Corporate travel in the new age of austerity

The recession means company travel budgets are being slashed as never before, but don't get carried away.

by Rhymer Rigby
Last Updated: 09 Oct 2013

In the past 18 months, the world of corporate travel has performed what the 20th-century philosopher Thomas Kuhn called a 'gestalt switch'. The term describes looking at the same thing in a completely different way, and is usually illustrated with the famous duck-rabbit illusion. Looked at one way, it's a duck, the other, it's a rabbit. So it is with business travel. Cheap is now value for money; penny-pinching is a thrifty virtue; and flying economy has been upgraded from a mark of low status to a badge of honourable self-sacrifice on the altar of the greater corporate good.

There's plenty of data to support the idea that corporate travel budgets aren't what they were 18 months ago. According to the Guild of Travel Management Companies, business travel remained strong until the third quarter of 2008. It dipped at the end of the year, and then in Q1 of this year the picture deteriorated markedly - there was a 6% year-on-year reduction in spending, with air travel down 17%.

The upshot is simple. Staff who travel are being asked to do it cheaper and make better use of their journeys. Notes David Vine, MD of employee expenses service provider Global-Expense: 'Business travellers will be under enormous pressure in 2009 to achieve the same results as previous years, but spend less. Gone are the excesses of the last few years.'

Now we can probably agree that sweeping away some of the gaudier trappings of executive travel-club status is a good thing. But other than telling spoiled financiers they can't use the Lear jet any more, how do companies rationalise their travel budgets? Should they be Churchillian ('Is your journey really necessary?') or micro-economic ('Do I take a cab uptown?')? What is an appropriate level of travel and the right way to travel? In the new, pared-down reality, could we travel more effectively?

A bunker mentality is not the way to go. 'You have to be out there,' says Chris Fry of corporate travel provider HRG, noting with approval that few firms have imposed blanket bans on travel. Paul Hargreaves, Amex's general manager of business travel, UK and Ireland, takes a similar line. As firms seek to cement their contacts and networks in the downturn, 'the imperative to travel has never been greater'.

Says Richard Brown of the consultancy Cognosis: 'Our perspective is that leaders and leader teams should be out there and travelling and meeting more. You shouldn't be introverting, but you should be travelling meaningfully. It's easy to announce an across-the-board cut in travel and it plays very well to people's prejudices. It feels strong and like you're taking control.' But he'd expected a more considered response from some people: 'We've seen a lot of rabbit-caught-in-the-headlights reactions, but this recession was a long time coming. Good leaders should have used the long lead time to formulate a more intelligent response.'

Still, says Fry, the right response is quite easy to put together. First, look at compliance with existing policies. When money is tight, there's no excuse to ignore over-spending. This can be as minor as simply making people aware of the sums they're spending, or of using online booking tools more effectively - for instance, to control certain classes of travel.

Vine at Global Expense reports, however, that one major UK company has taken an altogether more forthright approach: it names and shames anyone who spends more than they should, from the CEO down.

The second action, says Fry, is telling people to downgrade. 'You need to ask whether people are prepared to turn right rather than left, and take a three-star hotel rather than a four-star. And the answer is, of course, they are. They should be choosing the hotels and flights as if they were spending their own money.' Amex says one of its clients calculated that by axing business and first-class seats for flights under 10 hours, it would save a million dollars a year.

And look beyond flights and hotels. What about restaurants? Do employees need to get cabs everywhere or can they take trains? Especially for travel within the UK and the near-continent, national rail and Eurostar services stack up favourably against air travel, in both cost and journey time. Rail stations tend to be more central than airports.

But the trick in making economies is not to take it so far that you start to damage the product. Fry notes that if you're flying back from New York on the red-eye and you need to do a board presentation that morning, it makes sense to fly business class: unless you can sleep upright, you'll arrive tired and your presentation will suffer. So weigh the cost of a business flight against the cost of a poor presentation and not making the best use of your time. You may well find it's a false economy.

Similarly, putting someone up in a cheap hotel miles out of town is a saving that's likely to be gobbled up in cab fares and wasted time.

Companies should ensure that they gauge mood correctly and lead from the top; if the rank-and-file are travelling in less style than before, so should the brass. The alternative to a little less luxury is the kind of PR disaster the CEOs of America's big three auto-makers enjoyed when they flew in separate private jets to lobby the US government for a multi-billion-dollar handout, prompting Congressman Gary Ackerman to ask if they could have 'downgraded to first class or jet-pooled or something'. Doing so, Ackerman said, 'would have at least sent a message that you do get it'.

