Cos. Increasingly Cutting Back Travel

Date: July 21 2008
Source: BTNonline
Website: http://www.btnonline.com/businesstravelnews/headlines/frontpage_display.jsp?vnu_content_id=1003829390

Cutbacks in corporate travel, which previously had seemed to be contained within financial services and pharmaceutical markets, now are being instituted at many other companies. In some cases, buyers report cutting travel spending by more than 20 percent. Such buyers are pushing hard to reduce the number of trips and cut travel budgets to offset the rising prices, massive spikes in fuel costs and the potential for a business slowdown.

"I'm getting rumblings from a number of corporate travel manager sources, suggesting that corporations are going to want to cut back on travel spend by 20 percent or so," Credit Suisse airline analyst Daniel McKenzie said during an American Airlines parent AMR Corp. second-quarter earnings call.

In response, AMR executive vice president of planning and CFO Thomas Horton said, "We're hearing companies are being more cautious and more closely scrutinizing their travel. We've actually seen that business traffic has been down a bit year over year, but pretty modest reductions thus far."

In another airline earnings call this month, an executive expressed one of the first murmurs on U.S. point-of-sale international demand declining. "International business demand exit-U.S. is down slightly, but yields are more than compensating for lower load factors," said Delta Air Lines CFO Ed Bastian.

While there are more than just rumblings of deep cutbacks from some of the largest travel-spending corporations, recent data indicate not all cuts will be steep ones.

Overall ARC transactions through June are down nearly 4 percent, and domestic transactions are down 5.6 percent compared with the same period in the prior year.

Carlson Wagonlit Travel's global transactions from January through mid-July fell 4 percent from the same period in 2007, while air sales dollar volumes rose 6 percent.

According to a recent BCD Travel and Advito survey (see story, page 8), less than half of 333 travel buyer respondents expect their North American travel demand to increase. Financial and professional service respondents accounted for 17 percent of the sample size.

Corporate Travel 100 firm Hewlett-Packard's expenditures are down a "few percentage points" compared with last year, despite continued growth, said HP global program manager of travel and meeting services Jyrki Haavisto.

"Given the developments of oil price and hotel rates going up, we've had a big impact in the cost per trip," he said. "Where we end up is pretty flat growth or slightly negative growth. With a global T&E spend of about $1 billion, every percentage point tends to mean a big number of dollars."

About one year ago, under the leadership of the company's executive management, HP implemented separate T&E budgets tied into revenue growth as separate line items from overall budgets. Other demand-management and cost-avoidance efforts have been introduced such as hotel rate caps and the increasing use of HP's own Halo remote conferencing facilities. In one business unit, the company has added eight pairs of Halo rooms in the past year, which accounts for a 25 percent reduction in trips in a key citypair and a 40 percent reduction in overall spending.

As of May, consumer product goods titan Procter & Gamble had a 30 percent companywide travel budget cut for its fiscal year, which ended in June, according to Debbie Gittinger, P&G global travel service manager. The Cincinnati-based company also has implemented remote conferencing capabilities in key markets and concentrated on reduction of internal trips.

"Some people have had to stop traveling," said Gittinger. "They didn't do a good job the first part of the year. They didn't think the company was really serious until they actually saw it come out of their budget."