How to avoid sky-high travel costs

23
SEP
2010

Author: Jonathan Webb - Categories: Indirect Spend, Cost Management

The global recovery has seen a rapid rise in business travel over the last year. The profit margins of many ailing airline carriers have been buttressed by business' refreshed appetite for more on-site meetings and this global increase in demand has increased the need for intelligence in companies' travel procurement practices.

A recently published PIU Category Report found that smart businesses are increasingly leveraging their business travel demand to extract favourable supplier relationships. The report examines two strategies that can best enable cost reduction: preferred supplier arrangements and lowest logical airfares. These two approaches vary in nature upon size of the client organisation and the volume of travel demanded.

For instance, for heavy users of transport, it is a shrewd policy to consider developing a preferred supplier relationship. The changing business models of airlines have increased ancillary costs since the financial crisis, which have became a major revenue stream for carriers. These extras have risen 345% between 2006 and 2008, adding significantly to the cost of travel. These practices have reduced price transparency and made cost comparison difficult to negotiate.

The report details the approaches that can be deployed to gain cost reductions, and to eliminate the additional costs that have proliferated in modern air transport. Cost-aware organisations need to consider a mix of different strategies in order to maximise their negotiating strength and access to preferred rates.

The increased competition for business travel seats must not force companies to accept excessive prices. The International Air Transport Association (IATA) recently announced that demand for business and first class seats rose by 13.8% in July from the previous year.

London Heathrow, the world's busiest airport, recently experienced its busiest August on record. 6.5 million people passed through the airport, a 2.5% increase on the previous year. Its owners, BAA, largely attributed this increase to business travel. Short-haul journeys to Europe increased by 10.4% at Heathrow; conversely, BAA's other UK airports saw a decline in number during the same period.

Airlines have seen business class as a key point of competition. Air France recently invested €110 million in developing its new business class cabin, offering a new two-metre, lie-flat bed, which, it claims, is one of the longest in the market.

During the financial crisis, many companies prohibited air transport, or, where it was essential, banned the use of business class travel. Given the expanding costs, and increasingly luxurious nature of business class facilities, procurement should consider the business case for purchasing such tickets would add no additional value to the business.

Comments

Robert via LinkedIn

Thu 23 Sep 2010 14:05

Procurement...A very smart business approach needed by any company wanting to land the best deals and relationships in the air and on the ground...

Thomas via LinkedIn

Tue 28 Sep 2010 08:33

It's difficult not to agree to the points, Jonathan put forward in his article, but the challenge remains: What metrics do you apply if you want to "know for sure"? And are they both available and accurate? Procurement theory makes sense. A TCO-perspective is the right perspective, but the absence of accurate metrics makes it virtually impossible and it's tempting to resort to simple category management: Split the individual parts of the T&E program into its lowest possible components and negotiate them one-by-one. After all, if a 3% or 5% lower price next year is achieved, you've done well, right? But what's the benchmark from a TCO-perspective..? Who says that spending 10% more in one category, say your TMC provided this money is spent on "smarter or more experienced agents", won't double your real savings on transportation or lodging, thus offering a very healthy return? Am I biased? Sure I am, but I've seen it done with remarkable results. The problem is simply that a promise of 3% - even against a highly uncertain benchmark - seems "good enough". There are many extremely capable and very professional travel managers that are seen to "fail", simply because the absence of good metrics makes it impossible to "speak procurement" fluently...Let's work to define credible and widely accepted metrics to allow these people to do what they most often do very well.

From LinkedIn discussion group: http://www.linkedin.com/groups?mostPopular=&gid=704787

Glenda via LinkedIn

Thu 30 Sep 2010 10:39

Thomas,
I can't agree more. I see so many unnecessary expenses because travel arrangements are being done by inexperienced employees, and no guidelines set. After being an agent for 20 plus years, I find it very difficult when I see money being spent unwisely.
I am a administrative assistant, currently, but the travel agent will always be there.