Advise Marvel Getaways whether they should drop or continue the group tour ?

BUSINESS DILEMMA Managing travel is not an easy task. Business travel involves several different stakeholders with different interests to defend. Travel managers need to develop relationships with travelers, with decision-makers in their own organizations (who are also frequent travelers themselves), with suppliers (airlines, train companies, hotel chains, etc.) and other travel agencies. All these relationships involve both mutual interests and potential conflicts. For travel agencies, crisis situations are escalating for two additional reasons. The first includes the growing tendencies of airlines to reduce and sometimes eliminate the commissions paid to agents. The second trend includes the growing popularity of intemet- based reservation systems, which are a more accessible and sometimes less expensive altemative to the traditional travel agent. This obviously creates a dilemma for travel managers, who generally want their travelers to use the travel agency for all reservations to control travel behavior and travel volumes. As long as travel agents receive significant commissions from the airlines, based on sales volume, they also have an interest in selling expensive tickets. Previously, the general perception was therefore that travel agents were acting in the interest of the suppliers concerning their clients. Today, travel agents receive most of their income from their clients, their business concepts include assisting their corporate clients in their travel management work, and their role has largely become to act in their clients' interest. Furthermore, the Covid-19 pandemic had hit international travel hard. Thus, a more daunting question now concerns Covid-19 is will markets return to normal once the community completes their Covid-19 vaccines? Globally for the travel industry, it will take some time for them to be able to run smoothly again. With travel restrictions being applied, no one knows for certain how long it is going to take before groups can travel abroad again. It is important to note that, travel, like any activity that involves coming into contact with other people from different households, is not risk-free even after full vaccination. Good news as revealed by the World Health Organization, is that having the required number of doses and giving time for the vaccines to take effect significantly reduces one's risk of becoming seriously ill and spreading the virus to others. They highlighted that even with a full course of vaccination, all travelers must continue to adhere to social distancing, masking, and hand- washing guidelines whether their trips are domestic or international. Travel and tour agencies like Marvel Getaways are also severely affected due to the pandemic. In a recent management meeting, it was highlighted by the Finance and Accounts Manager that certain tour packages were poorly performing and had contributed to the decreasing in profit. The management is in the midst of considering eliminating tour package that is reported to be unprofitable. The following information was discussed by the team with regards to the consideration for dropping the said tour package (Group / Private / Solo): 1. The salaries represent salaries paid to employees working directly on the tour package. All the employees working in the tour package would be discharged if the package is dropped. 2. 3. 4. The advertising represents advertisement and marketing that are specific to each tour and are avoidable if the tour is dropped. The utilities represent utilities cost for the entire company. The amount charged to each tour is an allocation based and is not avoidable if the tour is dropped. The depreciation represents depreciation on office equipment and motor vehicle used to process the tour package. The office equipment and motor vehicle will have no resale value if tour is dropped. The insurance is for the tour package. If tour is dropped, the insurance will decrease accordingly. The general administrative represent the cost of accounting and general management expense which are allocated to each tour. These costs will not change if the tour is dropped. The variable cost of the group tour will be eliminated by 100% if this tour is dropped. 5. 6. 7. MARVEL GETAWAYS S/B FINANCIAL MATTERS: SOME KEY HIGHLIGHTS Extracted Financial Statement Marvel Getaways Sdn Bhd Statement of Profit or Loss for the year ended 31 December 2021 2020 RM RM 556,500 350,000 Revenue Cost of sales Gross profit (111,300) (70,000) 445,200 280,000 Selling expenses (27,163) (23,700) (259,260) (155,400) (5,000) (5,000) Administrative expenses Finance costs Profit before tax Taxation Profit for the year 153,777 95,900 (26,142) (16,303) 127,635 79,597