PhoCusWright s U.S. CORPORATE TRAVEL DISTRIBUTION Fourth Edition By Susan Steinbrink A comprehensive analysis and forecast of U.S. corporate travel market trends by sector, segment and channel, in the context of the corporate distribution chain.
PhoCusWright s U.S. Corporate Corporate Travel Travel Distribution Distribution Fourth Fourth Edition Edition July 2009 Introduction, Methodology and Key Findings Introduction With the U.S. economy mired in a deep recession, all segments of the travel industry are suffering greatly. But few segments have been hit as hard as corporate travel. Amid double-digit declines in traveler demand and revenue, the corporate travel landscape is undergoing a major realignment. Corporations are pulling back across the board, and everyone from airlines to hotels to travel management companies is under pressure. The dynamics of corporate travel distribution, however, continue to evolve rapidly. Online adoption is growing, expense integration is accelerating and technology innovation and adoption continue to reshape the business travel landscape. Understanding the changes at hand requires a holistic view of the issues and forces facing the total company, not just the insular perspective of the travel discipline. With procurement firmly at the helm, corporate travel is viewed as a critical and strategic spend category with C-level visibility. This means travel is inextricably linked to the success of the business. Management views it as an investment, not a cost center. Business travel is becoming merchandisable and each player s role must be viewed within the context of an effectively managed supply chain. This approach to corporate travel management is driving increased visibility into data across organizations; a redefinition of buyers, travelers and partners as stakeholders; the polarization of revenue-generating versus cost-controlling travel providers; and the emergences of an interdependence of processes, performance metrics, risk, distribution costs and customers that will sustain the business travel market through a tight economy over the next few years. The accelerating pace of technology innovation is redefining travel management and demand. Corporations, suppliers and travel agencies are employing new technologies that affect policies, booking tools and expense management engaging with and empowering travelers before, during and after travel. As new technologies and alternative channels (such as virtual meetings) force companies to evaluate if and under what conditions a trip should be taken, the definition of business travel itself is changing. These new dynamics are creating a corporate travel environment that feels unfamiliar to many. Managed business travel will be anything but business as usual over the next three years. Corporate Vision Drives Travel Strategy PhoCusWright s interviews with procurement officers and corporate travel buyers over the last 12-16 months suggest that a company s strategy, initiatives and financial goals are increasingly shaped by seven overarching business imperatives: Page 1
1) Competing globally. Because now even the smallest of firms compete globally, each company must align and integrate its distribution, operations, service configuration, partnerships, branding and data management efforts around the world. 2) Indirect cost reduction. Regardless of the economic climate, companies are tasked with reducing costs while maintaining service levels. 3) Wallet share. The greatest proportion of business comes from existing customers. It is therefore critical to build equity, integrity and brand affinity in order to increase average sales per customer. 4) Corporate social responsibility. Balancing fiscal and societal responsibilities underscores a company s commitment to both the organization and the environment. 5) Transparency. This refers to the seamless integration of systems, information and brands, regardless of geography. 6) Real-time decision-making. Both travel buyers and travelers require business intelligence tools to drive expedient decision-making. 7) Risk management. Security of a firm s people, data, systems and facilities is paramount to a company s success. Achieving these goals is dependent on a firm s active and effective use of technology and Webbased communications. These top-line strategic priorities are making their way down the corporate hierarchy, irreversibly changing managed business travel. Travel is inextricably linked to an organization s strategic goals, and procurement is pivotal to the effective management of travel spend. Over the next three years, seven major trends will shape the distribution, volume and scope of managed and online managed business travel: 1. 3Ps of Corporate Travel: Balancing the Triple Bottom Line 2. Travel & Expense: Putting the Cart Before the Horse 3. Business Travel Goes Retail: Supply Chain Management 4. Traveler-Centric vs. Trip-Centric Buying 5. Going Mobile 6. Videoconferencing: Traveling Without The Trip 7. SMEs Become Big Business PhoCusWright s U.S. Corporate Travel Distribution Fourth Edition assesses the key trends shaping the distribution of managed business (or total corporate) travel in the U.S. through 2011. This report continues to track the migration and composition of online travel purchasing and reviews several fundamental shifts in perspective that will shed new light on the managed business travel landscape over the next three years. Definitions Corporate Social Responsibility (CSR) refers to sustainability initiatives companies implement to help reduce their carbon footprint and measure the environmental and social impact of their programs. SBTs (Self-Booking Tools) are online reservation tools that automate the booking of Page 2
