Published In:
CFO Date Published:
15th November 2002 Author:
Simon Segal
Travel management has moved beyond traditional techniques that focused on negotiating discounts. Scott Blume, CEO of TQ3 Travel Solutions, part of the Flight Centre Group, finds the highly competitive travel deals are well handled. "It is the hidden costs around the actual bookings that offer immense opportunities to save. The quality of travel management services is accelerating and best-practice travel management has become entirely customer benefit and savings focused."
American Express Corporate Travel's Kyle Davis: emphasises the importance of understanding company travel patterns Image: Sahlan Hayes
With airlines, firms are typically negotiating tactics such as net fares (commissions are paid directly to the company in the form of a front-end discount), volume driven discounts with low-fare cost carriers, guaranteed fares (price caps for specific routes), pay as you fly, and corporate charters.
In addition, corporate travel buyers can purchase air, hotel and car rental services through a wide range of e-commerce sourcing strategies that integrate policy and preferred vendor lists. These include corporate sponsored automated booking systems (that operate within a company sanctioned environment and can prevent or discourage bookings with non-approved suppliers), direct connections (an extranet that provides access to fares and rates) and retail web sites.
In the case of hotel costs, Blume suggests cutting costs through negotiating annual agreements during the off-season when rates are softer, prepaying blocks of rooms (can help address market-specific rate increases and sold-out space) and the use of extended stay properties.
Carlson Wagonlit Travel managing director Martin Warner finds that since the demise of Ansett 12 months ago, there has been a paradigm shift in how corporate travel buyers perceive the value provided to them by a travel management company. "The focus is moving to what demonstrable value a travel management company can offer."
Kyle Davis, general manager at American Express Corporate Travel, reckons Ansett's demise has made domestic corporate travel on average about 10 per cent more expensive. International average ticket prices for corporate travellers, however, are down about 12 per cent. "A uniquely macro-purchasing approach whereby travel managers negotiate discounts, rebates, private fares and so on may no longer be the best path for optimising savings. More and more companies are maximising savings by combining the macro-negotiation process with micro-purchasing opportunities, that is, best-fare-of-the-day or best-rate-of-the-day, which may fall outside of a company's portfolio of upfront negotiated deals."
Internationally, Warner observes that since last year's terrorist attacks on the United States, it is not so much the volume of travel undertaken that has been reduced, but the cost of that travel as companies strive to control both the direct and indirect costs associated with delivering shareholder value.
Davis finds international travel highly competitive. "Savings of up to 40 per cent of the full published fare can be negotiated, by those firms with a strong travel management policy."
Warner believes "travel management is about integrating and automating the entire end-to-end travel program, which includes the critical and often high cost of processing travel".
Common cost reduction trends he identifies include a clearer enforcement of travel policies (economy class for domestic travel and a shift away from five-star hotels, representing immediate savings); increased use of self-booking tools and travel management companies which can provide internet fare levels to corporate clients; and an increased use of cost avoidance (video-conferencing, web meetings, frequent flyer points for business travel).
He adds that airlines are looking for ways to cut distribution costs but are using innovative pricing "rather than the irrational pricing" that we have seen. Companies are looking to fix a guaranteed net price rather than adiscount or rebate.
Davis emphasises the importance of understanding company travel patterns, accurately projecting budgets, identifying savings opportunities and managing policy compliance.
Independent business travel cost management expert Robin Dunlop of Expense Reduction Analysts (ERA) stresses consolidating corporate needs. "Analyse accommodation needs in terms of the number of nights needed and the hotel standard preferred," he says. "Consider route deals with the preferredcarriers for primary long-haul destinations which offer you total value.
"Consider the local carrier when the preference is for more regular scheduled services. Take the account to market providing the travel managers with a detailed breakdown of the major destinations you require so you can find the company that best fits and understands your needs."
Dunlop notes that the days of the peak period deal no longer exist. "Planes are usually full and flights booked within 24 hours are available only at their full published rate. The days of significant corporate account rates and usage preferred deals for domestic flights are a thing of the past. The best you can hope for now is a flight-by-flight deal. If you still have a negotiated deal in place with the airline then hang on as it won't be repeated."
Dunlop finds there are opportunities for discounts but each flight has to be evaluated. The options are to book online where there is potential for a 5 per cent discount and to use off-peak rates where the difference on peak flight rates between the two major domestic carriers can vary as much as 45 per cent.
Warner believes the key initial step in managing travel costs is to review existing travel programs, including travel policy, supplier strategies and program objectives. "This enables a company to identify and implement an optimum travel management solution tailored specifically to its unique requirements," he says.
"Using our client's management information, our performance against both agreed key performance indicators and travel management objectives is measured at regular intervals. National and multinational data is consolidated to provide the basis for analysis and continuous improvement of supplier strategies and cost reduction programs."
Warner stresses adopting a proactive approach to supplier strategies where potential opportunities are identified and analysed; benchmarking current rates against industry and other client-specific rates; consulting towards achieving best practice in all supplier contracts; and a focus on reduction in the net cost of travel. "Travel management is a continuous process," he says. "Performance indicators, once attained, must be reset, cost savings objectives increased and service level agreements rewritten to reflect improved productivity and more efficient processes through technology innovations."
Warner adds that technology assists in this, from designing and implementing travel policy through to reporting and analysis across all travel expenditure. "Systems help maximise policy compliance - both pre-trip and post trip - and maximise and identify savings opportunities and the most beneficial supplier strategies."
Blume notices more companies running thorough tender processes and rationalising their procurement of travel. "The supply chain and the pricing mechanisms of the travel industry are complex. Companies typically make some discoveries along the way," he says.
Blume adds that the there are two main services to procure and two key sets
of financial terms to negotiate that largely determine the overall
cost: airline seats and travel agency services. "The functions of
the middle-man, the travel agency services, are not dispensable,"
he says.
