Corporate strategies and initiatives for 2005 clearly demonstrate a resurgence (and need) to travel. In an ever-changing industry, a constant vigil is required and continuing adjustments to policy and programs that support and reflect change will ultimately assist in controlling travel costs.

About Survey Respondents

This month, RRTM reports on 2005 travel policies and budgets, methods being used to control costs, and recaps average 2004 trip costs.  This article is based on 78 responses to a survey conducted in Spring 2005.

Organizations of all sizes responded to our recent survey.  Breakouts of travel expense budgets are reported in Table 1 where a similar percentage of organizations have budgets of $5 million or less (34%) or more than $20 million (37%).  Respondent organizations report their average 2005 total travel expense budget is $49,271,381; the median is reported at $13,500,000.

Table 1 2005 Total Travel Expense Budget
	Percent of 2005 Respondents
$1 million or less	22%
$1,000,001 - $5 million	12%
$5,000,001 - $10 million	17%
$10,000,001 - $20 million	12%
$20,000,001 - $50 million	22%
More than $50 million	15%

 

Changes to 2005 Travel Budgets

Nearly one-half (49%) of respondent organizations report this year’s travel budget is about the same as 2004 expenses (Table 2).  Forty-three percent of respondents indicate this year’s budget is higher than last year’s expenses, while only 8% report lowering their budget.

Table 2 2005 Budget vs. 2004 Actual Travel Expenses
	Percent of 2005 Respondents
Higher	43%
Lower	8%
About the same	49%

Table 3 provides a breakout of respondent organizations’ 2004 travel expenses.  On average, 20% of travel expenditures represent international travel.

Table 3 2004 Total Travel Expenses
	Percent of 2005 Respondents
$1 million or less	25%
$1,000,001 - $5 million	14%
$5,000,001 - $10 million	13%
$10,000,001 - $20 million	13%
$20,000,001 - $50 million	19%
More than $50 million	16%

When compared to 2003, nearly two-thirds (62%) of respondent organizations report their 2004 travel expenses increased, 13% reported a decrease, while 20% of respondents indicate their expenses remained the same (Table 4). Of respondents reporting an increase in 2004 travel expenses, the average increase was 12%.  Of respondents indicating a decrease in travel expenses, the average decrease was 17%.

Table 4 Comparison of Travel Expenditures
Percent of Respondents
Travel Expenditures	2003 vs. 2004
Decreased	13%
Increased	62%
Remained the same	20%
Don’t know	5%

Of the 62% of organization respondents reporting an increase in travel and entertainment cost, three-fourths report an increase in number of domestic trips as the primary reason for the increase (Table 5).  An additional 61% report the number of domestic travelers increased.

When asked by what percentage travel costs increased in 2004, the average response was 12%.

Table 5 Reasons for Increase in 2004 Travel Expenditures
Reason for Increase	Percent of 2005 Respondents
Number of domestic trips increased	76%
Number of domestic travelers increased	61%
Number of international trips increased	50%
Number of international travelers increased	37%
Travel prices increased	37%
Duration of trips increased	20%
*Total exceeds 100% because of multiple answers

Runzheimer Comments: Most definitely, we’re traveling again!  Although we may never see air travel levels as high as in the ‘90s, it is business as usual for most respondent organizations.  Although increased travel prices continue to be part of the equation, this factor has not been the prominent reason for overall travel price increases.

 

Of the 13% of respondents noting a decrease in travel expenditures, a decrease in number of trips is the primary reason—88% report a decrease in number of domestic trips with an additional 50% reporting a decrease in number of international trips (Table 6).  A six-percentage point increase in use of travel alternatives (shown at 25%) is a factor influencing the decline in travel expenses.

Table 6 Reasons for Decrease in 2004 Travel Expenditures
Reason for Decrease	Percent of 2005 Respondents
Number of domestic trips decreased	88%
Number of international trips decreased	50%
Number of international travelers decreased	25%
Travel prices decreased	25%
Increased use of travel alternatives	25%
Number of domestic travelers decreased	13%
Duration of trips increased	13%
*Total exceeds 100% because of multiple answers

Trip Costs

Respondents report their average 2004 domestic trip cost was $919; the median is reported at $904 (Table 7).

