Despite rising prices, companies are not cutting back on travel. But they are increasingly turning to purchasing to come up with ways to better manage the higher costs. Buyers, in turn, are asking travelers now to:
- Follow company travel policy and use preferred suppliers.
- Preplan trips, or plan trips further out, to take advantage of advance (purchase discounts available through the airlines) and to get a room in a preferred hotel, where availability may also be an issue.
- Use unused airline tickets.
- Turn two-day trips into one-day trips.
- Stay in an upscale hotel rather than an upper upscale hotel.
- For an overnight trip, stay in a limited-service rather than full-service hotel.
- Think about making the trip by car instead of plane.
- Limit the number of people going to meetings.
In the short term, reducing travel costs -without eliminating travel completely- can be a challenge for buyers because they have negotiated agreements with suppliers -the airlines and the hotels- already in place. Longer term, there is more opportunity for buyers to manage the impact of price increases by tightening travel policy and putting in place sound demand management practices.
“The theme for the rest of the year is demand management,” says DeAnne Dale, vice president for strategic account management and consulting services for Travelocity Business in Dallas. “That is, companies will be asking themselves such questions as: 'Do we need to have so many incentives meetings?' 'Are they motivating our sales staff?' They will look at decreasing travel without impacting their business. It's a hard balance because they need to grow the business and they need to control costs.”
Here, the experts —travel management companies and travel buyers— look at what is happening in two big markets now seeing significant increases in prices —the airlines and the hotels— and how to prepare for the next round of negotiations with the suppliers that will help keep costs in check in 2009.
THE AIRLINES
What's happening: With the economy softening, buyers would normally expect demand for air travel services to soften. And, with extra capacity in the marketplace, buyers would think that airfares would soften as well. Initially, they did see signs of this last fall.
In fact, when Advito, the BCD Travel company that provides travel management consulting services, put together its forecast for 2008, it predicted that airfares would increase just 2-5%.
“Obviously, a lot has happened since then to throw that forecast out the window,” says Bob Brindley, vice president at Advito in Dallas. The company has since adjusted its forecast to an 8-10% increase.
Escalating oil prices —beyond what anyone in the airline business was forecasting— is the reason for the new outlook, he says. Recent figures from the International Air Transport Association, for example, show the global average price paid at the refinery for aviation jet fuel almost doubling in a year, growing 97.9% from May 2007 to May 2008. From April 2008 to May 2008, the price rose 16.9%.
Increases like these, Brindley says, have led to the airlines adding fuel surcharges and other fees. The carriers are trying to raise revenue to offset the higher fuel costs by increasing average ticket prices and charging for ancillary services such as checking baggage and premium seating. To further lessen the fuel cost impact, the airlines also are starting to reduce capacity: Witness announcements by United Airlines, AMR (the parent company of American Airlines), Continental and other domestic carriers to cut flight schedules and retire aircraft.
Before, when these mainline carriers pulled down capacity, low-cost carriers would pick it up, helping to keep airfares competitive. In this environment of high fuel prices, and with the credit crunch in the financial sector, travel industry experts say that it's unlikely this will occur. Low-cost carriers are having a hard time getting capital to fund their operations, never mind growth activity. “It's giving mainline carriers a window of opportunity to continue to raise rates,” says Brindley.
Complicating matters for carriers in the U.S. is the weakening dollar vs. some other key currencies. Result: U.S. carriers are feeling the impact of higher oil prices more so than their European counterparts.
“Oil pricing is definitely impacting airline profitability,” says Herve´ Sedky, vice president and general manager, global advisory services at American Express Business Travel in New York. “Fuel prices are up year over year, whereas the airlines have increased their fares 5-9% in the first quarter.”
Sedky explains that because of competitive pressures, the airlines are not able to increase pricing further. And, with the pending merger of Northwest and Delta, fewer low-cost carriers in the market and the EU Open Skies agreement, “it is not going to be easy to predict what will happen in the last six months of the year. But, fares will continue to increase predominantly driven by fuel costs.”
