If you’ve been to the supermarket or the drug store lately, you’ve likely learned the basic rule of purchasing: Frequent customers get the best prices and the best service. American Airlines first invented a frequent shopper’s program when it launched AAdvantage to encourage travelers to bring all their business to one supplier.
Thirty years later, even small firms and their clients can save money and make taking to the road a little easier for their travelers by applying this basic rule of purchasing. This edition of Transit Authority will outline the nine components of a corporate travel program that small and midsize firms can institute for their own employees and partners or recommend to their clients. Our goal: finding the delicate balance that keeps travel costs down and road warriors happy.
At companies with larger travel spends (where the annual travel tabs run over $100 million), managing the travel program is a serious business handled by a dedicated staff. When traveling for the firm, their employees are urged — or even ordered — to book their trips through a designated travel agency or Internet travel site, using airlines and hotels with which the firm has negotiated discounts. Travelers charge their tickets to a single charge card, drive cars from the firm’s designated car-rental company, bring their meetings to preferred hotels, file their expense reports online. The best practices of their corporate travel programs can be adapted on a smaller scale by companies and firms of every size.
Optimizing travel comes down to making decisions about nine things: the corporate travel policy; the manager of the program; the type of travel agency that will serve as your intermediary to suppliers; the airlines, hotels, car-rental, charge-card and online travel-booking companies with whom you will partner; and the system you will use for tracking and reporting spending data. We’ll look at and offer best practices for each piece of the puzzle, with a focus on small and midsize companies and their business customers.
Start the Journey With a Map
Whether your employees are traveling on firm business or billing every charge back to a client, they are only human. Everyone likes to fly first class — and will, unless someone sets clear limits. Every firm and company should have a travel policy outlining the basic rules, signed off on by top management and distributed to every employee who travels. Keep in mind, however, that buying travel is not like buying paper clips; flying far from home is a stressful and emotional business, and the time of executives is a valuable commodity not to be wasted. A bus may be the cheapest option for getting from Chicago to New York, but odds are good that Southwest Airlines will be the better value in terms of time and effort saved.
While travel policy should come from the top, be sure to include a broad contingency in the discussion, including at least one of the most frequent travelers and the assistants who will make the actual reservations. Many firms also consider a two-tier policy, one for road warriors, senior partners, and executives, and a second for those who travel only to an occasional conference. Keep the policy concise and clear, covering the basic goals and guidelines for each of the nine major components.
Building a Framework
Companies have two options for selecting the framework for the travel management function: whether to handle it internally or to outsource it to a travel agency. Unless your annual travel budget is over $1 million and your office is open 24/7, the best practice usually is to contract with a professional travel agency. Keep in mind, though, that while you can outsource the tasks involved in making reservations, providing customer service, collecting spending data and negotiating contracts with suppliers, you cannot outsource management functions. It’s imperative, therefore, to designate an employee of your own to oversee the program, manage the relationship with the travel agency, insure best practices in pricing and execution, and negotiate some deals of your own.
Consolidating all travel through a single travel agency is the best way to collect data, provide 24-hour service to travelers on the road, and rarely cause for objection by travelers themselves. In the not-so-distant past many firms had travel agents physically sit in their buildings, but rising personnel costs make that unfeasible today, and technology makes it unnecessary; travel agency call centers provide excellent service to small firms and companies at a fair price.
Even less costly is the option of booking travel online, through dedicated small-business programs offered by the major online travel agencies: Expedia, Travelocity, Travelport, and Orbitz. All four systems produce monthly spending reports for your firm or company and can be configured so that when travelers say they need a hotel in Phoenix, for example, the Hyatt with which you have a negotiated discount will be highlighted. Shifting traveler behavior so that they book their own trips online instead of calling Mary at the agency down the block may take some doing, however. A clear policy from top management is imperative; even then, expect about 50% compliance unless your top executives are prepared to not reimburse travelers unless they comply.
Beyond the fees you can save, letting travelers self-serve by making their own reservations invariably results in lower costs. Perhaps the biggest surprise travel managers have realized from online booking is that when travelers are offered a wide range of options on their computer screen, a surprisingly high number do the right thing and change their plans slightly to take advantage of lower-priced options. In fact, if we had to offer a single piece of advice for cutting travel costs, it would be this: Get as many travelers as you can to book their travel online as fast as you can.
