<H1> Biz Up, Costs Down</H1>By David Meyer
Corporate America is spending $20 billion more on business travel in 1996 than it did three years ago as the numbers of travelers and frequent travelers rise above 1992 levels, but companies are leveraging their travel expenditures more wisely than ever.
Furthermore, companies that have a strong travel manager substantially outperform average firms in incorporating a series of best practices into travel management programs that yield significantly lower costs. And while there is a slightly smaller percentage of companies with full-time travel managers, that appears to be because job descriptions are broadening more than ever to include managing meetings, videoconferencing, expense processing, auto fleet, car service and relocation.
These are just some of the findings in the new and improved 1996 American Express Survey of Business Travel Management, the eighth edition of the seminal biennial travel industry research document, being unveiled this week.
This study documents conclusively that travel is the third largest controllable expense, behind salaries and data processing.
The most startling revelation in the survey is that 75 percent of companies, and 88 percent of multinational companies, switched travel agencies in the past two years. Meanwhile, only 10 percent of companies switched card vendors.
By way of explanation, Kim Lewis, who as vice president of American Express Consulting Services Group headed the massive research effort, said, "The number-one reason that companies switch card or agency providers is related to service." Lewis agreed that this may well be a legacy of the cap the airlines imposed on agency commissions 20 months ago, which prompted companies to scrutinize the costs of agency transactions as never before.
Lewis predicted that the next Amex survey will show greater movement among corporate card clients "as electronic commerce and smart cards and pre-paid cards begin to take off in the marketplace," she said. "I believe what we are seeing in the last 12 months on the agency side will occur in the next 12 months on the payment side. We're on the cusp of the next revolution."
Also reflecting the impact of the cap was a move away from commission rebates toward some kind of fee-based agency arrangement. The percentage of respondents reporting a commission-based agreement in 1996 dropped to 39 percent from 46 percent in 1994. This year, 28 percent said they were paying a management fee and 15 percent said they were paying a transaction fee for agency services.
This year's survey is a substantial departure from past years, representing the first major retooling of the questionnaire. More than half of the questions were changed to focus on establishing new benchmarks for companies that have adopted various best practices and travel management goals and to reflect rapid changes in automation, such as online booking, electronic ticketing, automated payment and expense processing. Best practices here include having a strong travel manager, written policy or senior management support as well as being an early adopter of technology. Goals include cost containment, traveler safety and employee need.
Also new this year is a chapter on how companies purchase and negotiate travel.
To make room for these and other new questions, the survey no longer contains public sector comparisons, nor does it repeat the examination of global travel programs introduced in the previous survey.
The reasons for the changes, Lewis said, are that technology is revolutionizing the industry and that corporate buyers are demanding more precise data about their peers.
"Companies are in many cases very sophisticated about benchmarking the basics such as T&E volume, industry or overall averages," she said. "Now what they want is more targeted benchmarks that reflect different types of corporate culture"
Lewis said the baseline established in this survey will be built on for some time to come, "allowing us to track trends going forward."
As in the past, survey data is based on questionnaires, this time from 1,198 respondents, each from separate companies with at least 100 employees. Names are pulled from Dun & Bradstreet's database listings. Less than 10 percent of the respondents are Amex clients, and about 20 percent were respondents to previous surveys.
A greater share of the respondents this year were from small to midsize companies-those with less than $1 million in volume. Last time around, those companies accounted for 57 percent; this year they represented 63 percent.
This year for the first time, Amex broke out responses from companies that spend $25 million or more on travel annually. In another survey first, the agency targeted U.S.-based multinational companies and reported separate results from 61 respondents.
The responses gathered this spring show that U.S. businesses, which spent $136 million in 1993 and $150 million in 1995, expect to spend $156 billion on T&E in 1996.
On top of that number, companies spend an additional 10 percent to manage the indirect costs of administering cash advances and processing expenses. Adding in this figure, business travel expenditures will hit $171 billion this year.
While the breakdown of the travel dollar has changed little since the first Amex survey, the Consulting Services Group decided to add a new category to the mix: communications costs, which includes fax, long distance, cellular phones, e-mail, LAN access, Internet use and videoconferencing. This year, those charges account for 5 percent of the travel spend (see chart, this page).
While overall spending has gone up, so has the number of business travelers on the road. With the number of travelers and frequent travelers climbing above 1992 levels, spending per employee has plummeted (see chart, Page 1).
The study shows that the driving force behind driving these costs down at many companies was the influence of a strong travel manager.