In the first quarter, airline loads were extremely strong and, as much as the airlines had pricing power in terms of managing their yield, buyers still saw seven fare increases, according to Dale Eastlund, director, CWT Air Solutions, North America in Minneapolis.
Looking ahead, he expects the carriers to continue to manage domestic capacity very closely and to still go ahead with previously announced international routes. “As fuel prices have increased, airlines have reduced capacity in the U.S., but they continue to grow capacity internationally where demand is strong, especially for the business-class cabin,” he says.
It is too early, however, to make forecasts for 2009. “We are not seeing much of a pullback in demand in the U.S., certainly not enough to dampen price increases the carriers are trying to put through,” says Brindley at Advito.
“The market is so fluid that you can make the case that the price of oil could be $150 barrel or it could drop back to $80 barrel,” he explains. “That's such a huge swing, and it's such a big component of the airlines' costs, that it really is the wild card right now. There are some forecasts further out that show oil rising to $250 barrel. If that happens, it will obviously have a significant impact on the airline industry and how companies travel.”
What buyers can do: Managing costs in the short term can be a challenge. “There is not a lot you can do as prices rise, if you are locked into agreements you've already negotiated with the airlines,” Brindley says. “You have to look at opportunities to cut back on the amount of travel. We are seeing some travel buyers start to do this, but it's not happening across the board by any means.”
As far as the number of airline transactions goes, travel for the first few months of the year is remaining flat with 2007, says Dale at Travelocity Business. “However, the way in which companies are traveling has changed significantly and there is a strong focus now on aggressively managing travel policies and adjusting them.” One change: More travelers are renting cars and driving to destinations, which shows up as an increase in car rental and hotel bookings in the first quarter, she says. Another is reducing the lowest available fare threshold from $200 to $100.
Longer term, travel buyers can re-evaluate and re-negotiate agreements with the airlines. Those who negotiate guaranteed fares will be in a more favorable situation. That said, because prices are going up so much, the airlines are trying to rein in guaranteed fares as part of their deals.
Brindley says travel buyers may find new negotiations with airlines tough. “While the market is still very competitive, the hard and fast realities of the airlines' cost structure and the high price of fuel is tempering their enthusiasm to go out and try to grab market share.”
A tighter travel policy that uses an approval process to help cut down on the amount of travel the company is doing is another way to better manage costs. Key is executive support behind the policy. “Without it, it can hurt short term and longer term as buyers meet with suppliers to negotiate new agreements,” says Sedky at American Express Business Travel. “Suppliers want to see that you can get travelers to do what they need to do.”
Eastlund at CWT agrees. “The primary piece you need in negotiations is your marketing message or what it is that makes your travel program unique. You need to show suppliers what you've done in your program historically to manage it and what makes you a good partner in terms of what you are looking for in discounts and pricing.”
Another way to better manage costs long term is to outsource the process. Sedky reports that some buyers already are taking this route in the U.S. and Europe.
One company that is outsourcing much of the process to acquire travel is United Technologies Corp. in Hartford, Conn. UTC is spending more on travel this year, but the increase is mainly due to, and in line with, growth in the company's businesses. The growth has employees traveling more from the U.S. to locations in such emerging markets as India, China and Eastern Europe, where prices tend to be higher.
To help mitigate increases, supply management at UTC looks at the total cost of travel, taking into account fees for ancillary services like charges for baggage by the airlines and Internet use by the hotels which can make up 10% of a company's spend. “We try to negotiate these into the contract or for significantly reduced rates,” says Scott Gaskill, UTC director, global general procurement services. Company travel policy, he explains, also encourages travelers to use calling cards instead of mobile phones when traveling internationally. Mobile phone use can cost up to 10 times as much in some locations, he says.
UTC uses the travel itinerary as communication tool with the company's businesses and travelers. “It shows exactly which amenities are associated with the deal we negotiated with each hotel or airline and, if applicable, may include calling card numbers,” Gaskill says.
