Procurement Practices 2009: Gauging Corporate Travel's Downturn

The economic downturn spurred a dramatic shift in 2009 corporate travel budgets and forecasts. Business Travel News' Procurement Practices survey shows the gulf in attitudes toward corporate travel in 2009 compared with previous years.

Two-thirds of respondents plan to cut back on travel spending this year, and about the same percentage said their travelers will make fewer trips this year than in previous years. It's a complete reversal from 2008, in which only about 20 percent were planning to spend less on travel and take fewer trips. In 2007, about half said their plans were to increase travel spending and trips.

These results jibe with other recent industry data. The Economist Intelligence Unit, in partnership with Amadeus, in February reported that nearly half of 354 executives surveyed said they were planning fewer trips during the next 12 months, and only 11 percent said they expected to take more business trips this year. About that same time, an Association of Corporate Travel Executives survey of 176 travel buyers showed that 71 percent of respondents plan to spend less on travel in 2009.

"A lot of companies are planning on traveling less and spending less, so that really creates an opportunity for travel and procurement professionals," said Frank Schnur, American Express Global Advisory Services vice president. "They can go to CFOs and discuss how to make these cuts intelligently instead of just making broad, sweeping cuts."

Patricia Carlin, purchasing manager for global card and travel for Dublin, Calif.-based Sybase, said her goal is a 10 percent reduction in travel and entertainment spending this year. "We absolutely will reduce spending by reducing trips," she said. "We're still consolidating global locations—we've brought in Australia and Singapore, so we're bringing in more countries to manage—but we've decreased T&E overall."

A 10 percent reduction is no small order, but Sybase's goals actually are modest by measure of the results of the survey. Respondents said they plan to see about a 20 percent decrease on average in both travel spending and actual trips. In the Economist survey, 16 percent of the executives said they would cut back the number of trips by 30 percent or more.

Sybase's Carlin said demand management would play a large role in her T&E cutbacks. "We're really getting into our stride, and we're having a lot more pre-trip approvals than we've ever done," she said. "There are going to be fewer trips and a much greater drive to videoconferencing for internal meetings."

While Carlin said shorter trips were not part of her company's cost-reduction strategy, some companies will see reductions in that manner. The Economist survey, for example, showed the number of executives who said one-night stays were the par for their business trips increased to 16 percent for this year, compared with 11 percent in 2008.

These cutbacks generally should not impair negotiating leverage. The minority holding travel steady or increasing it will be in a great position to renegotiate agreements, said Bob Brindley, vice president for BCD Travel consulting unit Advito. "Those who have dramatic declines year-over-year will have a more difficult position, as well as those who are changing policy, such as bringing travelers out of the premium classes," he said.

The percentage of companies that save money by applying procurement techniques to travel has remained fairly steady in the past few years, albeit at a strong majority, according to BTN's survey results. The percentage companies expect to save by using those techniques, however, is higher on average this year than in 2008. The percentage of those expecting to save less than 5 percent through procurement practices dropped to 7 percent this year from 19 percent in 2008, and those expecting to save more than 16 percent increased from 19 percent to 26 percent.

Survey numbers also might not fully reflect the impact of procurement practices on savings. As they become a more settled part of a travel program, it can be harder for a travel manager to differentiate savings specific to those practices from those accomplished by the overall program management, said Sybase's Carlin, whose travel program has been under the procurement umbrella for a long time. "All the savings I achieve are from all my methodologies of doing business," she said.

Another factor to be considered is the disparate ways companies have of measuring those savings. Some companies, for example, don't count cost avoidance as savings. Carlin said Sybase measures savings, comparing rates with published corporate rates for hotels and lowest coach fares for flights, as opposed to rack rates or full coach fares.

As procurement practices become more ingrained and as travel buyers face mandatory cutbacks, measurements will become even more important in ensuring that the overall quest for savings in travel is not detrimental to the company as a whole, American Express' Schnur said. Tight monitoring and measures will enable companies to have the necessary data to adapt policy to allow for savings even as certain kinds of travel—sales department staff visiting prospective clients, for example—can increase.

"It'll give a window to all those behavioral things: changing a business class policy, getting people to pick up a sandwich for lunch instead of sushi, getting people to combine business purposes on a single trip," Schnur said. "We owe it to our companies to present this kind of data, so if you need to cut travel spending by 20 percent, then you can do it without impacting the future growth of the company."

Additionally, buyers should find upper management more receptive to trying to institute controls that might have been ignored in the past, Advito's Brindley said. "It's definitely an easier sell, and it's much easier to put these policies in place in tough economic times, especially if a company is going through cost reductions in other areas."

He added that signs are showing travel cutbacks in the near future will not be as severe as the ones seen now. "We're hoping that things are bottoming out," Brindley said. "Airline demand is starting to stabilize after a big drop last year, certainly not going up but not going down at a faster rate. Hotels will be a bit slower to rebound, because clients that have cut back on air travel have cut back on hotels even more."

Once companies emerge from the downturn, procurement practices put in place then could be of even more benefit. "They can use these times to be more efficient in the future and continue those savings as the economy re-bounds," he said. "The old saying applies: Never lose an opportunity from a crisis."