Economic Ills Spur Biz Travel Cutbacks

<B>Economic Ills Spur Biz Travel Cutbacks</B>

By Megan Hjermstad

Corporate travel managers are bearing increasing pressure from senior management to reduce costs as concern about an economic downturn deepens.

Cutting back on travel most severely so far are those corporations that have been among the leaders of travel management: the high-tech companies. With the wind out of their stock market sails, companies such as Hewlett-Packard, 3Com and Cisco Systems have reacted by cutting nonessential travel.

Travel management companies attest to the fact that other corporations are taking measures to reduce travel and drive costs down.

How much travel is down won't be clear until quarterly figures begin rolling in next month, but the trend that began late last year looks likely to continue.

According to the Travel Business Roundtable Index of Leading Economic Indicators, Airlines Reporting Corp. sales, Air Transport Association figures, hotel/motel room revenue, hotel/motel room occupancy rate and rental car revenue showed a gradual downturn in the second half of 2000. The five indexes in 1Q00 showed healthy growth of 4.86 percent, in 2Q00 rose slightly to 1.9 percent, in 3Q00 dropped 6.1 percent and in 4Q00 dropped a considerable 5.25 percent. The fourth-quarter decline was pervasive throughout the indicators.

"I expect the overall TBR index to continue to decline the first of the year into the summer as the industry continues to feel the effects," said Dr. James Howell, economist, president of the Boston-based Howell Group and designer of the TBR Index. "Presumably, with restored confidence in the economy and better performance in the equity market, we're going to see travel turn around."

While first-quarter figures are not yet in, it is clear that various segments of the industry are losing essential corporate business. The nation's largest airlines are having their share of difficulties in the slowing economy. In the past two weeks, four of the largest carriers issued quarterly earnings warnings, citing weakened high-yield business traffic as corporations scale back air expenditures (see story, page 8). Meanwhile, PricewaterhouseCoopers' U.S. lodging forecast calls for demand to expand by only 1.9 percent and occcupancy to fall to 62.9 percent.

The downward trend in the air and hotel sectors indicates that corporations are taking decisive measures to reduce travel. According to a survey of 180 corporations conducted last month by the National Business Travel Association, 77 percent of companies have been preparing for the economic slowdown and responding to higher airfares by reducing travel and 69 percent are renegotiating current contracts.

As well as more aggressively pursuing contract negotiations and cutting back on travel, corporations are minimizing internal, nonessential travel and implementing new approval processes. Travel managers also are revisiting policy, particularly with regard to class of service.

Mike Koetting, senior vice president of TQ3 Maritz Travel Solutions, said that technology clients were the first to react, but Maritz has witnessed changing behavior in other industries, particularly manufacturing and consumer products.

Donna Riser, president of San Francisco-based agency RiserGroup, said, "In the Bay Area, the whole economy is driven by technology. We're unfortunately right in the heart of it. On the corporate side, we've seen a general decline year over year. Even if companies are not immediately affected, they are reading about it and there is a psychological effect."

Steve Power, vice president and general manager of corporate travel for American Express, said he is seeing a range of behavior from corporate clients, including continued growth, but the overall trend is a decline in travel relative to traditional growth.

"The economics have accelerated, and really created a new mentality from the CEO on down. We are in an environment where some recommendations are being brought to a higher level of priority in an organization," said Power. "Things are being done that corporate culture wouldn't have permitted in the past."

Danny Hood, president of WorldTravel BTI, said the mega actually has grown its transactions 20 percent this year over last year. However, in certain sectors, such as the high tech and automotive industries, he has seen a 20 percent to 30 percent drop in transactions.

Palo Alto, Calif.-based Hewlett-Packard has driven two major travel initiatives: switching from business class to coach and permitting only revenue generating travel. It also is monitoring use of its preferred suppliers more closely. The result is a drastic 50 percent reduction in H-P's travel.

"It has everything to do with the economy right now," said global travel strategic sourcing manager Jeff Kurn. "Sales projections are slipping, the economic situation is reducing demand for products and that is reflected in the stock price."

San Jose, Calif.-based Cisco Systems Inc. in January also began allowing only essential customer-critical travel, which resulted in a 40 percent reduction in transactions. "The cornerstone of our culture has always been frugality," said Jane Gardner, travel manager for the Americas. "I've never been exposed to any other place where word comes out and everybody's focus changes immediately."

Cisco also has been sending fewer salespeople on those trips that still are essential to business. "Even customer critical travel, where we might have sent five people, now we're only sending one or two," she said.

