the future of corporate travel – today. a business model for a new world

Dr.KeithMasonHeadofAirTransportManagementGroup,

Cran;ieldUniversity

The Future of Corporate Travel - Today A business model for today’s new world

Keith Mason

Head, Air Transport Management Group Cranfield University

Good Morning!

•  Update on airline industry •  Review of the Business Traveller

•  Issues in Corporate Buying •  Some “Do”s and “Donʼt”s

Source: ICAO to 2008 and IATA for 2009

Airline industry - Net Profit Margin 1950-2009

Source: IMF, World Bank

Global GDP Growth/Decline and recession

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# #

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1971

19

73

1975

19

77

1979

19

81

1983

19

85

1987

19

89

1991

19

93

1995

19

97

1999

20

01

2003

20

05

2007

20

09

2010

World GDP growth/decline

0%

1%

2%

3%

4%

8%

7%

5%

6%

1973-75 •  Oil Crisis - 4X to $12 •  Stock Market

1991-93 • 1st Gulf War •  Oil Hike * 2X to $33

1980-82 •  Iran-Iraq war •  Oil Shock - 3X to $39

2001-03 •  US Weakening •  9/11 •  2nd Gulf War

Oil Contracted to $15 per barrel

2008-2010 •  Credit Crunch •  Multiple Govt Bailouts •  Stock market turmoil •  Fluctuating oil prices

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1971

19

73

1975

19

77

1979

19

81

1983

19

85

1987

19

89

1991

19

93

1995

19

97

1999

20

01

2003

20

05

2007

20

09

2010

World GDP growth #

% C

hang

e of

GD

P ye

ar o

ver y

ear

GDP Growth

0%

1%

2%

3%

4%

8%

7%

5%

6%

0%

2%

4%

6%

8%

10%

12%

14%

-2%

-4%

World scheduled airline RPKs

RPK Growth

% C

hang

e in

Pas

seng

er T

raffi

c ye

ar o

ver y

ear

Source: ICAO, 2009a and WEO (IMF), 2009

World GDP & scheduled traffic growth

Source: IATA Economics

Average fares on international markets

Premium fares rise and fall more sharply with economic changes

The importance of the business travel market

•  Business air travel is an approx. £3.5bn business in the UK •  Dependent on the route, business travel can be 50% or

more of the market (in volume), •  The value of the business market can be used to support

discounted fares in economy •  Business class is more profitable than either first class or

economy class

UK business passengers on scheduled services

Rise of

LCCs

SO WHAT DO THESE PEOPLE WANT?

Business Passengers’ Map of Airline Product

Safety Schedule Reliability

FFP

Lounge

IFE

Lounge entertainment

Potential Services Core services

Expected services

Augmented services

Product expectations move over time

Quality

Price

Economy

Business

1st


Quality

Price

Business

1st

Economy

Business


Quality

Price

1st

Economy

Business


Quality

Price

Economy

1st

Business


Quality

Price

Economy

1st

Premium Economy

The Future?

Unbundling these services?

•  Travel policy compliance issues •  can travellers pay for extras and be confident that they will be

reimbursed?

•  Processing is more complex •  Self Booking Tools struggle to fulfill ancillary services (leading to

additional intermediary costs)

•  Lack of total cost transparency •  Pay one fee for ticket and then faced with additional charges – often via

T&S claims

Unbundling creates issues for Travel Managers

Business Travellers

•  Mainly male - 80% •  Middle aged

•  35 - 54 •  17 trips per annum

•  5 Long haul •  12 short haul

•  down 3 since 2004

•  Half work for large companies

•  Half work for SMEs Source: IATA CATS 2009

Or perhaps like this

Purpose of travel

•  Purpose of travel •  Trips for sales and commercial (45%) •  Customer support (21%) •  Conference and presentations (20%) •  Internal company meeting (10%) •  Training (4%)

(Source: KDS, Summer 2009)

•  Travellers purpose of travel changes repeatedly •  How do you identify? •  Needs change by purpose of travel

Differing types of business travellers

Number of places business travellers visit regularly 10

5

Number of new places business travellers visit

Commuters

Explorers

Nomads

Source: Beaverstock, et al , 2010

Each group will have differing needs

27

Travel spend 80/20?

