6 Trends that will shape the future of business travel

Charmaine Fernz and Bhisham Mansukhani outline the trends which are likely to shape the rapidly evolving Indian business travel segment...

Business travel is the largest segment of travel and today India's corporate travel market is today estimated at no less than US$ 3 billion (around Rs 150 billion). An increase or decline in business travel mirrors economic trends. India with its 8 per cent GDP growth rate and stable economy has witnessed an all round development, especially in the travel and tourism sector. In the past five years, there has been better growth in outbound business as compared to inbound. Business travel thrives best in a free and robust economic scenario and India is gradually moving in that direction. With liberalisation paving the way for healthy competition and business going global the Indian traveller too is evolving into a global traveller. A liberal foreign exchange regime and cheaper air-fares, ex-India are also factors responsible for catapulting business travel. Subsequently, with travel budgets of MNC's running into several million dollars, airlines, hotels and all other service providers have rolled out the red carpet for this cash cow. Indian companies are now following suit, with almost all blue-chip companies having detailed travel policies. Travel costs have emerged as the third largest expense for corporates, after salaries and raw materials. These globe trotting Indians, have metamorphosed as a distinct market. They are well travelled and demand the services they pay for.

Through the ensuing cover story, feBusiness Traveller lists six distinct spheres/trends: Low Cost Carriers, Budget Hotels, Service Apartments, Corporate Travel Agents, Technology, Loyalty Travel, that will shape the future of business travel.

Low Cost Carriers

Air Deccan, Air-India Express, Kingfisher and SpiceJet…. Do these names ring a bell? Well, this is just the beginning (many are yet to begin operations - Go Airlines, Magic Air, East West Airlines etc.) of the advent of Low Cost Carriers (LCC) that are soon to crowd the Indian skies. The concept of 'Low Cost Carriers' or 'No Frill Airlines', though a global success is gradually catching on with the Indian traveller. Targeted primarily at the middle-class or train traveller, the question in point is will this concept be feasible for the Indian business traveller? The answer is yes due to varied reasons. Firstly, there is a visible trend both globally as well as on the Indian scene, where corporations are becoming more aggressive in cutting travel expenses and the service gap narrows between big traditional airlines and `discounters.' Secondly, the primary objective of LCC was and remains faster connectivity at a cheaper price - to transport a passenger from point A to B in the shortest possible time at the most affordable price, which means no in-flight services, no cabin crew to welcome you aboard or serve hot towels, no piping hot meals and no posh interiors. Travel experts also point to the fact that employers that never seriously considered low-fare carriers are making it easier for employees to book on them.

As Bjorn Hanson, a hotel industry consultant for PricewaterhouseCoopers says, "Travellers in general are more price sensitive to airfare than they are to hotel room rates. Often a low airfare will stimulate demand for travel even if hotel prices are increasing." With increased availability, average airfare are lower than they've been in more than a decade. Explains Ashwini Kakkar, CMD, Thomas Cook India, "Till date, you had only full-service carriers and now an entire host of budget airlines threaten to re-rate the domestic ticketing benchmark. Distribution has now shifted to the internet and call centres. The travel industry is in the midst of an historic transformation." Kakkar cites other reasons for the LCC concept to catch on with business travellers. "The corporate traveller is clearly comfortable with the internet. He is conversant with satellite ticket printing to go with the e-ticketing phenomenon. "

As Kapil Kaul, CEO, Centre for Asia Pacific Aviation discloses, "The entry of discount airlines will open up the bottom of the market in India. If one has to actually gauge business travel from India, it would be in two distinct sections - smaller businessmen and corporate travellers. Nonetheless, either way LCC are a viable option for business travellers as they have advantages like low costs, more options and connectivity. However on the flip side, what needs to be established by these carriers is good delivery of goods and on-time performance, which are prime essentials for corporates always on the move."

