Harold L. Vogel A Guide for Financial Analysis Third Edition

The mission is therefore to broadly cover - for anyone who analyzes or manages or writes about travel-related investments - the financial and economic dynamics of the businesses that serve the needs of people who, whether for pleasure (tourism) or commerce, require physical transportation. : travel, in other words. Adrian Bull's The Economics of Travel and Tourism; Rigas Doganis's airline economics masterpiece, Flying Off Course, and J. Pat) Hanlon's Global Airlines.

Time Concepts

Alternatives

The importance of lost revenue would only be determined by time intensity if time costs were the same for all goods. For example, time costs are often lower at weekends and in the evenings.

Availabilities

And as shown in Table 1.2, McGrattan and Rogerson (2004) find that since World War II, the number of weekly hours of market work in the United States has remained more or less constant, although there have been dramatic shifts in various subgroups. However, Bell and Freeman (2000) explain that the differences in hours worked in different countries are less related to cultural values than to a greater diversity of wages, the effect of number of hours worked on future compensation and less job security in the United States than elsewhere. .

Fig. 1.1 Estimated average weekly hours for all persons employed in agricultural and nonagricultural industries, 1850–1940 (10-year intervals) and 1941–1956 (annual averages for all employed persons, including the self-employed and unpaid family workers)

Supply and Demand Factors

Productivity
Demand for Leisure
Expected Utility Comparisons
Demographics and Debts
Barriers to Entry

For example, in the case of the distance-decay function of Figure 1.4, the expected utility thinking is for travelers to behave as they do in terms of balancing the opportunity cost of time and money (distance) against frequency of travel. In the longer term, the demand for leisure goods and services can also be significantly influenced by changes in the relative growth of different age groups.

Fig. 1.5 Average annual percent change in nonfarm business productivity in the United States, 1947–2014, selected periods

Primary Principles

Marginal Matters
Price Discrimination
Public-Good Characteristics
Power Laws

With luxury, the quantity demanded increases faster as income increases and the income elasticity is greater than 1.0. And for inferior goods, the income elasticity is negative, with the quantity demanded falling as income rises.

Personal-Consumption Expenditure Relationships

In fact, the differences between the values of the two series were small in the United States. As a result, GDP measurements hide the breakdown of the social structure and are grossly misleading.

Table 1.5 PCEs for travel and transportation, selected categories, in billions of current dollars, 1980–2014

Price Effects

The Bureau of Labor Statistics using the CPI and GDP deflator series are shown in Fig.1.18. 34 Price indices come in several versions; CPI-U for all items and urban consumers, CPI-W for non-earners and a series of GDP deflators.

Fig. 1.18 Price inflation indexes: all items CPI—

Industry Structures and Segments

Structures

Segments

Cash flow is so important because it can be used to service debt, buy assets, or pay dividends. Finally, an indexed comparison of the percentage of personal consumption expenditures going to different segments reveals the effects of changes in technology and spending preferences.

Fig. 1.20 Percent of PCEs for travel by air, bus, and rail, 1959–2014

Advertising and Promotion

Valuation Variables

Discounted Cash Flows

Given that the primary assets of travel industry companies consist of both tangible assets such as buildings and equipment and intangible assets embodied in the form of brand names and reservation systems, it makes sense to base valuation on the expected future profits that the management of such can generate. expects funds to be transferred over time. For the simplest illustration, assume that the required rate of return is 9%; that the projected net cash flows of the new theme park attraction in each of the next 3 years are $3 million, $2 million, and $1 million; and that attraction has no value beyond the 3rd year.

Comparison Methods

Discount rates are usually the most important decision variable for proposed capital-intensive investments for all tourism and travel-related projects, including but not limited to aircraft or ship purchases, airport, rail and road infrastructure, and hotels.39 These rates are , to which is significantly influenced by the monetary policy of the national central bank, which is usually expressed and influenced by changes in short-term interest rates, changes in the purchase or sale of bonds and consideration of exchange rates.

Options

Oil

King Hubbert, a Shell Oil geologist who predicted in 1956 that production in the contiguous United States would peak in the 1970s. Appenzeller (2004) notes that since 1970, the total number of annual miles driven by cars and trucks in the United States has doubled, far outstripping population growth.