PhoCusWright s Section One: Introduction, U.S. Corporate Methodology Travel Distribution and Key Findings Fourth Edition May July 2009 corporate travel reservations for travelers and traveler assistants. SMEs (Small and Medium-Sized Enterprises) are defined as U.S. companies with approximately 400 to 5,000 employees that spent $8.4 million on average on travel and expense in 2007. This excludes self-employed, parttime and home-based businesses (Sources: PhoCusWright Inc. and U.S. Census). Corporate (or Managed Business) Travel refers to all air, car and hotel expenses made by corporations where purchases are governed by a formal travel policy. A travel policy can include a preferred travel management company (TMC), supplier, online booking tool, booking channel and negotiated rates. Managed travel also includes rogue (out-ofpolicy) purchases that are captured as part of a company s corporate travel budget. Unmanaged Business Travel refers to all air, car and hotel expenses associated with business travel in firms that do not have a travel policy dictating the channel, type of travel, supplier or fare/rate used. Methodology This report sizes the total corporate (or managed business travel) market, including booking method (online and offline) and channel (directly with the supplier and through an intermediary, such as a travel agency or TMC). Corporate travel figures are represented in gross travel value (US$) and defined as U.S. supplier (air, car and hotel) bookings generated from managed business travelers. This includes travel purchases made through online and offline channels, travel intermediaries and suppliers, and those both within and outside of policy (rogue). Miscellaneous expenses such as parking, ground transportation and trip insurance are not included in corporate travel gross booking figures (for consistency). Total U.S. market size figures, which are referenced from PhoCusWright s U.S. Online Travel Overview Eighth Edition Update: 2009-2010, also do not include these miscellaneous expenses. Corporate travel spend estimates and projections are compiled from U.S. supplier revenue figures, industry interviews and data gleaned from a Web-based PhoCusWright survey completed in summer 2008 by 130 corporate travel buyers. While all survey respondents had oversight of their firm s U.S. travel budget, some were also responsible for other geographic regions travel spend. To understand current and changing market dynamics and shifts in spend, PhoCusWright interviewed more than 65 decision-makers at travel management, technology, supplier, GDS, corporate card and expense management companies in 2008 and 2009. While discussions focused on the use and value of Webbased tools for U.S. points-of-sale for purchasing domestic business travel, respondents were interviewed about their overall business strategy, travel buyer requirements and the corporate travel marketplace in general. This report contains actual figures and estimates for 2007 and 2008 and forecasts for 2009 through 2011. Page 3
respond. Although their full threat has been reduced, the challenge to innovate remains. Key Corporate Travel Trends Tumultuous economic times cause corporate decision-makers to widen the net around what events or forces qualify as a trend (versus a business cycle or fad) that will redefine an industry. PhoCusWright defines a trend as a fundamental change in the long-term dynamics of a business. In business travel, trends have the potential to impact the size of the market (or the amount spent on travel), alter buying behavior (e.g., channels of purchase, market share at the point-of-sale) and/or improve the experience or operational efficiency of the traveler, company or industry. While there is a whirlwind of forces at play and many great, individual company efforts at work, this report centers on the top seven trends affecting the business travel market through 2011. These trends have staying power and are rooted in satisfying real business and human needs. They take time to develop and have the potential to provide a disruptive force in business travel (if not redefine how business travel is done). In addition, they are specific to the United States, with the understanding that business operations and employee travel are global. Trend 1: 3P s of Corporate Travel: Balancing the Triple Bottom Line There is nothing quite as effective as a recession for forcing companies to drill down into exactly what drives the balance sheet and reevaluate assets and operational processes to be competitive. At the same time, firms are taking a more holistic approach to business and measuring the cause and effect of a company s practices on its stakeholders (not just shareholders) and the environment. Together, this is creating a new balance sheet for the future that is centered on three equal and core principles: profits, people and the planet, or the triple