The Future of Corporate Travel – Today. A business model for a new world

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Keynote of Keith Mason at NICT 2010, Istanbul (Next in Corporate Travel)

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The Future of Corporate Travel – Today. A business model for a new world

  1. 1. Dr.
Keith
Mason
Head
of
Air
Transport
Management
Group,
 Cran;ield
University

  2. 2. The Future ofCorporate Travel - TodayA business model for today’s new world Keith Mason Head, Air Transport Management Group Cranfield University
  3. 3. Good Morning! •  Update on airline industry •  Review of the Business Traveller •  Issues in Corporate Buying •  Some “Do”s and “Donʼt”s
  4. 4. Airline industry - NetProfit Margin1950-2009 Source: ICAO to 2008 and IATA for 2009
  5. 5. Global GDP Growth/Decline andrecession 1973-75 1980-82 1991-93 2001-03 2008-2010 •  Oil Crisis •  Iran-Iraq war • 1st Gulf War •  US Weakening •  Credit Crunch - 4X to $12 •  Oil Shock •  Oil Hike •  9/11 •  Multiple Govt Bailouts •  Stock Market - 3X to $39 * 2X to $33 •  2nd Gulf War •  Stock market turmoil •  Fluctuating oil prices 8% 7% # Oil Contracted to $15 per barrel 6% # 5% # # # # # # # # # 4% # # # # # # # # # # # # 3% # # # # # # 2% # # # # # # # # # 1% # # 0% 1983 1985 1987 1989 1991 1993 1995 1997 1999 2007 2009 2010 1971 1973 1975 1977 1979 1981 2001 2003 2005 # World GDP growth/declineSource: IMF, World Bank
  6. 6. World GDP & scheduledtraffic growth% Change in Passenger Traffic year over year 14% 8% 12% # RPK Growth 7% % Change of GDP year over year 10% 6% 8% # # 5% 6% # # # # # # # # # # # # 4% # # 4% # # # # # # # # 3% 2% # # # # # # # # # # 2% 0% # # # -2% # GDP Growth 1% # -4% 0% 1983 1985 1987 1989 1991 1993 1995 1997 1999 2007 2009 2010 1971 1973 1975 1977 1979 1981 2001 2003 2005 # World GDP growth World scheduled airline RPKs Source: ICAO, 2009a and WEO (IMF), 2009
  7. 7. Average fares oninternational markets Premium fares rise and fall more sharply with economic changes Source: IATA Economics
  8. 8. The importance ofthe business travelmarket •  Business air travel is an approx. £3.5bn business in the UK •  Dependent on the route, business travel can be 50% or more of the market (in volume), •  The value of the business market can be used to support discounted fares in economy •  Business class is more profitable than either first class or economy class
  9. 9. UK business passengerson scheduled services Rise of LCCs
  10. 10. SO WHAT DO THESE PEOPLE WANT?
  11. 11. Business Passengers’ Map ofAirline Product Core services Augmented services Potential Services IFE FFP Safety Schedule Reliability Lounge Lounge entertainmentExpected services
  12. 12. Product expectationsmove over time Quality 1st Business Economy Price
  13. 13. Product expectationsmove over time Quality 1st Business Economy Price
  14. 14. Product expectationsmove over time Quality 1st Business Economy Price
  15. 15. Product expectationsmove over time Quality 1st Business Economy Price
  16. 16. Product expectationsmove over time Quality 1st Business Premium Economy Economy Price
  17. 17. The Future?
  18. 18. Unbundling theseservices? Unbundling creates issues for Travel Managers •  Travel policy compliance issues •  can travellers pay for extras and be confident that they will be reimbursed? •  Processing is more complex •  Self Booking Tools struggle to fulfill ancillary services (leading to additional intermediary costs) •  Lack of total cost transparency •  Pay one fee for ticket and then faced with additional charges – often via T&S claims
  19. 19. Business Travellers •  Mainly male - 80% •  Middle aged •  35 - 54 •  17 trips per annum •  5 Long haul •  12 short haul •  down 3 since 2004 •  Half work for large companies •  Half work for SMEs Source: IATA CATS 2009
  20. 20. Business Travellers •  Mainly male - 80% •  Middle aged •  35 - 54 •  17 trips per annum •  5 Long haul •  12 short haul •  down 3 since 2004 •  Half work for large companies •  Half work for SMEs Source: IATA CATS 2009
  21. 21. Business Travellers •  Mainly male - 80% •  Middle aged •  35 - 54 •  17 trips per annum •  5 Long haul •  12 short haul •  down 3 since 2004 •  Half work for large companies •  Half work for SMEs Source: IATA CATS 2009
  22. 22. Business Travellers •  Mainly male - 80% •  Middle aged •  35 - 54 •  17 trips per annum •  5 Long haul •  12 short haul •  down 3 since 2004 •  Half work for large companies •  Half work for SMEs Source: IATA CATS 2009
  23. 23. Or perhaps like this
  24. 24. Purpose of travel •  Purpose of travel •  Trips for sales and commercial (45%) •  Customer support (21%) •  Conference and presentations (20%) •  Internal company meeting (10%) •  Training (4%) (Source: KDS, Summer 2009) •  Travellers purpose of travel changes repeatedly •  How do you identify? •  Needs change by purpose of travel
  25. 25. Differing types ofbusiness travellers Each group will have differing needs 5 NomadsNumber ofnew Explorersplacesbusinesstravellersvisit Commuters Source: Beaverstock, et al , 2010 10 Number of places business travellers visit regularly
  26. 26. Travel spend80/20? > 10,000 employees 1,000 – 10,000 employees Airlines cannot afford to manage < 1000 employees accounts for companies with < 100 employees spend less than £50k 27
  27. 27. Company size Company Size: Number of Employees 30% 25% 20% 15% 10% 5% 0% Less than 100 100 - 1000 1000 - 5000 5000 - 10000 10000 - 25000 More than 25000 Mason/Amadeus 2007
  28. 28. Spend on travel Annual corporate spend on travel 60% 50% 40% 30% 20% 10% 0% $0m - $2.5m $2.5m - $5m $5m - $10m $10 - $30m $30m - $50m More than $50m Western Europe North America Latin America Asia Pacific Mason/Amadeus 2007
  29. 29. Cabin usage bybusiness travellers
  30. 30. From this….
  31. 31. Via this….. Move down inside the bus please!
  32. 32. To this….
  33. 33. Change of businessmarket •  Downgrading and use of low cost airlines •  Change in booking behaviour •  Increase in fare transparency •  Travellers “going commando” – booking direct •  No longer prepared to pay high multiples for business class •  Increase in price elasticity •  Increase in “value for money” purchasing •  Use of other forms of communication •  Increased use of web-conferencing, tele-presencing, video- conferencing. •  This adoption has been increased as companies become aware of the carbon cost of travel.
  34. 34. Business Travel Cuts –Summer 2009 onward •  71% of companies had significantly reduced business travel •  Class of travel •  38% Business class •  Of these 70% said only for trips > 5 hours Source: KDS, 2009 •  Austerity to continue till 2012 •  24% of MDs and FDs believe this “frugality” will be be the blue print for future travel spending Source: AMEX survey, Oct, 2010
  35. 35. Choice of airline Factors affecting choice of airline: IATA CATS 2009 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% SH CATS 2009 LH CATS 2009
  36. 36. Effect of FFP Premium paid to use FFP carrier for business flight 50 45 40 Survey of over 1,400 Business 35 Travellers in Australia 30 Percent 25 20 15 10 5 0 < 5% 5% - 10% 10% - 20% >20% Source: McCaughey, 2010
  37. 37. Effect of FFP Influence of FFP on business travellers 4 Survey of over 1,400 Business Travellers in Australia Level of Agreement (1 = SD, 5=SA) 3 2 1 0 FFP influences airline Pick FFP airline for biz trip FFP benefits make biz Mid tier status Top tier status choice when on business even if others cheaper travel more bearable maintenance more maintenance more imp important than points than points Source: McCaughey, 2010
  38. 38. Managing TravelSpend Policy and Management Process Information Review IT Negotiation Integration Enforcement Policy
  39. 39. Leverage your spend •  Consolidate your spend •  Deliver promised volumes •  Manage travellers •  Develop strategic relationship with your suppliers
  40. 40. What should you belooking for from an airsupplier? •  Network •  Alliance or not? •  Schedule/frequency on most frequented routes •  Product and service •  Safety and security •  Deals and discounts •  Added value •  Relationship management
  41. 41. Consider airlineissues? •  Companies may buy travel like they buy paper clips •  Procurement lead •  Volume discounts •  Strategic relationships with suppliers •  HOWEVER, a Business Class bed is not a paperclip •  It is not a commodity •  Personal and emotive •  (e.g. Class of travel/status/FFPs/away from family) •  Everyone in the company has a view and many have decision making capacity
  42. 42. What should you belooking for from a TMCsupplier? •  Fulfil travel Ten Travel Management Companies in the UK •  Travel policy and compliance dominate the market •  Management information •  Deal tracking •  Cheapest on the Day •  Market product and services •  Expertise to advise client •  Consultancy •  Security •  Mediate between company and suppliers
  43. 43. Set a policy andmandate it •  Establish need to travel •  ROI methodology on travel spend •  Establish a clear policy so that travellers are clear about what you expect of them and what they can expect from you. •  Develop in consultation with travellers to consider their issues and needs •  Sick, stressed, un-motivated travellers are not effective •  Mandate the policy •  Effectiveness of policy is greatly reduced if not mandated •  Clear and fair for all •  Report regularly to internal stakeholders about effectiveness of policy
  44. 44. Buying at the right time– the right product •  Help travellers to plan/book earlier to access best available prices •  Does the traveller need fully flexible ticket? •  Business class overnight flight to reduce hotel spend? •  From POSH •  Port out, starboard home •  to IBOFEH •  Inflexible business class out, flexible economy home
  45. 45. Who sets policy? Person/Group setting travel policy30%25% Do these guys need help?20%15%10%5%0% Travel arranger Regional Travel Global Travel Procurement Finance Officer/ HR Senior Mgmnt Manager Manager Manager/Director Director Team/Directors
  46. 46. Source: Mason, Cranfield University, 2006
  47. 47. of Lack g tandinu nders Source: Mason, Cranfield University, 2006
  48. 48. Managing travelresponsibly •  CSR – Companies need to know where its employees are when they travel •  Air disasters, hotel attacks, ash clouds, typhoons, etc. Companies need to know if any of its employees are potentially involved •  Travel can amount to 40% of a companyʼs carbon emissions. Can we do the same business with less CO2?
  49. 49. Travel Policycompliance •  Smoothing the travel process would improve travellersʼ life on the road •  Travel policy needs to support travellers as well as direct them to corporateʼs preferred (air, car, hotel) suppliers •  Travel hassles and time away from family are key issues for travellers •  Make policy easy to use/follow with benefits for the travellers
  50. 50. Use self bookingtechnology •  Self booking tools can •  reduce intermediary costs – 26%, AND •  reduce travel costs (visual guilt) – 9% Source: Amadeus, 2007 •  Travellers need all available options before they book •  TMC needs to aggregate content and overlay policy
  51. 51. How much does an online booking save in travel agency/TMC costs?30%25%20%15%10%5%0% Nothing Up to 15% 16% - 29% 30% - 49% More than 50% Too early to Dont know judge
  52. 52. How has use of SBT reduced average ticket prices?30%25%20%15%10%5%0% None Less than 5% 5% - 9% 10 - 20% More than 20% Too early to Dont know judge
  53. 53. Booking channels Channels for Air Tickets by region (all responses) 80,0% 74,0% 70,5% 70,0% 65,8% 60,0% 54,5% 54,0% 50,0% 44,8% 39,2% 40,0% 29,1% 30,0% 26,3% 20,0% 16,4% 15,9% 13,9% 12,7% 11,8% 10,8% 9,3% 8,5% 10,0% 8,1% 7,6% 6,7% 5,1% 4,9% 5,1% 5,1% 0,0% Self Booking Tool (% ) TMC for offline request (%) Directly from supplier (%) Other Internet provider (%) Canada US Lat Am Europe ME/A AsiaPac
  54. 54. Direct booking maycreate difficulties •  When a traveller books direct… •  Loses TMC support on that booking •  Change tickets •  Loses Management Information •  Loses leverage against suppliers •  May lose volume deals •  Duty of Care undermined •  Travel manager canʼt trace traveller if transport crashes/terrorist attack/act of god •  Harder to reconcile expenses
  55. 55. Integrate SBT withother IT systems •  Expense accounting •  HR database •  Corporate intranet •  Meeting and events systems
  56. 56. Limited developmentso far SBT Integration status with other Corporate IT systems 90,0% 78,5% 80,0% 74,7% 70,0% 60,0% 54,3% 50,0% 44,7% 40,4% 40,0% 31,9% 30,0% 20,0% 14,9% 15,4% 12,9% 13,8% 8,6% 9,9% 10,0% 0,0% No Beginning of process Yes Expense accounting HR Database system Corporate Intranet (Silent Log-In) Meeting/event management
  57. 57. Additional productivityand reduced work fortravellers Productivity from system integration 70% 62,2% 61,0% 59,7% 60% 53,7% 50% 41,4% 40% 37,3% 36,2%Percent 32,2% 31,3% 30,5% 30% 27,0% 26,0% 26,0% 22,4% 20% 14,3% 14,9% 13,0% 10,8% 10% 0% Simplified electronic Reduced need for Time spent on Time spent on Automatic transfer of Traveller profile data travel authorisation manual input traveller reporting travel authorizing trips traveller profile data updated in all IT data expense systems No productivity gain Limited productivity gain Significant productivity gain
  58. 58. FINALLY….Some corporate traveltakeaways
  59. 59. FINALLY….Some corporate traveltakeaways •  Do:- •  Donʼt:- •  Make it easier for suppliers to •  Set policy in a bubble deal with you by delivering •  Forget to establish the need for promised volume travel within the process •  Regularly review your suppliers •  Expect travellers to be happy and policy – are they fit for with change current purpose/strategic goals? •  Slavishly force travellers into •  Engage with and listen to inappropriate local hotels or on travellers lousy flight schedules and •  Get the most out of available IT expect 110% performance systems
  60. 60. Thank you for listeningHope you enjoy the rest of your time in Istanbul
  61. 61. THANK
YOU…


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