Table 7 Average Domestic Trip Cost*
	2004
Average	$919
Median	$904
*Definition of domestic travel is any trip inside the U.S. or inside one’s home country.

The average international trip cost is reported at $3,750 for calendar year 2004; the median is $3,038 (Table 8).

 

Table 8 Average International Trip Cost*
	2004
Average	$3,750
Median	$3,038
*Definition of international travel is any trip outside the U.S. or outside one’s home country.

 

Runzheimer Comments: Increased use of low cost carriers, coupled with the emergence of choices in many markets, has helped to create a competitive edge when shopping for airline seats.  Also, let's not discount the fact that traveler behavior has changed over the last few years.  Travelers do not (and often cannot) spend travel dollars as in the '90's. 

Controlling Travel Costs 

The top five actions emphasized to control travel costs are reported in Table 9.  The majority of 2005 respondents report tightening adherence to travel policies (74%) to control travel costs as most important.  Sixty-five percent encourage use of vendors with whom special rates are in place, and a like percentage, 63% either promote the use of lowest logical fares or are increasing communication with their travelers, travel arrangers and supervisors.  Use of an online booking tool (58%) also ranks high on respondents’ list. 

Table 9 Current Actions Emphasized to Control Travel Costs
Action	Percent of 2005 Respondents
Tighten adherence to travel policies	74%
Encourage use of vendors with whom special rates have been negotiated	65%
Use of lowest logical fares	63%
Increase communication with travelers, travel arrangers, supervisors	63%
Use of online booking system	58%

The percent of organizations with a written travel policy in place increased 10 percentage points since our last Survey, and for the first time in our survey history the vast majority of respondent organizations (94%) confirm policy importance (Figure 1).   In addition, 61% of respondents update or review their travel policy on an annual basis.

Figure 1 Organizations with Written Travel Policies

Runzheimer Comments:  A well-communicated, written, formal policy is essential to set forth rules and procedures that inhibit open interpretation or individual discretion.  Travel policy must be shared with an organization’s travelers, TMC, and incorporated into an online booking system.  In the absence of policy and guidelines, travelers are apt to overspend on travel and compromise negotiations made with travel suppliers.  Similar to the increased importance placed on having a written travel policy, more travel managers than in the past understand the importance of keeping travel policy current.   

 

We recommend that basic travel policies be written so regular revision becomes necessary.  Use supplements indicating names of preferred vendors, travel agency, charge card vendor, etc., which will provide for easy updates when changes occur.

 

The use of a designated agency/in-house travel office is the primary travel issue included in travel policy as reported by 95% of respondent organizations (Table 10).  Close contenders include expense reports and reimbursements (93%) and definition of non-reimbursable expenses (91%).   Use of personal automobiles (87%) and meal cost reimbursements (85%) round out the top five travel policy issues.

 

Table 10 Travel Issues Included in Travel Policy of Firms with Written Policy
Travel Issues	Percent of 2005 Respondents
Use of designated agency/in-house travel office	95%
Expense reports and reimbursements	65%
Expenses that are not reimbursable	63%
Use of personal automobiles	63%
Meal cost reimbursements	58%
*Total exceeds 100% because of multiple answers

 

Runzheimer Comments: Use of designated travel office or agency continues in its importance over the past two survey years.  Cost management and compliance is predicated on a central point of control and those in charge of booking travel are fundamental to this end.  Although travel counselors should not be travel enforcers, they should act as a travel manager’s partner in the education of travelers.

 

Expense reports and reimbursement processes are important to cost containment and impact all areas of an organization and make every department—and staff member—accountable for expenses.  Streamlining processes, automating workflow, and eliminating redundancies are fundamental techniques for all businesses.  Use of electronic T&E management systems support time- and  cost-cutting initiatives.

Meal cost reimbursements remain a top-rated travel issue and may reflect the discretionary nature of meal expenditures as well as the need to report meal information separately for tax reasons.   Meal per diems allow for transfer of reporting responsibility away from an employer to the traveling employee—a system most employees prefer because they can “save and binge” at their own discretion (or indiscretion).  Likewise, establishing meal price guidelines or caps are a cost saving practice that more organizations are adopting to better control this highly discretionary expense item.  Meal price information for 300 cities is made available within Runzheimer’s Travel Management Network (TMN) Travel Price Benchmarking section.