Traditionally in the global arena, no frills airlines such as Easy Jet and Ryan Air have offered bare-bone service, unimpressive interior design, unassuming food for which passengers have to pay, and on-board entertainment mainly consisting of crew members telling 'knock-knock' jokes. But things are changing. JetBlue of USA has roomy all-leather seats, each equipped with free live satellite television, offering up to 24 channels of DIREC TV programming, which will soon be up to 100 channels of free digital satellite radio and pay-per-view movies. Or consider Delta-owned Song's in-flight menu. Passengers still have to pay for their meals, but the food is from quality brand names. Even in the Indian scenario, Kingfisher Airlines who calls itself a value carrier provides basic good amenities like leather seats, in-flight entertainment and good food.

Moving Head On

A well-established example of this growing concept is Air Deccan, the airline that started off with one flight (and skeptical views), now offers 54 daily flights to 19 cities. By March, Captain G R Gopinath, managing director, Air Deccan hopes to offer 100 flights a day to 65 cities. Considering these figures and the future airlines, Indian air travel is in for a serious shakeup. "With prices as low as 30 per cent of current fares -- often as cheap as a train ticket -- the new entrants could boost India's annual air traffic by 30 per cent, to 20 million passengers, within a year," says Kaul.

Subsequently, the Indian business travel scene is undergoing a metamorphosis - value for money - is the new mantra. Liberalisation has made businessmen expand bases and set up operations at cheaper localities, which are, however, poorly connected. These airlines will offer connectivity links between smaller cities and major metros which in turn will help usher in industrial development. Secondly, the main criterion of most Low Cost Carriers in India was to make travel a feasible option. Another huge market for 'No Frills' are those who prefer to travel internationally to South East and Middle East Asian destinations rather than travelling domestically because it is more affordable. For a business traveller, LCC serve the ideal purpose of service at your fingertips as one can easily book a ticket via internet and save almost half of what he would have otherwise spent. Then, there is the simplicity in the whole process and ease of buying a ticket. One just has to dial and buy the ticket. The flight too is easy with free seating. It is this simplicity that has caught the fancy of business travellers always on the move. No Frills airlines have created an Internet-based model at 1/10th the cost.

On the global scenario, estimates suggest that the portion of low-cost passengers is currently less than 15 per cent, which means that the European market is still largely untapped. Great Britain is the exception, where Ryan Air and Easyjet have already brought low cost traffic up to 40 per cent. The rest of Europe is believed to have similar potential. World-over, the low cost airline phenomenon is beginning to transform the face of aviation and tourism industry. On the Indian front, overall aviation is growing at 25 per cent, the domestic market which is currently 19 million should increase to 45-50 million in the next five years. With such a positive scenario lined up, the LCC scene is definitely on the rise and much more is in store for business travellers.

Budget Hotels

More than 50 per cent of occupancy of a majority of hotel members of the country’s largest hotel association, the Federation of Hotels And Restaurants Associations of India (FHRAI) reportedly comes from the business travel segment. The average room rate (ARR) realised from business travellers is normally higher than from leisure travel, according to FHRAI reports.

Yet until recently, business travellers have had very little to choose from between the upscale five star hotels and the vast and cluttered universe of largely unclassified fare, ranging from the confusion of minimalism and lack of quality, to a mediocre product far too overvalued. Heightened demand and a current run of healthy occupancies has seen international, local budget as well as, five-star brands enter and revolutionise this fray, opening up a long overdue avenue that the business traveller will be the first to claim. Some of the new players include Hometel, Kamfotel, Courtyard by Marriott, Country Inns & Suites, Ibis and Fairfield Inn.

IHCL, last year, launched the indiOne brand that will build 500 hotels in the next ten years under the concept of Smart Basics wherein the room night is pegged in the vicinity of Rs 1000. IHCL's Roots Corporation CEO Sheila Nair, says, "The indiOne properties will be built on the basis of a cookie cutter model, the science of which has been rigorously worked out so it's easy to replicate to a large extent. Procedures do not need to be repeated for every project. This saves costs and allows for a cost leverage which fits into the segment we call Smart Basics which is the premise for indiOne."

