Supply Excellence — Travel Costs: Prepare for Takeoff

Travel Costs: Prepare for Takeoff

January 11th, 2007 · by Tim Minahan · No Comments · best practices, supply market dynamics

Attention supply managers: fasten your seat belts. Travel costs are ready to takeoff.

New studies from American Express, PKF Hospitality, and the National Business Travel Association all point to another boost in travel costs for 2007.

According to the latest American Express Global Business Travel Forecast, the cost of the average domestic business trip will climb 4.5% this year. And International business trip costs will rise 4.6%.

The below table aggregates anticipated cost increases by travel spend category (click to enlarge).

The American Express forecast dives into category details, portending business airline fare increases of 3% - 5% for short-haul domestic routes and 3% to 7% for long-haul and international fares. It also projects rate increases of 2% to 6% for mid-range hotels in North America and an average of 6.3% for similar lodging in the rest of world. (Room rates in Asia-Pac will increase the most, averaging 12.5% boost this year. India pushed the entire region up, with mid-range hotel rates there expected to rise 20% - 25%.)

These projections are backed up by a recent National Business Travel Association (NBTA) survey that found more than three-quarters of corporate travel managers were preparing for boosts in air travel and lodging costs.

What can you do to bring travel costs down to earth? NBTA members plan the following actions:

Rebid existing travel management company contracts.
Increase policy mandates to ensure traveler compliance.
Rationalize the number of preferred hotels, airlines, and car rental agencies used to improve spend leverage and bargaining with service providers.
Push travel management companies to bypass traditional Global Distribution Systems (GDS) and implement “direct connects” to reservation systems of airlines. Industry research finds that this direct electronic connection can reduce your travel bill due to reduced sales and operating costs for the travel provider. Some travel managers plan to tap alternative, low-cost aggregators that have cropped up to compete against traditional GDSs.

Those supply managers that employ these sourcing and travel management strategies early will be in a better position to weather the expected turbulence for this year’s travel buy.

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