bottom line. Figure 15 Triple Bottom Line People Social Equity Profits Prosperity Environmental Stewardship Planet Source: Emerging Markets Group Triple bottom line accounting expands the traditional financial reporting framework to include the environmental and social performance of a company as defined by profits (working capital), people (human capital) and the planet (natural capital or a firm s sustainability practices). CSR is particularly relevant now, as energy will be one of the greatest public concerns of the next decade and energy conservation will be an important strategic initiative. The spike in energy prices in 2007 and 2008 made energy a top global strategic concern for business and governments. Gartner reports that by 2010, about half of the Forbes Global 2000 companies will spend more on energy than on hardware such as servers. As a result, 22% of companies have already implemented triple bottom line reporting and another 40% plan to do so within five years. 2 2) Economist Intelligence Unit, February 2008 Page 17
This approach is not just for internal record keeping. Disclosure of corporate economic, environmental and social performance has become the norm among larger U.S. and global companies. KPMG identifies that of the top 100 U.S. companies by revenue, 74% published corporate responsibility information in 2008 either as part of their annual financial report or as a separate document. In addition, 61% have a formal sustainability strategy and 70% are motivated to do so because of ethics (not economics). Even in a difficult economy, there is a link between profits and principles. All functional areas, including travel, will be responsible for reporting on sustainable initiatives and contributing to carbon reductions. Trend Defined Since T&E represents the second largest controllable expense (after payroll) and air travel alone accounts for 7% of worldwide carbon emissions, 3 it is not surprising that those interviewed for this report view green travel as an inevitable trend in business travel over the next three years. However, C-level decision-makers are now charging procurement with evolving the sourcing, compliance and efficiencies of business travel with an increased focus on social and environmental consciousness. This will translate into: Driving spend reductions and the use of more environmentally responsible travel alternatives, collaborative software and non-travel alternatives for non-revenue producing trips (see Trend #6: Videoconferencing). Automating sourcing, trip purchasing, ticketing, reconciliation, payment processes and as much of the end-to-end process as possible to reduce a company s carbon footprint (e.g., IATA). Offering demand management practices in the booking path to provide travelers with more environmentally friendly travel and non-travel alternatives (e.g., air over rail, shuttle over cab, hybrid over economy car) (e.g., Budget, Hertz, Carlson Wagonlit Concur). Engaging travelers to be part of the solution by (1) informing the business traveler of the carbon effect of travel choices before purchases are made (as does GetThere Green); (2) providing en route cost and conservation tips for travelers; and (3) requiring that CSR practices be integrated into travel and reimbursement policies to ensure travelers understand the conditions surrounding compliant travel choices. Evolving advisory services practices to weigh the financial, environmental and social cost of changes to travel that reflect, at a minimum, the mode of travel, miles flown/driven, energy/fuel used versus class/type of car/ aircraft, flight duration versus number of stops, number of passengers per vehicle and supplier used (e.g., Carlson Wagonlit, BCD/ Advito). Enhancing dashboards and Web-based reporting to reflect the financial and carbon impact (greenhouse gas emissions plus avoidance) of travel purchases by traveler, client, division, region, city pair, supplier and company (e.g., Travelport s Galileo). Participating in carbon/climate neutral or offset programs that invest in clean, renewable energy, energy efficiency and emission removal, as well as in local community projects to offset the metric tons of CO2 pro- 3) Center for Climate Change and Environmental Forecasting; United Nations Atlas of the Oceans Page 18
duced from business travel (e.g., Nike/Delta Air Lines Eco-Class, Ovation Travel Group s ECOvation, Travelport, TRX s Trees for Travel). Offering corporations better negotiated rates for reduced water consumption (e.g., no linen changes). The creation by travel suppliers of measurable goals for process and operational improvements (e.g., Marriott International s 6% per room GHG emission by 2010; British Airways 30% improved fuel efficiency by 2010). Triple bottom line accounting is still a relatively new field, and quantifying all three aspects can be problematic and subjective. The Global Reporting Initiative (GRI) has developed a framework of principles and indicators that companies of all sizes can use to measure and report economic, environmental and social performance. The foundation of the framework is the Sustainability Reporting Guidelines (known as the G3 Guidelines or Protocol). These guidelines have been voluntarily adopted by more than 1,500 companies worldwide. Other efforts at standardization include CERES and