Nair said she believed that many companies had per diem's that fell within the inidOne tariff brand. "Factors like cleanliness, security and the core room product are key to a mid- segment hotel within which SmartBasics fit in. We have also integrated Wi-fi and a cybercafe within the hotel premise to position the brand for the profile of corporate travellers who use the mid-segment and there are a lot more of them than the ones patronising five-star hotels. Service needn't be obtrusive and costs can be saved therein without actually depriving the guest of quality and at the same time giving the guest privacy. Instead of clustering services together and putting a flat rate to it, we have given the guests the basic room product as well as the choice and service," Nair said.

IndiOne general manager, sales, Partha Chatterjee revealed, "The demand for the product that we have developed has always been there. The biggest problem that travel managers have faced as far as budget hotels are concerned, is finding a consistent product with good quality standards nationwide, at a reasonable price. We are positioning our product to solve precisely this problem."

"We need to provide a critical mass in so much as a nationwide inventory for corporates to fold into our system. We have to be a mass supplier and still reverberate a sense of style. That combination needs to be right. At the same time, optimisation needs to be explored at every level. There is also a threshold of value which budget hoteliers need to be mindful of, that is staying below a certain price band beyond which the value component is no longer relevant," concluded a veteran hotel professional and industry observer.

Service Apartments

Picture this: A 400 sq. ft Taj Club double room costs around Rs 18,000 a day and a two-room (450 sq. ft) suite Rs 22,000 a day. The 1,700 sq. ft presidential suite can make your pocket lighter by a whopping Rs 100,000 a day! Now compare this with a 1,500 sq. ft two-bedroom residence at the Indian Hotels' service apartments, Taj Wellington Mews. It is in the same vicinity of south Mumbai, but costs just Rs 13,500 per day. The cost effectiveness of service apartments is making them second home for expatriates and business executives on the move.

The concept of service apartments, though a recent phenomenon in India, is an established global concept. Villas in Spain, flats in the UK, apartment complexes in the US, have all created a vibrant and viable market for those wanting more than just a room in a hotel. Service apartments are the latest trend in accommodation, offering the comfort and convenience of a home without the hassles of having to maintain or look after it. Ideally suited for medium to long staying guests, service apartments are a natural choice for corporate employees or expatriates relocating to a particular city, non-resident Indians visiting the country for long spells, people renovating their homes and of course foreigners visiting the city for long durations.

Says Sanjay Tolia, senior manager, PricewaterhouseCoopers, "The concept of service apartments offers a cost advantage and a longer term commitment, both from the service provider/receiver’s perspective. Further, it is a good idea for companies to retain such service apartments where there is a regular movement of personnel within the country, where the company does not want to maintain its own guesthouse."

Adds Sunil Taneja, general manager, Taj Wellington Mews Luxury Residences, Mumbai, "Consulates are a big segment as they usually have dignitaries living for protracted periods and they tend to look for plush and up-market residential buildings to lease apartments. They can now enjoy all the conveniences of a leased apartment without the logistics of actually leasing one." Elaborating further Prakash Wadia, CEO, Ascot Hotels, says, "A service apartment is more spacious and is equipped with all the amenities that a long-staying guest needs. During our market research we found executives in India really do not want to cook but would like to fix an occasional breakfast, heat packaged food, and store food. So we provided a big refrigerator, microwave and toaster."

With most apartment hotels strategically located in the city centre, mainly in the commercial and financial districts of metropolitan cities, the concept is particularly popular with business travellers, both mid-level and senior management level business executives.

Money Matters

Having established itself in the business travel circuit, what sets the service apartment concept apart from regular hotels is basically the price. On an average, the difference in price between the hotel and the apartment hotel can vary as much as 15 to 30 per cent.

Other advantages include food costs, for example, guests staying at five-star hotels spend anything between Rs. 1,500-Rs. 2,000 daily on meals whereas in the apartments the guests have the option of cooking their own meals. One can also save a bundle on laundry services. Thus looking from long-term perspective apartment hotels are very economical.

