general session: the roi of business travel presented by: kenneth mcgill executive vice president,...
TRANSCRIPT
General Session:
The ROI of Business Travel
Presented by:
Kenneth McGillExecutive Vice President, Research
Vantage Strategy, Inc
Ohio Valley BTA - Michigan BTA Education DayMillenium Hotel, Cincinnati, Ohio
September 9th, 2010
Presenter • Kenneth McGill, EVP Vantage Strategy, Inc. & Lead Research Consultant for National Business Travel Association (NBTA)
• Fifteen yrs at IHS Global Insight and its predecessors, most recently as EVP of Global Travel & Tourism Practice
• 20+yrs as an economist & market researcher
• Extensive experience in travel market analysis, forecasting, policy evaluation, & economic impact
• Recently completed landmark study of business travel ROI –how T&E contributes to corporate performance
• Kenneth McGill, EVP Vantage Strategy, Inc. & Lead Research Consultant for National Business Travel Association (NBTA)
• Fifteen yrs at IHS Global Insight and its predecessors, most recently as EVP of Global Travel & Tourism Practice
• 20+yrs as an economist & market researcher
• Extensive experience in travel market analysis, forecasting, policy evaluation, & economic impact
• Recently completed landmark study of business travel ROI –how T&E contributes to corporate performance
2009 NBTA Research: What is Value of Business Travel?
Global business travel topped $844B in 2009, down Global business travel topped $844B in 2009, down 9% from a revised $926B in ’08.9% from a revised $926B in ’08.
US biz travel, @$237B in’09, is 28% of the world totalUS biz travel, @$237B in’09, is 28% of the world total China, currently #2 ($121B) will surpass the U.S. as China, currently #2 ($121B) will surpass the U.S. as
world’s largest biz travel market as early as 2015world’s largest biz travel market as early as 2015 On average, US businesses spend about 1¢ of every On average, US businesses spend about 1¢ of every
sales dollar on biz travelsales dollar on biz travelSources: 2010 NBTA Business Travel Market Metrics
• Business Travel Market Metrics (sponsored by Visa)
• 2009 Are We Investing Enough on Business Travel? (sponsored by American Express)• 2009 Valuing the Contribution of Travel Management (sponsored by American Express)
2009 NBTA Research: What is Value of Business Travel?
• Biz Travel supported over 4M US jobs and generated $80B in tax Biz Travel supported over 4M US jobs and generated $80B in tax receipts in 2008 –it is our 13th largest “industry”receipts in 2008 –it is our 13th largest “industry”
• The correlation between T&E and Sales/Profit suggests that The correlation between T&E and Sales/Profit suggests that most US industries under-spend on biz travel. Investing $1 most US industries under-spend on biz travel. Investing $1 more in T&E could yield about $20 more in gross profitmore in T&E could yield about $20 more in gross profit
• Strategic Travel Management (STM) saved US companies about Strategic Travel Management (STM) saved US companies about $7.5B in 2008 –about $14 per itinerary$7.5B in 2008 –about $14 per itinerary
• Mfg companies with STM have an operating margin that is 3% Mfg companies with STM have an operating margin that is 3% higher than those that “wing” ithigher than those that “wing” it
Sources: 2010 NBTA Business Travel Market Metrics• Business Travel Market Metrics (sponsored by Visa)
• 2009 Are We Investing Enough on Business Travel? (sponsored by American Express)• 2009 Valuing the Contribution of Travel Management (sponsored by American Express)
AgendaValuing Business TravelValuing Business Travel
2009-2010 NBTA Research Initiative: 2009-2010 NBTA Research Initiative: DYK?DYK?
