Rationalising Travel Costs

With a busy economy like India's, budget for the corporate traveller is undergoing a sea change and companies are not looking at curtailing travel quantum as an option to cut costs. Radhika Mathur Bhasin analyses the avenues that companies are exploring to optimise travel spends

If the future of an important deal depends on whether your company's travel budget allows you to travel to your overseas client to clinch that deal, then this might give you a few pointers on how to avoid such a situation altogether.

According to Khalid Sohail who has spent over 15 years in the travel industry and is presently head of Travel Services at A & H of Tata AIG General Insurance Company Limited, corporate travel in India is overshooting itself year by year; it has grown by over 15 to 18 per cent in the last one year itself.

But whilst travel is fighting to reach the top on the corporate agenda, companies are trying hard to keep costs in check. Travel management has, therefore, become an integral part of business since it is among the most controllable expense. This approach has also been fuelled by the fact that travel prices have come down considerably in the last few years.

Leveraging Technology

Companies are adopting newer technologies even though they might be an expensive investment because they perceive long term benefits from this. This head can also curb the necessity to travel altogether, according to one school of thought.

Computer-based communication technologies or Electronic Communi-cation Systems (ECS) includes electronic mail, computer and video conferencing which enable multimedia document exchange and storage, and exchange of information across organisations making travel unnecessary. Other technologies under ECS include Web phone systems, Web chats, and Web conferencing.

The impact of ECS on human resource practices is significant and can lead to radical changes in the workplace. It can make bottom lines shrink; large multinational corporations are setting up videoconferencing rooms using it as a low cost substitute for air travel. However, interactions at a personal level which demands travel in large volumes is still considered key to the success of any business transaction. Yogesh Bahadur, CFO of Moeser Baer - a global manufacturer of optical media, says, "Technology will continue to reduce the distance between our country and the world in terms of time, flexibility, costs and alternative for all areas relating to travel."

According to a vice president (Finance) of a certain BPO company, teleconferencing is an effective means of communication for conducting training programmes and also helps bring down travel costs by almost eight to ten per cent. "Sending our entire team to meet a customer would impact performance. But with teleconferencing we can keep people off the floor for an hour through a communication channel that will help us manage daily issues with our consumers."

In India however, the trend of using technological tools remains a highly expensive proposition and what can be achieved by meeting people cannot be achieved through an electronic mode, a conference call cannot replace a sales call. But to many such tools is not a means to substitute travel; it is like the conventional handshake that still matters.

Rise Of Travel Managers

Companies with huge travel spends are becoming more organised and since cutting travel itself is no longer an option, they are looking at hiring travel managers as the best permanent solution.

These travel managers liaison with tour operators and agents to rationalise travel and hotel costs. They often look at, and stick to, one-stop shops to achieve economies of scale and strengthen their buying power. Professional travel management through such travel managers are without doubt the best way to negotiate price structures - be it transport or accommodation.

Their understanding of the nuances of the complex pricing structures also helps companies evolve a more stricter travel policy that is audited on a regular basis. For instance, travel managers disallow managers and below to choose their own airline. Parijat Banerjee, Travel Lead India of Bangalore-based Accenture says, "The travel desk sets a benchmark and decides the travel mode of the executive. The individual can upgrade only on the approval of the management. Our policy clearly states that the executive has to travel in the airline that is decided by the travel desk."

The employees are also motivated to manage independent travel budgets. According to Rajan Verma, CFO of Dabur India Limited, "We have taken several steps to monitor travel expenses. Apart from the use of videoconferencing facilities, we have also been able to educate our department heads to manage their own travel costs. As more and more professional managers are appointed in organisations at various levels, a new mindset is being created to maximise benefits within the stipulated budgets. It is a far more responsible approach and departmental heads are consistently under pressure to prove themselves as good managers and this is one of the ways they can do it."

Towards A Fee-Based Structure

"More corporates are going for negotiated fares with hotels and airlines today. We not only submit market reports and data analysis on a regular basis but also extend our services to invite hotels to negotiate" - Praveen Gandhi CEO, Carlson Wagonlit Travel

The modus operandi of negotiating with travel agencies is fast moving from a discount based negotiation to a management fee based system. Higher the credit, higher the management fee which could range from a per cent for credit periods of five days and go up to four per cent for 35 to 40 days. Use of this model with sophisticated technologies like the GDS systems have also contributed to bringing about complete transparency between the corporate and the travel management company.

According to Praveen Gandhi, CEO of Carlson Wagonlit, a business travel management company (TMC), "More corporates are going for negotiated fares with hotels and airlines today. We not only submit market reports and data analysis on a regular basis but also extend our services to invite hotels to negotiate. Our portfolio includes making hotel management programmes, day to day bookings as well as comparing the rates that they are getting in the respective categories along with the average room rates in various categories in those cities."

With India's corporate travel market estimated at around US $3 billion envisaging growth of about 12 per cent, the entire industry moving towards a fee-based structure is perhaps inevitable. Khalid Sohail, head (Travel Services) at A&H Tata AIG General Insurance Company Limited, who has spent more than 15 years in the industry says, "Corporates a few years ago were not so conscious of their consolidation capacities and travel spends. But today they are demanding Market Information System (MIS) reports for their travel spends for international as well as domestic metro and non-metro locations. They are also negotiating PLBS (Productivity Linked Bonus Slab) schemes for larger discounts with airlines."

