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Travel Management

 October 09, 2009
FCm Outlook/White Paper: New Horizons In Travel Procurement

 Where is business travel pricing headed over the next 12 months and what can corporates expect in procurement?

With key economic indicators pointing to 'green shoots', the corporate travel market appears to be at a pivot point. As consumer and business sentiment begins to shift, what are the likely effects on corporate travel activity and pricing?

Trends In Buyer Behavior

Over the past year in particular, corporates have certainly held the higher ground on price negotiation, with air and land (hotels and car hire) travel suppliers slashing their rates to generate demand.

Corporate markets have been swamped with special airfares and lucrative accommodation deals. These have enabled corporate travel buyers to reduce their Average Ticket Price (ATP) on flights, secure room nights at the lowest rates in years, and receive value-ads such as free breakfasts and transfers.

The dynamic conditions of the global economy have changed corporate buying behavior in three key ways.

1. Policy Changes

The latter half of 2008 saw many companies launch tighter travel policies with lower classes of travel, stricter guidelines on who could travel and use of restricted fares. Policy mandates became a reality.

Non-essential travel was reduced or eliminated and minimum flight times for business class travel increased. The focus was on more advance bookings with exception reporting and questions asked!

Higher use of low-cost carriers also continues to prevail as corporate travelers are more prepared to accept cost over comfort.

2. Airline & Hotel Deals

Airlines began offering drastically reduced tickets to fill their aircraft, with even the leading airlines becoming more negotiable on price. A significant decrease in the cost of aviation fuel during the first half of 2009 also enabled the airlines to reduce their operating costs, and in some cases reduce or remove their fuel surcharges.

This period gave businesses the opportunity to take advantage of an abundance of cheap fares and reduce their ATP. It also saw a growing number of corporates try an open skies policy.
In the hotel sector, more corporates have saved accommodation spend by opting for budget properties, using dynamic pricing strategies, accessing reduced best available rates and accepting non-last room availability prices. Companies have signaled to their preferred hotels that they will consider alternative properties if savings are not strong enough. Similar to the airlines, many hotels (not all) have been willing to renegotiate corporate rates.

3. Online Uptake

The US corporate travel market has led the global community in a transition to online travel and expense tools with lower transaction fees and per trip processing costs. There is now far higher demand for both airline and hotel preferred rates to be available via online booking tools.

Short-Term Outlook: Perception Vs. Reality

With travel news headlines continuing to highlight airlines and hotels struggling to maintain profits, corporates may be assuming their travel costs are staying low for some time yet.

In the hotel sector at least, this view would appear realistic. Compared with 2008, hotel rates in 2009 have been substantially lower in most regions. According to PKF Hospitality Research, national average room rates in the US may not return to 2008 levels until 2012 or even 2014. Occupancy levels are likely to lift before then, however, there will almost certainly be a lag time between this and any rate increases.

In London, hotel room nights are holding their ground however; corporates are forcing properties to be competitive and are using hotel programs as ceiling rates.

Greater consolidation of hotel programs is assisting FCm in rate negotiation for corporate clients, as we can guarantee increased volumes for the hotels. It is expected that travel procurers can continue to look to hotels for savings opportunities and re-bid their hotel programs throughout the year ahead.

In the airline sector, activity since July 2009 indicates airfares in certain regions may be set to chart a different course.

While there's been no discernable increases in the UK as yet, across the Americas and
Asia Pacific airlines are beginning to lift their fares -- slowly but surely. More airlines are moving to close off discounted seats, and in Asia Pacific many have sold their discounted seats to leisure travelers who will be traveling late 2009 or early 2010.

This activity has created a corresponding increase in companies' Average Ticket
Prices and Cost per Mile. The extremely competitive fares enjoyed during the early part of 2009 are starting to disappear.

And as a result of those cheap fares, many companies have failed to meet volume targets with their preferred airlines. So in the next annual round of airline contract reviews they will move down a tier in airline deals or forego a deal completely.

Despite these developments, we are likely to see fierce competition on key routes such as the Trans-Pacific, where airlines will have pricing wars well into the year ahead.

This is likely to produce more flight options and schedules for corporate travelers, at competitive costs.

Procurement Strategies -- What Can You Do?

As the world economy maps its recovery, your business may need to adapt its mindset and buying behavior if you want to continue to achieve the best value in your travel. 2010 will be a crucial year for the realignment of procurement strategies, and FCm can guide you through the core elements of this process.

a) Consolidate

Make all your travel bookings with FCm so we can identify any inefficiencies in your travel. E.g. can you further improve your policy? Is there expenditure leakage? Can your supplier contracts be improved?

b) Tighten Your Policy

Encourage your travelers to book early for the best fares, take restricted fares where possible and use preferred suppliers, but only where they best suit your needs.

Remind your travelers that many discounted tickets come with some flexibility, and how often are changes actually needed to your bookings? Conduct reporting on travelers or bookers who are acting outside the policy, or those generating the highest volume of missed savings.

c) Review Your Airline Contracts

Let FCm assess whether you are in a better position staying with your existing airline deals and improving your consolidation with that carrier to ensure volume targets are being met.

d) Opt For Best Hotel Rates

Choose hotels that offer you the lowest rate of the day if you can genuinely make a significant saving. However, work with FCm to monitor any effect this has on your existing hotel agreements.

e) Re-Negotiate

As a global travel management consultancy, FCm will regularly re-negotiate on your behalf to ensure that even as the market shifts, you are always accessing globally competitive prices. Using our multi-sourcing product platform, we can test negotiated rates against best flexible rate of the day and book the most appropriate flight or room night.

f) Use Reporting To Forecast

Management information reporting is essential in understanding the future travel patterns of your business, particularly if you are likely to be traveling to different locations over the next 12 months to help stimulate your own growth.

Equally, if you are planning to close operations in any countries/regions, this can shift airline market share and impact your volume targets. Anticipating your travel patterns is critical in identifying the opportunities to save, and it requires both reporting and managing your travel policy.

g) Build Your Internal Culture

FCm can help you educate your travel bookers and travelers on the need for (and benefits of) any changes required in your travel patterns or policy. Also make sure you acknowledge or reward policy compliance as this is more important now, than ever.

h) Benchmark Your Results

Work with FCm to continuously benchmark your travel performance and costs, including your ATP, Cost per Mile, and hotel rates.

Benchmarking is not only essential to understanding your own travel behavior and areas for improvement, but can also be used to compare your performance with other companies with similar travel patterns.

Applying these strategies will ensure that as economic and travel industry conditions change, your own buying behavior changes to consistently produce the highest possible savings.