<B>Amex: T&E Now Number 2</B>
By Megan Hjermstad
<I>New York - </I>Travel and entertainment has overtaken data processing as the second largest controllable expense for corporations behind salaries and benefits, finds the 2000-2001 American Express Survey of Business Travel Management.
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According to the 10th edition of the biennial travel industry research document, which will be released next week, corporations are ushering in new negotiating tactics, technology implementations and agency agreements to defray higher travel costs in the wake of commission reductions, price hikes and increased spending due to a healthy economy.
Raising travel from the third to the second largest controllable expense have been substantial price hikes in nearly every category, led by an increase in average business airfares of 40 percent in the past four and a half years.
American Express estimated that by year-end, large and midsize businesses in the United States will spend $157.1 billion on managed T&E, up 8 percent over a revised estimate of $145.4 billion in 1998. The revised estimate excludes estimated travel expenditures by small businesses for accurate comparison with this year's figure.
In an attempt to provide more useful benchmarks of companies that are likely to have implemented managed travel programs, Amex this year used a target sample of private-sector U.S. businesses that have a minimum annual revenue of $50 million. While the new methodology provides a more targeted picture of the managed travel market, it does not render a big picture of business travel as a whole. "We represented total T&E in the past; now we are representing total managed T&E. We are looking at a more representative sample of what people are doing," said Rusty Carpenter, vice president of American Express Consulting Services.
Industry sources suggest that overall business travel spending for the year 2000 will be $170 billion.
Abandoning the past practice of collecting written survey responses, Amex this year surveyed by telephone 424 companies in five major Dun & Bradstreet industry groupings. "There was a trade-off in aggregate numbers versus quality of responses," said Carpenter. "We felt we got a higher quality of response by doing telephone interviews."
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Amex for the second time in a row substantially revised the questionnaire. The agency threw out some questions regarding now standard practices and introduced questions that shed greater light on trends in technology, agency relationships, financial arrangements and service platforms, and specific types of vendor deals. "We made some substantial changes to the questions to be more representative of dynamic changes in the marketplace," said Carpenter. "All the things we're talking about reflect rapid change in the industry."
In this year's survey, 63 percent of respondents said they have negotiated discounts for air travel. Among companies that spend more than $5 million or more on T&E, 92 percent have negotiated air deals. While 39 percent of those with negotiated discounts are pursuing net fare arrangements in their negotiating strategy, only 26 percent actually have net fares among other forms of discounts (see chart, page 1).
"There is a lot of talk in the industry about net fares, so I would expect a higher incidence. Everyone talks about it, but not as many people are doing it," said Carpenter.
Companies that have negotiated discounts reported that 61 percent of total air is covered by negotiated discounts. Those with airline discounts had an average of three negotiated airline contracts each. Forty percent of respondents, the largest single group, reported that they maximize negotiated discounts with a primary airline and supplement that agreement with secondary airlines.
Indeed, the Amex report suggested that savvy corporations have been able to maximize negotiated airfares. Air travel has continued to account for the largest proportion of a company's T&E yet, despite substantial price hikes in unrestricted domestic airfares over the past several years, air travel's proportion of T&E is similar to past years. "It really reflects increasingly aggressive work to keep down costs," said Carpenter. "Companies can't tolerate pricing increases."
Another explanation, of course, is that the costs of hotel rooms, car rentals and other expense items have risen substantially as well. Air travel accounts for 45 percent of the average company's T&E; lodging expenses, 17 percent; car and meals each account for 10 percent; and entertainment and telecommunication costs each now account for 8 percent. Miscellaneous expenses account for the other 2 percent of firms' T&E budgets.
The greatest area of growth--in telecommunications---reflects travelers increased usage of wireless phones and other handheld devices. Of respondents, 87 percent have travel-related telecommunications calling procedures, 57 percent have company-owned calling cards and 50 percent have company-owned cell phones. Of respondents who said their companies provide wireless phones, 90 percent have negotiated rates with service providers.
In keeping with greater measures to keep tabs on costs, 53 percent of companies monitor compliance prior to booking and 65 percent monitor compliance after booking. Sharing policy with the designated travel agency is the most widespread pre-trip monitoring strategy.
Of companies surveyed, 80 percent have a formal written policy, but only 40 percent of companies with intranets make travel policy available online (see chart above).
In the case of traveler noncompliance with policy, 69 percent of companies notify the employee's supervisor and 41 percent of companies do not reimburse the employee for amounts outside of the travel policy.
Policy at 76 percent of companies requires travelers to book the lowest logical airfare by taking advantage of set time windows for low-fare searches, accepting Saturday night stay-overs, purchasing nonrefundable tickets, or using alternate airports or connecting flights.
While 65 percent of companies encourage travelers to book nonrefundable tickets, only 11 percent of companies require it. Those companies that are using nonrefundable tickets used nonrefundables for an average 57 percent of their total tickets purchased.
Forty-one percent of companies mandate the use of negotiated fares, perhaps in part to combat use of the Internet, though Carpenter said, "we hear less and less noise around whether companies should let people go online to Internet sites. It is intuitive that as people become more comfortable with the Internet, usage would increase, but actually it is the reverse. People are realizing they have to spend an exorbitant amount of time to find a fare. Even when they find a cheaper ticket, it probably is not better off by much if it turns out to be a nonpreferred carrier. They are recognizing it is very important to manage relationships the company has with vendors and staying within preferred suppliers."
To that end, corporations are sanctioning Web-based self-booking engines that incorporate negotiated rates. Overall, 21 percent of respondents already have implemented a corporate automated booking system and 44 percent said they are planning to implement such a system.
Companies that have implemented an online booking system are booking online an average of 43 percent domestic and 24 percent international air travel, 24 percent of lodging and 26 percent of car rental.
Carpenter said it is surprising that the 65 percent of companies that are moving to online booking are doing so as a way to cut costs in fares as well as transaction fees. "It still is an emerging part of knowledge that clients are seeing a 20 percent reduction in average ticket price," said Carpenter. "Clients continue to be surprised at the human behavioral element."
Respondents using the systems reported that 26 percent of travel expenditures were booked electronically, surprising Carpenter, who had expected adoption to be no more than 15 percent.
"I expected more corporations to have implemented an online booking system and the number of transactions reported going through them would have been lower," said Carpenter.
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Companies increasingly are implementing expense reporting systems, with 38 percent of respondents using an expense reporting system and 28 percent planning to implement one within a year.
"One thing we see is they tend to be easier to implement than online booking systems and easier to get penetration. Corporations tend to have 100 percent of the population very quickly," said Carpenter. "It is another way to be able to streamline costs that is relatively painless compared to other ways."
Of companies polled, 89 percent have designated travel agencies within the United States and 69 percent use one designated travel agency.
Clearly, there is a movement from rebates to transaction fees in agency agreements. Only 12 percent of the responding companies reported that they had a rebate agreement with a flat or sliding percentage of commissions based on volume. Twenty-one percent said that they have a management fee and 29 percent reported that they have a transaction arrangement through which they receive all commissions and pay the agency a set fee.
In order to defray the rising cost of travel services, 43 percent of corporations now charge back agency fees to business units and 20 percent of corporations are charging back fees to the individual traveler.
Although corporations are concerned with how much agencies charge, service still rules supreme. Most companies said that their offices in the United States employ either a local business travel center or an agency onsite. In fact, 39 percent have an agency onsite, 39 percent use a local business travel center, 18 percent use a local retail travel service office and 14 percent use a remote central business travel res center.
The report is available to American Express clients for $350 and to non-clients for $450.