HOTELS
What's happening: A good way to describe the markets for the airlines and hotels is “like night and day”. While the airlines recently have had too much capacity, the hotels have not had enough. And, as travel buyers who negotiate agreements with the suppliers know, it's been a seller's market for the past few years and will probably continue to be so, at least in certain locations. In general, travel buyers negotiate with the hotels in the fall for the coming year.
In 2008, hotel room rates globally have risen 4%-22% year over year, a big range to be sure; the increases vary by geography and type of hotel. For example, in the BCD Travel 2008 Industry Forecast, the travel management company reports hotel room rates rising 6%-9% on average this year. The American Express annual Global Business Travel Forecast put rates 4%-7% higher for mid-range hotels in North America and 18%-22% for an upper-range property in the Asia-Pacific region. For the first quarter of 2008, the company reports that domestic hotel room rates are up 5% year over year, while international rates have risen 10% in the same period.
“We see a very strong and healthy hotel business fueled mostly by supply,” says Sedky at American Express Business Travel. “Supply has been insufficient in many markets around the world, in obvious cities like New York and London, but also other cities in Europe and in Asia.”
On the demand side, the corporate sector is tending to be flat year over year because companies are reviewing the buy and looking for ways to reduce costs. But the weak dollar is helping to bring people to the U.S., raising occupancy levels. (It is also responsible for U.S. companies having to pay more for hotel room rates in some overseas locations.)
The good news is that the market may be starting to shift—in a few locations. Hotels are building new properties, and it is expected that some of this capacity will start to come online in 2009. Figures from Smith Travel Research in Hendersonville, Tenn. show demand for hotel rooms outpacing supply from 2003 to 2006. More recently, that has started to change, with demand expected to rise 1.4% this year while supply will increase 2.2%. And, while it may not be enough to move the pendulum all the way back to the buyers, they may start to see fewer single- and double-digit percentage increases in hotel room rates next year.
Already some buyers may be seeing some changes, says Dale at Travelocity Business. Some hotels, noticing a decline in their meetings business, are approaching buyers with offers of lower rates in some higher-priced cities like New York, Chicago and San Francisco. “It's unexpected because we didn't think it would happen, and that rates would not be very negotiable until 2010,” she says, adding that buyers should also watch for more favorable pricing from some upper-tier hotels as demand shifts to more of the mid-tier properties.
Still, there may be some roadblocks. “For travel buyers, we were anticipating more of a favorable negotiating environment as compared to 2007 and 2008,” says Brindley at Advito. “Driving this forecast was new capacity coming into the market as well as softening demand related to the U.S. economy. But there are trends unfavorable to the buyer that are offsetting some of these positives.” Among these are increased supplier costs related to higher energy prices and investment in new capacity and/or property enhancements.
Where the hotel and air markets are similar is that it's too early to forecast hotel room rates for 2009, says Neysa Silver, director, Hotel Solutions, CWT Solutions Group —Americas at Carlson Wagonlit Travel in Minneapolis.
“We are sitting on an economic seesaw and the elections are going to play a role in the economy,” she says. “But the message is that it's market specific. Suppliers are hopeful they will be able to raise rates, perhaps not as dramatically as for 2008 programs, but definitely in such markets as Boston, New York and San Francisco.” Silver also expects negotiations to be tough for buyers for locations in Moscow, Singapore and some cities in China.
What buyers can do: Still, expectations are that negotiations for 2009 hotel programs should be better for buyers than in the past few years. Buyers are analyzing travel patterns to see how current programs are working. “They can look at consolidating more of their hotel stays in certain markets at fewer properties to try to negotiate more favorable rates,” says Brindley. “They also can try to control the size of travel demand, taking a look at what travel is really required.”
When putting together a hotel program for 2009, Silver at CWT reminds buyers to negotiate the cost of the stay, rather than simply the room rate. These costs include such amenities as breakfast, Internet use and parking, as well as reduction in black-out dates (when the negotiated rate is not available) and cancellation policy (make sure it's same-day).