Some of the first movers are Indian Hotels' 80-apartment Taj Wellington Mews, the 147-apartment Grand Hyatt Residences, The 42-unit Grand Residency and Four Seasons, which is due for completion by the end of 2005. Others include the Vipul's Peach Tree, Enkay condominiums and Ambience Apartments in Gurgaon and Savoy Suites in Noida. Oakwood, a global player in the hospitality sector, is also setting up service apartments in various cities like Bangalore, Mumbai, New Delhi and Chennai, with the first one slated to become operational in Hyderabad by early 2006.

Corporate Travel Agents

The, role of Corporate Travel Agents (CTAs) has metamorphosed over the years. Gone are the days when corporates who in absence of access to information had to depend solely on the travel agent. Today information is instant and available to everyone and agents are automated and equipped to meet increasingly complex travel needs of the corporate traveller. However, the corporate largely remains suspicious of the travel agent. The reason for this is that they have been aware of the commissions airlines were giving agents who were passing it on to their clients in a relative proportion. This led to the introduction of the management fee in the corporate travel arena to do away with the ambiguity that this practice was creating. Corporate Travel Agents today are working to change this perception. One way to achieve this was to deepen the transparency factor by educating corporates with the nuances of reservations and price premiums that corporate travel inextricably entails.

As Get Lionel India CEO, Gaurav Sundaram elucidates, "Almost 98 per cent of all our business is transacted on a management fee premise. For that matter, to ensure absolute transparency, we also inserted the audit clause in our contracts with clients from the onset, wherein we said that we are so sure of our billing integrity that they could check our books. Intel had in fact appointed an American audit firm to evaluate us for two months, for billing integrity, policy compliance and Management Information System (MIS). Dupont in the past had run a random audit as well. What is necessary and extremely vital in today's corporate world is bringing in the element of transparency." After reminiscing the past, if one has to see the complete picture, there exists a very stark distinction between the profile of a CTA and vanilla leisure operator. CTAs are accountable to not only provide, a quality travel management but also cost optimisation using any and every accounting tool and technology that can be deployed. Billing communications, MIS and their detailed analysis - these tools can be used to trim operational costs by remolding the organisational approach. The MIS also identified trends, which at times can convince corporations to amend their travel policies. As an international industry expert puts it, "Companies now have a greater awareness of how technology is giving them a clearer picture of how travel dollars are spent, helping them manage costs more effectively."

Evolution Processes

Post the growth and change came in different methods of operation. As Marc Hildebrand, President, CEO & Global Board Chairman, TQ3 explains, "Being a vanilla travel agency initially which is what the CTA then basically was, that profile is now just one aspect of an entire proposition of value that is on offer. The bouquet today includes account management, data transparency, on-going Travel and Entertainment (T&E) consultancy, price negotiations, detailed expense reporting, process analysis. Our customers spend hundred of millions of dollars a year on business travel and we optimise these expenses to the tune of anywhere between 10 and 15 per cent which turns up adding to their direct profits. These savings are found not only in reservations but also in the approach that companies take towards authorising travel. We bring efficient systems to the table. These processes range from simply consulting wherein we help our customers design their travel policy. The greatest form of cutting travel costs is to travel less by identifying such opportunities. This question simply isn't raised enough. The complexity of our industry is deepening so quickly, the only guarantee for attaining to the lowest travel cost model is by deploying the right processes and the people best equipped to implement the same. Only the large business travel companies are able to invest in the scale of technology needed. This gap of accent on technology investment is getting bigger."

Moving ahead of the technological area, according to Sundaram, processes and data analysis ranging from an efficient requisitioning to an entire end-to-end solution is what corporates should also expect from their Travel Management Company (TMC). "For one of our clients, Phillips, for whom we consolidated travel across 31 lines of business and eight locations across the country we worked in consolidating cost centre, budget centre, locations, transactions and vendor specific reporting. That is the scale of an MIS report between the perception of the client and what he should expect, a chasm needs to be filled," stated Sundaram.