 

Of respondent organizations that mandate certain aspects of travel, most (88%) mandate use of their designated travel agency/in-house travel office as shown in Table 11.  Other policy mandates include use of a designated online booking system, use of preferred suppliers and implementation of standardized meal cost reimbursements, shown this year at 34%, 63% and 46%, respectively.

Table 11 Mandated Travel Policy Aspects
	Percent of 2005 Respondents
Use of designated travel agency/in-house travel office	88%
Use of preferred suppliers (airline, hotel, car rental)	63%
Use of corporate charge card	55%
Standardized meal cost reimbursements	46%
Use of designated online booking system	34%
Other	8%
*Total exceeds 100% because of multiple answers

Runzheimer Comments: Respondents clearly demonstrate that organizations are serious in their attempt to identify and curb travel costs.  Mandates, initially not often palatable, are soon recognized for their value and accepted by travelers.  Mandates help ensure that an organization is able to meet supplier volume commitments, which translates into better supplier terms as suppliers recognize and appreciate the organization’s ability to drive volume to preferred arrangements.

Use of an organization’s Intranet (88%) is the primary method in which to communicate travel policy to employees as shown in Table 12.  Travel policy education is becoming a standard part of new employee orientation processes reported at 53%.  Paper is less desirable—24% of respondent organizations distribute a travel policy handbook to their employees and only 18% communicate policy through a newsletter.  Other methods, as reported by 12% of respondents, include:  travel forums, telephone calls, and communication by travel counselor.

Table 12 How Travel Policies Are Communicated to Employees
Communication Method	Percent of 2005 Respondents
Intranet	88%
Email	59%
Orientation program for new employees	53%
Department/office managers responsible for policy communication to travelers	41%
Policy is in agency reservations computer	37%
Periodic meetings with organization travelers	29%
Travel policy handbook distributed to all travelers	24%
Memos	24%
Travel policy is available online internally (not on Intranet)	22%
Newsletter	18%
Other	12%
*Total exceeds 100% because of multiple answers

 

Runzheimer Comments:  Regardless of how you communicate, keep travelers and top management apprised of current issues and travel management changes.

 

Don’t expect that travelers will read your travel policy just because it is made available on your Intranet site.

Leverage technology tools to reinforce traveler communication and policy compliance.  Give special consideration to the new employee orientation process and how travel policy is communicated there.  Also take advantage of opportunities to meet in person with travelers by attending sales meetings and other relevant meetings where communication opportunities can be in person.  Send weekly or monthly emails using the subject line to get a “brief” message across or to send a “friendly reminder.”

 

Forty-three percent of respondent organizations refuse to reimburse out-of-policy expenses in an effort to enforce travel policy (Table 13).  Twenty-three percent write formal letters to the employee and supervisor and, 15% do not enforce policy.  Other, as reported by 19% of respondents, include:  non-compliance is made known through compliance reports and metric management reporting, travel counselor reports to travel manager, and requires VP approval for reimbursement.

 

Table 13 Enforcement of Travel Policy
	Percent of 2005 Respondents
Refuse to reimburse out-of-policy expenses	43%
Write formal letters to employee and supervisors	23%
Do not enforce	15%
Salary deductions	1%
Other	19%

As expected, top executives and members of the board of directors are most often allowed special privileges when traveling, 61% and 42% respectively (Table 14).  These exceptions and special privileges may include first and/or business class airfare, deluxe lodging, and larger size rental cars or limousines.  However, one-third of respondents do not allow special privileges for management.

 

Table 14 Management Levels Allowed Special Privileges In Travel Policy
Management Level	Percent of 2005 Respondents
Top executives (CEO, COO, president, chairman, etc.)	61%
Board of directors	42%
None	34%
Vice presidents	29%
Others	5%
Directors	4%
Managers	1%

Air policy requiring travelers to fly coach class (82%), acceptance of lowest logical fare (77%), and encouragement to use non-refundable tickets (73%) were reported as the most frequent policy components (Table 15).

