As economy slumps, business travel changes

By Rebecca Ruiz

updated 11:27 a.m. ET Nov. 12, 2008

The failure of major financial institutions last month followed by weeks-long chaos on Wall Street has caused many companies to re-evaluate their solvency and spending, particularly in a line item that few employees want to sacrifice: travel.

While cutting back on business travel has been a concern this year given the rising cost of airfare, the recent turmoil has provided an added urgency, according to experts in the business travel industry. To address the issue, travel managers are considering everything from curtailing trips that aren't revenue-generated to renegotiating contracts with hotels to include free Internet or gym access to asking employees of the same sex to share hotel rooms.

"There's a lot of shock, a lot of gallows humor," says Susan Gurley, executive director of the Association of Corporate Travel Executives, a nonprofit association based in Alexandria, Va. While at an ACTE-sponsored conference in Rome last week, Gurley overheard executives debating different cost-cutting strategies.

"People are trying to figure out what trips are critical," she says. "It seems like an easy thing to know, but they're analyzing it over and over again."

The deep-thinking is bringing about changes to the travel policy at many corporations or emboldening executives to enforce those rules.

Changing conditions
In a survey this month of 131 ACTE members, 61 percent of respondents said that cost-reduction was their primary goal when it came to corporate travel. One-third said they expected to spend less on travel.

Shrinking budgets have already had an impact on airlines and hotels. First- and business-class air traffic declined by 1 percent from July 2007 to July 2008, according to the International Air Transport Association. That's following an average growth of 1.5 percent during the first half of the year.

Drops on some routes have been even more dramatic: Premium air travel between Africa and the Far East was down 4.2 percent after a 9.7 percent rise in June. Preliminary numbers from Smith Travel Research show that hotel occupancy in September was down by 5-7 percent from last September.

Even when companies send employees on the road, they scrutinize every expense. One seemingly minor example, says Frank Schnur, vice president of Advisory Services for American Express Business Travel, is where business travelers chose to dine at the airport.

"Do they pick up a sandwich for lunch or stop in an expensive restaurant in every airport and have a sushi lunch?" Schnur says. "On an individual basis that's a $20 or $30 difference, but across 20,000 travelers it can have a million-dollar difference."

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Some of ACTE's members, according to Gurley, have been floating the idea of asking employees to eat before arriving at the airport when possible. Other cost-cutting measures include traveling in coach on international flights, downgrading from Town Cars to taxis, or sharing hotel rooms with same-sex co-workers. Since the business climate now favors the buyer instead of the supplier, many companies are renegotiating their travel contracts to include free Internet or access to the gym.

The penny-pinching can translate into huge savings: In the 2007/08 fiscal year, Procter & Gamble, a company with $83.5 billion in revenue, was able to shave 20 percent of its global travel budget over the previous year by using Web conferencing alternatives and other strategies.

Higher expectations
As the stakes rise for the bottom line, these new rules will come with higher expectations of traveling employees. It will no longer be enough to return from a trip only having wined-and-dined a client. Now, many companies will expect a "return on [the] investment", says Gurley. Ultimately, this puts pressure on employees to generate even more revenue from travel than they might have before.

Comstock Companies are getting more serious about substituting Web and video conferencing for travel when possible. Employees should expect to learn more about these technologies and even pro-actively suggest them as possibilities.

But executives can't place such demands on staff — especially during a time when they likely feel increased pressure at home as well — without bearing some of the burden.

"It's critical that leadership set a good example and that they hold themselves accountable to the same standards that they hold their travelers to," says Schnur.

To prevent morale from sinking, Schnur recommends that senior leaders connect travel-related savings to the overall financial health of the company. A $5 million dollar savings, for example, can be invested in research and development.

"When they're able to make that connection to the broader vision," says Schnur, "the vast majority will be able to buy into it."

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