But it needn't all be hair shirts. A lot of businesses find that they can get the same for less. With the recession hurting the airlines that companies fly on and the hotels they stay in, there are deals to be done and rates to be renegotiated. Moreover, with careful planning, staff can double up on trips (eg, fly to Berlin, get the train to Frankfurt, fly back from Frankfurt). Or cut quantity to preserve quality. If you have a weekly trip to, say, Edinburgh, you could replace one in four with a video conference and make the other three really count. It's also worth noting that, as the green business bandwagon rolls on, fewer flights equals a smaller carbon footprint.

In certain sectors, notably finance, this represents a real change from what had become a rather vulgar and wasteful spending culture. Yet many people respond better than might be expected. Says one financier: 'If you'd told me in 2007 that you'd fly me to New York economy, I'd have told you that was resignation talk. But now it's starting to seem pretty normal. In fact, you can sometimes look back at how you behaved a little while ago and think: what a spoilt and wasteful snob I was.'

Peer pressure is a powerful thing: when all those around you are saving money, it seems only natural to do so yourself.

It's tempting to say that corporate travel has changed for ever and that a leaner, meaner world is the new norm. But in the longer term, it's more likely to be a case of plus ca change... After all, the sentiments we hear today were being bandied around after the dot.com bust when, just as now, people were financially hung over and everyone swore off five-star and business class 'for good'.

Based on this, we can say that the luxury/austerity cycle lasts seven to eight years, and the gestalt switch flicks both ways. As the economy improves, 'value for money' will once again become 'cheap'; thrifty virtue, penny-pinching and self-sacrifice become forgoing what is only your due; the duck will once again be a rabbit. But until then, we'd better get used to flying coach and eating in Starbucks.

MAKE TIME FOR FACE TIME

Richard Davies, head of employee benefits at benefits provider P&MM is a road - and train a nd bus and tube - warrior. 'I'm a salesman and a run a team of five salespeople.' Between them, they manage an average of 30 face-to-face meetings a week.

'I always see great value in face-to-face,' he says. 'You can see the company and its offices with your own eyes and understand the corporate culture. And, of course, in the meeting itself, you see the body language. There's just much more nuance.'

From the seller's point of view, as well all this extra non-verbal information, 'face-to-face allows you to demonstrate real knowledge, expertise and authenticity. 'It helps to build rapport,' he adds.

But he admits that technology has changed things greatly over the past decade. Where once he used to start with Yellow Pages, he now starts with the web. Because so much more corporate information is now available online, 'you effectively start with a shortlist'. He also uses web-based conferencing and collaboration tools like Cisco's WebEx, which, used appropriately, can be a big productivity booster. 'You can do 10 times the meetings in the same time, because you don't have all the travelling.' All this, along with environmental concerns, is persuading him that some meetings in person are unnecessary. 'I'd say that, overall, technology has reduced the number of face-to-face meetings by 25% to 30%.'

But don't write off fleshtime prematurely. When it comes to doing the deal, it's hard to beat actually being there. 'From a selling perspective,' says Davies, 'the closer you can get, the bigger the opportunity you have.'

Richard Davies, head of employee benefits at benefits provider P&MM is a road - and train, bus and Tube - warrior. 'I'm a salesman and a run a team of five.' Between them, they manage an average of 30 face-to-face meetings a week.

'I see great value in face-to-face,' he says. 'You can see the company and its offices with your own eyes and understand the corporate culture. And in the meeting itself, you see the body language. There's just much more nuance.'

From the seller's point of view, 'face-to-face allows you to demonstrate real knowledge, expertise and authenticity,' he adds. 'It helps to build rapport.'

But technology has changed things greatly over the past decade. Where once he used to start with Yellow Pages, he now starts with the web. Because so much more corporate information is now available online, 'you effectively start with a shortlist'. He also uses web-based conferencing and collaboration tools such as Cisco's WebEx, which can be a big productivity booster. 'You can do 10 times as many meetings in the time, because you don't have all the travelling.' All this, along with environmental concerns, persuades him that some meetings in person are unnecessary. 'Technology has reduced the number of face-to-face meetings by 25% to 30%.'

Yet when it comes to doing the deal, it's hard to beat actually being there. 'From a selling perspective,' says Davies, 'the closer you can get, the bigger the opportunity.'

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