Benchmarking Europe's Biggest 2009: As European Spend Dives, Vendors Ready To Deal
The Business Travel News/Association of Corporate Travel Executives third annual European Top-Market Benchmarking Report, along with a discussion among survey participants at October's annual ACTE Global conference in Prague, provided more evidence of how dramatically the European travel buying landscape has transformed over the past 12 months. Spending is down, but opportunities for more tightly controlled management of travel programs are up.
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More than 30 corporations, each spending a minimum of €20 million annually on European booked air travel and some exceeding €100 million, contributed detailed figures for the study. The companies represent a wide range of sectors, including pharmaceutical, technology, banking, retail and manufacturing.
A paradox of the recession has been that companies are spending less, yet their negotiating strength with suppliers arguably has never been greater. Nor has the growing power of travel managers been confined to their dealings with external suppliers. Improved control over internal stakeholders, especially travelers, is evident across the benchmarks in this report.
European T&E spending slumped dramatically from its 2007 pre-recession high watermark, when the average was €111 million. Last year's confirmed spend by the same companies fell to €89 million and this year it is projected to fall further still to €73 million.
Even so, travel suppliers are more eager than ever to chase the reduced spending capacity of their corporate clients. Asked whether seven categories of travel vendors have become more or less receptive about negotiating agreements, more respondents this year said suppliers have been more receptive than did in 2008 in each category.
Most striking are the figures for hotels. In 2008, 46 percent of respondents considered hotel suppliers more receptive than in the past. That figure was higher than for any other type of travel supplier, but this year the figure has hit the maximum: Every single buyer is finding hotels more receptive.
Other categories are not far behind. This year, not a single buyer has found airlines, chauffeured car companies or rail suppliers less receptive to deal-making, although some have seen no change in these suppliers' attitudes.
One exception to the general pattern is car rental. Ten percent of buyers found car rental companies less receptive to negotiating favorable pricing, a higher figure than for any other supplier subcategory. Some car rental companies claim they have put their rates up this year in Europe.
A relatively small number of buyers, 37 percent, have found card companies more receptive. This could reflect the fact that card companies are much more cautious this year about signing clients with questionable creditworthiness. Card vendors also are paying out smaller rebates because of shrinking expenditure through their programs.
Looking inside corporate travel programs, improved management control is evident in the proportion of companies that had pre-trip approval processes. From 2006 to 2007, that figure remained unchanged at 46 percent. In 2008, it shot up to 57 percent, and it is a fairly safe bet that next year's benchmarking will show a further increase.
Most questions about hotels in the benchmarking report relate to confirmed booking and pricing figures in 2008 rather than estimated figures for 2009, so the greater receptivity of hotels to deal-making is not yet reflected in the data. In fact, average annual European hotel spending climbed from €18.7 million in 2007 to €22.3 million in 2008, probably reflecting also that U.S.- and U.K.-based respondent companies have suffered from the weakness of their national currencies against the euro. Perhaps for similar reasons, the average European hotel rate increased slightly from €145.70 to €149.00. There was almost no change in the percentage of hotel rooms bought at a corporate discount, 65 percent, or European hotel transactions placed with preferred properties, 63 percent.
The one benchmark with comparative data for 2009 does show just how drastically hotel buying has changed over the past 12 months. Asked whether they are using a larger number of lower-tier properties than in the previous year, no fewer than 83 percent confirmed they are. In 2008, only 48 percent said they had downtraded, although that figure was up from 41 percent in 2007.
At the benchmarking session in Prague, buyers confirmed they have brought hotel rates down in 2009, principally through the greater willingness of hotel chains to negotiate. So complete has been the transformation from a seller's to a buyer's market that hotels approached travel managers to negotiate lower preferred rates.
"Since last year, I have achieved some real savings," said one global travel purchaser. "I am against mid-year renegotiations because they can destroy partnerships, but I had chains coming to me and telling me that if I gave them a little more business, they would give me a much better deal." The buyer said such offers gave his company the impetus to reduce the number of properties that are in its program from 1,000 to 750.
Another travel manager said hotels have had to offer new corporate deals to maintain the integrity of preferred relationships because they are undermining themselves by offering lower spot rates on the open market. Yet another travel manager said she has gained considerable reductions by communicating the pricing disparity.
"We have renegotiated throughout the year," the travel manager said. "We are benchmarking the negotiated rate against the achieved rate and then negotiating down to that price."
A travel manager for a technology company said she negotiated a complimentary extra of particular importance to her travelers: "We have struggled to get free Wi-Fi in the past, but this year we have it for 98 percent of our program."
Buyers also discussed the continuing suggestion of some chains that the basis for negotiation should switch to a discount off the best available rate. Most rejected the idea.
"I would completely refuse it because it is 10 percent off something the hotel is defining," said one. Another said she had analyzed her hotel data for the previous quarter, comparing her negotiated rates with what she would have paid on a BAR agreement. The BAR worked out higher. "It wasn't right for us," she said.