Fig. 1.24 World crude oil production (thin line) and consumption (thick line), 1960–2014

Concluding Remarks

Today, however, air travel is so common that 3.3 billion passengers a year worldwide take 33 million scheduled flights over more than 1.5 billion miles (2.5 billion km) on more than 23,000 commercial aircraft providing service via 1,000 commercial plane. airlines to 3,700 airports. A sixth era, the one with higher trends but more volatile oil prices, probably began in 2008, when the price rose to around $145 per barrel. barrel, then fell steeply, returning to more than $110 per barrel. under $50 per barrel in 2015.

Onward and Upward

Technology and Early History

With this, the government began paying private mail carriers according to the weight carried rather than a percentage of the postage paid. However, the true arrival of the passenger jet era (examined by Verhovek 2010) did not appear until 1958, when Boeing introduced its 707 model, which could carry 181 passengers at speeds of up to 550 miles per hour (and initially by flew Pan Am).

Fig. 2.1 Airline industry milestones, 1890–2014

Regulation and Deregulation

Such demand was further sustained by the continuing long-term decline in the average real price (now around 15 cents) that passengers paid to fly a mile (Fig.2.2c). 6Many bilateral agreements follow along the lines of the US and UK agreement which was a compromise signed in Bermuda in 1946.

Fig. 2.2 (a) Airline industry operating profit/

Operational Characteristics

Structural Features
Basics
Marketing Features
Airport Management

All majors must hold two certificates issued by the federal government. The ratio is similar to that of the name of the same name used by the broadcaster.

Fig. 2.3 (a) Passengers enplaned (in millions), (b) number of passengers and flights (in millions), (c) passenger-miles (in billions), (d) available seat-miles (in billions), (e) load factor (%), (f) yield (constant 2001 dollars and current dollars), and (

Economic Characteristics

Macroeconomic Sensitivities

By this measure, RPKs generally rise or fall about twice as fast as changes in world GDP (and suggest an income elasticity of about +2.0).

Microeconomic Matters

Moreover, the elasticities for business travelers are certainly different from those for leisure travelers, even when both are of the same age, live in the same cities, and earn the same income. The underlying concept in this model is that the number of people moving between cities is proportional to the sizes of the cities and inversely proportional to the distance between them.

Fig. 2.5 Percent changes in world real GDP versus percent changes in ICAO revenue passenger-kilometers, 1980–2013

Financial Features

They can be calculated from an income statement organized to identify fixed and variable costs." The degree of operating leverage (DOL) indicates the percentage change in earnings before interest and taxes (EBIT) for a given percentage change in revenue. And the degree of total leverage (DTL) is the percentage change in EPS for a given percentage change in revenue.

Fig. 2.12 ICAO-member profits (ex-USSR), 1947–2014. Source: ICAO

Financing and Accounting Issues

Financing

A modified version of the ETC, introduced by Northwest Airlines in 1994, is the E-ETC (Enhanced Equipment Trust Certificate). Until GPA ran into financial difficulties (due to insufficient capitalization and profits), it was, along with the International Lease Finance Corporation (ILFC), one of the two dominant firms in aircraft leasing.

Fig. 2.15 Airline industry ROIC versus world GDP growth, 1990–2014. Source: IATA, www.

Accounting

A finance lease favors the concept of economic ownership of the leased asset, recording it on the balance sheet as if it had been purchased. A capital lease transfers ownership of the property to the lessee until the end of the lease term.

Valuing Airline Properties

In this regard, calculating a company's enterprise value (EV) is a related and useful concept. This multiple could also be more accurately determined by comparing it to cash flow multiples on similar airline properties that have recently traded and estimates of the potential to generate new revenue streams – economic value added (EVA).

Table 2.8 Public and private market valuation methods: examples Public market values

Concluding Remarks

As Lowenstein (2002) points out, “Airlines are not like other businesses, where competition provides variety and choice for consumers and profit for businesses. Yet, despite the challenges associated with starting new businesses or merging older businesses, new systems and carriers can emerge.99 That's the nature of business.

Wetting the Whistle

Fantasy Islands

Before that time, giant ships - for example the Titanic and the Queen Elizabeth - were, until the advent of jet aircraft, the only way for most people to cross the oceans. By the late 1990s, Carnival accounted for approximately 40% of all industry revenue and Royal Caribbean, 30.

