Australian Corporate Travel Outlook: A vibrant marketplace - and the focus is not just on cost

Overall, the cost pressures on travel buyers look set to increase over 2015, with the supply market tightening.

The 2015 Flight Centre-CAPA Australian Aviation Report notes that the domestic market share battle between Virgin Australia and Qantas has temporarily halted. There are strong indications that fares will rise after modest overall increases last year. Some city pairs will, however, be affected more, with Sydney-Canberra fares increasing by 13%, and more to come.

Similarly, accommodation costs are set to rise due to higher occupancy rates and limited supply.

The latest statistics from Deloitte's Tourism and Hotel Market Outlook show Australia's hotels with 68% occupancy rates last year - a new high for the market.

In the face of this cost pressure, buyers will not only have to negotiate harder, but also consider changing their policies and possibly opting to "move down a star" and use more affordable hotels.

Market conditions are challenging, but they do reinforce the need for strong travel management, appropriate policies and strong compliance.

Australia's tight business climate casts a wide shadow over travel

Economic uncertainty in Australia is casting a shadow over most business activity, and corporate travel is far from immune.

GDP Growth of Australia (Per cent change)

Source: International Monetary Fund and World Economic Outlook Database

Among those noting the cautious business sentiment is Jo Sully, general manager for American Express Global Business Travel in the region.

"In this environment, many Australian companies are looking for ways to tighten their business travel policies as a means of reducing travel costs or to protect themselves from future fare increases," she says.

Lisa Akeroyd, Australia and New Zealand managing director of Carlson Wagonlit Travel (CWT), sees cost management as a major challenge. "Many (organisations) are under pressure to reduce costs. However, travel is still necessary to grow and facilitate business. Therefore, they continue to look to us to ensure they get the best value from their travel programme," she says.

Sully is noting major shifts in air travel practices: "We have seen policies tighten in recent years in relation to flying premium classes, particularly in the mining and financial services sectors. It is common in Australia that corporate policy dictates economy class fares for less than five to seven hours, depending on the company, industry, level of seniority and other factors," she points out.

Amex has also seen a trend over the past few years towards policies stipulating economy class travel for domestic flights, only allowing business class travel for international flights.

"Most companies recognise that exceptions need to be made on occasion for the most senior executives or very frequent business travellers who commonly fly overnight and need to arrive the next day ready for work," Sully adds.

Voyager Travel sales and marketing manager Kasey Cashman
 also identifies cost containment as a major issue for customers.

"Achieving cost savings will always be a major challenge for our clients. We work with clients to achieve cost savings through better negotiations, tighter policy and compliance," she explains.

But she notes that the challenge is becoming more pronounced due to under-resourcing of the travel category.

"We're also seeing a trend of a reduction in full-time procurement and/or travel category positions. There seems to be a lot more contract work in the discipline. This is a real challenge because how do you get consistency in your travel programme if you are constantly changing the people running the programme?"

There is a growing need to buy smarter

For World Travel Professionals (WTP) clients, according to global sales director Greg Wilken, cost control remains the driving focus, but there is a subtle difference this time: "Clients are being smarter about reducing cost; not just simply cutting the travel programme, but looking at how they can shave dollars around the periphery, such as the time taken to process the whole transaction from thought of need to travel through to reconciliation and payment.

"They are now throwing things up for debate that have once been considered 'sacred cows' and questioning if this is conducive to (reducing costs) or is it a roadblock that just needs to be dealt with.

"Companies are standing up to international headquarters and demanding to know what benefit a global deal is giving them, if any, or are the incentives and cost reductions only flowing to the larger markets," he says. "CFOs are questioning the validity of these arrangements and their ability to control one of the biggest expenditures in their quest to achieve the demands placed on them to reign in costs."

James Kavanagh, general manager at FCm Travel Solutions Australia, is also conscious of the focus on cost among customers.