“Still, the best tip, and where buyers need to start, is a strong travel policy and executive management support,” she says. “Encouraging travelers to use preferred suppliers will help with both airfare and hotel room rates. In RFPs (requests for proposals), suppliers want to see the level of support of your organization to drive compliance.” By using preferred suppliers consistently, companies can reduce costs by 5%-14% per room night, depending on hotel category, according to new research Playing by the Rules: Optimizing Travel Policy and Compliance by the CWT Travel Management Institute.
At Hewlett-Packard Co. in Palo Alto, Calif., Lea McLeod, director of travel and meeting services, is seeing a decrease in the number of trips travelers are booking in the first half of the company's fiscal year compared to the same period last year. “At HP, we are always conscious about being as efficient and economical as possible around any costs, including travel,” she says. “I think the price impact makes people think twice about traveling.”
That said, McLeod points out that her team has managed to beat the market in terms of price increases occurring in both the airline and hotel industries. She credits sourcing strategies that led procurement to supplier selection decisions that reduced the number of upper-tier hotel properties available to travelers and implementation of a hotel room rate cap within the company's automated booking tool. The cap raises awareness that there's a certain price point travelers should not be paying in certain markets based on procurement's knowledge of the market. The tool also points out alternatives to travel.
Going into negotiations with suppliers, McLeod says her team will be heavily armed with data that will help them make good decisions. “We will demonstrate to suppliers where we have delivered on commitments and why they should continue to provide us with the programs that they do and to improve upon them,” she says.
And there are things buyers can do without having to renegotiate their whole program, she says. They can pinpoint opportunities within their scope to take demand away from places where they don't want people to go, redirect travelers, leverage policy and support the contracts they do have in place.
“What really speaks to suppliers,” she says, “is if you do what you say you are going to do. Plus, that's really what makes procurement work. If you negotiate a program and everyone goes off and does their own thing, there's no reason for a supplier to sit at the table with you again.”
By Susan Avery -- Purchasing, 7/17/2008
- Follow company travel policy and use preferred suppliers.
- Preplan trips, or plan trips further out, to take advantage of advance (purchase discounts available through the airlines) and to get a room in a preferred hotel, where availability may also be an issue.
- Use unused airline tickets.
- Turn two-day trips into one-day trips.
- Stay in an upscale hotel rather than an upper upscale hotel.
- For an overnight trip, stay in a limited-service rather than full-service hotel.
- Think about making the trip by car instead of plane.
- Limit the number of people going to meetings.
In the short term, reducing travel costs -without eliminating travel completely- can be a challenge for buyers because they have negotiated agreements with suppliers -the airlines and the hotels- already in place. Longer term, there is more opportunity for buyers to manage the impact of price increases by tightening travel policy and putting in place sound demand management practices.
“The theme for the rest of the year is demand management,” says DeAnne Dale, vice president for strategic account management and consulting services for Travelocity Business in Dallas. “That is, companies will be asking themselves such questions as: 'Do we need to have so many incentives meetings?' 'Are they motivating our sales staff?' They will look at decreasing travel without impacting their business. It's a hard balance because they need to grow the business and they need to control costs.”
Here, the experts —travel management companies and travel buyers— look at what is happening in two big markets now seeing significant increases in prices —the airlines and the hotels— and how to prepare for the next round of negotiations with the suppliers that will help keep costs in check in 2009.
THE AIRLINES
What's happening: With the economy softening, buyers would normally expect demand for air travel services to soften. And, with extra capacity in the marketplace, buyers would think that airfares would soften as well. Initially, they did see signs of this last fall.
In fact, when Advito, the BCD Travel company that provides travel management consulting services, put together its forecast for 2008, it predicted that airfares would increase just 2-5%.
“Obviously, a lot has happened since then to throw that forecast out the window,” says Bob Brindley, vice president at Advito in Dallas. The company has since adjusted its forecast to an 8-10% increase.