Operational Aspects

15Unlike in hotels, if more than two people stay in the room (some cabins can accommodate three or four passengers), the occupancy is considered to be over 100. 17This revenue yield aspect is similar to RevPar (revenue per available room) used in the hotel industry, but in the cruise industry it is called revenue per available lowerth day (ALBD).

Economic Aspects

As in any other entertainment-related business, the percentage of the total operating budget spent on marketing and advertising as a percentage of total unit costs is quite high (above 12%), but not as high as the cost of fuel (þ30 .For the largest companies, advertising as a percentage of revenue can range above 4.5%, and combined marketing, sales and administrative expenses can be above 13.5%.24.

Automobiles

Jamming

This means that once a vessel is ready to sail, all further strategic decisions by management must be based on prospective returns in the future (ie the original cost of the ship then becomes irrelevant). The extraordinary growth in car registrations combined with road improvements then had the effect of dramatically increasing the number of kilometers traveled - with much of the increase at the expense of the railways (Fig.3.2a).

Car Rentals

The price paid by the lessee is somewhat proportional to the length of time the car is rented for and the value of the car. From a microeconomic point of view, the goal of the rental car company is to maximize fleet utilization at the highest possible price.

Fig. 3.3 Total public spending (Federal, State, and Local) for

Kings of the Road

With the industry's operating costs as a percentage of revenue rising to 95% in the late 1970s from an average of 85 and 88% during the postwar period, for-profit industry managements began to seek the regulatory relief that Congress granted in 1982 with the approval of the Law on the Regulatory Reform of Buses. Indeed, the capital intensity profile of the industry is so similar to that of the airline and railroad industries that many of the equipment leasing and other tax-advantaged financing methods discussed in the chapter.

Iron and Steel

Congress was eventually forced to provide some regulatory relief in the Transportation Act of 1958. The different histories of railroad ownership in the United States and Europe are covered in Dunn (1981).

Finance and Accounting

Concluding Remarks

Being There

Rooms at the Inn

For the most part, the lodging industry weathered the high inflation and oil shortage years of the 1970s quite well. 2United Airlines proved this through its purchase of the Westin chain in the early 1980s and its sale of Westin a few years later.

Fig. 4.1 Lodging aggregate industry profit, bars (left), and per room, line (right), 1982–2014.

Basics

Structural Features
Operating Features
Marketing Matters

The rights to use the hotel's facilities through such vacation ownership interests (VOI) extend over several years into the future, often the lifetime of the timeshare purchaser. The challenge for the hotel is that it must have enough cash to cover all potential redemptions.

Fig. 4.5 (a) Average US hotel occupancy rates, (b) average daily hotel room rates, 1970 2015.

Financial and Economic Aspects

Financing Frameworks
Accounting Issues
Economic Sensitivities

This will cause tax to be owed on appreciation that has occurred in the contributing partnership (although by selling their units over a period of time, the partnership unitholders can spread any tax over several years). Technological advancements have also helped the hotel industry to operate much more efficiently than in the past.

Fig. 4.7 RevPar versus US passenger-miles flown, annual percent changes, 1985–2014

Valuing Hotel Assets

The sum of the discounted annual income streams - then gives the property's valuation estimate, an example of which (assuming no salvage value after 5 years) is shown in Table 4.7. For publicly held hotel real estate companies, the sum of estimated asset valuations divided by the number of shares outstanding provides an estimate of value per share.

Table 4.7 Property income streams discounted using overall capitalization rate, an example

Concluding Remarks

However, as Findlay (1986) describes, during the development process the US added a few intriguing chapters – despite the often ambivalent US public attitudes towards legalizing such activities. Thus, the foundations were already long in place for Las Vegas in particular to develop into the world-class destination resort that it once became, the first of the large (3000-room) properties (e.g. Mirage) to open in the early the end of the 1980s.

Doing Things There

From Ancient History

At First
Gaming in America
Asia ’ s Jackpot

Nevada's decision (to establish and fund, through taxes on casino gross profits), regulatory and enforcement agencies that would ensure fair and honest conduct of the games and casino operations was of further significance.5 The irony, of course, was that beginning of legalized modern gambling in Nevada. Yet significant differences remain in how the casino gambling industry operates in Nevada and Atlantic City.