Gearing
Unit 2 Summary - part 2
Oxford AQA IGCSE 2021 paper 3
Source One: KCT
KCT is a travel agent. It sells package holidays, through retail units and online, to the mass market in a country. The number of package holidays taken by residents of that country is shown in Figure 1. Package holidays include flights, accommodation and transport between airport and hotels in one price. When choosing a package holiday, customers are mainly interested in price and customer service.
Figure 1:
Number of package holidays taken
‘All-Packed’ was a rival package holiday travel agent with a 10% share of the market. It ceased trading in October 2019. Reasons for this included:
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competition from package holiday providers that targeted a niche segment of the market eg ‘Agas’, which is a smaller business, targeting over 50-year-olds
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demographic changes leading to an increase in holidaymakers who are retired or travelling alone
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customers booking their own flights and accommodation separately using the internet • its gearing ratio
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poor management decisions.
Figure 2:
All-Packed Statement of Financial Position
In December 2019, KCT reacted to the changing market conditions by implementing a retrenchment strategy.
Figure 3:
KCT’s retrenchment strategy
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Reducing the number of retail units in expensive city centre locations by 50%.
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Reducing the total number of employees. This would include a 25% reduction in the number of employees that have contact with customers.
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A group of shareholders have opposed this strategy, stating: ‘The failure of All-Packed presents an opportunity that a travel agent, with good customer service, can exploit.’
KCT has always run with a centralised functional organisational structure. However, the managing director says that: ‘Now is the time to move quickly and change to a product based organisational structure to better reflect the market.’ The product based organisational structure would see the business divided into five departments as shown in Figure 4. Each department would run its own marketing, human resources, finance and operations functions.
Figure 4:
KCT’s product based organisational structure
01.1.
Read Source One: KCT in the insert booklet and then answer the questions.
Calculate the gearing ratio for All-Packed as at 30 September 2019. Use the information in Figure 2 in your calculations. [3 marks]
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