< 100 employees

1,000 – 10,000 employees

< 1000 employees

> 10,000 employees

Airlines cannot afford to manage accounts for companies with spend less than £50k

Company size

Mason/Amadeus 2007

0%

5%

10%

15%

20%

25%

30%

Less than 100 100 - 1000 1000 - 5000 5000 - 10000 10000 - 25000 More than 25000

Company Size: Number of Employees

Spend on travel

Mason/Amadeus 2007

0%

10%

20%

30%

40%

50%

60%

$0m - $2.5m $2.5m - $5m $5m - $10m $10 - $30m $30m - $50m More than $50m

Annual corporate spend on travel

Western Europe North America Latin America Asia Pacific

Cabin usage by business travellers

From this….

Via this…..

Move down inside the bus please!

To this….

Change of business market

•  Downgrading and use of low cost airlines •  Change in booking behaviour

•  Increase in fare transparency •  Travellers “going commando” – booking direct •  No longer prepared to pay high multiples for business class •  Increase in price elasticity •  Increase in “value for money” purchasing

•  Use of other forms of communication •  Increased use of web-conferencing, tele-presencing, video-

conferencing. •  This adoption has been increased as companies become

aware of the carbon cost of travel.

Business Travel Cuts – Summer 2009 onward

•  71% of companies had significantly reduced business travel •  Class of travel

•  38% Business class •  Of these 70% said only for trips > 5 hours

•  Austerity to continue till 2012 •  24% of MDs and FDs believe this “frugality” will be be the blue print for

future travel spending Source: AMEX survey, Oct, 2010

Source: KDS, 2009

Choice of airline

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Factors affecting choice of airline: IATA CATS 2009

SH CATS 2009 LH CATS 2009

Effect of FFP

0

5

10

15

20

25

30

35

40

45

50

< 5% 5% - 10% 10% - 20% >20%

Perc

ent

Premium paid to use FFP carrier for business flight

Source: McCaughey, 2010

Survey of over 1,400 Business Travellers in Australia

Effect of FFP

Source: McCaughey, 2010

0

1

2

3

4

FFP influences airline choice when on business

Pick FFP airline for biz trip even if others cheaper

FFP benefits make biz travel more bearable

Mid tier status maintenance more

important than points

Top tier status maintenance more imp

than points

Leve

l of A

gree

men

t (1

= SD

, 5=S

A)

Influence of FFP on business travellers Survey of over 1,400 Business

Travellers in Australia

Managing Travel Spend

Management Information

Negotiation

Policy Enforcement

IT Integration

Policy and Process Review

Leverage your spend

•  Consolidate your spend •  Deliver promised volumes •  Manage travellers •  Develop strategic relationship with your suppliers

What should you be looking for from an air supplier?

•  Network •  Alliance or not?

•  Schedule/frequency on most frequented routes •  Product and service •  Safety and security •  Deals and discounts •  Added value •  Relationship management

Consider airline issues?

•  Companies may buy travel like they buy paper clips •  Procurement lead •  Volume discounts •  Strategic relationships with suppliers

•  HOWEVER, a Business Class bed is not a paperclip •  It is not a commodity •  Personal and emotive

•  (e.g. Class of travel/status/FFPs/away from family) •  Everyone in the company has a view and many have decision making capacity

What should you be looking for from a TMC supplier?

•  Fulfil travel •  Travel policy and compliance •  Management information •  Deal tracking •  Cheapest on the Day •  Market product and services •  Expertise to advise client •  Consultancy •  Security •  Mediate between company

and suppliers

Ten Travel Management Companies in the UK dominate the market

Set a policy and mandate it

•  Establish need to travel •  ROI methodology on travel spend

•  Establish a clear policy so that travellers are clear about what you expect of them and what they can expect from you.

•  Develop in consultation with travellers to consider their issues and needs •  Sick, stressed, un-motivated travellers are not effective

•  Mandate the policy •  Effectiveness of policy is greatly reduced if not mandated •  Clear and fair for all •  Report regularly to internal stakeholders about effectiveness of policy

Buying at the right time – the right product

•  Help travellers to plan/book earlier to access best available prices

•  Does the traveller need fully flexible ticket? •  Business class overnight flight to reduce hotel spend? •  From POSH

•  Port out, starboard home

•  to IBOFEH •  Inflexible business class out, flexible economy home

Who sets policy?