Others considered the rate fluctuation within hotels too great to make a BAR reliable. "If I paid €80 to €120 for a room over the year, I would say yes, but if it is €80 to €600, like during fairs, I would say no," one travel manager said.
However, not everyone was opposed to using a discounted best available rate, so long as it is for destinations where they lack strong buying power anyway. A European travel manager said 10 percent of her program was on a BAR, while another said she has been converted from a position of skepticism. "As long as you put a cap on how much you will pay, it can work," she said. "We are not doing it across the board, but we are doing it in markets where it makes sense."
Travel buyers also are interacting more with hotels for their meetings business as well as regular transient travel. According to the benchmarking data, 13 percent of respondents consolidated their meetings programs on a regional basis in Europe in 2008, something that was not achieved by any company the previous year. Another 40 percent purchased or managed meetings centrally on an individual country basis.
Impressive as those figures are, it means 47 percent of European top-market buyers still have not consolidated their meetings spend. As usual, the biggest challenge appears to be resistance from internal stakeholders. At the Prague session, one travel manager related how her company's events group cooperated with her attempts to consolidate meetings spend until they realized she was serious about it. However, the travel manager decided she needed the event organizers on her side and redoubled her communications efforts to win them over.
"I told them I would take out the sourcing for them, and they could worry about how the flowers are arranged and the chicken is cooked," she said.
Managers also swapped experiences about attempting to leverage transient travel and meetings spending. "We marry up data from StarCite, our travel management company and our card," said one. "You want to be able to tell suppliers how you can leverage spend globally. We succeeded in negotiating day-delegate rates, but we had challenges with meeting rooms and conference space. That was more of a spot-buying activity."
The past year has seen significant changes in the air spending of companies participating in the European Top-Market Report. Average companywide air spending forecast for this year will be €107 million, almost unchanged from €108 million. However, European booked air volume is down much more sharply, from €53 million to €40 million, as is U.S. booked air volume, down from €43 million to €32 million.
The figures suggest companies are increasing their travel to other regions of the world. Business travel to the Middle East, for example, has held up well recently. Another explanation is that average fares on European and transatlantic routes have dropped more rapidly than to other destinations. The average European economy ticket price respondents paid in 2008 was €410.60, down from €464.20 in 2007.
The average savings that survey participants achieved on published fares, including both front-end and back-end rebates, was 20 percent. However, the results suggest companies also achieved savings by switching to cheaper published fares, as the percentage of European air tickets booked with a negotiated discount fell from 56 percent to 48 percent. Presumably, travelers are instead booking more seats on low-cost carriers or restricted published tickets on traditional airlines.
Another route to reducing average fares has been the tightening of travel policies. Exactly half of respondents said they have made their business class policies tougher this year. Last year, the figure was 38 percent. Changes have been introduced most often by adjusting the minimum number of flying hours for which business class is acceptable. Seventy percent of companies have a rule of this kind, up from 57 percent the previous year. Average journey time at which such companies allow business class is 6.5 hours.
TRAVEL MANAGEMENT COMPANY AND TECHNOLOGY
Figures provided by benchmarking participants confirm anecdotal reports of a recent shift in travel management company remuneration models from management fees to transaction fees. Those companies with a transaction fee element in their contract structure have risen from 71 percent to 77 percent, while those with a management fee element have fallen from 46 percent to 33 percent. Travel management companies have complained in recent months that clients are forcing them onto transaction fees that they are then negotiating downward.
However, there is mixed evidence of a price drop based on the average booking fees quoted here for air and rail transactions. In 2008, TMC average telephone booking fees climbed from €26.65 to €28.70 and online fees without assistance rose from €12.90 to €14.20. However, online fees with assistance fell from €24.00 to €20.90.
The difference in cost between fees for online booking with and without agent intervention was a clear area of concern at the Prague session. "The real savings are bookings which are touchless," said one travel manager. Hitting that objective is an increasingly tough battle. The percentage of tickets booked online and fulfilled with no manual intervention fell from 54 percent to 48 percent in 2008.
Participants swapped tips on how to improve the accuracy of traveler profiles, one key driver of touchless booking. "We told everyone in the company they must have a project number and date of birth in their profile," said one travel manager. "We really drove that into them for a while." Another said her company cleaned its profiles by asking travelers to check them every time they booked a ticket during a four-week period.
The introduction of self-booking tools is almost complete among European Top-Market companies. Now, 81 percent have a tool in place, up from 77 percent last year, and a further 16 percent are in the process of buying or implementing a company-approved system.
Some participants voiced concern about the costs of videoconferencing. "I see videoconferencing as a huge investment," said one. "In two years time, the equipment may be old-fashioned and we would need to reinvest."
Another travel buyer, noting some videoconferencing rooms cost as much as $250,000 to install, said, "We are looking at using third-party providers of videoconferencing facilities. Even airlines are considering providing them at airports."