Sundaram is keen to get his clients to transcend the current trend of fragmenting towards integrating their travel spend, thereby achieving expense optimisation and using the travel management company (TMC) to the fullest. "Indian transnational and multinational companies who are progressively increasing their spend have yet to understand the merits of the professional management of their travel. Many of them have just allowed it to be fragmented amongst different suppliers. To cite an example, when interacting with the representatives of a certain big transnational client of ours we found that their airline ticket spend was Rs 30 crore annually, which they perceived as their travel expense. It is here that we initiated a paradigm shift in their perspective. We said we wanted to manage not just their air travel expenses but their foreign exchange requirements, travel insurance, hotel room reservation, car rentals and several incidentals all encompassing their Travel and Entertainment expenses adding up to about Rs 90 crore. He said he never looked at it this way," Sundaram said.

Evaluating the transitional move of the business travellers, one sees that the transition has gone from a blissfully opulent and compulsive traveller to the adroitly frugal and still compulsive traveller. Thomas Cook CEO and MD, Ashwini Kakkar re-emphasis the uniquely dynamic space that is travel. "The most visible trend in the corporate arena is that the whole process is untouched by the human hand. While the services themselves will increase, the human element within all of these will diminish and that is how the prices will come down. We will see a dichotomy evolving over the next decade. Apart from the aforementioned profile, the contrasting profile will be of the orthodox business traveller who still wants premium service with an inherent human element and little cost consideration."

Concluding with the uniqueness of the Indian travel landscape Tej Sahni, advisor with TCI outlines a local reality, "The client still relies on the agent. The Indian travel agent, never mind the corporate travel agent, will survive because they have a culture of providing myriad services ancillary to the ticket and Indian travellers are accustomed to this and are therefore dependent. The agent has not created a tangible cost structure for providing this service hence this translated into a misplaced conflict between the agent and airline when the latter cut commissions."

Technology

Travel and technology today are the Siamese twins of progress and are then, inseparable. Both global and Indian business travellers firmly believe that technology, instead of upsetting business travel, might in fact boost it. Consider a recent World Travel Tourism Council (WTTC) report, which indicates that business travel globally is on the rise, currently registering a growth of 5.7 per cent. It also accounted for US$ 600 billion and is expected to grow to US$ 895 billion by 2014 at a growth rate of 3.1 per cent per annum. In India, the performance of the business travel segment is even more impressive and outstrips world growth. And while all this was happening, technology was making its own leaps and bounds with high-tech video conferencing facilities, webcams and virtual reality mode of conferencing.

Says R Mohan, president & CEO - IT Division, Hinduja Technology Media Telecom, "Our company uses a group-wide video conferencing system that covers our offices in the USA, UK, Mumbai and Bangalore. Similarly, we also have Net meeting services and wide area conference calling. However, in spite of this, I firmly believe that business travel is required at certain times, when issues are likely to be debated or when relationships are to be built and when unsaid signals are more important than what is said."

Reiterating the same thought process, Vijay Chadda, COO, BTI-SITA says, "The Internet, which was initially used as just a surfing and mailing entity, is now being used more extensively. However, one cannot dispute the fact that the personal touch is often necessary for business deals."

What's In Store

Instead of decreasing the traffic, the spin-off is that, many business travellers now think that the current advancements in technology like email, video conferencing, telecommuting, high-speed telephonic communications and mobile communication technologies have helped make the world a smaller place, making communications easier, thereby helping businesses to spread their tentacles across the globe. Online bookings, e-ticketing, Wi-Fi Internet connectivity, easy access to information whether on land, sea or sky, the omnipresent laptop and mobile phone are just a few areas where technology has completely changed the face of the way we travel.

A recent research conducted by feBusiness Traveller revealed that 41 per cent of business travellers rated the ability to access email on the move as the most important factor, 21 per cent voted for laptop/mobile power points, while 11 per cent voted for in-car satellite navigation, 20 per cent for broadband on planes/trains and seven per cent for wireless hot spots - a clear indication that technology has been one of the key facilitators of growth in the business travel segment.

Let's have a look at just some of the technological advancements that have helped build travel:

Internet Technology: The advent of internet technology has helped expand the utility of Global Distribution Systems (GDSs), allowing end-consumers to directly interact with the GDS systems. This means that the traveller can now book his itinerary with his travel agent, from anywhere in the world and at anytime of the day or night. Communication is another area where the travel distribution industry is witnessing a revolution.