This new consciousness has also led companies to move from fragmented travel companies to professional travel management companies, as a recent study by Carlson reveals. Gandhi says, "Corporate travel business in the domestic market has grown almost 30 per cent in the last year alone. In 2002, 18 per cent of the total corporate travel business was coming to TMCs which shot up to 21 per cent the following year and further to 24 per cent in 2004. This trend clearly shows consolidation of the market."

"We keep our clients informed and updated about the trends and schemes in the industry. At our end we are automating our work processes whereby bills for every transaction can be printed at the customer's site avoiding any ambiguity or delay" - Anil Bhandari MD, International Travel House

Anil Bhandari, managing director of International Travel House, another big TMC says, "We keep our clients informed and updated about the trends and schemes in the industry. At our end we are automating our work processes whereby bills for every transaction can be printed at the customer's site avoiding any ambiguity or delay. Strategies today are based on optimisation whilst looking for comfort, convenience and speed."

Low Cost Flying

The Open Sky Policy of the government has led to an explosive growth in the domestic aviation industry leading to tremendous pressure on travel agents and airlines to deliver value propositions to its cost-conscious clientele. As more airlines begin to fly Indian skies, low cost or no-frills carriers are being evaluated for travel on certain sectors along with full fare airlines.

Companies are still speculating and exploring the possibilities of using these airlines for mid and lower level staff. According to a senior manager in a leading travel agency, "Low-cost carriers seldom adhere to schedules. There is a lack of adequate ground support due to which they are unable to handle crisis like the recent fog situation in Delhi. Penalties for cancellation of tickets are heavy and the schedules are subject to frequent last minute changes."

For companies like Bangalore-based Accenture, ticket spend alone exceeds US $10 to 12 million a year. Gandhi adds, "Only about 10 per cent of our total corporate clients have evolved a policy to fly low-cost carriers. On the face of it, the discounted rates offered by them appear attractive but with companies using negotiated fares, discounts, check fares and multicoupon tickets, the difference is marginal."

Many regular fare carriers have come up with check fares which makes airfares at par with the low cost carriers while still offering the facilities of a full service carrier - they can easily bring down costs by almost 25 to 30 per cent.

According to Navneet Sahni, branch manager of Travel Corporation of India, "The mid-sized company which could be an owner-driven one is extremely sensitive to travel costs and any money saved is effectively used in advertising. There is an increasing demand for check fares from Indian Airlines, Jet, Kingfisher and Sahara and only when they are unavailable do they opt for Air Deccan and Spice Jet. The trend is that corporates are taking more time to plan their programme in order to reduce their travel costs.

Many are also getting more organised in terms of their travel schedules to benefit from volume discounted fares with airlines and hotels. According to the previously mentioned BPO vice president, "There is a lot of pressure to optimise cost and companies are taking the help of TMCs to do extensive negotiations on their behalf. If planned well in advance, one can take advantage of all the deals available in the market."

Cost-Effective Room Options

In companies where recruitment is done in large numbers - like certain IT companies - travel costs are the second largest after salaries. Not only is their need to travel very high but as part of their recruitment policy which varies from company to company, they are also required to put up applicants. Gandhi says, "Most IT companies want service apartments or guest houses. One of our clients spent over Rs 30 crore last year only on guest houses."

The biggest challenge today is the room night challenge. Banerjee says, "The accommodation problem is likely to get worse in the next two years. To counter this, we experimented with guest houses in Bangalore and were fairly successful. We now plan to extend it to other cities like Pune where there are just a handful of decent hotels. We are also suggesting our travel management company to evolve a total guest house solution."

As long term solutions, some bigger companies are also looking at owning their own accommodation. Tired of the ridiculous tariffs being charged by the hospitality industry combined with non-availability of rooms even at these high rates, Infosys, and recently Reliance, has decided to enter the hospitality industry. This of course is strictly for internal consumption and not for commercial purposes.

According to a senior travel manager with another Bangalore-based IT company that has a total strength of 8,600 employees with another 1,400 in the waiting, "There has been almost 30 to 35 per cent growth in corporate travel in India and a phenomenal 60 to 70 per cent growth in corporate travel in Bangalore alone." Talking about the prevalent hotel room crisis, he said, "During peak season, hotel rooms even in Bombay and Delhi are unavailable. We thus book service apartments in Bangalore and Hyderabad for our new employees which works out to be not more than 10 per cent of what we would have to spend on hotels."

Fringe Benefit Tax

The imposition of Fringe Benefit Tax (FBT) had sparked off a huge debate in the corporate and tax circles. The FBT has however not reduced but rationalised corporate travel. Verma says, "Business requires travel and taxes will not determine the quantum of travel required."

Gandhi agrees and adds, "Travel budgets are not based on FBT but on the business volumes and objectives. Corporates are not conscious of cost cutting per say but are becoming extremely conscious of cost optimisation. The concept of evaluating returns on any expenditure incurred is increasingly becoming part of organisational culture. FBT is certainly very discouraging and whether it will lead to reduction in travel budgets is yet to be seen. But it will no doubt make companies more conscious of their travel spends."

According to an HR consultant of a leading investment bank, "We do not envisage any radical changes in travel policy and will continue to bear the cost implications if any. However, we do intend to discourage executive class for domestic travel reserving it only for international travel for certain senior level executives."

Travel is a pre-requisite of business and any additional tax will not impact travel frequency but get accommodated in the company's expense budget. In any case, company's today believe that more travel will generate more business and the key is not to cut costs but to rationalise them.