The business of travel Featured

8:00pm EDT June 25, 2009

There’s much more to business travel than simply buying an airline ticket, renting a car and staying in a hotel. Especially now, with travel costs expected to increase 10 to 12 percent over the next 12 months, says Rob Turk, the executive vice president of Professional Travel.

“Travel typically represents the third largest controllable expense that a company has behind payroll and IT,” Turk says. “However, many companies don’t properly manage it. They need to create strategies to overcome and adapt to its escalating costs.”

Smart Business spoke to Turk about what companies should pay attention to in order to rein in their travel expenses and positively affect their bottom lines.

How can companies manage rising travel costs in today’s economy?

Companies have to develop a consistently communicated travel policy. This will provide the framework and foundation of expected travel behavior as far as utilizing certain providers and certain suppliers. Many companies also provide per diems for guidance as to the types of hotels employees should book or cars they should rent.

A key issue today is the managed utilization of unused nonrefundable tickets. Failure to do so creates thousands of dollars of loss, as organizations have a significant investment in these types of purchases. On average, there are three changes made to each booking, so when travelers make changes, many times the original purchased ticket has to be reused. So you have a credit of an unused nonrefundable ticket; how do companies manage those credits? To address this, establish a database of unused tickets, which should be managed by your travel management partner. The process of utilization can be quite complex because different carriers have different policies with several variables, for example, how long after purchase you can utilize those credits.

How does a business know when its travel needs to be formally managed?

There isn’t really a benchmark of expense, like you need a policy if you spend more than $50,000 a year. Simply, companies with traveling employees should have a managed process. You can’t manage what you can’t measure, so it’s key to measure travel expenses and both monitor and manage travel activity. One way to do this is with a pretrip approval process. It’s trip justification; the employee says, ‘I need to travel here for this benefit for the company. Here’s my estimated costs, is it approved?’

What risks do companies face if they don’t closely manage travel?

After the events of Sept. 11, businesses recognized that they needed to know where their people are at all times from a risk management perspective. If they allow their traveling employees to buy from various sources, there’s no centralized database of where people are. There are also risks associated with personal buying decisions. The challenge is that air, hotel and car suppliers all market loyalty programs to the traveler. So what has to be managed is whether travelers are buying in their own best interests or those of the organization. A third party can ensure that the traveler is comfortable and being provided the right supplier at the right cost, while the organization has supporting data that the decisions complied with policy.

Can an outside party be expensive?

Travel purchasing should be managed at the micro level just like any other high cost purchase a company makes. Yet some companies think, ‘We’ll just do it ourselves; using a travel management company will cost more.’ However, statistics show managed travel processes can generate annual savings to an organization of 15 to 18 percent, while travel management fees generally only represent 2 to 3 percent of total travel spending. As a result, 96 percent of Fortune 1,000 companies utilize the services of an outsourced travel management company. It makes sense: You’re aggregating purchasing, you’re driving purchasing to select preferred suppliers, your people are following the guidelines of an established travel policy, and the firm you selected provides travel advocacy and updates you of changes within the industry and how to best take advantage of them.

There’s probably not a more volatile industry that exists from a standpoint of day-to-day changes, so you should have a travel expert monitoring it who will provide that daily information to you and your staff as to what to expect while traveling.

Many organizations try to maximize employee productivity, yet they expect employees to also become travel agents. How that fits or doesn’t fit into their other responsibilities and the cost of that productivity also needs to be factored into a decision of retaining a travel management company. Travel is recognized to be the most personal business service that employees use, it affects the framework of people’s lives because it takes them away from home and families, and so decisions associated with it are very important.

The cost risks of nonmanagement far outweigh the minimal costs associated with hiring a travel management company.

Most companies are focused on return on investment. In this case, it includes the education of the traveler and the necessary communication between senior management and travelers. Only then can organizations reach the next level and begin examining areas like meetings management, international travel complexities, preferred vendor contracts and best practice benchmarks.