Business travel forecast.

Cost factors for four major segments of the travel industry - and how to keep them under control.

Business travel will continue to generate higher individual and group travel costs for the foreseeable future. The reason: Not much has been accomplished in the way of increased productivity on the part of travel suppliers, and no real-operational efficiencies have been implemented to permit suppliers to maintain prices in the face of rising labor costs. At the same time, while businesses today aren't necessarily increasing their travel budgets, low-fare airlines and increased airline competition have reduced travel expenses to many cities, and an increased volume of business travel has resulted. Today's business travelers are presumably able to make more trips of shorter duration on their same budgets.

While total expenditures for travel by companies may not have changed much in recent years, distribution of those expenditures has moved from airlines to hotels and car rental agencies. (See "Domestic Business Travel Price Index" charts.) Outlined in this article is a general forecast for major segments of the travel industry including airfare, lodging, car rental, and meals - as well as budgeting implications for association executive and group convention travel.

Airfare

One big change likely to have a major effect on airline costs within the next few years is ticket-less travel, although businesses probably can't expect these reduced costs to be passed along in the way of price relief. A ticket-free transaction can potentially save an airline about $35 per passenger, when you consider the time of people behind ticket counters and the recording, filing, and transporting of ticket documents. The refund itself is an expensive process for airlines even though they often charge a fee. Ticket-less travel eliminates the need for refunds and a great deal of the paper in the business.

Another potential gain in airline efficiency is the elimination of hubs. Southwest Airlines, for example, has clearly demonstrated that you don't need a hub operation to be successful. Hubs, while a marvelous device for airlines to provide a high-frequency choice of travel schedules, are basically uneconomic. They also impose on travelers an inferior substitute when a connection replaces a nonstop flight. Airlines probably incur double the cost to take a passenger through a connecting point instead of direct. Additionally, hubs cause tremendous airport congestion and, in times of bad weather, can mess up travelers' schedules all over the world. Since air travel demand has been rising in recent years, many city pairs that traditionally have been linked through hubs now can stand on their own. Those city pairs represent opportunities for both new and established airlines. Meanwhile, rising fuel costs may force airlines to review their hub dependency.

Lodging

Hotel occupancy rates have risen steadily throughout 1995 and into 1996. Hoteliers who suffered from an oversupply of available rooms in recent years are gearing up to meet new market demands. As occupancy levels rise, hoteliers now greet increased demand with rate hikes. As occupancy rates rise in 1996, attention on savings may shift temporarily away from air programs and toward opportunities for improved lodging deals. Travel professionals will negotiate more fervently for improved rates or guaranteed concessions.

Despite rising demand and costs for lodging, the only really noticeable productivity gain during the past 10 years is probably the checkout process. Use of in-room television sets, for instance, can expedite this procedure. However, key productivity factors in what is basically a labor-intensive business still need to be addressed. The job of bellhop, for instance, has existed since anything with wheels was created. But while bellhops may still be perceived by the hotel as providing a necessary service, they aren't always perceived by customers as necessary.

Hotels also need to consider factors that slow down the process of putting a person into a room, such as the handling of luggage, which could be automated. Likewise, technology already makes it possible to preassign rooms whereby a person's credit card can be used as a room key.

One trend observed during the past five years has been a growing tolerance by business travelers of less fancy accommodations. Courtyard by Marriott's unquestionable success, for example, shows that people are saying, "I don't need all this stuff." Courtyard is a standard product, but a very comfortable one that also recognizes the importance of creating workspace for the business traveler - something hotels by and large have ignored - by providing long phone lines that enable you to take the phone from desk to bed and by making it easy to plug in your computer.

Car rental

Car rental is probably today's best business travel buy in terms of what you get for the money you pay - a vehicle at your command that you can drive virtually anywhere for about $50 a day. If you were to reimburse an employee driving his or her own car, you would pay 31 cents per mile - the Internal Revenue Service-approved rate. But he or she couldn't go more than 160 miles in a day before it would be cheaper to rent a car. At the beginning of 1995, car rental rates were lower than they were 10 years ago. For a variety of reasons, car rental is only now beginning to price itself at a level consistent with the rising inventory costs that they have endured. Even so, because of industry competitiveness and off-airport suppliers seeking corporate business, many companies have been able to negotiate rates considerably lower than these price hikes would indicate.

To stay competitive, car rental companies have gradually changed their philosophy perforce in recent years. Today, many don't have as large of a fleet, and their emphasis has been on shifting demand so that they don't have 100 percent use on Wednesdays only - their peak day. And sometimes they're actually being sold out.

A rise in trip frequency is likewise causing a surge in car rental demand. And as businesses look to economize, they're parking their travelers out near airports, where hotel prices per room are often lower than downtown, and then using car rental for maximum mobility.

Meals

Banquet menu costs continue to rise, but buyers are becoming increasingly wise about meal costs. And since food costs tend to be more stable nationwide, swings in meal costs are less significant on a city-to-city basis than for lodging, for instance.

With regard to the IRS ruling on business meals deductibility, while only a few companies have told their people to spend less on food since it's not fully tax deductible, all organizations are now forced to look more closely at their meal costs. The chief executive officer, who may not have been keenly aware of food costs bundled into a hotel bill, for example, will now see meal costs separately broken out as a partially taxable line expense and may begin to raise questions. Whenever a cost item is isolated, people pay more attention to it.