Business Travel Spend in Financial Business Travel Spend in Financial ContextContext
The ROI of Business TravelThe ROI of Business Travel
2010 ROI of Business Travel: Deeper 2010 ROI of Business Travel: Deeper DiveDive
Q&AQ&A
Measuring ROI…
• Easy to describe, difficult to execute• Typically left up to managerial intuition, experience,
feel• Its about cause (and cost) and effect (conversion)
There are generally four approaches: a. Management Opinion Surveys –measure awareness, priority,
present trade-offsb. Meeting / Trip Goal Attainment Audit – pre-state objectives,
then follow up post-trip to assess successc. Individual Conversion Studies -good for specific trip
measurement but difficult to apply to all travel activityd. Elasticity Analysis – better for measuring overall ROI but
finding adequate data can prove difficult and costly
There are generally four approaches: a. Management Opinion Surveys –measure awareness, priority,
present trade-offsb. Meeting / Trip Goal Attainment Audit – pre-state objectives,
then follow up post-trip to assess successc. Individual Conversion Studies -good for specific trip
measurement but difficult to apply to all travel activityd. Elasticity Analysis – better for measuring overall ROI but
finding adequate data can prove difficult and costly
2009-2010 ROI of Business Travel• In 2009, NBTA & American Express Business Travel sponsored a
landmark study of the size, growth, & contribution of business travel
• Objective: Is there a correlation between business travel & corporate performance? And if so, can we determine the optimal level of business travel? Corollary: how far can we cut before real damage is inflicted?
• Approach: Using data for 15 U.S. industries over the period 1998-2009, we examined the correlation between changes in business travel spend and changes in corporate sales & profits.
• Key Finding: While it varies by industry, on average there is 20:1 return on investment for each additional dollar spent on business travel
• Key Finding: While it varies by industry, on average there is 20:1 return on investment for each additional dollar spent on business travel
U.S Business Travel in Financial Context
U.S. Business Travel Spending & Travel-IntensityTop 20 Industries Ranked on Travel Spend
• Total US Business Travel Spend in 2008 was $261B
• Businesses spend about 1¢ of every sales dollar on business travel
• High? Equipment rental & leasing @ 4¢
• Business Services @1.3¢
• Low? Mining at < a tenth of a cent
Source: Vantage Strategy, IHS Global Insight, US Bureau of Economic Analysis –National Input/Output Accounts
Industry Profit & Loss AnalysisUS Economy –All IndustriesUS Economy –All Industries
Business Travel Expenses in PerspectiveBusiness Travel Expenses in Perspective
(Millions of $) 1998 2003 2007 2008 %5-year CAGR
10-year CAGR
Sales 14,505,111$ 17,890,895$ 23,407,509$ 24,086,545$ 2.9% 6.1% 5.2%
Cost of Goods SoldLabor Cost 4,190,188$ 5,245,850$ 6,484,017$ 6,676,055$ 3.0% 4.9% 4.8%Material & Service Purchases 6,698,946$ 8,111,543$ 11,072,796$ 11,339,429$ 2.4% 6.9% 5.4%
Business Travel 213,206$ 215,499$ 268,629$ 261,362$ -2.7% 3.9% 2.1%Other Costs & Expenses 627,828$ 792,395$ 1,000,945$ 1,027,515$ 2.7% 5.3% 5.0%Total Cost 11,516,961$ 14,149,787$ 18,557,758$ 19,042,999$ 2.6% 6.1% 5.2%
Gross Operating Profit 2,988,150$ 3,741,108$ 4,849,751$ 5,043,546$ 4.0% 6.2% 5.4%Gross Margin% 20.6% 20.9% 20.7% 20.9%
1.47% 1.20% 1.15% 1.09%
3.18% 2.66% 2.43% 2.30%
7.14% 5.76% 5.54% 5.18%
B-Travel as a Percentage of Material & Service Costs
