Economy Class

Techniques and technologies for limiting soaring travel costs.
John P. Mello Jr.July 1, 1998

Forget Microsoft Corp. It’s the airlines whose recent dealings with competitors really have companies on edge. With alliances in the wind between United and Delta, American and USAir, and Northwest and Continental, companies face the threat that this increasing cooperation will exacerbate the already skyrocketing cost of business travel.

And skyrocketing it is. As American Express Co. calculates it, airfare accounts for more than two of every five business-travel dollars. It notes that prices for typical business airfares (the lowest priced, least restricted) jumped 16 percent last year alone, and have soared 38 percent since 1995. “You’d expect some price increases, but given existing inflationary trends, you wouldn’t expect the extreme price increases we’ve seen,” says Eric Altschul, a vice president at the American Express Consulting Services Group in New York. He blames the fare rises on the way “the airlines have tacitly gotten out of each other’s way.” Full-fare economy tickets for transcontinental flights, and even some from Chicago to the West Coast, now may routinely exceed $2,000 round trip, about 50 percent higher than five years ago.

While airline trade groups dispute how dire the picture is — an Air Transport Association spokesman contends that American Express overemphasizes the higher, published fares that business travelers usually manage to avoid — those business travelers certainly can’t argue that trips often are much pricier these days. Indeed, the rate of increase for the average business fare paid, which includes the discounts Amex figures that companies are able to use, nearly doubled last year, to 9 percent.

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While airfares raise hackles now, lodging expenses will soon. Amex says that domestic corporate hotel costs, representing another dollar of that business-travel five-spot, will grow at between 13 and 15 percent this year in the top 25 business destinations. When other cities are included, last year’s 8 percent rise probably won’t be matched. Still, Amex observes that vacancy rates will remain so low that companies will continue having trouble negotiating discounts. On top of that, of course, such expenses as car rentals (up 4 to 5 percent) and restaurant meals (2 to 3 percent) continue to rise. Taken together, the sharp increases mean that travel — a company’s third-largest controllable expense — “is getting a much higher level of attention than it ever has” from corporate finance departments, according to Altschul.

At many companies, the ingenuity of cost-conscious individuals and travel offices is being sorely tested. And while there are limits to what can be done institutionally to reduce expenses without compromising the comfort and convenience of your road warriors, suggestions about how to make improvements fall into four general categories:

1. Go Higher Tech. By using the Internet and various new software tools, companies can find cost savings that travel agents often miss, and can even factor company travel policies into their arrangements.

2. Go Smarter. The list of available savings here includes not only volume discounts, advance booking of airfares, and Saturday layovers, but also use of alternative routes and airports.

3. Save after You Go. Sophisticated software has been designed to effectively reduce the costs of processing travel reports.

4. Don’t Go at All. The simplest cost control — traveling less — has been slow to strike corporations, but is now catching on in a big way. Indeed, a survey last year by the National Business Travel Association found half of U.S. companies now in the process of slashing the number of employees they let travel, compared with just over a third the year before.

That’s the approach being taken at Cygnus Inc., a medical equipment maker in Redwood City, California. “I think we got a little lax, like others,” says CFO John Hodgman, “but we’ve started tightening our belts again.” And while it limits the number of participants allowed to travel to meetings, for example, it is also scheduling more video- and teleconferencing — alternatives that, along with communicating by Internet, are getting more attention as travel-cost increases dovetail nicely with decreases in telecommunications technology prices. Cygnus also uses a private, password-protected site on the World Wide Web to pare travel costs by allowing the company to collaborate with its vendors and do the kind of “whiteboarding” that allows multiple users to add a visual context to any teleconferencing about cost- reducing efforts.

The Internet is teeming these days with online providers of travel-booking systems and other services that corporate travel departments can use. Popular, too, is software that automates the back-room processing of red tape connected to trips. The systems allow a new breed of corporate traveler to make reservations from a person’s desktop, and file expenses instantly. Some software automatically applies a company’s travel policy to the plans being made, for example — and makes sure flights are with preferred carriers, appropriate discounts are sought, and the right hotel and rental car is chosen.

