estimated basis. The contribution margin per customer is estimated to be £ 30 which is arrived by deducting average variable cost from the revenue generated by the business (Murphy 2013). The calculation of Breakeven sales is given in the table below:

Break-even calculation:
Particulars	Units
Revenue	£     82,500
Total variable cost	£     37,500
Contribution margin	£     45,000
Incremental fixed cost	£     10,000
Total profit	£     35,000
Break-even (in customers)	333
Contribution margin ratio	54.55%
Break-even (in sales)	£     18,333

The above table shows the computation of the contribution margin ratio as well as breakeven point in both sales and number of customers. The profits of the company is also shown as per expectation of the management for expansion plan. The breakeven for the customers is anticipated to about 333 customers out of 1500 customers which if achieved by the business then there will be no profit no loss situation. In case of breakeven in sales it is anticipated that if the business can earn about £ 18,333.

The relevant pricing technique which can be followed by Viator company taking into consideration the expansion plan of the business is given below in details:

1. Flat Fee: In this method the organization charges a flat fee for all the services it provides to the clients of the business. This method is not that much used in tourism companies as the costs associated with the trip is continuously changing and somewhat also depends on the destination which is chosen by the client (Al-Roomi et al. 2013).
2. Profit Percentage: In this method, a certain percentage of profit is added to the overall costs which is taken for the trip (den Boer 2015). The percentage of profit which is added to the cost figures of the company is estimated on the judgement of the company that is, it depends on how much the company wants to earn profits.
3. Advance Payments: As per this technique when the clients book a trip, the client will be liable to pay a certain amount of expenses as advance to the company. The remaining expenses will be incurred by the client in progressive basis as the trip goes on or at the end of the trip as per the convenience of the clients.

Thus, from the analysis of the above, Viator company should move ahead with the expansion plan as the business of travel and tourism is at a growth phase and the business will be able to earn more revenues if the company widens the scope of its operations and incorporate new destination plans for the clients. The plan of the management is also appropriate to set up a agreement with adventure sports destination places so that the younger generation can enjoy themselves and be attracted to the service packages of the company.

In the case of financing decisions, the company should follow a mixed approach to finance the expansion plan of the business (Morellec, Nikolov and Zucchi 2014). The company should avail both loan facilities and issue shares to the public so that the capital structure of the company is made up of both debt capital and equity capital sources. The use of both debt capital and equity capital can ensure minimization of risks if appropriate capital structure is achieved.

In case of pricing strategy, the company should opt for advance payments or percentage of profit method as per the situation and the trip’s destination spot of the company. Advance payment basis can be adopted for clients who have taken the complete package of all services included like travelling, hotels, restaurant, fun activities and some discounts can also be provided to such clients.

Conclusion

From the above analysis, It is clear from the above discussion that the company should move forward with the expansion strategy which is adopted by the business. The pricing strategy and the financing option which Viator Company should select is also given in the discussion above. As per the analysis conducted it is clear that the expansion plan will be a success if the company is able to implement the sane strategies effectively and moreover the industry is at its growth phase and therefore the company has the opportunity to expand its operations and profitability.

References

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Caglayan, M. and Demir, F., 2014. Firm productivity, exchange rate movements, sources of finance, and export orientation. World Development, 54, pp.204-219.

den Boer, A.V., 2015. Dynamic pricing and learning: historical origins, current research, and new directions. Surveys in operations research and management science, 20(1), pp.1-18.

Finch, B., 2016. How to write a business plan. Kogan Page Publishers.

Gbandi, E.C. and Amissah, G., 2014. Financing options for small and medium enterprises (SMEs) in Nigeria. European Scientific Journal, ESJ, 10(1).

Georgiev, D.K., 2017. Application of ‘Cost-Volume-Profit’Analysis in the Hotel Industry Based on Survey Data of High-Ranking Hotels in the North-East Region of Bulgaria.

Grohs, R. and Reisinger, H., 2014. Sponsorship effects on brand image: The role of exposure and activity involvement. Journal of Business Research, 67(5), pp.1018-1025.

Hardie, I., Howarth, D., Maxfield, S. and Verdun, A., 2013. Banks and the false dichotomy in the comparative political economy of finance. World Politics, 65(4), pp.691-728.

Klemstine, C.F. and Maher, M., 2014. Management Accounting Research (RLE Accounting): A Review and Annotated Bibliography. Routledge.

Masterman, G., 2014. Strategic sports event management. Routledge.

Morellec, E., Nikolov, B. and Zucchi, F., 2014. Competition, cash holdings, and financing decisions.

Murphy, P.E., 2013. Tourism: A community approach (RLE Tourism). Routledge.

Viator.com. (2018). Tours, sightseeing tours, activities & things to do | Viator.com. [online] Available at: https://www.viator.com [Accessed 24 Apr. 2018].