Most travel buyers include advance-purchase requirements for air travel in their travel policies, according to Business Travel News research, but those who do not increasingly are pointing to their own data and understanding of airline yield management that such policies do not necessarily generate big savings in a travel program.
A BTN survey of 160 travel managers with a volume of at least $500,000 in 2014 U.S.-booked travel shows that 61 percent had some form of advance-purchase policy for air travel. A policy that requires tickets to be purchased within at least 14 days of travel was the most commonplace, practiced by 38 percent of total respondents. Eighteen percent of respondents had a policy requiring air tickets to be booked within at least a week of travel, and only 5 percent required a booking window of 21 days or more.
Conventional wisdom long has held that the further out from travel an air ticket is booked, the better the airfare options will be, and in a general sense, that remains true, said Barry Rogers, senior advisor for TCG Consulting's Global Air Practice.
"We've seen a fair number of clients do analysis over the last year or two, and by and large, they are finding there is a benefit," Rogers said. "There was a period of time a few years ago when there was more capacity in the market, and airlines were dumping some fares at the last minute, but that has become more rare as capacity has tightened up."
Data released in January by Travel Leaders Corporate also supports the efficacy of advance-purchase policies in the 14-day range. Fourth-quarter corporate booking data from Travel Leaders show bookings made 14 to 20 days prior to departure cost 24 percent less than those made less than a week out; by comparison, bookings made seven to 13 days prior to travel cost 9 percent less.
In terms of travel policies, even many of those companies without rigid advance-purchase restrictions remain focused on encouraging travelers to plan ahead to get access to lower-cost airfare inventory. For mature programs trying to eke out more savings, targeting those travelers who constantly are booking air travel only a few days out can be a way to add a few more percentage points to the bottom line, said Pedro Paredes, vice president of global business consulting for American Express Global Business Travel.
In particular, more companies are targeting travelers who book last-minute tickets for internal travel, he said.
"For internal travel, some clients are saying if it's booked less than seven days out, then don't fly," Paredes said. "But even if you're a consultancy that makes money putting employees in front of other clients, that behavior of booking zero to three days out is something you want to watch, because any reduction of those costs will go straight to your bottom line."
There are factors to consider outside of trip cost as well. In a recent report on travel management priorities for 2015, Carlson Wagonlit Travel noted that the return on investment for business travel tended to be better for trips that were well-planned. In a 2014 survey of about 10,000 travelers, 21 percent of those who had booked their travel fewer than three days in advance deemed their business trip "unsuccessful." Only 11 percent of those who booked more than two weeks in advance said their trip was unsuccessful.
Even so, some buyers said their decision to eschew strict advance-purchase policies is based on having their own data. Frank Dolce, director of global corporate T&E for OSI Systems, said the numbers look different once they are adjusted to normalize for short-haul travel. Costs on those trips—shuttle flights from New York to Boston or from Los Angeles to Las Vegas, for example—tend not to fluctuate as much in the last-minute booking windows and even show better fares when booked closer in, he said.
Relatively cheap last-minute fares on long-haul flights also have become more commonplace as airlines have enhanced yield-management systems to open up lower-cost inventory in markets when bookings are running below expectations, said Bob Brindley, vice president and principal at BCD Travel's Advito consultancy. This trend has driven the model behind such price-assurance products as Yapta and has encouraged airlines to increase change fees, he said.
"In the past, the relationship between price and advance purchase was a relatively smooth curve," Brindley said. "However, today it does fluctuate, even though it follows the same overall trend."
Highly competitive routes are especially prone to last-minute discounting, TCG's Rogers said, though he cautioned that those were "not across-the-board" and while "people are still able to get a relatively lower fare at the last minute, they're still not going to get the same kind of fares they would have gotten well in advance."
In select markets—travel within China, for instance—reality can run counter to conventional wisdom, with airfares tending to drop the closer it is to the travel date.
Some companies have dug into data to create a more unorthodox advance-purchase policy. The Advisory Board Co. vice president of business solutions Steven Mandelbaum, BTN's 2014 Travel Manager of the Year, created a policy to address exceptions to the company's general seven-day advance-purchase requirement. After seeing booking data showing fares were highest between four and six days before travel and tended to drop after that, Mandelbaum created a policy that prohibited bookings in that four-to-six-day range.
On the opposite end of the spectrum, advance-purchase policies that push bookings too long before travel can be counterproductive, especially as airlines increase change fees. In an email newsletter to clients last October, president and founder of Executive Travel Steve Glenn urged them not to have business travelers booking more than 30 days in advance.
"The chances for changes in appointments, family, health, employment or the economy often make the odds of having to change a nonrefundable ticket as high as 25 percent for some business travelers," Glenn wrote. "You do the math. If you buy a $400 airline ticket and have to change your flight ($200 cost), you just added 50 percent to the cost of the ticket."
Dominion Resources director of travel services Donna Kelliher made a similar discovery a few years ago with a study of advance purchases. She found that there was no significant savings from booking tickets more than 20 days in advance, and that travelers buying tickets too far in advance added more than $100,000 in exchange fees.
Even so, when travel dates are certain, there can be advantages to booking far in advance, TCG's Rogers said. For clients who are traveling internationally in business class, many are buying low-bucket fares that offer effective discounts of 50 percent to 70 percent off the full business-class fare. While there are risks with restrictions and high change fees with those fares, they also offer significant savings when travel dates are absolutely firm, he said.
"One of the ironies is that corporate clients in some cases are seeing a reduction in their effective discount rate, because they're not getting any discount," Rogers said. "But the roundtrip business-class fare in a low bucket could be $5,000, whereas even with a discount, you might be $11,000 or $12,000."
All this boils down to the fact that strict advance-purchase policies never were a one-size-fits-all solution and are even less so now. OSI Systems' Dolce, for example, said his policy has benefited simply by telling people "to make arrangements as far in advance as possible."
"We book the lowest nonrefundable anyway," he added. "A lot of the fares are one-way, and the Saturday-night stay isn't nearly as pervasive as it used to be. But even if published fares may not be lower based on advance purchase, there is usually a better choice of inventory, and from that perspective, the chances of obtaining a good price is much higher."
For travel buyers who have not reviewed their advance-purchase policies in some time, it's certainly worthwhile to benchmark policies with others with travel programs of similar scope and size, Amex's Paredes said. He cautioned against making such policies too complex, as the general trend now tends to be more toward simplifying travel policies rather than making them more convoluted. Regardless of the approach, he also cautioned against moving too far from that old conventional wisdom.
"It's still not a bad idea to keep reminding travelers that the further out you book, the better it will be for the bottom line," Paredes said.
This report originally appeared in the March 2, 2015, issue of Business Travel News.