U.S. companies should increase
their business travel spend by an average of 4 percent to optimize their sales
revenue, according to a report issued by American Express Global Business
Travel and GBTA Foundation, the Global Business Travel Association's research
division. That extra investment in travel would equate to $72 per employee.
In a series of claims based on econometric
analysis of the relationship between travel spend and revenue at 900 public
companies from 1998 to 2009, the report's authors concluded that for every $1
strategically invested in business travel, corporations see an increase of $20
in additional gross profit. Data from 2009, they added, "validates" the
ratio first calculated for the original Amex-GBTA (then the National Business
Travel Association) ROI report issued two years ago. An Amex spokeswoman
clarified that "the 20:1
ratio has been steady over the past couple of years. Prior to 2008 the ratio
was 16:1." It is unclear how or if data from 2010 would affect the ratio,
though researchers claimed that one of their models based only on "expansionary
periods shows a correlation between travel and sales that is about 0.5 percent
stronger than the model that included recessions."
The report also suggests that U.S.
companies reined back on travel too far during the recent recession and the
economic downturn consequently was more severe than it might have been.
"Between 2007 and 2009, the U.S.
economy lost nearly $926 billion, or 3.6 percent," according to the report.
"However, businesses trimmed travel expenditures by $34.6 billion to $237
billion, a 12.7 percent peak-to-trough decline. Analysis suggests that a $31
billion decline in travel budgets would have been sufficient to defend against
this measured reduction in sales, resulting in only an 11.4 percent decline in
travel spend.
"The difference represents an
estimated travel overshoot, or hedge, of approximately $3.7 billion," the
report continued. "Had those additional travel hedge monies been spent,
top-line sales would have likely been about $26 billion greater. The travel
overshoot may have become a self-inflicted wound that made the Great Recession
of 2007-2009 worse than it had to be in the U.S."
The new research studied 14
different industry sectors and concluded that business services, entertainment
and sports companies typically spend close to their optimal levels on travel,
whereas banking, pharmaceutical and retail companies are more likely to
under-spend.
According to Amex advisory
services research director Christa Degnan Manning, "Ten years ago, travel
was 1.4 percent of every revenue dollar; now it's 0.9 percent."
The new report also attempted to
predict how much more companies are likely to spend on travel when they open a
new location. "A 1 percent increase in the number of locations was
associated with an incremental travel budget increase of 0.17 percent," it
concluded. "For example, if a chemical manufacturer with revenue between
$500 million to $1 billion, 10 locations, and current expenditures (air) of
$466,000 decided to add five new [domestic] locations, that company could
expect to likely need an additional 8.5 percent more air spend, or about
$40,000."