The corporate incentive travel industry will not count 2002 among its banner years—and the prospects for a rebound in 2003 appear slim—but corporations seem more likely to limit the number of qualified attendees than eliminate incentive travel programs in their entirety. However, the threat of military action in the Middle East looms large in forecasting the incentive industry's immediate future.
According to a recent Meetings Monitor survey of 109 corporate meeting buyers, about 19 percent said their companies will offer fewer incentive travel programs this year compared with 2002, while only 9 percent said the number will increase. About 40 percent said their levels will remain about the same, with the remainder eschewing incentive travel.
Those numbers are similar to 2002 results. In the same survey, 21 percent of respondents indicated that incentive travel levels declined in 2002, compared with 2001, while 11 percent said they had increased.
Many corporations have felt the tug between weakened corporate financial states and subsequent cuts in meeting and travel spending and the need to spur sales figures through motivation techniques. Yet, few companies, it seems, have spent more money on travel incentives.
"The past 12 months have not been a great picture for any part of the incentive award market, be it travel, merchandise or anything else," said Scott Graf, president of Chicago-based WorldTravel Meetings & Incentives. "Corporations have been cautious, slow to spend and noncommittal. Some incentive travel awards were scaled back or converted into merchandise awards, particularly incentive travel to Europe."
Many corporations, though, tried to balance their motivational needs with decreased spending levels and kept their programs relatively static.
Nationwide Insurance of Columbus, Ohio, has held the number of incentive travel events largely steady during the past few years, said meeting services manager Shirley Mertz, but reduced the number of attendees per event.
"The number of qualifiers was held down by design," Mertz said. "We've implemented more difficult criteria. Our most elite conference should be for the top 2 percent—there shouldn't be hundreds of qualifiers." Nationwide has combined some incentive travel programs in which the same employees qualified.
That philosophy likely will not change in 2003, Mertz said. "The company had a good year and 2003 is starting out well," she said.
UnitedHealthcare of Minneapolis also has not implemented widescale cuts in its incentive programs, but has tried to keep its expenditures steady from one year to the next. "We've kept the levels the same and we haven't canceled or drastically changed the size of any events," said director of performance and recognition Kate Mother. "It's an important part of the recognition structure and it means a lot to employees. We just have to manage it closely."
"We actually haven't seen that significant of a dropoff," said Bill Boyd, president and CEO of Dallas-based Sunbelt Motivation & Travel. "Some accounts have actually increased."
That said, the all-encompassing trend of shorter lead times for all corporate meetings
(Meetings Today, Oct. 14, 2002) might skew Boyd's view, he said. The significantly shorter lead times have led to corporations announcing and beginning an internal incentive program long before a destination is selected, he said, then basing site selection, and subsequently contacting firms like Boyd's, only after the financial benefit of the incentive is measured.
"There's a greater focus on exactly what the numbers are going to be. They are basing the travel destination on the results," Boyd said. "We'll get the call four months out. It drives us nuts, but it's a sign of the times, and I can't blame them because they're under the gun to produce return on investment for what they spend." That investment could shrink drastically if the United States and its allies commence a military operation against Iraq. Given the devastating effect on the corporate and incentive travel industry in 1991 during and after the Desert Storm operation against Iraq, concern about a repeat effect reigns.
"Business would slow. Some would convert international trips to domestic," Graf said. "But other than that, it's difficult to say. We don't know when it would start or how long it would last. It depends on the type of conflict, but it could be extremely devastating. It could take us back to Sept. 11 levels. It's a possibility."
Timing and length of potential conflict will be critical to the effect on the incentive travel business, Boyd said, but so will the nature of such conflict. "If it's a quick war, than 2003 will mirror 2002: kind of flat, and not as good as 1999 to 2001, but still relatively good," he said. "If it's a protracted, dirty war, all bets are off," Sunbelt's Boyd added. "There will be all sorts of cancellations. Our best hope is that it's quick and decisive, because then you'll see the market soar."
Still, not every program hinges on Iraq. Mutual of Omaha manager of sales incentives and recognition programs Ken Juel said his company likely will maintain its level of incentive travel usage—including number of events, number of qualified attendees and proposed budget—this year as compared with last year. That should hold true even if there is a conflict in the Middle East, said Juel, who also is president of the Insurance Conference Planners Association. "We have a good track record of sticking to our game plan and we usually have international programs every year," Juel said. "We have contingency plans in case, but we plan to stay on course."
Some companies, though, would and have considered merchandise as a less expensive, but also less motivating, alternative to travel. "It depends on the industry and the severity of corporate financial situations, but there should be less conversion," WorldTravel's Graf said. "There's a high need to recognize. The economy is looking up, but it's not rosy. It's a good time to focus on employees. If companies want to reward a broad base of employees, then they'll look at merchandise. If they want to spend more on a smaller base, they'll look at travel.
"I'm optimistic about this year," Graf continued. "There's a renewed zest for travel. When you skip a year, you miss it. We're seeing an increase in requests for proposals. Those corporations that might request between one and five trips per year are asking about holding one or two more. It might not convert into actual business, but it is a good sign."
One change in the industry concerns responsibility for negotiating incentive travel. Historically, Boyd typically has dealt with sales and marketing executives, the occasional human resources executive or small-company CEO. That, however, has changed as procurement departments delve further into corporate meeting and travel operations.
"There's pressure on corporations about ROI and shareholder value," Boyd said. "Procurement is becoming involved, and I'm selling to purchasing people and financial executives. It's becoming commoditized, and I'm trying to sell incentive travel sizzle to guys who want three pounds of steak. I'm not saying it's a majority of corporations, but you didn't see this three years ago. I hope it doesn't grow."
According to the Meetings Monitor survey, one-third of corporations assign negotiating responsibility to meetings managers. Mutual of Omaha, for example, supports a centralized meeting planning department, Juel said, and all incentive travel operations are managed through there. About one-quarter of respondents indicated the CEO, president or company owner has negotiating responsibility, followed by travel managers and sales executives.