"Whilst we have seen a strong return of T&E spend since the GFC, companies continue to remain focused on cost and, in some cases, show more caution than we saw pre-GFC. However, this is all dependent on the individual organisation and the pressures they face. So, whilst some organisations are still very focused on cost, we see others where cost is less of a factor and other considerations take precedence," he says.

Better category management is becoming a priority

Meanwhile, FCm is witnessing a move towards more comprehensive travel management.

"Clients are viewing travel more holistically now. They are taking an end-to-end approach to incorporate all aspects of travel from intent to travel, proactive approvals, booking, policy, duty of care data and reconciliation," Kavanagh suggests.

"Another challenge is customers finding productivity gains in the travel process. The traditional method of booking via travel bookers seems to be changing, based on various factors. Technology is one; as tools become more mobile-enabled and with greater functionality, this allows travellers to manage the process. We are seeing many customers evaluate the role the travel booker has in the booking process and some customers are changing the process to allow travellers to make bookings."

In this new paradigm, approval systems and processes become more important, Kavanagh argues. "As travel budgets compress, customers are increasingly tightening the approval rules associated with travel, with more and more companies introducing approval systems (to improve) demand management."

And the duty of care to corporate travellers is vital

While cost is still in the sights of travel managers, duty of care is becoming increasingly important, according to consultant Dan Stevens, managing director of The Business Travel Consulting Group (BTCG). "I think that the duty of care focus is back on, with organisations wanting to capture all booking data and ability to leverage data for negotiations," he explains.

Duty of care is top of mind among Amex clients, according to Sully. "In a more risky world, employers have a heightened sense of the need to care for and protect their staff while travelling for business. This is reinforced by legislative obligations and an understanding that a comprehensive duty of care policy up front can minimise costs and business impact further down the line. For example, in the event of an emergency, our AX CONNECT customers are able to locate their staff immediately and arrange alternate travel plans in the most efficient manner.

"With duty of care considerations, we're not just talking about major man-made incidents like a terror attack, but more common natural phenomena like major storms, typhoons, or even volcanic ash clouds. It's critical for businesses to possess the technology to know the whereabouts of employees at all times and to be able to communicate with them in order to fulfil employer duty of care obligations," she points out.

FCm is currently testing its FCm Secure solution with a number of customers in Australia, with a full roll-out scheduled during the latter half of 2015, Kavanagh points out. The industry-leading travel risk management programme has been developed in partnership with iJET International which provides access to its intelligence and global response hotline to augment FCm's technology and operations.

"In the world of business travel, each time an employee travels, he or she is exposed to a range of personal health, safety and security risks, while at the same time, legal trends continue to shift the burden of these risks onto employers. As a result we have seen and continue to see very strong interest in the FCm Secure solution in Australia and key overseas markets," Kavanagh says.

Voyager's Cashman points out that approximately 85% of clients in the TMC's global alliance "would be using one form of duty of care solution".

"We've developed innovative tools to help keep track of travellers, including our proprietary Employee Tracking System (ETS) which … enables clients to identify a traveller's location at any one time (especially valuable for those travelling to high-risk destinations)," she says, adding that the TMC also has a proprietary travel alert system, ATPI Alerts, which provides breaking news alerts directly to a client's inbox.

Third-party offerings are being adopted

The third pillar of Voyager's arsenal is "strategic alliances around the world with leading third-party providers such as International SOS who complement our various duty of care solutions. This enables us to deliver integrated data on traveller medical requirements, destination and travel risks, traveller tracking and on-the-ground support for medical or security events. We provide a high-quality data hand-off to companies such as International SOS so they can add their services when needed."

The importance of duty of care is not lost on CWT's Ackeroyd: "Companies have a business imperative as well as a moral and legal responsibility to protect their travelling employees. CWT provides a complete range of services, in affordable packages for smaller-volume clients, to help companies of all sizes provide comprehensive safety and security services that meet their specific needs," she stresses.

CWT's core safety and security services are available as a standard part of its client offering and include summary-style, security-based alerts vetted by travel security experts so companies can monitor potential travel disruptions, and a powerful traveller tracking tool, powered by iJET, that enables companies to "quickly identify affected travellers at any time, for any reason".

