Travel and Tourism

The road less traveled

By Jessica Tremayne

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With tough economic times taking a toll on all of us, your first instinct to rising business travel costs might be to eliminate the expense across the board.

Don’t do it.

Travel leads to growth and cutting it is counterproductive. If you’re looking to adhere to a more realistic plan, consider reevaluating your travel policy and consulting with a travel management company to save 20 to 30 percent on travel while keeping worthy trips in the budget.

Travel is the second-largest controllable cost for the average U.S. business, seated between data collection and salaries, yet most companies have little or no management of it.

While your company may have an unofficial policy instructing employees to ‘get the cheapest rate,’ a policy that isn’t managed and enforced is equivalent to not having one at all.

A Smart Business poll showed that 61 percent of respondents’ employees are responsible for making their own travel arrangements. The problem is, if your employees are utilizing online booking agencies or different vendors, your company is likely losing out in the long run. If you lump your travel needs together with selected vendors, and submit requests for proposals, your annual negotiated rate will outweigh nickel-and-dime savings earned on a case-by-case basis.

Why travel management is important

If you take steps to retain a travel budget and manage it efficiently, you will most likely see a significant return on your investment.

“We really can’t cut back on travel,” says Pete Costanzo, executive vice president, Marsh Inc. “Ninety percent of our clients are outside of Cincinnati, spread from the West Coast to the East [Coast]. There’s nothing like working with professionals to make sure your travel costs are the best value for the dollar — and we have looked elsewhere.”

Sixty-nine percent of companies polled in an October Association of Corporate Travel Executives survey say they will be spending less or the same on travel in 2009.

“The cost of travel is crazy,” Costanzo says. “And for the $1,100 fare you might get some juice and a cookie in transit. Our 2008 travel budget increased by 15 percent this year, but we want to get it back down to our 2007 level for 2009. We need to go through our schedule to see what we can alter.”

You’d like to think your employees have the company’s best interest in mind, but statistics show companies that place a travel manager or an outside agency in charge of travel finances stay within the confines of their budgets while employee-handled travel has a less successful return on investment.

You need to take a proactive approach to managing your travel costs if you expect to get bottom-line results for a minimum of expense.

But being smart about your budget entails more than waiting for the computerized ping alert of a reduced airline fee like one of Pavlov’s dogs. While airfare is the most costly aspect of travel, you don’t want to arbitrarily eliminate it.

“The first step is to differentiate between strategic and nonstrategic travel,” says Susan Gurley, executive director, Association of Corporate Travel Executives. “Strategic travel generates revenue while nonstrategic travel is anything that results in cost but has no substantial gain in revenue.”

In most cases, meetings with customers are justifiable, as there is a direct correlation to revenue gains. On the other hand, meeting with the head of the Omaha office may not have much of an effect on your bottom line this year, so consider cutting that — and other trips like it — out of the budget. Use video-conferencing or teleconferencing equipment for these internal meetings whenever possible.

Why?

Because internal travel can account for about 40 percent of a business’s travel. Don’t worry, technology has come a long way since the early days of choppy robotic movements and out-of-sync voices. Look into Skype and WebEx as a couple of travel alternatives that could save you money while still keeping you in touch with your people in a more personal manner.

What you need to know

Getting your travel budget under control starts with the assembly of an in-house team of policymakers who vow to prevent travel anarchy while clearly defining your terms and expectations. A good policy will answer why travel management is necessary, detail the value of expectations, cite the requirements and give examples of useful practices.

“The policy should state that every traveler takes the lowest fares within the defined parameters,” says Terry Brennan, president, Williamsburg — American Express Travel. “Travelers should stay at midsized hotel properties and rent midsized cars. Everyone should deal with an in-house policy administrator, which will keep organization.”

The team involved in policy planning should include you, a scheduler, travelers and the finance team. After the policy is made, one person should oversee its enforcement and keep up to date on travel industry policy. This could be a part-time or full-time position based on need.

A realistic travel budget must be based on destination costs versus a flat-rate figure that is impossible to meet in all travel locations. A rate for things like car rental, hotel and food must be figured depending on the median rates in that city.

A policy needs to be revised annually to adjust to economic and company needs, and some flexibility is required in any plan. For example, an employee’s time may be more valuable than the cost savings from putting the person on a later flight, especially if arriving later could jeopardize a meeting with a client.

Also, you want to make sure the employee’s time is used efficiently on any business trip. A policy should entail what is expected of employees during travel and ways they should make the best use of time outside of the office. Meeting with multiple clients during a conference or calling on one located en route are a couple of ideas to maximize the value of a trip.

Some businesses use online booking agencies, believing their rates will be lowest and eliminate travel management company fees, which can account for 3 percent of all travel costs. But the majority of costs — 97 percent — goes to airfare, hotel and car rental, which is the same arena in which a travel manager will save money.

“A major point often overlooked is the added safety a travel manager or an agency provides a traveler,” says Ron Pio, sales executive, AAA corporate travel. “In emergent situations, a traveler can rely on someone who knows how to get a flight out fast and act as your advocate in any situation.”

While travel costs are unlikely to decrease anytime soon, getting through the initial pain may be the biggest challenge facing business.

“The cost increase is felt the hardest initially,” Gurley says. “However, increases and a poor economy have resulted in a reduction in routes traveled — about 12 percent fewer flights are available today than even a year ago. This figure will increase, and companies that considered reducing travel to be cost-effective will find flying increasingly less attractive into 2009. Optimistically speaking, the economy will eventually level out, but being prepared will mean better opportunities.”