Ways to harness runaway costs - business travel - Industry Overview

Nation's Business, Nov, 1996 by Lynn Woods

When you take a business trip for the Global Concepts financial consulting firm, your first stop is Anne Sullivan's office.

Sullivan is finance officer at the 12-employee company in Atlanta, and she keeps a vigilant eye on its travel costs and practices. The eight employees who travel regularly are required to make all arrangements through her.

She books through one travel agency, which provides rebates in the form of free airline tickets. She may ask employees to spend a Saturday night at their destination or to use a less convenient airport if doing so means a deep discount on an air fare. She may reserve their rental car with a lesser-known company or put them in a less costly motel--all for the purpose of keeping the company's travel expenses in check.

And when Global Concepts sponsors one of its forums--on banking issues, for example, or financial uses of the Internet--and brings in guest speakers, Sullivan asks them to let her arrange their travel to reduce costs that she says can be "phenomenal."

Indeed, small companies everywhere--even those with only a handful of regular travelers--are adopting methods like Sullivan's to cope with steeply rising travel costs. According to the American Express Domestic Airfare Index, the typical amount spent for a round-trip air fare for business travel (described as the lowest economy fare available with a three-day advance purchase) was $358 in June, up from $335 in June 1995, a 7 percent increase in 12 months. Hotel room rates are also rising. Between 1990 and 1995, the average published, or standard, rate--known in the industry as the rack rate--in the U.S. increased by 33 percent, according to the Travel Industry Association of America.

In its own survey of lodging costs, Runzheimer International, a travel-management firm in Rochester, Wis., found that room rates on average went up 21.3 percent from June 1995 to this past June, and the company forecasts an additional 7.5 percent increase next year.

Runzheimer's surveys of car-rental rates also show sharp increase--15.7 percent from June 1995 to June 1996, and a forecast of an 8.5 percent jump next year. Car-rental increases appear to have tapered off since 1995, when Runzheimer's survey of rates charged by the four largest rental companies at 100 selected airports showed an average 32.8 increase for the year.

Big Costs, But Trimmable

At many companies, travel costs represent a major chunk of total expenditures. Typically, "T&E [travel and entertainment] represents the third-largest controllable bottom-line expense, after labor and facilities," says Ed Barewich, vice president of sales at Aquarius Travel, a travel agency in Cambridge, Mass.

Small firms are particularly vulnerable to travel-cost increases because they usually don't generate the volume of travel needed to negotiate deep discounts with airlines hotels, or car-rental companies.

Nonetheless, even small firms can save on their expenses by planning properly and taking certain steps. They include establishing company-travel guidelines, assigning a coordinator to authorize company travel, working with a single travel agency, and tracking travel expenses.

At Global Concepts, travel guidelines are informal. Sullivan keeps tabs on expenses mainly by overseeing travel arrangements herself and talking with employees about her money-saving procedures. These include booking advance-purchase airline tickets if possible.

And she has found that having employees stay over for a Saturday night to get a lower air fare can reduce a trip's cost significantly, even when the meal and lodging expenses of an extra day are subtracted from the air-fare savings.

Using secondary or less convenient airports to get a lower air fare may mean employees fly to and from Dulles International Airport, which is farther out in Washington's Virginia suburbs than close-in National Airport. Or they may use new Jersey's Newark International Airport, which is farther from Manhattan than New York's LaGuardia Airport.

In booking company travelers in moderately priced hotels, Sullivan simply avoids properties in prime areas such as San Francisco's financial district. And although Global Concepts has negotiated a preferred rate with a major car-rental company, she often gets lower rates at rental companies operating in less costly facilities off the airport premises. She also may ask employees to take taxis in some instances rather than rent cars.

Sullivan also keeps close watch on expenses even after a trip is over: When she received a bill for an exorbitantly costly phone call made during a flight, she told the traveler such extravagances are not allowed.

Track And Manage

When companies manage their travel expenses assertively, they can achieve savings of as much as 45 percent, according to estimates by Gerard Smith, a senior partner at The T&E Group, a travel management consulting firm in Newport Beach, Calif.

Evidence that travel costs can decrease when vigilance in the experience of Harris Laboratories, a clinical-research organization based in Lincoln, Neb. About 70 of the company's 458 employees travel, and five years ago Harris decided to manage its travel costs in-house.