Escalating oil prices —beyond what anyone in the airline business was forecasting— is the reason for the new outlook, he says. Recent figures from the International Air Transport Association, for example, show the global average price paid at the refinery for aviation jet fuel almost doubling in a year, growing 97.9% from May 2007 to May 2008. From April 2008 to May 2008, the price rose 16.9%.
Increases like these, Brindley says, have led to the airlines adding fuel surcharges and other fees. The carriers are trying to raise revenue to offset the higher fuel costs by increasing average ticket prices and charging for ancillary services such as checking baggage and premium seating. To further lessen the fuel cost impact, the airlines also are starting to reduce capacity: Witness announcements by United Airlines, AMR (the parent company of American Airlines), Continental and other domestic carriers to cut flight schedules and retire aircraft.
Before, when these mainline carriers pulled down capacity, low-cost carriers would pick it up, helping to keep airfares competitive. In this environment of high fuel prices, and with the credit crunch in the financial sector, travel industry experts say that it's unlikely this will occur. Low-cost carriers are having a hard time getting capital to fund their operations, never mind growth activity. “It's giving mainline carriers a window of opportunity to continue to raise rates,” says Brindley.
Complicating matters for carriers in the U.S. is the weakening dollar vs. some other key currencies. Result: U.S. carriers are feeling the impact of higher oil prices more so than their European counterparts.
“Oil pricing is definitely impacting airline profitability,” says Herve´ Sedky, vice president and general manager, global advisory services at American Express Business Travel in New York. “Fuel prices are up year over year, whereas the airlines have increased their fares 5-9% in the first quarter.”
Sedky explains that because of competitive pressures, the airlines are not able to increase pricing further. And, with the pending merger of Northwest and Delta, fewer low-cost carriers in the market and the EU Open Skies agreement, “it is not going to be easy to predict what will happen in the last six months of the year. But, fares will continue to increase predominantly driven by fuel costs.”
In the first quarter, airline loads were extremely strong and, as much as the airlines had pricing power in terms of managing their yield, buyers still saw seven fare increases, according to Dale Eastlund, director, CWT Air Solutions, North America in Minneapolis.
Looking ahead, he expects the carriers to continue to manage domestic capacity very closely and to still go ahead with previously announced international routes. “As fuel prices have increased, airlines have reduced capacity in the U.S., but they continue to grow capacity internationally where demand is strong, especially for the business-class cabin,” he says.
It is too early, however, to make forecasts for 2009. “We are not seeing much of a pullback in demand in the U.S., certainly not enough to dampen price increases the carriers are trying to put through,” says Brindley at Advito.
“The market is so fluid that you can make the case that the price of oil could be $150 barrel or it could drop back to $80 barrel,” he explains. “That's such a huge swing, and it's such a big component of the airlines' costs, that it really is the wild card right now. There are some forecasts further out that show oil rising to $250 barrel. If that happens, it will obviously have a significant impact on the airline industry and how companies travel.”
What buyers can do: Managing costs in the short term can be a challenge. “There is not a lot you can do as prices rise, if you are locked into agreements you've already negotiated with the airlines,” Brindley says. “You have to look at opportunities to cut back on the amount of travel. We are seeing some travel buyers start to do this, but it's not happening across the board by any means.”
As far as the number of airline transactions goes, travel for the first few months of the year is remaining flat with 2007, says Dale at Travelocity Business. “However, the way in which companies are traveling has changed significantly and there is a strong focus now on aggressively managing travel policies and adjusting them.” One change: More travelers are renting cars and driving to destinations, which shows up as an increase in car rental and hotel bookings in the first quarter, she says. Another is reducing the lowest available fare threshold from $200 to $100.
Longer term, travel buyers can re-evaluate and re-negotiate agreements with the airlines. Those who negotiate guaranteed fares will be in a more favorable situation. That said, because prices are going up so much, the airlines are trying to rein in guaranteed fares as part of their deals.