Business Travel as a Percentage of Sales
Business Travel as a Percentage of Profits
(Millions of $) 1998 2003 2007 2008 %5-year CAGR
10-year CAGR
Sales 14,505,111$ 17,890,895$ 23,407,509$ 24,086,545$ 2.9% 6.1% 5.2%
Cost of Goods SoldLabor Cost 4,190,188$ 5,245,850$ 6,484,017$ 6,676,055$ 3.0% 4.9% 4.8%Material & Service Purchases 6,698,946$ 8,111,543$ 11,072,796$ 11,339,429$ 2.4% 6.9% 5.4%
Business Travel 213,206$ 215,499$ 268,629$ 261,362$ -2.7% 3.9% 2.1%Other Costs & Expenses 627,828$ 792,395$ 1,000,945$ 1,027,515$ 2.7% 5.3% 5.0%Total Cost 11,516,961$ 14,149,787$ 18,557,758$ 19,042,999$ 2.6% 6.1% 5.2%
Gross Operating Profit 2,988,150$ 3,741,108$ 4,849,751$ 5,043,546$ 4.0% 6.2% 5.4%Gross Margin% 20.6% 20.9% 20.7% 20.9%
1.47% 1.20% 1.15% 1.09%
3.18% 2.66% 2.43% 2.30%
7.14% 5.76% 5.54% 5.18%
B-Travel as a Percentage of Material & Service Costs
Business Travel as a Percentage of Sales
Business Travel as a Percentage of Profits
Industry Profit & Loss AnalysisUS Manufacturing SectorUS Manufacturing Sector
(Millions of $) 1998 2003 2007 2008 %5-year CAGR
10-year CAGR
Sales 4,054,468$ 4,201,111$ 5,339,571$ 5,362,765$ 0.4% 5.0% 2.8%
Cost of Goods SoldLabor Cost 870,035$ 943,261$ 1,028,272$ 1,022,119$ -0.6% 1.6% 1.6%Material & Service Purchases 2,637,829$ 2,758,142$ 3,624,576$ 3,640,320$ 0.4% 5.7% 3.3%
Business Travel 39,119$ 38,445$ 43,968$ 43,414$ -1.3% 2.5% 1.0%Other Costs & Expenses 39,206$ 49,236$ 60,650$ 60,913$ 0.4% 4.3% 4.5%Total Cost 3,547,070$ 3,750,639$ 4,713,497$ 4,723,352$ 0.2% 4.7% 2.9%
Gross Operating Profit 507,398$ 450,472$ 626,074$ 639,412$ 2.1% 7.3% 2.3%Gross Margin% 12.5% 10.7% 11.7% 11.9%
0.96% 0.92% 0.82% 0.81%
1.48% 1.39% 1.21% 1.19%
7.71% 8.53% 7.02% 6.79%
Business Travel as a Percentage of Sales
B-Travel as a Percentage of Material & Service Costs
Business Travel as a Percentage of Profits
(Millions of $) 1998 2003 2007 2008 %5-year CAGR
10-year CAGR
Sales 4,054,468$ 4,201,111$ 5,339,571$ 5,362,765$ 0.4% 5.0% 2.8%
Cost of Goods SoldLabor Cost 870,035$ 943,261$ 1,028,272$ 1,022,119$ -0.6% 1.6% 1.6%Material & Service Purchases 2,637,829$ 2,758,142$ 3,624,576$ 3,640,320$ 0.4% 5.7% 3.3%
Business Travel 39,119$ 38,445$ 43,968$ 43,414$ -1.3% 2.5% 1.0%Other Costs & Expenses 39,206$ 49,236$ 60,650$ 60,913$ 0.4% 4.3% 4.5%Total Cost 3,547,070$ 3,750,639$ 4,713,497$ 4,723,352$ 0.2% 4.7% 2.9%
Gross Operating Profit 507,398$ 450,472$ 626,074$ 639,412$ 2.1% 7.3% 2.3%Gross Margin% 12.5% 10.7% 11.7% 11.9%
0.96% 0.92% 0.82% 0.81%
1.48% 1.39% 1.21% 1.19%
7.71% 8.53% 7.02% 6.79%
Business Travel as a Percentage of Sales
B-Travel as a Percentage of Material & Service Costs
Business Travel as a Percentage of Profits
Business Travel Expenses in PerspectiveBusiness Travel Expenses in Perspective
Business Travel Productivity Has Risen MarkedlyBusiness Travel Productivity Has Risen Markedly
More efficient, more “dense” trips Rising penetration and effectiveness of managed travel programs Travel prices rising more slowly than other costs Growing technological alternatives to more marginal travel
Travel Spend as a Percent of SalesTravel Spend as a Percent of SalesAll US Industries
Travel Spend as a Percent of SalesTravel Spend as a Percent of SalesAll US Industries
Business Travel ROI: Review of Landmark 2009 Study
Finding1: Business Travel Productivity is rising
2009 ROI of Business Travel
Finding2: Increases in travel spend are correlated with rising sales & profits, albeit at a “decaying” rate
Business Travel Spending as a % of SalesTotal, All U.S. Industries
Finding3:
Most U.S. industries are under-spending on business travel
2009 ROI of Business Travel: Findings (cont.)
If all sectors were to move to their T&E If all sectors were to move to their T&E optimum:optimum:
• U.S. travel spend would increase by $13BU.S. travel spend would increase by $13B
• resulting in a $915B increase in sales, andresulting in a $915B increase in sales, and
• a $248B rise in profitsa $248B rise in profits
If all sectors were to move to their T&E If all sectors were to move to their T&E optimum:optimum:
• U.S. travel spend would increase by $13BU.S. travel spend would increase by $13B
• resulting in a $915B increase in sales, andresulting in a $915B increase in sales, and
• a $248B rise in profitsa $248B rise in profits
ROI of Business Travel? …about 20-to-1ROI of Business Travel? …about 20-to-1
What Does This Imply For Management of T&E?
• Travel spend is expanded by $220k for our $500m manufacturing company• Accounting for inflation and input productivity trends, the yield is +$20m in sales and +$2.9m in Operating Profit. Margin improves by 0.1%• ROI of additional travel spend is about 13 to 1
• Travel spend is expanded by $220k for our $500m manufacturing company• Accounting for inflation and input productivity trends, the yield is +$20m in sales and +$2.9m in Operating Profit. Margin improves by 0.1%• ROI of additional travel spend is about 13 to 1
(Millions of $) 2008
Max Sales from
Business Travel Difference
Sales 500.00$ 519.73$ 19.73$
Cost of Goods SoldLabor Cost 95.30$ 96.51$ 1.22$ Material & Service Purchases 339.41$ 354.87$ 15.46$
Business Travel 4.05$ 4.27$ 0.22$ Other Costs & Expenses 5.68$ 5.87$ 0.19$ Total Cost 440.38$ 457.26$ 16.87$
Gross Operating Profit 59.62$ 62.48$ 2.86$ Gross Margin% 11.9% 12.0%
Hypothetical US MFG Company
2010 ROI Study:
Do Recessions Alter The Link Between T&E and Corporate Performance?
The Great Recession of 2008-2009
T&E and Sales During Recession: T&E declines started in 2008. Recovery will begin in 2010, but not hit stride until 2011
Ouch! Great Recession peak-to-trough sales loss was -4%, T&E loss totaled -13%
Still, T&E and Sales remain strongly correlated…
T&E and Sales During Recession: T&E declines started in 2008. Recovery will begin in 2010, but not hit stride until 2011
Ouch! Great Recession peak-to-trough sales loss was -4%, T&E loss totaled -13%
Still, T&E and Sales remain strongly correlated…
U.S. Travel Spend & Sales Are Strongly Correlated
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Yr-
to-Y
r %
Cha
nge
T&E Sales%
Divergence due to 9/11
T&E Falls Faster & Farther than Sales…
Methodology: Can we find a correlation between T&E and sales/profits?