• Duty of care will be one of the key topics at the upcoming CAPA Corporate Travel Innovation Summit 2015 on 3 August in Sydney. Click here for more information about the Summit.
  

Supply market conditions

Releasing the 2015 Flight Centre CAPA Australian Aviation Report recently, CAPA chairman Peter Harbison noted that the market share battle which saw Virgin "claw into the corporate market" has temporarily halted.

Airline boards, he explained, are focused on profits rather than market share and, despite good load factors, utilisation is not yet optimal, with up to 20% extra capacity available.

While the market share battle may be off, airline negotiations are still dominated by market share demands, according to Voyager's Cashman. "We're observing market share requests by airlines during the negotiation process are increasing. This can be tricky for clients when the airline doesn't necessarily fly to their frequently visited destinations."

WTP's Wilken is also seeing stronger market share demands in a "reasonably competitive" environment. "Where in the past attaining the required market share has been more of a 'nice to do', it is now being enforced with them being advised of the potential of contracts being cancelled if clients don't achieve."

Cashman also notes a levelling of the playing field, with Virgin's full-service offering now including meals and baggage and a growing lounge presence. So, she says, the choice is "mostly coming down to network, aircraft and availability/frequency, lounge locations, etc.".

Another refreshing change Voyager is seeing is a growing focus on SMEs, with significant point of sale discounts. "This is fantastic, as it adds value to these clients, and makes them feel like they aren't forgotten amongst the companies who spend millions per year."

Reduced airline competition

CWT's Ackeroyd sees the negotiating pendulum swinging back in favour of the airlines. "As investment in domestic capacity has slowed, load factors and yields are improving. This is putting the domestic airlines in a stronger negotiating position but this could quickly change if capacity isn't adjusted in line with shifts in demand from susceptible market segments, such as the energy and resource sector. International has stabilised, but capacity growth is still outstripping demand, so the negotiating position would be less favourable," she explains.

Qantas Group and Virgin Australia Holdings ASK change

Source: CAPA - Centre for Aviation and Airline Reports

When formulating air travel policies, Amex's Sully urges looking beyond fares at aspects like traveller satisfaction and return on investment: "Consolidating volume with fewer suppliers or alliances can help organisations become more efficient.

"In 2015, many suppliers will be looking to raise rates, but may not be in a strong enough position to do so outright. Instead, they may look at driving revenues by more indirect measures, such as increased ancillary fees and tightened inventory controls. For example, expect to see increased ancillary offerings across the board for everything from in-flight Wi-Fi to early check-in."

Sully says negotiation in this environment is helped if buyers understand supplier contracts. "The best time to address hidden costs is during contract negotiations. Organisations should also use negotiations as an opportunity to bundle in frequent flyer status upgrades and matches with contract rates, in order to mitigate the higher costs of ancillary fees. Correspondingly, travel managers should understand which ancillary services offer the most value to their travellers and what the value of such services is in order to align negotiations and policy."

Air fares are on the rise

Virginia Fitzpatrick, general manager at 4^th Dimension and a co-author of the Flight Centre/CAPA report, is warning buyers to budget for increases, after fares rose around 1.5% late last year.

Interestingly, contracted corporate fares rose more than SME fares, which Fitzpatrick attributes to "good purchasing" and adherence to pre-trip planning disciplines by smaller buyers, which may be lacking at the big end of town.

Also significant, she says, are differences on certain routes, with Sydney-Canberra fares increasing the most - by 13%.

The bottom line, she says, is that "you don't necessarily need to contract if you can plan".

"You may have to perform a balancing act as you work through the details of your commercial agreements with your airline suppliers, both to manage their expectations as well as your need to achieve savings. The challenge will be on how to achieve surety, clarity and flexibility in pricing from an airline supplier whose business model is driven by reacting to constant market fluctuations," she says.

Accommodation market challenges are increasing too

If airline negotiations are tough, the prospects for accommodation dealing are not much better, thanks to higher occupancy rates and limited supply.