GPRS: GPRS (General Packet Radio Service) offers instant connections and provides more bandwidth that will enable a host of interactive services and new products, making both planning travel and travelling a whole lot easier.

Business Centre Facilities: The advent of broadband and wireless Internet has brought about a drastic change in the role of a hotel business centre. The latest in this area is 'smart meeting rooms' with state-of-the-art technology, viz video conferencing, phone conferencing, webcasting, etc.

Mobile Connectivity: The impact of mobiles is becoming hard to overstate, especially for the corporate traveller, who is persistently on the go. So when the boundaries of mobile telephony, both in terms of hardware design and technological integration are being pushed, it means good news for the corporate road warrior.

Loyalty Travel

The boom in the aviation sector has can only spell out `success' for business travellers. With increased connectivity and more airline options, business travellers can accrue increased `miles and smiles' while in actuality creating more, loyalty travel with their respective carriers. As per a recent worldwide research, members of frequent-traveller programmes with airlines, hotels, car rental companies and credit card providers earn more than 650 billion miles or points every year. Astonishingly, about 75 per cent of these accumulated travel rewards are never redeemed. The obvious answer for a frustrated traveller is to merge or exchange points with somebody else.

Reminiscing the past, airline-credit card tie-ups is an offshoot of co-branding programmes - in which a card issuer and a merchant join forces to produce a 'special edition' card - which first emerged in the mid-1980s. One of the first participants was American Airlines, which partnered with Citibank Visa to grant customers one free frequent-flyer mile for every dollar charged on the American Airlines Citibank Visa card. But it wasn't until credit card wars intensified in the early 1990s that 'co-branding took off', according to an international observer.

Subsequently, with the increase in airline offering from India, airlines, hotels, car rental, phone and credit card companies are all budding up with one another to offer member rewards. One may have accumulated more points than you think when you merge partner points. And partners at least can make it easy to earn more points with a minimum of effort and expense.

Explains Santanu Mukherjee, country manager, South Asia, Visa International, "As consumers move away from plain vanilla cards and demand more sophisticated payment options, co-branded cards are an extremely important product offering. Co-branded cards not only provide consumers with several benefits but are also an ideal way for companies to build customer loyalty and strengthen awareness of their brand. Such cards are tailor-made to suit a particular consumer base and cardholders typically benefit by accumulating points for discounts with every charge. Airlines pioneered the co-branded concept more than 12 years ago, awarding tickets, upgrades, and discounts based on frequent flier miles earned for charging tickets to the airline's co-branded credit card. There are many such cards issued by banks in India, with co-brand partners ranging from department stores, airlines, petrol companies and retailers. "

Today, airline-credit card company tie-ups have brought a whole range of benefits to the traveller. These span from insurance cover, upgrades, free tickets to not only the card holder but to his/her companion, kids; access to executive lounges and a host of other goodies. No wonder then that more and more business travellers are availing of this facility. Apart from the rosy scenario that one has of the airline-credit card tie-ups, there are certain areas of concern such as:

• Fliers are under pressure from their employers to shop around for the lowest fare, regardless of carrier, making it more difficult to collect miles on a single airline.
  • Airlines are slowly eroding the value of miles by raising award levels or making it more difficult to find flights to use miles.
• Low-fare carriers offer deep discounts on routes that make it easier and cheaper to just pay the fare rather than shell out miles for a trip.

However, the attractive bouquet of benefits offered will certainly see a sizeable growth in the loyalty programmes segment in the next few years.

Conclusion

In conclusion one could say that even with the positive growth in business travel, companies are following the cost cutting norm. As per an American Express Business Travel Survey, while there will be more trips, travellers plan to spend company funds wisely. Business travellers of every stripe, whether they are senior executives or rank-and-file employees, are under increasing pressure from CFOs and shareholders to save money. Nearly 60 per cent of frequent business travelers around the globe say that in the coming year they'll book more economy-class air tickets than at present, while over 35 per cent will not. About five per cent are undecided, reveals our recent survey.