Business Travel’s Contribution to the Bottom LineBusiness Travel’s Contribution to the Bottom Line
Econometric approach that isolated the statistical relationship between travel spend & sales/profit
12 yrs of data for 15 industries…
Travel spend, sales, labor & other costs, operating profit,
inflation, and industry demand drivers
12 yrs of data for 15 industries…
Travel spend, sales, labor & other costs, operating profit,
inflation, and industry demand drivers
Model helped compare the cost of increased travel spend with resulting increases in sales to calculate the optimal level of business travel for each industry
Industry sales was regressed against travel spend, demand factors, & supply variables in order to isolate the influence of each driver
Modeled using a quadratic functional form –increases in
travel spend will increase sales but the payoff diminishes
Modeled using a quadratic functional form –increases in
travel spend will increase sales but the payoff diminishes
Most, but not all, industries were
below their optimal levels in 2009
Most, but not all, industries were
below their optimal levels in 2009
2010 Industry ROI Methodology2010 Industry ROI Methodology
• Industry data covering sales, demand, costs, and T&E from 1998-2009 (12 periods) Sources: DK Shifflet & Associates, OTTI, IHS Global Insight, BLS, BEA, Vantage Strategy
• Econometric model to measure correlation between Sales and T&E
• 14 individual industries and U.S. Total were estimated• Dependent Variable: Industry Sales• Key Explanatory variables: T&E, Production (demand),
Cost (supply), Sector PPIs, Travel Price Index2010: Estimated Model with Two Scenarios
- All Periods (1998-2009) including 2 recessions- Expansion Only (1998-2000, 2002-2007)
T&E’s Contribution to the Bottom LineT&E’s Contribution to the Bottom Line
For the statisticians and economists in the audience…
Model attempts to explain the variation in sales over time as a function of key drivers:
industry affiliation
product/service demand
cost and inflation
business travel spend
business travel spend2
Model attempts to explain the variation in sales over time as a function of key drivers:
industry affiliation
product/service demand
cost and inflation
business travel spend
business travel spend2
Model Specification:
Correlation Between Sales and T&E Definitely There But Weaker When Recessions are Added…
T&E Optimization: Most US Industries Are Still Under-spending on Travel
NBTA Convention & Exposition | August 8-11, 2010
Most Industries Remain Below Optimal T&E Level
Even With Recessions Factored In, Most Sectors Have Room to Profitably Expand T&E
If each industry had moved to its optimal point in 2009:
• T&E would be $9B (3.9%) higher ($246B)
• Biz travel would have declined by 6% rather than 9%.
• US Sales would have been $1trillion (+4.1%) higher
• -$925B = sales loss logged during the Great Recession (2008-2009)
Moving to Optimal in Perspective…
Sector2009 T&E
per Employee
New T&E Required to Move
to Optimal(in millions $)
Optimal T&E Increase per
Employee
Manufacturing $ 3,363 $ 1,519 + $128Transportation $ 1,886 $ 320 + $75Health $ 1,284 $ 744 + $46Business Svcs/Consulting
$4,005 $ 1,195 + $72
Total U.S. $1,809 $9,241 + $70
How Much Would Your T&E Budget Have to Rise to Move to Optimal?
How Did the Inclusion of Recessions Change the Optimal T&E Level?
Including recessions, particularly 2008-2009, reduced the upside sales potential from optimizing T&E.
Do We Go Too Far in Cutting T&E During Recessions?
Quantifying the Overshoot: Did We Make the Great Recession Worse Than It Had To Be?
NBTA Convention & Exposition | August 8-11, 2010
Findings:
• In 2009, industries cut T&E by about $4B more than was necessary to address falling sales during the Great Recession
• Consequently, total sales were nearly $26B less than they might have otherwise been
• Had the overshoot been avoided, T&E would have declined by 11.4% during the recession rather than the actual 12.7%
• $4B in T&E equates to about 66,000 jobs in the business travel industry and its supply chain
• $26B in total sales equates to about 135,000 jobs across all industries
Findings:
• In 2009, industries cut T&E by about $4B more than was necessary to address falling sales during the Great Recession
• Consequently, total sales were nearly $26B less than they might have otherwise been
• Had the overshoot been avoided, T&E would have declined by 11.4% during the recession rather than the actual 12.7%
• $4B in T&E equates to about 66,000 jobs in the business travel industry and its supply chain
• $26B in total sales equates to about 135,000 jobs across all industries
Quantifying the Overshoot: Did We Make the Great Recession Worse Than It Had To Be?