Institute 4 Sustainability. The Green Hotel Initiative, sponsored by CERES, provides corporate travel buyers with the tools to assess the current practices of hotels. Its Best Practice Survey helps corporate travel buyers assess a hotel s environmental commitment and performance before purchasing. The World Resources Institute (WRI) has developed a guide for office-based (as opposed to manufacturing) organizations to measure and reduce carbon emissions based on the Greenhouse Gas (GHG) Protocol. While this provides an accounting framework for companies to report their GHG emissions at an organizational level, quantifying the environmental performance along the supply chain is challenging. There are many other travel and non-travel organizations that are also attempting to establish corporate standards, but no single set of measurements has been established. As a result, corporations are proceeding with caution because if the established metrics are wrong, it will result in the wrong behavior. While some companies view adherence to triple bottom line protocols as burdensome and particularly difficult to satisfy in a recession, there is increasing stakeholder pressure and financial benefit to embracing this approach at an enterprise level as well as in travel. Trend 2: Travel & Expense: Putting the Cart Before the Horse Corporate buyers have long sought an integrated presentation of travel data, or single truth, when trying to reconcile booked, ticketed, pre-trip, spend and post-trip travel data (see Figure 16). Prior to 2008, industry-wide Figure 16 Linear View of Travel Data Flow POS Booking Ticketed Data Pre-Trip Data Expense Tracking Post-Trip Data Source: PhoCusWright s U.S. Corporate Travel Distribution Fourth Edition Page 19
and the paper trail associated with business travel without jeopardizing growth and the need to innovate. Cash management. Increase a firm s working capital (liquidity) and preserve margins by re-evaluating payment and receivable processes to accelerate and better manage cash flow. As corporate travel increasingly reports to procurement and procurement works more closely with finance, travel programs will be required to embrace the enterprise s approach to strategic spend management. This will extend the focus beyond automated expense reporting to include invoicing and payment, further consolidation of purchasing cards, electronic receipt programs and automated expense reimbursement. Understanding the relationship of these factors to each key expense solution will provide insight into the holistic impact of spend management on business travel and the long-term merchandising effects management will have on distribution. Trend 3: Business Travel Goes Retail: Supply Chain Management Globalization has had an enormous impact on how commerce and business are conducted. First, with low-cost (outsourced) resources provided from worldwide locations, the geography, complexity and risk of distribution and supply chains has expanded radically. This change has affected not only the physical supply chain of tangible goods sold, but also services, like business travel. It is also increasing the cost of customer acquisition required to generate sales from businesses located around the world. And it is redefining the competitive framework within industries and the role of each member in the supply chain. In addition, the Internet has fundamentally transformed the supply chain process, driving down cost across all industries through Web-based automation and the integration of content and applications. In fact, two thirds of global CEOs are implementing extensive Webbased innovations to enable niche marketing, streamlined and transparent processes and new ways of partnering. 4 At the same time, procurement s oversight and impact on travel has been increasing: this department now oversees the travel management function in 35% of companies. 5 To optimize spend and streamline costs in business travel in the current recessionary economy, procurement will need to leverage supply chain management (SCM) strategies used in other areas of indirect spend. Together, these factors underscore that a company s success is shaped as much by the partnerships and performance of its supply chain as by the services it provides. Trend Defined Supply chain management is an integrated approach to managing costs and processes (from sourcing through payment) across partners involved in the distribution and management of business travel. This includes activities performed by GDSs, suppliers, travel intermediaries and/or third-party tool providers, among others. Interdependency between these activities serves to eliminate system and service redundancies and drive quality, speed to market, cost reductions; it also drives faster return 4) IBM s Enterprise of the Future Study, 2008 5) PhoCusWright s 2008 Corporate Travel Buyer Survey Page 22