0%

5%

10%

15%

20%

25%

30%

Travel arranger Regional Travel Manager

Global Travel Manager

Procurement Manager/Director

Finance Officer/Director

HR Senior Mgmnt Team/Directors

Person/Group setting travel policy

Do these guys need

help?

Source: Mason, Cranfield University, 2006

Source: Mason, Cranfield University, 2006

Lack of

understanding

Managing travel responsibly

•  CSR – Companies need to know where its employees are when they travel

•  Air disasters, hotel attacks, ash clouds, typhoons, etc. Companies need to know if any of its employees are potentially involved

•  Travel can amount to 40% of a companyʼs carbon emissions. Can we do the same business with less CO2?

Travel Policy compliance

•  Smoothing the travel process would improve travellersʼ life on the road

•  Travel policy needs to support travellers as well as direct them to corporateʼs preferred (air, car, hotel) suppliers

•  Travel hassles and time away from family are key issues for travellers •  Make policy easy to use/follow with benefits for the travellers

Use self booking technology

•  Self booking tools can •  reduce intermediary costs – 26%, AND •  reduce travel costs (visual guilt) – 9% Source: Amadeus, 2007

•  Travellers need all available options before they book •  TMC needs to aggregate content and overlay policy

0%

5%

10%

15%

20%

25%

30%

Nothing Up to 15% 16% - 29% 30% - 49% More than 50% Too early to judge

Don't know

How much does an online booking save in travel agency/TMC costs?

0%

5%

10%

15%

20%

25%

30%

None Less than 5% 5% - 9% 10 - 20% More than 20% Too early to judge

Don't know

How has use of SBT reduced average ticket prices?

Booking channels

26,3%

54,5%

10,8% 8,5%

44,8%

39,2%

9,3% 6,7% 8,1%

70,5%

16,4%

4,9%

29,1%

54,0%

11,8%

5,1% 5,1%

74,0%

15,9%

5,1%

12,7%

65,8%

13,9%

7,6%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

70,0%

80,0%

Self Booking Tool (% ) TMC for offline request (%) Directly from supplier (%) Other Internet provider (%)

Channels for Air Tickets by region (all responses)

Canada US Lat Am Europe ME/A AsiaPac

Direct booking may create difficulties

•  When a traveller books direct… •  Loses TMC support on that booking

•  Change tickets •  Loses Management Information •  Loses leverage against suppliers •  May lose volume deals •  Duty of Care undermined

•  Travel manager canʼt trace traveller if transport crashes/terrorist attack/act of god

•  Harder to reconcile expenses

Integrate SBT with other IT systems

•  Expense accounting •  HR database •  Corporate intranet •  Meeting and events systems

Limited development so far

78,5%

12,9% 8,6%

54,3%

13,8%

31,9%

40,4%

14,9%

44,7%

74,7%

15,4%

9,9%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

70,0%

80,0%

90,0%

No Beginning of process Yes

SBT Integration status with other Corporate IT systems

Expense accounting HR Database system Corporate Intranet (Silent Log-In) Meeting/event management

30,5%

13,0% 10,8%

22,4%

14,3% 14,9%

37,3%

26,0% 27,0%

41,4%

26,0%

31,3% 32,2%

61,0% 62,2%

36,2%

59,7%

53,7%

0%

10%

20%

30%

40%

50%

60%

70%

Simplified electronic travel authorisation

Reduced need for manual input traveller

data

Time spent on reporting travel

expense

Time spent on authorizing trips

Automatic transfer of traveller profile data

Traveller profile data updated in all IT

systems

Perc

ent

Productivity from system integration

No productivity gain Limited productivity gain Significant productivity gain

Additional productivity and reduced work for travellers

FINALLY…. Some corporate travel takeaways

FINALLY…. Some corporate travel takeaways

•  Do:- •  Make it easier for suppliers to

deal with you by delivering promised volume

•  Regularly review your suppliers and policy – are they fit for current purpose/strategic goals?

•  Engage with and listen to travellers

•  Get the most out of available IT systems

•  Donʼt:- •  Set policy in a bubble •  Forget to establish the need for

travel within the process •  Expect travellers to be happy

with change •  Slavishly force travellers into

inappropriate local hotels or on lousy flight schedules and expect 110% performance

Thank you for listening Hope you enjoy the rest of your time in

Istanbul

THANKYOU…