With travel budgets tight and rates high, buyers keep costs in check in 2008
By Susan Avery -- Purchasing, 1/17/2008 7:00:00 AM
In 2008, corporate travel buyers are keeping an eye on oil and fuel prices, watching to see how recent hikes are going to impact the cost of an airline ticket. They are also well aware that hotel rooms in some cities such as New York and San Francisco are scarce this year and getting more expensive.
Travel buyers, many of whom now report to procurement, are applying strategic sourcing to the travel spend and implementing policy changes that encourage travelers to book trips with preferred suppliers.
Such moves are helping to keep travel costs in line, but still many of purchasing's internal customers have tighter budgets in 2008.
There are other ways travel buyers can offset some expected—and unexpected—price hikes in 2008. For one, travel industry experts suggest that buyers, if they haven't done so already, take on more responsibility for the meeting planning spend. Additional leverage with airlines and hotels could help during negotiations with suppliers. They also recommend that buyers with regional travel programs think about expanding them into global ones. It's another way to gain more leverage.
Travel buyers like Megan Stowe, strategic sourcing manager, employee services at Intel Corp. in Chandler, Ariz., and Jill Matalon, supply manager, employee services at Intel, say they'd like the industry to figure out ways to provide them with better quality data—from the time a traveler books a trip to the time he or she submits an expense report. Such data, they say, would help them to control costs through better demand management. While online booking tools and corporate cards provide much of this spend information now, travel buyers are looking for even more comprehensive data.
Buyers polled by Purchasing are employing some additional strategies in the big areas of the travel spend—with airlines, hotels, car rental agencies—to meet savings goals in 2008.
Benchmark. Industry forecasts show that companies, even if they maintain current travel plans, will spend more on travel in 2008. One travel management company, Atlas Travel in Milford, Mass., estimates that buyers will spend upwards of 5% more in 2008. Atlas Travel is the exclusive Northeast Regional affiliate of Atlanta-based BCD Travel Americas.
 Osgood: “Tightening restrictions for flying business class is one way to save.” |
 Koetting: “Several factors may increase competition that could be good for buyers.” |
 Dale: “Increases in hotel room rates have been crazy. This year, we’re excited by 6%.” |
 Brossman: “Car rental agencies’ price per gallon for gas can impact the bottom line.” |
Each year, Elaine Osgood, president of Atlas Travel, and her team meet with buyers to review their companies' travel over the past year and then work out a plan for the next 6–12 months. In the meetings, they look at return on investment (ROI) for each trip, and Atlas provides buyers with benchmarking data to measure their companies' activity against their peers'.
"One way they can save money is by tweaking the company's travel policy," says Osgood. "For instance, they may look at policy for flying business class and tighten those restrictions. Travelers may also think about using their company's leverage with the airlines to negotiate upgrades for executives such as free club membership."
Ways to tighten policy for flying business class include allowing the perk for trips of a certain duration, such as more than eight hours or if travelers need to get right to work upon arrival after flying, say, from New York to London, says Kerin McKinnon, executive vice president of new business development for Atlas Travel.
Airfare. Buyers are going to need leverage when negotiating with airlines, especially if travelers at their companies are going to be flying overseas. Demand is strong and isn't expected to let up anytime soon for seats on planes departing for cities in China, India and some countries in Europe. Fewer seats mean higher airfares, and that's without factoring in rising costs of jet fuel.
Michael Koetting, executive vice president of global supplier management at Carlson Wagonlit Travel in Minneapolis, points out that such an imbalance in supply and demand is shifting domestic carriers' focus to international markets. This, in turn, is helping low-cost carriers in the U.S. to grow their share of the market.
"This shift is one of several factors that may help increase competition in the trans-Atlantic market that could eventually benefit travel buyers," he says. Another is the EU Open Skies agreement which will create more capacity. A third is the airlines' purchases of new equipment from Boeing and Airbus.
Room rates. "Increases in hotel room rates have been crazy," says DeAnne Dale, vice president, strategic account management and consulting services for Travelocity Business in Dallas. "This year, however, they're not quite as bad. We're excited because we're seeing increases of 6%."
Buyers also are looking more closely at the kinds of hotels they select for their travel programs. Some, Dale says, are now negotiating with three-star hotels rather than those with five stars.
She suggests too that travel buyers stay away from last-room availability during negotiations with hotels, with the exception of cities where it's nearly impossible to book rooms such as New York and San Francisco. Buyers pay a premium for last-room availability and because of the shortage of rooms in some cities, the agreed upon rate may not be available to travelers when they check in.
Travel buyers should also be aware that hotels are beginning to use sophisticated yield management programs similar to those used by the airlines to help set pricing.
Ground transportation. While most travel buyers have negotiated national agreements with one or two car rental agencies and are benefiting from leveraging the spend, there are still ways to rein in costs, especially as gas prices continue to climb.
For instance, there are guidelines buyers can write into company travel policy that ask travelers to fill up their rental cars with gas before returning them. "If travelers are not bothering to do this, and they pay the agency's price per gallon, that can have a huge impact on the bottom line," says Charles Brossman, solution line manager at Ariba Travel and Expense in Sunnyvale, Calif.
Related stories:
Procurement takes on meetings buy
Travel buyers facing a seller’s market
Oracle’s procurement organization consolidates $600 million T&E spend
ConAgra takes fresh approach to travel buy
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