on investment (ROI) for each channel player. Migration to supply chain management has already begun in business travel, as reflected by a number of indicators. The first is the strategic shift from outsourcing to partnerships to drive growth as revenue projections tighten. Over the last few years, companies have: Established risk-sharing relationships with partners to seed joint responsibility for performance (e.g., American Express Card/ Concur) Made acquisitions for the people, not the assets (e.g., Rearden Commerce/ ExpenseWire) Created value networks based on strong integration and collaboration so that competitiveness will be based on the responsiveness and agility of the supply chain (e.g., Amadeus/e-Travel/SAP) Leveraged partners as an extension of a firm s sales force and technology offering across travel industry verticals (e.g., Rearden Commerce/JPMorgan Chase) Second, Web-based connectivity creates opportunities to fundamentally change the supply chain, improve margins and provide data transparency. Channel players recognize that the information they require most urgently to enhance the supply chain functioning resides outside their own systems. Because business travel has, until now, been comprised of older and disparate systems of unsynchronized data and multiple formats, few companies have been adequately connected (e.g., Sabre, Travelport, Amadeus). Third, given the high cost of customer acquisition, intermediaries and online tool providers have demonstrated that having access to the broadest base of customers possible far outweighs distribution exclusivity. This shift explains the seemingly competitive alliances between ExpenseWire (owned by Rearden Commerce) and Orbitz for Business, TRX s RESX and Egencia. Without the automation of payment processes (see Trend 2), the full end-to-end efficiencies of supply chain management cannot be realized. Manual and paper-based invoicing and payment systems are cost-intensive for a corporation, and this inefficiency is only magnified when calculated across the entire supply chain. Impact on Business Travel Economic conditions are forcing companies to look inward at the performance of their suppliers and partners, the efficiency of their processes and their adherence to CSR codes of conduct and reporting. This shared visibility into data, key performance indicators and scorecards will breed a higher level of integrated collaboration across the business travel supply chain. It will also spur the use of riskreward incentives to compensate for exceeding goals or penalize for shortfalls. Currently corporate travel is evaluated in terms of spend, cost savings and compliance. This collaborative channel approach will render traditional service level agreements obsolete and require procurement to use vendor scoring systems, provide more regular reviews and rely on interdependent metrics for higher-volume contracts. Evaluations will center on trade-offs such as: (1) Spend versus sales impact (2) Time versus output of trip (3) Cost savings versus technology investment Page 23
(4) Compliance versus risk management (5) Spend versus ROI (6) Cost of travel versus environmental risk These trade-offs will evolve to channel-spanning forecasting and performance measurements (such as report cards) to ensure partners work from the same data points and towards the same goal. The corporate travel market will initially resist the adoption of supply chain management principles, simply because they represent change within the industry. While the principles of supply chain management originate from retail and manufacturing sectors which, unlike corporate travel, involve the physical handling of a product their focus is on service efficiency (management of capacity, flexibility of resources, information flow, service performance and cash flow management). Current global economic conditions especially the tenuous financial position of carriers make this approach all the more critical to managing spend cost-effectively. Trend 4: Traveler-Centric vs. Trip- Centric Buying Historically, the travel industry has been a transaction- or event-centered industry. This meant providing services that supported, facilitated, automated and streamlined the acquisition of information that consummated in a trip or travel purchase. Everything was viewed exclusively from a point-of-purchase or sale perspective and was based on how air travel was purchased. This approach was also a function of the tools and technologies available to the industry (e.g., the GDSs) and the revenue models that supported managed travel reservations. Event-centered buying assumes that the corporation, or travel buyer, controls the purse strings and is the sole decision-maker in the Page 24 Figure 19 Traveler-Centric Buying: Travel & process. Preferred Programs Travel Policy Customer Care Traveler Experience Travel Context Source: PhoCusWright s U.S. Corporate Travel Distribution Fourth Edition But the Web changed this model. As the Internet evolved, SBT capabilities were enhanced and online migration became central to year-over-year program savings. In turn, travelers and their buying behavior became pivotal to the success of a corporate travel program (see Figure 19). With access to content and inventory, advancing mobile technology, integrated T&E applications and the advent of social networking, business travelers could wield far more influence in the travel-buying process and consequently, in effective management of corporate travel spend than ever before. Trend Defined Traveler-centric buying recognizes the pivotal role of the Internet in selling/purchasing business travel components and services. In a trip-centric approach, technology links a travel transaction to a specific individual, corpora-