Savings here can be prodigious, Altschul notes, “because in most firms, it’s fertile ground [otherwise] untouched by cost-cutters.”

According to The Yankee Group, a Boston-based research firm, spending on business travel booked over the Internet or corporate intranets will soar from an estimated $236 million last year to $945 million this year, then to $2.7 billion next year, and to almost $10.4 billion in the year 2000.

Companies that make frequent trips to the same destination often trim travel costs by negotiating volume discounts with airlines and hotels. Many big outfits, like Tenneco Inc., qualify by signing on with a travel agency corporatewide — in the Greenwich, Connecticut, company’s case, with Rosenbluth International of Philadelphia. (Rosenbluth says its client base has surged by more than a third in the last six years, to more than 2,000 firms.) Tenneco CFO Robert Blakely says that’s only one dimension of a broader plan “to reduce individual trip costs as much as 40 percent by ordering tickets more than a week prior to the travel date.” There is “direct and immediate enforcement of this policy” through budget management — and compensation incentives for progress.

Smaller businesses without such clout are exercising more ingenuity in cutting costs, too. Some small-business owners run their businesses on corporate credit cards with frequent-flier mileage benefits so they can collect the mileage for business trips.

The Roselle Park, New Jersey, advertising and marketing firm Hercky Pasqua Herman says that booking air travel two or more weeks in advance and including a Saturday stay can cut airfare costs by as much as 50 percent. And Eric Baxter, executive vice president of Hewins/Carlson Wagonlit Travel notes that an $1,800 nonstop roundtrip fare from its Portland, Maine, base to the West Coast would plunge to $500 with one stop and a weekend return.

As airlines continue working overtime to avoid giving business travelers too many breaks, however, bargains are harder to find. “Employees may book early,” notes Susan Clement, travel manager of insurer Unum Corp., which is also based in Portland. “But we found that if they’re not staying over a Saturday night in many of our city pairs, there aren’t any advance-purchase fares in existence for business travelers, where two years ago there might have been.”

And weekend stays open age-old questions of worker resistance. “How do you convince road warriors — employees who spend two to three days a week on the road — to spend additional time away from home?” Altschul asks.

Avoiding nonstop flights, one other potential cost-reduction device, also must be weighed carefully. Airlines often erase the cost differences here, too, says Unum’s Clement. And even when fare savings are available, other less-tangible costs come into play. With the toll multiple stops can take on travelers, “sometimes you just have to look at the fact that time is money.”

Travel Agents: Pros, and Cons

Shopping for travel agents now can pay off as never before. Once, the commission structure created something of an incentive for agents to book client business at high fares. But when airlines began slashing agents’ commissions a few years back — and companies started looking to economize within the travel budget — suddenly, many agents started pinning their survival on competition and the ability to deliver services cost-effectively. Today, more companies are negotiating commissions with travel agents, and even the new breed of online travel services finds it often can’t top what is done by the most entrepreneurial agents. By using the Internet, though, companies can, theoretically, find the best fare and eliminate commissions altogether.

A significant level of savings can be achieved in the handling of expense reports, as many companies have learned from reengineering efforts. An average expense report costs $36.46 to process and takes an average of 55 minutes to create and review. Reimbursement takes an average of 22 days. But companies that streamline their processing procedures can better those metrics markedly. Those companies spend an average of $7.91 to process a report and 15 minutes to create and review it, and clip the creation-to-reimbursement cycle to 3 days. Among the techniques employed by the companies to reduce back-end costs are fully automating the creation and audit of expense reports, substituting sampling for 100 percent audit of reports, warehousing receipts electronically, and reimbursing employees through direct deposit.

In IBM Corp.’s remarkable reengineering effort of the last few years, the Armonk, New York, giant slashed total costs per travel-and-entertainment form from $15 to $3.25 between 1993 and 1995. In capturing CFO magazine’s 1996 REACH Award, IBM said part of its secret was in viewing the employee as a customer — and aiming to please that customer in every way possible, while still paring the cost of serving him or her. Last year’s REACH winner, EDS Corp., in Plano, Texas, ended a system that once had employees channeling reports through 18 separate accounts-payable departments.