The latest statistics from Deloitte's Tourism and Hotel Market Outlook show Australia's hotels with 68% occupancy rates last year - a new high for the market.

Deloitte researchers point out that "gains made nationally over the past five years are now double (those) lost during the global financial crisis, with both occupancy and room rates at levels never previously recorded".

Sydney and Melbourne are regularly experiencing hotel occupancy rates over 90% on peak nights. Hobart, Adelaide and the Gold Coast also showed gains, but the effects of the mining slow-down are already being felt in Perth and Brisbane, with more vacancies.

"Hotel occupancy in Australia remains high, especially in major cities such as Sydney and Melbourne, where many hotels are fully booked on weekdays," says Amex's Sully. "This, combined with the fact that few new properties are coming onto the market, will likely see room rate increases of up to 5% this year, according to our Global Business Travel Forecast 2015.

Consortia rates offer an alternative

"While negotiating a reduction in room rates is challenging in low-capacity cities such as Sydney and Melbourne, organisations partnered with a travel management company can take advantage of large-volume-based negotiated rates. (TMCs negotiate consortia rates with hotel chains and make these available to clients who don't have better direct deals.)

"Businesses are also encouraged to consider alternative methods of cost cutting such as switching hotel properties and also tiering down from five-star to four- or three-star offerings. Negotiating on secondary benefits such as access to free parking, Internet or meals is another way businesses are now looking to drive further savings."

For Sully, negotiating ancillary fees is also key to a successful hotel programme. "It is also important to articulate in a company's policy what can be expensed regarding ancillary fees."

Ancillaries are also a concern for Voyager customers, with Cashman noting that most hotels are aware of clients' requirement for Internet access and are commonly bundling this in as a value-added benefit. "Now clients are seeking more value adds such as (discounted or free) car parking and in-room coffee machines with complimentary refill pods (therefore, saving on Food and Beverage and Travel and Expense). By negotiating alliances, for example with a consortia on specific properties but then chain-wide percentage off Best Available Rate for their global network to meet other infrequent destination needs, we are seeing an increase in compliance."

Voyager is seeing hotels "being a little more flexible in terms of minimum room requirements within an annual programme", something that is particularly beneficial to the SME market.

TCG's Stevens is also tipping rising accommodation costs. "Strong demand for both leisure and transient business is applying upward pressure to (average daily rates). Higher occupancy rates will lead hotels to rate increases and a more evenly balanced power struggle," he observes.

According to CWT's Ackeroyd, capital city hotel providers may have the upper hand in negotiations at the moment, but things are looking better for buyers in regional centres. "Some regional centres relying on energy and resource clients are vulnerable," she explains.

Ackeroyd notes that international hotels in markets such as New Zealand and the USA are in a strong negotiating position, but markets such as India and China continue to see new supply that is driving down yields and negotiating power.

Rising to the challenge

The need for corporate travel persists, even in tough economic times, when belt-tightening remains a business imperative for many organisations. Adding to the challenge is rising costs in the supply chain, with both major spend areas - airlines and accommodation - likely to increase in the months ahead. This shift of the pendulum requires travel managers to "buy smarter", consider the entire end-to-end travel procurement process and ensure compliance to travel policy.

At the same time, travel managers are expected to ensure the safety and welfare of their travellers. This requirement is often contrary to the cost-cutting imperative, necessitating a complex balancing act.

While many lament the loss of corporate travel procurement resources and expertise in the organisation, the current challenging environment provides a significant opportunity for travel management companies to demonstrate their ability to add value. It also gives travel managers a chance to exercise their skills and raise the status of their profession.

Allan Leibowitz edited Business Travel Monthly/Management for more than a decade and also transformed Procurement Professional into a leading resource in the Australasian market. He now leads 'talking business', a content marketing and events consultancy which specialises in procurement and business-process issues. Allan has helped with programme development for the upcoming CAPA Corporate Travel Innovation Summit series, supported by ACTE. Allan will be among the facilitators on 3-Aug in Sydney.