5 Changes to Watch for in Corporate Travel Programs
Whether or not you believe the pandemic will forever change our corporate travel programs, there are some key aspects that are changing now that will have a significant impact on how Travel Managers and corporate travel business owners manage their programs. Here are KesselRun’s top 5 changes to watch in corporate travel programs.
Top 5 Changes to Watch
1. Corporate Negotiated Rates for Hotels
This is just about the right time of year when most corporate travel programs review internal hotel stay data and start to think about negotiating for next year’s hotel rates. If you’ve been through the process before you know its arduous at best. Hotels across the globe receive hundreds of thousands of rate requests with a goal of finalizing negotiations and loading rates by the end of the year so that the correct discount will appear in the GDS starting January 1. This year may be different and could have a significant impact on this spend category both for organizations looking to negotiate the best deal and for hotels.
Hoteliers are extremely short staffed due to layoffs and furloughs as a result of pandemic. Corporates are also short staffed for the same reason but are also not traveling as much right now. The result is that corporate hotel stay volume is skewed, there is no real way to determine how much that volume will increase come the first of the year, and hotels don’t have the man-power or desire to negotiate rates at the high volume seen historically. At the same time, the idea of leveraging “dynamic rates” as opposed to our “static rates” has gained a lot of traction in the marketplace. Here, a hotel will simply offer a client a percent off its published rate. Adding to the current industry fervor to replace many of our static rates with dynamic pricing is a call from industry leaders for businesses to either try to extend their current rates into next year or to bypass the traditional hotel RFP exercise altogether.
The benefit to the hotel and client with any combination of the above lies in its simplicity. Certainly, some industry experts including hoteliers are pushing dynamic rates and some even cite the cost/benefit in both time and results. At KesselRun, we see benefit in both but as with most things, the devil is in the details and there is no such thing as a one-size-fits-all hotel program.
Our advice: Start looking at your hotel program now. Preferred hotel negotiations can yield significant savings for your organization. Make sure you develop a strategy to optimize your program for 2021.
2. Changing Business Practices for Travel Management Companies
Most Travel Management Companies (TMC’s) generate revenue from a combination of client transaction fees, airline overrides and commissions, hotel commissions, and GDS segment fees. All of these revenue sources are variable, relying solely on client transactional volume. Any time there is a significant downturn in travel, TMC’s are hurt financially. The pandemic is no exception and the financial losses to TMC’s this time will result in irreparable damage to many. We are already starting to see some industry consolidation and will soon start seeing some simply go out of business.
Many TMC’s moved to a fixed management fee model after the events of 9/11 and many are testing this model again now. Here, the TMC charges a management fee to its clients which comprises all overhead related charges and profits – time and material, human resources, use of technology, et cetera. Next, the TMC credits the client with any revenues derived from the client’s booking transactions including the above-mentioned sources.
While this model may not sound so great to corporate clients on its face, it can be cost effective in a normal travel environment. If you’re a well-managed program with an understanding of the revenue your transactions can bring to your TMC partner across all revenue categories, your total cost of TMC ownership could be net zero or even realize an actual return (the TMC may write you a check). The downside to the model; however, is that many clients don’t really have the ability or the desire to maximize TMC revenues in an effort to offset costs. This potential problem is countered by the fact that many TMC’s are not adequately set up to report on the revenues produced by your specific account so the invoices you receive are difficult to audit.
Our advice: Before entering into a management fee model make sure you fully understand the cost/benefit to your program.
3. Creative Preferred Airline Discounts and Incentives
Even prior to the pandemic, the airline industry has sought better and smarter ways to engage its corporate clients. The traditional global distribution systems (GDS) have both limited the way airline suppliers can position their product and is costly in terms of the distribution fees it pays to the GDS and incentives it pays to its TMC partners. New Distribution Capability (NDC) successfully helped the mainline carriers “dis-intermediate” at least some of their capacity from the GDS, enabling the airline to distribute more and better content to clients. At the same time, suppliers seek website direct bookings to mitigate distribution costs and gain brand loyalty from its customers. In exchange for these direct bookings, airlines are willing in some cases to directly incentivize its clients through back end discounts and other forms of remuneration. Technology such as SAP Concur’s TripLink and our partner technology called CapTrav are both taking advantage of this supplier direct booking benefit.
Certainly, the pandemic has only enhanced all of the above corporate opportunities.
Our advice: Think creatively about your corporate travel program. Industry change has been coming for years and while the pandemic has caused us all to hit the pause button, the opportunity to think creatively about your program and airline relationships will outlive COVID-19.
4. Corporate Travel Policy
We are seeing and recommending significant re-writes of corporate travel policy primarily due to the pandemic. Much of the change to policy is reflective of new thinking around safety. Policy items dealing with meals and per diems may change in some organizations as we see hotel food buffets disappear. In some cases, clients are requiring their preferred hotel properties adhere to strict and contractually obligated cleaning schedules. Policies are getting stricter in terms of TMC compliance – now more than ever the ability to track and help travelers in the event of an emergency not only benefits the traveler but is a corporate imperative from a risk management and duty of care perspective.
Our advice: We always recommend reviewing corporate travel policy yearly. Whether you’ve done so recently or not, now is a good time to review with some of corporate travel’s “new realities” in mind.
5. Risk Management
This is the most talked about issue in corporate travel today. The ability to track and help your travelers in the event of an emergency is both a fiduciary and legal obligation a company has to its travelers. To a large extent and based on what we have seen with some travelers being stranded as a result of travel restrictions, it also represents an ethical and moral obligation. The biggest challenge facing corporate travel programs as it relates to traveler tracking is program leakage. When your travelers book outside of the approved TMC, often times you are not able to track their whereabouts and as a result cannot provide the duty of care owed.
Today, there are technologies that can help solve this problem. Unless your program is prepared to issue strict compliance mandates, your company can face significant legal exposure by not utilizing industry technology to enhance your risk management programs.
Our advice: Technologies like CapTrav are relatively inexpensive and provide many additional services that carry a direct return on investment for your entire corporate travel program. Unless you are willing to strictly mandate TMC usage, explore these new technology options now.
Over my career in the corporate travel business there has never been a more compelling rationale for organizations to lean on their internal subject matter experts, suppliers, and third party consultants for help navigating through industry and program change. The benefits and risks associated with staying the course are both too great to ignore.
Learn more about KesselRun corporate travel consulting services and how we can help your organization.