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How to rein in airfare costs for everyone from road warriors to infrequent fliers.
Kate O'Sullivan, CFO Magazine
March 1, 2009
When the CEOs of Detroit's Big Three automakers flew to Washington, D.C., on private jets seeking a collective bailout, the resulting scornful guffaws echoed around the country. Suddenly corporate jets, the usual mode of transport for many big-company executives, seemed not only woefully out of sync with the national mood but also a luxury expenditure that few companies could justify. Time Warner, Citigroup, and other companies put their jets up for sale, while many others began investigating ways to rein in travel costs.
True, belt-tightening can be relative. Some companies have moved away from corporate-owned private jets in favor of services like those offered by Sentient Jet, a membership organization where entrée still runs a steep $100,000. But compared with the $10 million to $45 million cost of a private jet — not to mention operating costs of $2,000 an hour — paying barely six figures to buy a piece of exclusivity seems like a bargain.
But what about those firms — the vast majority — whose executive teams were flying commercially long before the economic crisis kicked into high gear, and for whom business class was already a luxury restricted to flights of six hours or more? Where else are CFOs, many of whom have been cutting discretionary costs for more than a year, finding ways to trim their airfare spend, the largest segment of most companies' travel budgets? A recent poll by the Association of Corporate Travel Executives found that 71 percent of business travel managers plan to spend less on travel this year than they did in 2008. Some are realizing significant savings by becoming more disciplined about travel planning — and making sure employees follow the rules.
Many finance chiefs are starting to trim airfare costs by reducing the number of trips taken or the number of travelers per trip, rather than downgrading the comfort of those who do have to fly. In travel-industry parlance, this phenomenon is called "demand management."
CFOs are now approaching travel as an investment, says Hervé Sedky, general manager at American Express Business Travel. As a result, "the first thing the CFO wants to know is, Is there a return on this investment?''
"We're not so much arguing over the class of ticket someone can buy as asking whether anybody actually needs to go in the first place," explains Marty Moore, CFO at SVP Worldwide, maker of Singer sewing machines. "Before, we would have said it's a good idea to get people together face-to-face, but now, we might just videoconference." Each of the company's operating units maintains its own travel budget, which is reviewed monthly, with managers expected to alert Moore if they anticipate exceeding their allowance. His approval is now required for all travel at the corporate level. Just knowing they need his signature, he says, gives people pause.
"It's not that I'm a tyrant," explains Moore, "but it does make people think, 'Do I really need to do this?' If they come to me to talk about it, obviously they feel strongly about the trip." Moore says such a shift in thinking will save the company about 10 percent on travel. "One person not going can save a lot of money."
Executives are replacing same-day trips in particular with videoconferences and phone calls, says Dale Eastlund, a senior director at travel management company Carlson Wagonlit Travel. "If it's an internal meeting, you stay at home," he says.
Dale Hosack, finance chief at Western Container Corp., a maker of plastic bottles for Coca-Cola products, says he and his fellow executives began asking more questions about travel last year, when sales began to soften. "We didn't really publicize it, because we didn't want to make it seem like the sky was falling," he says. "We just started asking an extra question about why people were going somewhere." Executives still visited their plants as scheduled and traveled for budget reviews, but such trips were planned far in advance. "Instead of going to Phoenix for a week and then later going to Seattle for a week, we went to Seattle, San Francisco, Phoenix, and Los Angeles in the same week," says Hosack.
The company has always traveled on a shoestring, mostly relying on Southwest Airlines, where there is no question of who gets to fly business class because it doesn't exist. The company is also careful to book in advance to ensure the cheapest airfares possible. Ticketing two weeks ahead, according to a Carlson Wagonlit study, can trim domestic fares by 39 percent and international fares by 6 percent. "If the COO and the CFO do it that way, I don't think other employees can complain about what we expect," Hosack says. When Southwest introduced its Business Select service, which allows passengers who pay a fee to board more quickly from a dedicated line, Western Container told employees they were free to use the service — on their own dime.
Going on a Guilt Trip
After determining which trips are truly necessary, the next step is to promote and enforce the travel policy the company already has, says Eastlund. While CFOs have long advocated advance booking, use of nonrefundable tickets, and reliance on certain preferred carriers, "travelers have tended to go off and do whatever they want," he says.
Today, the economic environment gives CFOs the ability to push compliance and to make policies more stringent. Employers are now more likely to require travelers to use a low-cost carrier, or to book flights that require a stop, and can expect far less grumbling than in the past. "All of a sudden, a stringent travel policy is not something to complain about but is instead seen as sound strategy," says Raj Singh, president of Concur, a maker of travel-management software.
For companies with software that guides employees through the booking process, there are numerous automated ways to encourage compliance. One of the most popular approaches uses what Sedky of American Express calls "visual guilt." When employees begin planning a trip, the software will show which carriers and flights are in-policy and which are not. Some companies configure their systems to require an employee to get approval before booking out of policy, while others simply show the employee that there are cheaper options. "When you notify someone that there are alternatives, they feel like they have to do the right thing," says Sedky. American Express has found that such visual guilt-tripping can save companies 10 to 20 percent of their total travel cost.
The increased urgency about controlling travel costs also means that for those rebellious folks who try to book direct, business-class flights on unapproved airlines regardless of policy, there can be consequences. "There's a company we've worked with that says if you do not book within policy, we'll cancel your reservation and send you an E-mail saying the reservation was not in policy," says Eastlund. "It's kind of harsh, but it works for this company." Some systems also alert managers to an employee's transgression.
Over a Barrel
After wringing as much savings as possible from improving internal policies, CFOs can then turn to those outside the organization — specifically, the airlines themselves. "CFOs are saying, 'The last time I negotiated my corporate rate, oil was $140 a barrel. Now, it's $40 a barrel.' The world is completely different than it was six or nine months ago," says Singh. That means it's time for finance executives to renegotiate with their preferred airlines.
While small companies may not have much success making themselves heard, even those with as few as 100 employees who travel frequently can improve their rates. "If you're a consulting firm with a bunch of people who burn the carpet between Seattle and San Francisco, you can sit down with Alaska Airlines or United Airlines and say, 'I have this many seats; what can you do for me?'" says Singh. Carefully tracking the number of trips and amount spent on the airline can bolster the CFO's argument, as can data comparing the cost of flying the same route on different airlines.
For now, many companies are still trying to ensure that their rainmaking salespeople can fly to see clients and their internal auditors can perform occasional site visits, although these trips are becoming less glamorous than ever. Should this latest round of cost-saving measures fail, however, there could be more changes to come. "If the economy continues as it is, we may have to consider more draconian measures, like a travel ban," says SVP's Moore. "But we're not there yet."
Kate O'Sullivan is a senior writer at CFO.