Some significant changes in meal costs are occurring in companies that have changed their reimbursement policies. For example, when a policy requires a receipt for any meal costing more than $10 instead of $25, meal costs almost certainly drop.

Budget implications

One great hidden expense in corporate travel is the cost to plan a trip. Runzheimer International, Rochester, Wisconsin, recently detailed steps and time involved in the planning and reimbursement of an individual's business trip on a worst-case scenario basis. We found that administrative costs can amount to as much as $230 per transaction, from first contacting a travel agency for information to reimbursing a traveler's expense account. (When we tested this model with travel management experts, they came up with a cost of $260.)

Technology can help reduce these costs. For example, it is already possible for a business traveler to turn on his or her laptop computer and indicate a need to go to Tokyo or most any other destination. A Tokyo trip is created on the screen in front of his or her eyes, complete with departure times and transfers, hotel accommodations, and so forth. The traveler can accept, reject, or modify the trip, but he or she won't have to research every single element. It comes instead in one chunk - a model trip - representing the best value for that destination.

The same holds true from a convention planning standpoint. When we permit direct access from a PC to computerized reservation systems, information is going to be so prominent that questions will increasingly be asked about value simply because more information is available.

The fact that today's managers are increasingly concerned with profitability throughout the organization including business travel - creates opportunity for new competition to emerge. Certainly both buyers and sellers will need to get used to avoiding waste. Travel products must represent true value if they are going to be subscribed to by business leaders and considered seriously by convention consumers. More and more, conservation is going to be part and parcel of managing travel costs.

Consequently, during the next few years, businesses will need to focus more on the overall costs of the destinations that are critical to their business activities. As associations become more destination-oriented, there will ensue a higher level of consciousness of comparative destination costs. As a result, associations will likely move to locations that offer lower overall travel costs. Indeed, as individual travelers become more conscious of destination costs, they are going to demand that their associations be much more intentional in this regard.

Of course, this presents something of a chicken-and-egg situation, because the more demand that is created as a result of moving your conventions to certain destinations, the greater the likelihood that the costs of doing business in those cities will increase. Greater knowledge of geographic differentials and quick reaction to that knowledge will therefore be a significant factor in the future profitability of an association's meetings operation.

RELATED ARTICLE: HIGHLIGHTS

* While total expenditures for travel by companies may not have changed much in recent years, distribution of those expenditures has moved from airlines to hotels and car rental agencies.

* Greater knowledge of geographic differentials and quick reaction to that knowledge will be a significant factor in the future profitability of an association's meetings operation.

RELATED ARTICLE: Trimming Travel Costs

Executive travel

Association executives are no exception to those who are looking to cut their travel costs. In addition to having a tenacious and creative travel agent who keeps abreast of deals, coupons, promotions, and industry developments, here are a few techniques I employ.

Airfare. Although airline regulations vary, your agent may be able to combine tickets back to back to simulate Saturday stays - which often mean substantial savings. Sometimes combining two different round trips on two different airlines may be cheaper than taking the entire trip on the same airline. Nearby alternative airports often have surprisingly different fares, and may be worth the extra drive.

Lodging. Special promotions and weekend, commercial, family, senior, government, and package rates - especially those combined with meals and business services are worth investigating. Different room sizes and configurations offer additional price flexibility. Suburban hotels are often overlooked, but just a short drive or cab ride away, rates can average two thirds of the cost of staying downtown.

Car rental. Don't overlook state and local taxes and the drop-off charge if different from your point of origin. Rental car insurance can be substantial, and although prudent, may be avoided if you're already covered by your personal auto policy. Many credit card companies also offer such coverage, sometimes even including the deductible charge if the rental is paid for on their card.

Meals. Many hotels include breakfast, and some include other meals with their room rates. Special meal requests on airline flights can also mean more substantial quality and quantity than the usual snacks, again saving travel dollars.

As travel suppliers become more competitive and resourceful in finding ways to get your business, you will find that you have even more flexibility in obtaining deals by simply asking, combining them in ways that work best for your situation, and even creating a few of your own if they are agreeable to the provider.

Philip Peach, CAE, executive director, Oregon Lodging Association, Portland

Meeting attendees

If your members can't get to your meeting inexpensively, that provides a major hurdle to building attendance. Take advantage of every travel resource available to provide attendees with discounts and options for airline and car rental expenditures. For example, if several airports service a location, discounted fares into one airport might be less expensive for attendees.

Likewise, make sure that the association's meetings staff negotiates the lowest possible hotel rates - including the lowest weekend rates - as well as suite requirements and sleeping and meeting room costs. Get a cap on food and beverage costs - if not when signing the contract, at least 12 months prior to the meeting. Negotiate setup or banquet labor charges if the 8 a.m.-5 p.m. labor contracts don't meet your needs. Try to eliminate extra costs involving linens or buffet decorations. Hotel room phone charges may also be negotiable.

Attendees will also appreciate traveling conveniences that save them money and time - for example, cash-and-carry food items or discounted shuttles from the airport to the hotel.

Corinne Dacus, director of meetings, American Association of Cereal Chemists, St. Paul, Minnesota, and incoming chair, ASAE Meetings & Expositions Section Council

Rolfe Shellenberger, based in Palm Desert, California, is senior consultant for travel management for Runzheimer International, Rochester, Wisconsin.