Merrill Lynch & Co. used an automated expense reporting system from Captura Software Inc., in Bothell, Washington, to achieve significant savings, according to Heidi Evenson, Merrill’s vice president for investment banking. “Under the paper-based system, it could take more than three months for expenses to make it into our accounting system,” she says. “So in public offerings, where you have a 90-day window to settle final expenses, we were missing getting reimbursed.” Now, the lag is less than five days.

Citibank, in New York, turned to a product from Portable Software Corp., of Redmond, Washington, as part of a two-year pilot project aimed at 500 Citibank employees. “The people who use this love it,” says Judy Ervin, project manager for the banking concern’s travel reengineering project. “I’ve had as short a time as 38 hours for reimbursements”; before, the wait was more like two weeks. Citibank has integrated its back-end procedures with an effort to get corporate travelers to plan their own trips using intranet-based software. It employs The Sabre Group’s Business Travel Solutions program, allowing employees to search out savings that travel agents might not communicate. Ervin says managers are rewarding the employees who save the most in the new system. Eventually, it will become an intranet program, reaching all 15,000 traveling employees. “When you put the employees in charge,” she says, “they tend to take more care in completing the expense report and in exercising their authority wisely.”

And what of just cutting out all travel? With more electronic-conferencing choices these days, that’s tempting for many. “When companies first look at visual collaboration [videoconferencing], the first question they ask is: How much in travel costs will it displace?” says Steve Chambers, vice president of worldwide marketing for PictureTel Corp., an Andover, Massachusetts, concern that says it has installed videoconferencing systems in 72 of the Fortune 100 companies.

The answer to that question at the Bridgewater, New Jersey, offices of Pharmacia & Upjohn Inc. was $8 million in 1997, according to Glenn Miller, director of worldwide video and satellite communications for the global pharmaceuticals concern. What is as important as cost savings, he says, is executive travel days eliminated.

As companies adjust to higher travel costs, Congress and the Clinton Administration are looking into ways to help by regulating what some critics call “predatory pricing” by airlines — although many experts believe such action might not offer much help for businesses, even if new rules take effect.

Whatever happens in Washington, though, experts suggest that a cultural shift is necessary when travel costs are targeted by companies that are used to sending employees hither and yon. After 12 years, that has occurred at Upjohn, where a program it calls “the infrequent-flier club” has caught on, according to Miller. “The idea is to encourage people not to travel if videoconferencing can be an alternative,” he says. Among the more-tangible incentives: After holding five videoconferences, a department receives one free trip.

Virtual Travel Companies

Some software products that help shave travel costs.

On the Back End:

  • Xpense Management Solution (from Portable Software Corp., Redmond, Wash.; 425-702-8808; An enterprisewide solution for managing travel expenses. Automates the entire T&E expense management process.
  • NavigatER (from Necho Systems Corp., Mississauga, Ontario, Can.; 800-NECHOSC; Streamlines both the employee submission and accounting processes with an eye to trimming costs of processing travel reports by integrating internal and external data.
  • National Employee Disbursement System (from IBM Corp., Armonk, N.Y.; 914-765-1900; Automates all financial processes across an enterprise; developed as part of Big Blue’s reengineering program.
  • Employee Payables (from Captura Software Inc., Bothell, Wash.; 800-547-2223; Allows modification of corporate travel policy. Automates routing and approval of travel requests, and reports on reimbursements.

On the Front End:

  • QualityAgent Online (from World Wide Travel Service Inc., Little Rock; 800-643-3788; Using an intranet with a standard browser, it gives a quick overview of available flights, and has a low-fare auto-reserve option.
  • ITN Global Manager (from Internet Travel Network, Palo Alto, Calif.; 650-614-6300; Lets travelers make airline, car, and hotel reservations using corporate guidelines, do low-fare searches, make maps, and adjust itineraries.
  • Business Travel Solutions (from The Sabre Group, Fort Worth; 888-722-7328; Part of a popular airline-reservation system, it allows travel arrangements based on company guidelines and creates expense reports.
  • American Express Interactive (from American Express, New York; 800-AXP-1200; Microsoft-connected system for corporations that use Amex as their travel agent, it lets travelers compare company-negotiated rates with standard rates.