Note that many small companies report that they are being inundated by offers from Southwest Airlines’ SWABiz program. The savings there are real, as travelers are entering their own information directly into Southwest’s computer system and saving the agency transaction fees. But, travelers will see only flights and fares for one carrier, and lose the ability to comparative shop.
The travel industry is built on discounts and market share bonuses. No matter what agency or online system you are using, opt to pay them flat fees for services rendered and have any discounts you earn flow back to your firm. The point is to underline to both the agency and the suppliers that your firm is the customer here, not the travel agency.
Trains, Planes, and Automobiles
While larger companies are often best served by pushing all their travelers to use one airline and then negotiating discounted rates, small companies generally fare better allowing travelers to just pick the airline or hotel with the lowest fare on each trip. Remember that every dollar not spent falls right to your bottom line; saving a few thousand dollars in expenses may be as valuable as ten times as much in additional sales.
No matter how hard you try, though the need for some high-end travel will not go away. These are where the airlines derive their biggest profit margins. Track them and try to negotiate a discount for all first- and business-class tickets with a single major airline that offers frequent flights from your home city.
Virtually every airline, hotel and car-rental company offers discounts to business customers; make it someone’s formal responsibility to negotiate on your behalf and then to nudge travelers to use these vendors. Airline programs typically offer small-business programs that yield free tickets with the purchase of a given number; take advantage of them. Beware the prepaid miles programs, however, which generally cost about 53 cents per mile; firms that let travelers choose their own low-cost flights online report that they average about 22 cents a mile.
When employees are traveling on client business and billing their expenses back, there is a fiduciary responsibility to travel at the same level as the client would. Many firms follow client travel policies in such cases, and sometimes use the client’s travel agency as well. Be careful about how you handle negotiated discounts in such cases; KPMG and PricewaterhouseCoopers in 2004 paid $17 million and $54.5 million, respectively, to settle a class-action lawsuit that charged them with billing clients for full fares and then keeping corporate discounts they got back from travel suppliers.
Checking in with a Hotel Program
While it’s possible to push your travelers to use one or two major airlines without inconveniencing them much, hotels are a different story. Location really does make a difference. Staying in a particular hotel often offers tangible and intangible benefits: saving cab fares and wear and tear, keeping you close to the action at a conference or meeting, and allowing for mingling with important contacts or potential new customers.
Rather than insist that everyone always stays at a Marriott or a Holiday Inn, a best practice is to focus on the five or six cities to which your firm travels most frequently, and negotiate discounts with a hotel or two in each. If your travelers or their assistants are using a corporate Internet site, set the system up so that these properties appear first and are highlighted as your preferred properties.
Maximize your business at these properties by requiring employees to register any meetings they will be holding with the travel manager, who in turn can encourage them to use the same properties as much as possible. Managing meetings is politically sensitive, as many meeting planners receive gifts and rewards from the hotels to which they bring business. Like every purchasing decision, though, it’s important to base the choice of a meeting location on what’s best for the firm, not the individual doing the buying. Centralizing and managing your meeting spend is likely the biggest single remaining opportunity for travel management for smaller companies.
Other Pieces of the Puzzle
Of all the pieces of the travel framework, moving travelers to a single car-rental supplier is the easiest. The issue here, again, is cost vs. convenience; in general, on-airport companies cost more, off-airport companies cost less. But any preferred car-rental program brings one important advantage: free insurance. With car-rental companies typically charging $9-14 a day, and the average rental lasting 2.5 days, the savings from directing your travelers to just one are compelling.
The most important piece of the travel program, though, is a single corporate charge card to which all travel expenses must be billed. This is a relatively easy step to enforce; mandate that charges not booked on the credit card will not be reimbursed. Charge cards (like the American Express or Diner’s Club corporate cards, which are not “credit cards” as they must be paid off every money) – capture the data that shows what your travelers actually bought, and are the key to rebates, discounts, and enhanced services.
When dealing with the data, don’t allow the sheer magnitude to overwhelm you. Pick out the key items or objectives that matter most and track those. Some companies have developed a dashboard or scorecard of key travel program measurements they track quarterly: percent of compliance to travel policy for air, car, hotel; average airline cost per mile through the agency and through online booking sites; rate of online booking adoption; average hotel room rate in key cities. Those are your fundamentals. Establish the parameters for success for each key measure and work toward achieving those. When you get there, develop new measures.