Brindley says travel buyers may find new negotiations with airlines tough. “While the market is still very competitive, the hard and fast realities of the airlines' cost structure and the high price of fuel is tempering their enthusiasm to go out and try to grab market share.”
A tighter travel policy that uses an approval process to help cut down on the amount of travel the company is doing is another way to better manage costs. Key is executive support behind the policy. “Without it, it can hurt short term and longer term as buyers meet with suppliers to negotiate new agreements,” says Sedky at American Express Business Travel. “Suppliers want to see that you can get travelers to do what they need to do.”
Eastlund at CWT agrees. “The primary piece you need in negotiations is your marketing message or what it is that makes your travel program unique. You need to show suppliers what you've done in your program historically to manage it and what makes you a good partner in terms of what you are looking for in discounts and pricing.”
Another way to better manage costs long term is to outsource the process. Sedky reports that some buyers already are taking this route in the U.S. and Europe.
One company that is outsourcing much of the process to acquire travel is United Technologies Corp. in Hartford, Conn. UTC is spending more on travel this year, but the increase is mainly due to, and in line with, growth in the company's businesses. The growth has employees traveling more from the U.S. to locations in such emerging markets as India, China and Eastern Europe, where prices tend to be higher.
To help mitigate increases, supply management at UTC looks at the total cost of travel, taking into account fees for ancillary services like charges for baggage by the airlines and Internet use by the hotels which can make up 10% of a company's spend. “We try to negotiate these into the contract or for significantly reduced rates,” says Scott Gaskill, UTC director, global general procurement services. Company travel policy, he explains, also encourages travelers to use calling cards instead of mobile phones when traveling internationally. Mobile phone use can cost up to 10 times as much in some locations, he says.
UTC uses the travel itinerary as communication tool with the company's businesses and travelers. “It shows exactly which amenities are associated with the deal we negotiated with each hotel or airline and, if applicable, may include calling card numbers,” Gaskill says.
HOTELS
What's happening: A good way to describe the markets for the airlines and hotels is “like night and day”. While the airlines recently have had too much capacity, the hotels have not had enough. And, as travel buyers who negotiate agreements with the suppliers know, it's been a seller's market for the past few years and will probably continue to be so, at least in certain locations. In general, travel buyers negotiate with the hotels in the fall for the coming year.
In 2008, hotel room rates globally have risen 4%-22% year over year, a big range to be sure; the increases vary by geography and type of hotel. For example, in the BCD Travel 2008 Industry Forecast, the travel management company reports hotel room rates rising 6%-9% on average this year. The American Express annual Global Business Travel Forecast put rates 4%-7% higher for mid-range hotels in North America and 18%-22% for an upper-range property in the Asia-Pacific region. For the first quarter of 2008, the company reports that domestic hotel room rates are up 5% year over year, while international rates have risen 10% in the same period.
“We see a very strong and healthy hotel business fueled mostly by supply,” says Sedky at American Express Business Travel. “Supply has been insufficient in many markets around the world, in obvious cities like New York and London, but also other cities in Europe and in Asia.”
On the demand side, the corporate sector is tending to be flat year over year because companies are reviewing the buy and looking for ways to reduce costs. But the weak dollar is helping to bring people to the U.S., raising occupancy levels. (It is also responsible for U.S. companies having to pay more for hotel room rates in some overseas locations.)
The good news is that the market may be starting to shift—in a few locations. Hotels are building new properties, and it is expected that some of this capacity will start to come online in 2009. Figures from Smith Travel Research in Hendersonville, Tenn. show demand for hotel rooms outpacing supply from 2003 to 2006. More recently, that has started to change, with demand expected to rise 1.4% this year while supply will increase 2.2%. And, while it may not be enough to move the pendulum all the way back to the buyers, they may start to see fewer single- and double-digit percentage increases in hotel room rates next year.