While only 22 percent of companies, and 39 percent of U.S. multinationals, have a full-time travel manager, the 36 percent of companies that have a strong full or part-time travel manager do a better job of putting together travel policies and negotiating discounts.
Among companies with a strong travel manager, 97 percent have a written policy, compared with 60 percent of average companies; 97 percent have negotiated hotel programs, versus 55 percent of average companies; and 86 percent have air discounts, as opposed to 40 percent of average companies.
Of those companies that are early adopters of new travel technology, 75 percent have a travel manager. Firms with strong travel managers also are more likely to have negotiated airfare, hotel and car rental rates.
Travel managers negotiate discounts for 44 percent of companies that have such deals. The designated travel agency takes the lead for 38 percent and purchasing does the travel dickering for the remaining 18 percent.
Victoria Linssen, senior manager for Amex's Consulting Services Group, said that the new focus on negotiating and purchasing yielded some interesting insights. "What we saw was an increase overall in companies having negotiated discounts," she said.
There has been a significant increase in companies that have negotiated hotel discounts, up 8 percent from 1994, with slight rises as well for negotiated airfare and meal discounts (see chart, Page 24).
"More companies have been doing such things as distributing hotel guides to educate their travelers as to where they should stay and what sort of rates they should pay and putting their hotel guides online," Linsen said. "That becomes a productivity tool for travelers who arrive at a hotel that is overbooked. They can go to their laptop and find the next place that is closest by and what rate they can pay, so they are not stuck."
The survey now measures statistics on canceled discount programs as well.
"This was the first year we asked if companies had suppliers cancel their discount programs because they weren't able to meet market share," Lewis said. "Here we saw compliance with travel policy having a big impact. One hundred percent of companies in which employees only follow the travel policy some of the time had their negotiated discount programs canceled by their suppliers."
The survey showed that 23 percent of all companies have had suppliers cancel their discount programs. Of those, 75 percent said it happened because they did not meet volume or market share targets, and 100 percent of those who said employees comply with travel policy only some of the time didn't meet their targets and had discount programs canceled as a result.
Also telling when it comes to compliance is a move away from companies having special policies for senior executives. This type of leadership by example is especially more visible among smaller firms. Only 28 percent of average companies now have special policies for senior executives, down from 35 percent in 1994.
While only 60 percent of respondents said they have a formal, written policy, 70 percent said they distribute their policies to all travelers. This is a marked increase from the 47 percent of companies that distributed travel policy to all end users in 1994.
Lewis said part of the reason travel policy distribution has become wider and more comprehensive is that the process has become easier through company e-mail and intranets.
Policies are now being distributed online at 11 percent of average companies and 47 percent of those at companies that spend $5 million or more.
This survey also marks the first time that Amex is tracking what businesses actually include in their travel policies. On average, companies include 15 separate items.
With the exception of long-haul travel and car rental policy, businesses are tightening cost controls in all other categories.
"In the air area, we are seeing policies tightening over requiring the use of the lowest logical airfare, but we also are seeing more of a balance between cost control and traveler productivity," Lewis said. "So while on the one hand they are requiring you to use the agency to book the travel, requiring you to use the lowest logical airfare and making it fairly restrictive about what that means, they also are saying if you are traveling over eight hours or on a long-distance international flight, you can go business class. We see this trend, however, for air only. For hotels, it is going in the other direction, with more companies using moderate accommodations."
This year, 78 percent of companies now require employees to use the lowest logical airfare, up from 68 percent in 1994. The most popular strategy for lowering airfare is to require Saturday night stayovers, a practice adopted by 37 percent of the respondents. Eighty percent of those spending $25 million or more set a time window for low-fare searches.
As for the relaxed restrictions on car rental policies, that seems to reflect the fact that corporate buyers are finally acceding to vendors' attempts to raise rates, and getting reduced incidental charges in return.
"Two years ago, we saw car policies becoming much more restrictive across the board," Lewis said. "Now we are seeing that category of spending with less focus on it, with one exception-the size of the car. So there's not as much focus on such things as refueling insurance. I think that's because the rates have gone up and the rates are driven by the size of the car, so companies are focusing on the one control technique that will make a difference."
Among other notable new survey findings was the impact of a company's travel goals on spending. Cost containment was rated as the most important goal by 45 percent of respondents, with 25 percent saying safety is most critical, 15 percent saying employee need is paramount and 8 percent citing administrative convenience. Those who said safety or employee needs are most important spent 42 percent more on T&E than the average.
Amex intends to have the new survey in the hands of its clients later this month. The agency also will make it available to others for $190 a copy. For more information, call 800-392-5584.