Business travel roi k mc gill 6-2010

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Business travel roi k mc gill 6-2010

  1. 1. Measuring the Contribution of Business Travel to Corporate Performance Crowne Plaza, Hollywood Florida June 11th, 2010 Presented by: Kenneth McGill Executive Vice President, Research Vantage Strategy, Inc Ken.mcgill@vantagestrategy.com O: 202 449-9708 M: 610 213-2558
  2. 2. Presenter •• Kenneth McGill, EVP Vantage Strategy, Inc. & Kenneth McGill, EVP Vantage Strategy, Inc. & Lead Research Consultant for National Business Lead Research Consultant for National Business Travel Association (NBTA) Travel Association (NBTA) •• Fifteen yrs at IHS Global Insight and its Fifteen yrs at IHS Global Insight and its predecessors, most recently as EVP of Global predecessors, most recently as EVP of Global Travel & Tourism Practice Travel & Tourism Practice •• 20+yrs as an economist & market researcher 20+yrs as an economist & market researcher •• Extensive experience in travel market analysis, Extensive experience in travel market analysis, forecasting, policy evaluation, & economic impact forecasting, policy evaluation, & economic impact •• Recently completed landmark study of business Recently completed landmark study of business travel ROI –how T&E contributes to corporate travel ROI –how T&E contributes to corporate performance performance
  3. 3. Vantage Strategy Your Trusted Business Advisor We provide customized, top‐tier sales, marketing, research, and  online strategies to the travel industry.  What makes us unique? We understand your strategic business needs first, then we deliver unique, innovative, and profitable solutions to  your new sales effectiveness challenges. 
  4. 4. Purpose Vantage helps travel companies and DMOʼs achieve order of magnitude change  and implement new solutions to grow profits – all through a personal, hands‐on  approach that you won't find with the big‐box consulting firms.   Vantage Services Business Strategy Our fast, nimble  Market Research & Insight service delivers  Brand & Messaging Development innovative custom  solutions to improve  your ROI ‐ and your  peace of mind.
  5. 5. Client Examples Vantage supports the business growth objectives of the world's most recognized brands  in Travel & Tourism.  Our passion is in helping clients successfully increase the reach,  frequency, and quality of their customer interactions to grow their business. Travel & Tourism Advocates Travel & Tourism Enterprises CVBs, Associations, Trade Shows Operators, Merchants & Service Providers
  6. 6. 2009 NBTA Research: What is Value of Business Travel? • Global business travel topped $929B in 2008 • US biz travel, @$261B, is 28% of the world total • China, currently #2 ($94B) will add T&E at a rate 8 times faster than the US over the next 5 years • On average, US businesses spend about 1¢ of every sales dollar on biz travel Sources: 2009 NBTA Business Travel Market Metrics • A Global Analysis of Business Travel Activity (sponsored by Egencia) • Are We Investing Enough on Business Travel? (sponsored by American Express) • Valuing the Contribution of Travel Management (sponsored by American Express)
  7. 7. 2009 NBTA Research: What is Value of Business Travel? • Biz Travel supports over 4M US jobs and generates $80B in tax receipts –it is our 13th largest “industry” • Most US businesses currently underspend on biz travel. Investing $1 more would yield about $16 more in gross profit • Strategic Travel Management (STM) saved US companies about $7.5B in 2008 –about $14 per itinerary • Mfg companies with STM have an operating margin that is 3% higher than those that “wing” it Sources: 2009 NBTA Business Travel Market Metrics • A Global Analysis of Business Travel Activity (sponsored by Egencia) • Are We Investing Enough on Business Travel? (sponsored by American Express) • Valuing the Contribution of Travel Management (sponsored by American Express)
  8. 8. Agenda Valuing Business Travel 2009 NBTA Research Initiative: DYK? Business Travel Spend in Financial Context The ROI of Business Travel 2010 ROI of Business Travel: Deeper Dive Q&A
  9. 9. Measuring ROI… • Easy to describe, difficult to execute • Typically left up to managerial intuition, experience, feel • Its about cause (and cost) and effect (conversion) There are generally four approaches: There are generally four approaches: a. Management Opinion Surveys –measure awareness, priority, a. Management Opinion Surveys –measure awareness, priority, present trade-offs present trade-offs b. Meeting //Trip Goal Attainment Audit – pre-state objectives, b. Meeting Trip Goal Attainment Audit – pre-state objectives, then follow up post-trip to assess success then follow up post-trip to assess success c. Individual Conversion Studies -good for specific campaign c. Individual Conversion Studies -good for specific campaign measurement but difficult to apply to all travel activity measurement but difficult to apply to all travel activity d. Elasticity Analysis – better for measuring overall ROI but d. Elasticity Analysis – better for measuring overall ROI but finding adequate data can prove difficult and costly finding adequate data can prove difficult and costly
  10. 10. 2009 ROI of Business Travel • In 2009, NBTA & American Express Business Travel sponsored a landmark study of the size, growth, & contribution of business travel • Objective: Is there a correlation between business travel & corporate performance? And if so, can we determine the optimal level of business travel? Corollary: how far can we cut before real damage is inflicted? • Approach: Using data for 15 U.S. industries over the period 1998- 2008, we examined the correlation between changes in business travel spend and changes in corporate sales & profits. •• Key Finding: While ititvaries by industry, on average there is 16:1 Key Finding: While varies by industry, on average there is 16:1 return on investment for each additional dollar spent on business return on investment for each additional dollar spent on business travel travel
  11. 11. U.S Business Travel in Financial Context
  12. 12. U.S. Business Travel Spending & Travel-Intensity Top 20 Industries Ranked on Travel Spend • Total US Business Travel Spend in 2008 was $261B • Businesses spend about 1¢ of every sales dollar on business travel • High? Equipment rental & leasing @ 4¢ • Business Services -1.3¢ • Low? Mining at < a tenth of a cent Source: IHS Global Insight, US Bureau of Economic Analysis –National Input/Output Accounts
  13. 13. Business Travel Expenses in Perspective Industry Profit & Loss Analysis US Economy –All Industries 5-year 10-year (Millions of $) 1998 2003 2007 2008 % CAGR CAGR Sales $ 14,505,111 $ 17,890,895 $ 23,407,509 $ 24,086,545 2.9% 6.1% 5.2% Cost of Goods Sold Labor Cost $ 4,190,188 $ 5,245,850 $ 6,484,017 $ 6,676,055 3.0% 4.9% 4.8% Material & Service Purchases $ 6,698,946 $ 8,111,543 $ 11,072,796 $ 11,339,429 2.4% 6.9% 5.4% Business Travel $ 213,206 $ 215,499 $ 268,629 $ 261,362 -2.7% 3.9% 2.1% Other Costs & Expenses $ 627,828 $ 792,395 $ 1,000,945 $ 1,027,515 2.7% 5.3% 5.0% Total Cost $ 11,516,961 $ 14,149,787 $ 18,557,758 $ 19,042,999 2.6% 6.1% 5.2% Gross Operating Profit $ 2,988,150 $ 3,741,108 $ 4,849,751 $ 5,043,546 4.0% 6.2% 5.4% Gross Margin% 20.6% 20.9% 20.7% 20.9% Business Travel as a Percentage of Sales 1.47% 1.20% 1.15% 1.09% B-Travel as a Percentage of Material & Service Costs 3.18% 2.66% 2.43% 2.30% Business Travel as a Percentage of Profits 7.14% 5.76% 5.54% 5.18%
  14. 14. Business Travel Expenses in Perspective Industry Profit & Loss Analysis US Manufacturing Sector 5-year 10-year (Millions of $) 1998 2003 2007 2008 % CAGR CAGR Sales $ 4,054,468 $ 4,201,111 $ 5,339,571 $ 5,362,765 0.4% 5.0% 2.8% Cost of Goods Sold Labor Cost $ 870,035 $ 943,261 $ 1,028,272 $ 1,022,119 -0.6% 1.6% 1.6% Material & Service Purchases $ 2,637,829 $ 2,758,142 $ 3,624,576 $ 3,640,320 0.4% 5.7% 3.3% Business Travel $ 39,119 $ 38,445 $ 43,968 $ 43,414 -1.3% 2.5% 1.0% Other Costs & Expenses $ 39,206 $ 49,236 $ 60,650 $ 60,913 0.4% 4.3% 4.5% Total Cost $ 3,547,070 $ 3,750,639 $ 4,713,497 $ 4,723,352 0.2% 4.7% 2.9% Gross Operating Profit $ 507,398 $ 450,472 $ 626,074 $ 639,412 2.1% 7.3% 2.3% Gross Margin% 12.5% 10.7% 11.7% 11.9% Business Travel as a Percentage of Sales 0.96% 0.92% 0.82% 0.81% B-Travel as a Percentage of Material & Service Costs 1.48% 1.39% 1.21% 1.19% Business Travel as a Percentage of Profits 7.71% 8.53% 7.02% 6.79%
  15. 15. Business Travel Productivity Has Risen Markedly 1.47% 1.50% 1.43% Travel Spend as a Percent of Sales Travel Spend as a Percent of Sales All US Industries All US Industries 1.40% 1.32% 1.28% 1.30% 1.20% 1.19% 1.20% 1.13% 1.13% 1.15% 1.12% 1.10% 1.00% 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 More efficient, more “dense” trips Rising penetration and effectiveness of managed travel programs Travel prices rising more slowly than other costs Growing technological alternatives to more marginal travel
  16. 16. The ROI of Business Travel
  17. 17. Business Travel’s Contribution to the Bottom Line Methodology: Can we find a correlation between T&E and sales/profits? 10 yrs of data for 15 10 yrs of data for 15 industries… industries… Econometric approach that isolated the statistical relationship between Travel spend, sales, labor & Travel spend, sales, labor & travel spend & sales/profit other costs, operating profit, other costs, operating profit, inflation, and industry demand inflation, and industry demand drivers drivers Industry sales was regressed against Modeled using aaquadratic Modeled using quadratic travel spend, demand factors, & functional form –increases in functional form –increases in travel spend will increase sales travel spend will increase sales supply variables in order to isolate but the payoff diminishes but the payoff diminishes the influence of each driver Model helped compare the cost of increased travel spend with resulting Most, but not all, Most, but not all, industries were industries were increases in sales to calculate the below their optimal below their optimal optimal level of business travel for levels in 2008 levels in 2008 each industry
  18. 18. Business Travel’s Contribution to the Bottom Line For the statisticians and economists in the audience… Model Specification: Model attempts to explain the Model attempts to explain the variation in sales over time variation in sales over time as a function of key drivers: as a function of key drivers: industry affiliation industry affiliation product/service demand product/service demand cost and inflation cost and inflation business travel spend business travel spend business travel spend22 business travel spend other unspecified drivers other unspecified drivers
  19. 19. Business Travel is Associated With Increased Sales Elasticity Effect of Business Travel on Sales 2.5% All figures are inflation-adjusted 2.0% The return on travel slows, Percent Increase in Sales indicating a diminishing Additional travel fails marginal effect to yield additional 1.5% gains in sales 1.0% 0.5% Strong initial gains in sales from increasing business travel 0.0% 8 27 54 72 99 26 44 71 0 9 09 18 36 45 63 81 08 17 35 53 62 89 98 07 0. 1. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 2. Percent Increase in Travel Expenditures
  20. 20. Where is the Optimal Level of Travel Spend? All figures are inflation-adjusted Incremental Yield to Promotional Spending Incremental Cost of Promotional Spend
  21. 21. Some Sectors Have Ample Room to Raise Travel Spend Profitably…
  22. 22. While Others are Already Near Their Optimal Level…
  23. 23. Travel Spend Maximization Point by US Industry Incremental Real Percent Changes Maximization Point by US Industry Source: NBTA, American Express
  24. 24. Is There Room for US Businesses to Grow Sales (Profitably) by Traveling More? Source: IHS Global Insight, Compustat, US Bureau of Economic Analysis –National Input/Output Accounts, American Express * Numbers do not sum due to double counting
  25. 25. ROI of Business Travel: Findings • Finding1: Business Travel Productivity is rising • Finding2: Increases in travel spend do lead to incremental sales & profits, albeit at a diminishing rate
  26. 26. ROI of Business Travel: Findings • Finding3a: Most U.S. industries are currently underspending on business travel…
  27. 27. ROI of Business Travel: Findings (cont.) Finding3b: Some industries are at/near optimal
  28. 28. ROI of Business Travel? …about 16-to-1 After Maximizing Sales from Additional Business in Millions of Current $ 2008 Travel Difference Sales $ 24,086,545 $ 24,981,252 $ 894,707 Cost of Goods Sold Labor Cost $ 6,676,055 $ 6,875,974 $ 199,919 Material & Service Costs $ 11,339,429 $ 11,776,559 $ 437,130 Business Travel Expenses $ 261,362 $ 275,318 $ 13,956 Other Costs & Expenses $ 1,027,515 $ 1,060,740 $ 33,225 Total Costs $ 19,042,999 $ 19,713,273 $ 670,274 Gross Operating Profits $ 5,043,546 $ 5,267,979 $ 224,433 Operating Margin % 20.9% 21.1% 0.2% Finding4: If all sectors were to reach their optimum, U.S. travel spend Finding4: If all sectors were to reach their optimum, U.S. travel spend would increase by $14B (+2.2%),,resulting in a $900B (+3.7%) increase would increase by $14B (+2.2%) resulting in a $900B (+3.7%) increase in sales, a $224B (+4.4%) rise in profits, and a 0.2% uptick in gross in sales, a $224B (+4.4%) rise in profits, and a 0.2% uptick in gross margin. margin.
  29. 29. What Does This Imply For Management of T&E? Max Sales Hypothetical US MFG Company from Business (Millions of $) 2008 Travel Difference Sales $ 500.00 $ 519.73 $ 19.73 Cost of Goods Sold Labor Cost $ 95.30 $ 96.51 $ 1.22 Material & Service Purchase $ 339.41 $ 354.87 $ 15.46 Business Travel $ 4.05 $ 4.27 $ 0.22 Other Costs & Expenses $ 5.68 $ 5.87 $ 0.19 Total Cost $ 440.38 $ 457.26 $ 16.87 Gross Operating Profit $ 59.62 $ 62.48 $ 2.86 Gross Margin% 11.9% 12.0% ••Travel spend is expanded by $220k for our $500m manufacturing company Travel spend is expanded by $220k for our $500m manufacturing company ••Accounting for inflation and input productivity trends, the yield is +$20m in sales Accounting for inflation and input productivity trends, the yield is +$20m in sales and +$2.9m in Operating Profit. Margin improves by 0.1% and +$2.9m in Operating Profit. Margin improves by 0.1% ••ROI of additional travel spend is about 13 to 1 ROI of additional travel spend is about 13 to 1
  30. 30. 2009 ROI of Business Travel Research • Unique Proposition of the NBTA/AEBT Research: – Econometric model of sector (15) sales accounted for all critical sales drivers including…travel spend – This allowed us to isolate the incremental impact of travel spend – And apply a defensible number to the question of ROI • Caveat: Findings are exciting, but optimal sector averages are not easily applied to individual companies. Why? Simply belonging to a sector is not enough information to determine a true company optimal • Solution: 2010 ROI Deeper Dive –Company Level Analysis of T&E, Sales, and Profit
  31. 31. 2010 ROI Deeper Dive –Company Level Analysis* • Will the inclusion of 2009 results materially alter the original industry- level findings? How do recessions change the ROI picture? • Will the application of this approach on company-level numbers reveal a similar story? • Can we also include other critical company attributes –size, number of locations, global-v-local reach, sub-sector, corporate hierarchy…? • Can we incorporate a way for individual companies to compare their metrics to an applicable theoretical optimal? • End Game: A Benchmarking Tool to Assist Corporate & Travel Managers * Sponsored by NBTA and American Express Business Travel
  32. 32. 2010 ROI Deeper Dive –Company Level Analysis* • Currently in process. Top line results to be presented at NBTA International Convention in Houston (Aug 2010) • Based on data for 850+ public companies across a broad array of sectors and representing all size classes Note: Air Spend Only * Sponsored by NBTA and American Express Business Travel
  33. 33. Thank You! R E S E A R C H Kenneth McGill Phone: (202) 449-9708 Fax: (202) 449-1370 Mobile: (610) 213-2558 Email:ken.mcgill@vantagestrategy.com 93 Main Street, Suite 200 Annapolis, MD 21401 www.vantagestrategy.com

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