Already some buyers may be seeing some changes, says Dale at Travelocity Business. Some hotels, noticing a decline in their meetings business, are approaching buyers with offers of lower rates in some higher-priced cities like New York, Chicago and San Francisco. “It's unexpected because we didn't think it would happen, and that rates would not be very negotiable until 2010,” she says, adding that buyers should also watch for more favorable pricing from some upper-tier hotels as demand shifts to more of the mid-tier properties.
Still, there may be some roadblocks. “For travel buyers, we were anticipating more of a favorable negotiating environment as compared to 2007 and 2008,” says Brindley at Advito. “Driving this forecast was new capacity coming into the market as well as softening demand related to the U.S. economy. But there are trends unfavorable to the buyer that are offsetting some of these positives.” Among these are increased supplier costs related to higher energy prices and investment in new capacity and/or property enhancements.
Where the hotel and air markets are similar is that it's too early to forecast hotel room rates for 2009, says Neysa Silver, director, Hotel Solutions, CWT Solutions Group —Americas at Carlson Wagonlit Travel in Minneapolis.
“We are sitting on an economic seesaw and the elections are going to play a role in the economy,” she says. “But the message is that it's market specific. Suppliers are hopeful they will be able to raise rates, perhaps not as dramatically as for 2008 programs, but definitely in such markets as Boston, New York and San Francisco.” Silver also expects negotiations to be tough for buyers for locations in Moscow, Singapore and some cities in China.
What buyers can do: Still, expectations are that negotiations for 2009 hotel programs should be better for buyers than in the past few years. Buyers are analyzing travel patterns to see how current programs are working. “They can look at consolidating more of their hotel stays in certain markets at fewer properties to try to negotiate more favorable rates,” says Brindley. “They also can try to control the size of travel demand, taking a look at what travel is really required.”
When putting together a hotel program for 2009, Silver at CWT reminds buyers to negotiate the cost of the stay, rather than simply the room rate. These costs include such amenities as breakfast, Internet use and parking, as well as reduction in black-out dates (when the negotiated rate is not available) and cancellation policy (make sure it's same-day).
“Still, the best tip, and where buyers need to start, is a strong travel policy and executive management support,” she says. “Encouraging travelers to use preferred suppliers will help with both airfare and hotel room rates. In RFPs (requests for proposals), suppliers want to see the level of support of your organization to drive compliance.” By using preferred suppliers consistently, companies can reduce costs by 5%-14% per room night, depending on hotel category, according to new research Playing by the Rules: Optimizing Travel Policy and Compliance by the CWT Travel Management Institute.
At Hewlett-Packard Co. in Palo Alto, Calif., Lea McLeod, director of travel and meeting services, is seeing a decrease in the number of trips travelers are booking in the first half of the company's fiscal year compared to the same period last year. “At HP, we are always conscious about being as efficient and economical as possible around any costs, including travel,” she says. “I think the price impact makes people think twice about traveling.”
That said, McLeod points out that her team has managed to beat the market in terms of price increases occurring in both the airline and hotel industries. She credits sourcing strategies that led procurement to supplier selection decisions that reduced the number of upper-tier hotel properties available to travelers and implementation of a hotel room rate cap within the company's automated booking tool. The cap raises awareness that there's a certain price point travelers should not be paying in certain markets based on procurement's knowledge of the market. The tool also points out alternatives to travel.
Going into negotiations with suppliers, McLeod says her team will be heavily armed with data that will help them make good decisions. “We will demonstrate to suppliers where we have delivered on commitments and why they should continue to provide us with the programs that they do and to improve upon them,” she says.
And there are things buyers can do without having to renegotiate their whole program, she says. They can pinpoint opportunities within their scope to take demand away from places where they don't want people to go, redirect travelers, leverage policy and support the contracts they do have in place.
“What really speaks to suppliers,” she says, “is if you do what you say you are going to do. Plus, that's really what makes procurement work. If you negotiate a program and everyone goes off and does their own thing, there's no reason for a supplier to sit at the table with you again.”
By Susan Avery -- Purchasing, 7/17/2008
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