NBTA Convention & Exposition | August 8-11, 2010
The Great Recession would have been slightly less severe and the early 2010 recovery stronger w/o the hedge
The T&E Hedge Varies Slightly By Industry But Averages About 10%…
Resisting the tendency to overshoot,
Industry Sales could have been higher and T&E would still be in
line with recessionary
top-line revenue
Next Up: Company Level Analysis –Benchmarking T&E
2010 ROI Deeper Dive –Company Level Analysis*2010 ROI Deeper Dive –Company Level Analysis*
* Produced in partnership with NBTA Foundation and American Express Business Travel
Will the inclusion of 2009 results materially alter the original industry-level findings? How do recessions change the ROI picture?
Will the application of this approach on company-level numbers reveal a similar story?
Can we also include other critical company attributes –size, number of locations, global-v-local reach, sub-sector, corporate hierarchy…?
Can we incorporate a way for individual companies to compare their metrics to an applicable theoretical optimal?
End Game: Benchmarking Information to Assist Corporate & Travel Managers
2010 ROI Deeper Dive –Company Level Analysis*2010 ROI Deeper Dive –Company Level Analysis*
• Currently in process. Top line results to be released later this month• Based on data for 850+ public companies across a broad array of
sectors and representing all size classes• Similar approach as sectors but with more robust set of company-
specific data• Important step towards benchmarking capability
* Produced in partnership with NBTA Foundation and American Express Business Travel
Note: Air Spend Only
KEY TAKEAWAYS
The correlation between increasing T&E and rising sales is more than just anecdotal. Our analysis has both confirmed and measured the strength of their link.
Although varying by sector, most US industries under-spend on business travel –about $9B in 2009. Our model relates this to over $1trillion more in US sales, slightly more than what was lost during the Great Recession.
Recessions weaken the link between T&E and sales due, in large part, to management’s tendency to overshoot during times of uncertainty –by about 11% on average.
The hedge made the Great Recession slightly worse than it had to be. In 2009, the overshoot amounted to $3.7B in T&E relating to $26B in lost top-line sales.
The correlation between increasing T&E and rising sales is more than just anecdotal. Our analysis has both confirmed and measured the strength of their link.
Although varying by sector, most US industries under-spend on business travel –about $9B in 2009. Our model relates this to over $1trillion more in US sales, slightly more than what was lost during the Great Recession.
Recessions weaken the link between T&E and sales due, in large part, to management’s tendency to overshoot during times of uncertainty –by about 11% on average.
The hedge made the Great Recession slightly worse than it had to be. In 2009, the overshoot amounted to $3.7B in T&E relating to $26B in lost top-line sales.
KEY TAKEAWAYS
$3.7B in T&E equates to about 66,000 US jobs in the travel industry. $26B in foregone sales equates to over 135,000 jobs across all sectors.
The lingering hedge also hampers early recovery. In 2010, the model-estimated hedge totals over $650M correlating to $25B in much-needed top-line revenue. Is it time to remove the handcuffs?
Industry-level data confirms the link, but Company-level analysis will help to make our findings more prescriptive. Next up: public company analysis of T&E and top-line revenue.
End-game remains benchmarking information to help inform better travel management decisions and competitiveness
$3.7B in T&E equates to about 66,000 US jobs in the travel industry. $26B in foregone sales equates to over 135,000 jobs across all sectors.
The lingering hedge also hampers early recovery. In 2010, the model-estimated hedge totals over $650M correlating to $25B in much-needed top-line revenue. Is it time to remove the handcuffs?
Industry-level data confirms the link, but Company-level analysis will help to make our findings more prescriptive. Next up: public company analysis of T&E and top-line revenue.
End-game remains benchmarking information to help inform better travel management decisions and competitiveness
R E S E A R C H
Thank You!