Other, as reported by 8% of respondents, include: pre-trip approval is required for all travel; only CEO may fly first class; travelers are not expected to take more than one stopover and encouraged to book a direct flight if available and of reasonable cost; and travelers are not allowed to book Web fares except through the travel office or through online booking tool.

Table 15 Statements Included in Air Travel Policy for Domestic Travel
Statement	Percent of 2005 Respondents
Travelers are required to fly coach class	82%
Travelers are required to accept the lowest logical fare	77%
Travelers are encouraged to use non-refundable tickets	73%
Travelers are encouraged to use alternate airport	42%
Supervisors/travel managers must approve airfares before trips are taken if fares fall outside of policy guidelines	42%
Travelers are encouraged to use Saturday-stay fares	31%
Only senior management may fly first class	20%
Only senior management may fly business class	16%
Other	8%

 

Runzheimer Comments:  Educating travelers in the use of non-refundable tickets is a valuable lesson in economics.  If using non-refundable tickets, travelers should be required to “book smart,” and secure and/or confirm appointments before making a ticket purchase.  An interesting side benefit is that employees are doing a better job of managing their time as a result.

Acceptance of lowest logical fare (51%) is the number one statement made in international air travel policy (Table 16).  Forty-one percent of respondent organizations allow travelers to fly business class if the trip exceeds a specific time limit, while one-third allow all travelers to fly business class when traveling internationally. 

Other, as reported by 15% of respondents, include:  pre-approval is required for business class; senior management may fly business class to Europe, all others coach, although all employees may fly business class to Asia; travelers may use premium economy if trip exceeds a specific time, if premium economy is not available then business is acceptable.

Table 16 Statements Included in Air Travel Policy for International Travel
Statement	Percent of 2005 Respondents
Travelers are required to accept the lowest logical fare	51%
Travelers may fly business class if the trip exceeds a specific time limit	41%
Travelers may fly business class when traveling internationally	32%
Only senior management may fly first or business class	23%
Travelers are not restricted in choice of class travel	1%
Travelers may fly first class	0%
Other	15%

 

Runzheimer Comments:  Mandating use of lowest logical fares and limiting use of business class can force significant cost savings.  However, these savings should be balanced with issues of employee productivity following a long international flight and value of a traveler’s time, which may vary considerably among different employees and airfare options.

  

Traveler satisfaction is evident as shown in Table 17 with 22% of respondents who rate their traveler’s satisfaction with travel policy as excellent with an additional 68% who rate satisfaction as good.

Table 17 Traveler’s Satisfaction With Travel Policy
Excellent	Good	Fair	Poor
22%	68%	8%	1%

Traveler satisfaction with travel policy is often the basis for travel compliance. Twenty-three percent of respondents report travel policy compliance as excellent; 56% report compliance as good and an additional 20% report compliance as fair (Table 18).

Table 18 Traveler’s Compliance With Travel Policy
Excellent	Good	Fair	Poor
23%	56%	20%	1%

A survey conducted by Travel+Leisure magazine named Midwest Airlines, based in Milwaukee, the World’s Best Domestic Airline for 2005. Another noteworthy fact is that none of the six largest carriers ranked among the top 10 domestic airlines. On the international side, Singapore Airlines took the prize for best international airline, a title it has held for the past ten years.

World’s Best Airlines
Domestic	International
1. Midwest Airlines 2. JetBlue 3. Independence Air 4. Song 5. Alaska Airlines 6. Hawaiian Airlines 7. Frontier 8. Southwest 9. Aloha Airlines 10. Horizon Air	1. Singapore Airlines 2. Emirates 3. Cathay Pacific Airways 4. Thai Airways International 5. Malaysia Airlines 6. Virgin Atlantic Airways 7. Qantas Airways 8. Japan Airlines 9. Air New Zealand 10. SilkAir

Source: http://www.travelandleisure.com

Runzheimer's Travel Management Network provides travel cost benchmarking information for more than 300 locations. The average per diems for Milwaukee, WI (Midwest Airlines home base) and Singapore, SG (home base to Singapore Airlines) are as follows:

Milwaukee: $150.21
Singapore: $150.95

 

*Figures are in USD and include first-class lodging ADR plus three meals

Visit Runzheimer's Travel Management Network for more per diem information.