travel,business,flying,outsourcing,management

A flying start

04 Apr 2005 | (News)

Controlling travel budgets can be a ‘nightmare’, said one of the speakers at the Supply Management Business Travel Unpacked forum. But they also offered practical advice, as Amon Cohen explains

Take a look at the picture on this page. What does it show? Answer: the view a business traveller would get in economy, where the cheapest seats – and the biggest savings – are found.

“If you want to make savings, just get all your travellers to turn right [into economy] when they board an aircraft,” Iain Palfreman, business services category manager at PricewaterhouseCoopers, told the Supply Management Business Travel Unpacked forum in London.

To emphasise the point, he superimposed the picture with the fares for a trip from London Heathrow to New York JFK. It costs £6,514 in first class, while the priciest business-class and economy fares are £4,550 and £1,776 respectively.

The cheapest, most restricted, economy fare, is £118. “If cost is so important,” he said, “why aren’t all business travellers flying for £118? As procurement people, we have to understand that it’s not just about cost.” In those few words, Palfreman summed up the central problems of travel purchasing.

Keynote speaker Mark Ralf, director of property, purchasing and e-commerce for Bupa, said buying travel is a “nightmare”; or as Jonathan Rollason, head of corporate client services at Nomura International, put it: “Buying stationery is dead easy; managing travel is very difficult.”

Ralf spelt out why travel spending is so hard to control. The subsequent speakers provided some of the solutions to an audience made up of experienced purchasers for whom this is a relatively new field.

And, it is an important one. Because travel costs many companies dear. Pieter Rieder, vice-president for multinational sales at American Express, quoted figures from AT Kearney that suggest indirect operating expenses represent 35 per cent of a company’s turnover. Of these, travel accounts for 5 per cent for manufacturing companies and a whopping 15 per cent at service companies.

What is more, prices are beginning to rise again, with Rieder reporting hotel rate increases of 10-15 per cent in many parts of the world this year. “If you are not managing your travel programme today, your costs will go up,” he said.

Yet managing travel is easier said than done, as Ralf made clear with a long list of challenges that anyone taking it on must address. One of the main difficulties is that “individuals are only focused on their own need; at the same time, individuals’ needs are paramount. Otherwise, what is the point of the programme?”

As an example of the conflicting interests of employer and employee, he cited travel management companies’ transaction fees. Many organisations are now opting to pass their TMC fees to individual travellers with a fee per transaction. Since much of this is for services such as collating management information, that only benefit the company, travellers are naturally wondering why they have to pay for it. It’s an additional injury to the TMC fare looking more expensive than a ticket the traveller can find themselves.

“You put a deal in place and I can guarantee that within 10 minutes someone will come to you saying they can beat it,” Ralf told the audience.

Another of the complications identified by Ralf is that air travel is one of the few legitimate businesses where suppliers are paid in advance, limiting the ability to redress grievances and so disempowering the customer.

Despite all of these problems, speakers identified ways in which purchasers can tackle business travel spending.

Technology offers some solutions. Chris Reynolds and Jim DaBell, UK travel managers at Siemens Shared Services, explained how Siemens makes extensive use of technology not only to manage travel but to replace it. The company launched a Europe-wide drive in 2003 to reduce travel expenditure by a quarter and the top priority, said Reynolds, was to act on the realisation that “the best way to save money on travel is not to travel”.

Siemens found that 45 per cent of its meetings were for internal purposes. It concluded many could be replaced by web and audio conferencing, which, he said, are more popular than video conferencing.

“People are still apprehensive about video conferencing because they can see each other,” said Reynolds. “They are more comfortable with webcasts; sharing presentations is easier.”

As a result, the company participated in 2.5 million minutes of webcasts last year, making a large contribution to slashing travel spending in the UK by 30 per cent.

Travellers also use technology in the form of an online booking tool. Before Reynolds and DaBell spoke, Jonathan Rollason had told the forum: “Online booking tools are the future, but the future is not yet here.”

DaBell said he strongly disagreed and that the tools have greatly improved over the past three years. Self-service booking has become the cornerstone of Siemens’ travel policy because it drives the policy to the traveller’s desktop, lowers TMC transaction fees and reduces air fares and hotel rates by around 20 per cent through empowering travellers to buy smarter.

Reynolds and DaBell have made great use of IT themselves, including a data warehouse to analyse management information and an electronic request for proposal tool system called ETA to choose Siemens’ TMC in the UK.

Their colleagues in Switzerland have also saved a fifth on TMC fees by conducting an e-auction for the business.

Another avenue, used at PwC, is policy. A professional partnership such as PwC is unlikely ever to push all its travellers back into economy, so it has to find other ways to keep down its annual travel bill of £70 million in the UK and £370 million worldwide.

Much of this is achieved by managing the travel policy. Palfreman listed changes PwC has made in the UK and the savings:


* Enforcing use of preferred suppliers by challenging unauthorised, non-compliant expenses (£1 million).
* Downgrade from business class to economy for flights of less than three hours (£3 million).
* All first-class travel must be authorised by a board member (£400,000).
* Downgrade of first-choice hotel offered through the hotel programme from, typically, 4-5 star to 3-4 star (£1 million).
* Considering the most economic option between air and rail where the rail journey is less than three hours (£300,000).
* Improved supplier negotiations and more use of cheaper, less flexible fare types.
* Palfreman made it clear that although he regards changing policy as the most effective way to reduce travel expenditure, it is never easy to do.
* Echoing virtually every other speaker at the forum, he stressed the paramount importance of communications to win the co-operation of key stakeholders, including travellers, bookers and business leaders.
* It certainly loomed large in a six-stage plan presented by Jonathan Rollason for minimising air expenditure. This was:
* Model your top 80 per cent of spend and determine the best combination of carriers.
* Measure booking patterns to determine the level of flexibility required.
* Consult, consult and consult key users.
* Issue an airline bid.
* Consult, consult and consult and sell the best solution internally.
* Achieve consensus and issue a policy.

Related Content: