Magazine article Business Credit

Managing Travel and Entertainment in the 1990s

Magazine article Business Credit

Managing Travel and Entertainment in the 1990s

Article excerpt

Clearly, in an era of business restructuring, finance has to play a more active role in setting the course, so that the company is able to capitalize on all the changes that it is making. Some of those changes are directly affecting the corporate travel industry and company budgets. There are tremendous opportunities for companies to save money without forcing staff to stay at home or to sleep in a cheap motel while travelling. Top management is recognizing that business travel and entertainment (T&E) is an area that demands more attention. They see travel as a confused industry, and they see T&E as costs that are not well controlled. After 26 years in the business, I can only agree.

What you may not realize is that T&E costs are much more than a footnote to the bottom line. Travel, after all, is typically a company's third largest controllable expense (after salaries and data processing). Corporate America spent over $130 billion on T&E this year. A typical company is now spending 246 percent more on T&E per employee than it was a decade ago. With all the communications technology available, companies still find that "being there" is critical to making and maintaining business contacts. Fortunately, in addition to being a huge and growing investment for companies, travel is a highly negotiable purchase. If you are not finding deals, you aren't looking in the right places.

At some firms, corporate travel decisions have been delegated to the employee. According to the most recent survey of Business Travel Management, published by American Express, two-thirds of small companies and about one-third of mid-sized firms (100-1,000 employees) do not have a formal written travel policy. The potential for mistakes and abuse is enormous, but so too is the opportunity for savings.

Deregulation, Booms, and Yield Management

The history of business travel could start with Noah and the Ark, but I will jump ahead to 1978--when the airlines were deregulated. This represents the "Big Bang" in the travel industry, although some would call it a nuclear disaster. The change was made to spur competition to offer market-driven rates on more routes. At this time there were no hubs, no vacation promotions, no Saturday night stay requirements, no frequent flier programs, no fare wars, and no airline executives screaming for protection. The undisputed fact is that deregulation has created chaos--and some people thrive on it.

Throughout the 1980s, we witnessed a sea of change in the transportation system. Airlines developed the hub-and-spoke system, which increased service to some cities and put certain towns on everybody's travel itinerary. The old joke is that on Judgment Day, you're told that you can get to heaven, but you have to connect through Atlanta--that's not too far from the truth!

Meanwhile, on the ground, the hotel industry has been going through its own version of turbulence. During the early and mid-'80s, we saw a boom in hotel construction. But, the recession coupled with tax restructuring, changed the focus of the industry from growth to operations.

Before the bad news hit, however, hotel companies launched a frantic campaign to segment their products. They turned one brand into five or six, creating upscale downtown properties, deluxe resorts, budget hotels, airport sites, all-suite and extended stay properties, and even retirement hotels. The hotel industry also embraced the notion of yield management. Now, you ask for the price of a room, and you are likely to get different answers depending upon when you call, where you call (800 number or the hotel directly), and how insistent you are. Haggling with the reservations desk has become a common practice for business travelers.

The boom-era came to a screeching halt in the late 80s. Hotel occupancy dipped below 60 percent, which is below the break-even point for most hotels. Consequently, negotiation has become the norm for companies that realize both chains and individual properties will give deep discounts if business travelers are steered their way. …

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