16 February 2006 | Amon Cohen
With the cost of business travel increasing this year, Amon Cohen explores what procurement is doing to counteract soaring prices
Recently released figures confirm the cost of travel is heading north at a speed unseen since the start of the decade.
BTI UK reports that air travel bills for British businesses have shot up by 13.3 per cent in the past 12 months.
Its figures also show alarming jumps in hotel rates. As is the case with air travel, the pain is not distributed evenly. Average rates in continental Europe only grew 2.5 per cent in 2005 but in the Americas they rose 9.8 per cent and, in the Middle East, an alarming 30 per cent. Other hot spots were Moscow (up 36 per cent) and Bangalore (44 per cent).
With UK commerce generally in a phase of expansion rather than retrenchment, reducing levels of travel is not a realistic option. Instead, purchasers are increasingly looking for ways to buy smarter. But that will be harder than ever, according to Mark Avery, chairman of the Institute of Travel Management (ITM) and head of business services for PricewaterhouseCoopers (PwC). "Changing supply and demand is making it difficult to hold down prices," he says.
However, a survey released by the ITM earlier this month pointed to one area where buyers can undoubtedly make improvements. It showed that an average 20 per cent of reservations made by corporate travellers breach their company travel policy, either by making them outside sanctioned booking channels or through other violations, such as choosing a non-approved carrier.
If buyers tighten up on policy, the results can be dramatic. In August 2005, KPMG senior buyer Sarah Makings introduced a policy that mandated flight bookings through the firm's self-booking tool and travel management company and insisted travellers use preferred airlines. Since then, compliance has rocketed to 97.8 per cent and, as a result, she is finalising a negotiated air deals review with minimal price increases for 2006.
Makings has had less joy with keeping hotel rates in check. "Rates are back to pre-9/11 levels," she says. "Many hotels are full and only negotiating with their best customers." As Makings' comments indicate, accommodation is proving even more of a headache for buyers than air, mainly because supply is tighter. However, another factor is that KPMG does not yet have a mandated policy for hotels as it does for air.
Instead, Makings has got creative, striking two-year deals with preferred hotel suppliers - a sensible bet given that all forecasts are for rates to continue to increase into 2007. As a result, she has been able to negotiate rates anywhere between 0 and 5 per cent higher than 2005, with the exception of India and Russia, where all buyers are suffering this year.
There are other creative options purchasers can consider too. PwC has responded to hotel rate increases by negotiating extras such as free parking and discounts on food and drink. "The headline price has gone up but the overall value remains the same," says Avery.
BTI UK, meanwhile, recommends something more familiar for buying air travel than hotel rooms, which is to book well in advance. Margaret Bowler, BTI UK general manager for hotel relations, reports a growing trend for early room booking, with 25 per cent of reservations now being made two weeks or more in advance.
"If left to the last minute, clients are at risk of paying rates higher than those contracted, as hoteliers try to achieve the best rates possible, often not offering client-specific rates," she says. "It is also vital to be aware of the trend towards flexible or demand-based pricing which can result in significant price benefits for clients if they have flexibility on the timing of their business trips."
In addition, BTI UK has noted a continuing trend to move travellers' standards of accommodation down a notch or two. In a buoyant executive labour market, however, this can only be taken so far given how much downgrading has already happened over the past five years. 2006 is going to be a real test for how successfully purchasers can buy travel without skimping on quantity or quality.