Meanwhile, Santa Clara, Calif.-based 3Com in January implemented a new travel policy that requires pre-trip approval for all trips and the go-ahead from a vice president for tickets over $500, limits the use of business class on intercontinental flights to over nine hours and mandates the use of Sabre BTS for simple uncomplicated trips. Since the announcement, 3Com has grown adoption of Sabre BTS by 85 percent, bringing reservations booked online up to 25 percent.

The company also puts out a list of acceptable business reasons for travel, with the aim of eliminating nonessential travel, and began heavily promoting teleconferencing and Webconferencing in lieu of internal meetings.

"As a travel manager, I had been reviewing the policy already, but senior management had a goal of reducing discretionary expenses and recognized travel as a big chunk of that," said global travel manager Mary Savoie-Stephens.

Savoie-Stephens said that 3Com travelers are aware of the slowing economy so they are more willing to cooperate with the more stringent policy. "The economic downturn has a lot of people wondering, 'how can we help?' " she said.

Koetting cautioned, "If they are investing in e-booking tools, and looking at process reengineering, those kinds of things will stick. If corporations are slashing and freezing budgets, the short-term reaction may hurt them in the long term."

Corporations also are employing such options for cutting costs as encouraging, and even mandating, online booking and expense tools.

Dorian Stonie, Internet travel technology manager at H-P, said the travel freeze has allowed the company to focus on SmartTravel, its online booking tool. Even with the downturn, H-P has online bookings in the 30 percent range. "Our adoption rates dropped a few percentage points. The people that were still traveling were executives or travelers with administrative assistants. If we can maintain that right now, and get back to business as usual, we will have a solid 30 percent to 40 percent," said Stonie. "Changing the mindset of travelers is often one of the most difficult things to do."

Marnie Brown, travel manager at Minneapolis-based Adaytum Software said, "The number-one way we've tried to keep costs down is by pushing the online booking system. There is no other place where we could realize that kind of savings. We can't really look to airline contracts--it would be a futile exercise with our volume. It is the same for hotels, where typically what we get back is not much less than standard corporate rate."

Adaytum, which mandated Trip Manager for all point-to- point travel when it was implemented early last year, has 60 percent companywide adoption and some departments are achieving 90 percent. Brown said tickets purchased via the online booking system are on average 20 percent lower than tickets purchased outside of Trip Manager. Adaytum recently created an approval process for all tickets that exceed $600 that makes the manager more cognizant of the need for travel. "The travel department can't determine whether travel is necessary--it is up to a manager to make the decision," said Brown. "It starts the dialogue between the manager and the traveler. As far as they are concerned, why would anybody go on a trip if they're not generating revenue?"

Roxana Thompson, corporate travel manager for Westminister, Colo.-based Requisite Technology, in the past few weeks has eliminated travel for conferences and internal meetings, but still is encouraging travel for sales and customer service.

"We're cutting out any unnecessary travel. With the type of business we're in, we have a huge sales force: They're our bread and butter," she said.

Other travel managers are speeding up initiatives that have been on the table for some time. "Our account managers have a Strategic Partnering Process, and each quarter sit down and discuss things we should consider. Things we may have had on SPP for several months, clients are beginning to be more aggressive about making things happen," said Koetting.

Joe Ribando, vice president of purchasing and travel at New York-based Alliance Capital is looking at leveraging buying with affiliate companies and renegotiating major airline agreements with the combined volume for greater clout.

"We would have been doing it now regardless of market conditions, but with what's happening in the economy it is moving us to do it more efficiently," said Ribando.

Kevin Taylor, director of sourcing for New York-based Primedia agreed. "A lot of things that we already had thought about we are accelerating, due to the softening economy. If the economy was strong we'd still be pushing all this stuff, but the economy made it more important to pursue them and not delay consideration and implementation."

Taylor said awareness of the economic downturn has resulted in more involvement from heads of individual business units that have set up their own internal approval processes. "They've got targets in their budgets, and they need to meet them any way they can," said Taylor. "It is driving us to push things we might not push in all situations."

For example, Primedia set up an internal process for videoconferencing and is encouraging streaming video and other options in lieu of travel.

Meanwhile, other corporate executives are taking a wait-and-see attitude regarding the economy and its impact on their businesses before adopting more stringent measures.

Kathleen Kaden-Reven, director of travel services for the Interpublic Group of Companies based in New York said, "At this point, we're not changing policy, but we're being really cautious to enforce travel policy. We're not granting as many exceptions."

Tony Milikin, vice president of supply chain and purchasing for Greensboro, N.C.-based Sealy, said, "We have the same compliance program in place whether the economy is strong or weak. We're not allowing the economy to affect the way we do business.