Travel Management: The Art Of Spending Wisely
Travel management companies may be relatively new in China but they are rapidly helping organizations across a wide spectrum of industries to manage their travel budgets and get the best possible value during the current global economic downturn.
Case I
A company has contracted its travel service to a travel management company, but Mr. Zhang, a department manager from the company, seldom uses the discounted tickets booked by the travel management company as these tickets don't earn airmiles.
Case II
Mr. Gu, a technology manager, often needs to travel between Beijing and Shanghai. In line with a company rule that employees are not expected to travel on business at weekends, Mr. Gu chooses to rush back to Beijing on a night flight on Friday if he is on a business trip on that day.
Case III
Ms. Wang, an employee of a foreign-funded accounting firm, is basically a "flying person" during the peak season of auditing. To allow employees to reschedule flights easily, Ms. Wang's company often books full-price air tickets. As a result, the company's travel cost soar.
Case IV
A company has learned from the monitoring system used by a travel management company that it often needs to book full-price air tickets as one of its employees can't fix his return dates when on business trips. The department manager of the company asks the employee for an explanation to find out whether this problem is caused by the employee himself or by company management practices that need to be reviewed.
If a company experiences any of the first three cases, then it's the time to call in a professional travel management company. When a company encounters Case IV, the person who is in charge of travel services should recognize the importance of travel management. As an index of a company's management level and management efficiency, such factors as the making and implementing of travel management policies, the means and procedures of financial management, the monitoring of employee behavior, the analysis of travel data and travel management contracts all affect the operation of the departments within the company. Therefore, a professional travel management company not only helps companies save travel expenses, but also relieves them of complex travel management issues with fast and diversified travel services — so that they can concentrate on their key businesses.
With more international travel management companies coming into China, travel management is no longer a novelty in China. More and more multinational companies and Chinese companies are beginning to embrace this concept. This article will show the advantages of each of the travel service options — traditional travel agencies, online travel service providers, and travel management companies — and inform companies of the ways of selecting the services provided by them.
Improve Enterprise Cash Flow Management
Zhang Jinghong, the general manager of China Youth Travel Service International Business Company, says that a travel management company must be responsible for both the direct client, i.e. the companies or undertakings that buy the travel management service, and the final client — the employees who enjoy the travel service. Companies want to save money, while employees prefer comfort and convenience. So it's up to the travel management company to seamlessly combine the two sets of needs.
Travel management is totally different from booking a ticket. However, according to the travel policy of many companies, travel management involves communications with airlines and hotels and negotiating and bargaining with them, so the travel activities of the company are regarded as ticket booking. For companies, the saving on travel costs is not shown in a particular case, but in a company's long term policies and plans. In the current Chinese travel management market, travel management companies have not actually participated in travel management. By and large their role is to meet the companies' demands.
Most companies will usually call and compare prices with at least three travel service providers before booking tickets at the cheapest price. This process wastes a great deal of human resource and time and does not result in major savings overall. Zhang Jinghong states that companies often look for a savings on a case by case basis but don't have a comprehensive plan for their annual travel. Looked at from the perspective of a company's long term growth plan, the longer they cooperate with a travel management company, the less problems there will be. If a company focuses on a single aspect of its costs and ignores the continuity of direct cost and indirect cost, this is not good for their travel expense control, neither the direct costs nor the indirect cost. Zhang Jinghong believes that if a company's monthly business travel costs exceed CNY10,000 — then it needs to have a specialist company manage its travel service.
CYTSIBC currently provides professional travel management reports so managers of travel services can see clearly where their money is spent. Managers can have an understanding of each trip on company business through the indication of various reason codes provided by CYTSIBC, as in Case IV. Zhang Jinghong said that those companies whose schedule is not fixed should choose some preferential and free service or upgrade service by taking advantage of the travel management companies' expertise. In this way, they don't only enjoy a comfortable and secure service, but also timely registration and a high level of seat availability. When these factors are considered collectively, their travel costs will go down. In fact, companies can get cheaper tickets than those offered by online travel service providers and ticket agents through the integrated travel management pattern of travel management companies. Taking air tickets as an example: A professional travel management company has bargaining power for lower airfares based on their statistics of the demand for air tickets by the client in a whole year and can use this as a basis for negotiation with airline companies. Based on the volume of the client's business, they can often get some other discounts as well.
How can travel management companies make a profit while saving a client money? Zhang Jinghong admits frankly that CYTSIBC's profits come from service fees and sharing cost savings, which he says is a very transparent way of making money.
"King Cash" has long been regarded as the core concept of enterprise fund management. The management of cash flow is often critical to a company's growth. It is through improving cash flow management that a company can reasonably control its operation risk and increase its overall fund utility efficiency. Zhang believes that expenditure on business travel is the second largest expenditure of a company following that on human resources, but it is more volatile than human resource costs. Companies that book hotel and air tickets on their own often need to pay immediately and this does nothing to improve the company's cash flow management. Cooperation with a travel management company will offer a one-month interest-free period for companies with a resulting improvement in cash turn. In addition, this saves time for financial settlement and reduces administration costs. Travel management companies provide a bill on a monthly basis and this helps companies make tangible and intangible savings — including the costs in human resources, time, and account keeping.
Zhang calculated the expenditure required for the employee mentioned in Case II. He said that the full price of an air ticket between Beijing and Shanghai is CNY1,130. If the employee must get back on Friday night when the cheapest airfare is available after 11pm, the employee needs to take a taxi home from the airport and pay a 1.5 times fare surcharge for a night time taxi service and he will feel frustrated until the next day. If the company uses a travel management company, it will enjoy a discounted flight ticket applicable even over the weekend. Based on a 40% discount, the company can save CNY452, which is equals a night's room rate of a four-star hotel in a first tier city. If the employee wants to take a break with family or go shopping in the city while on the business trip there is plenty of time to do so and feel fully relaxed. In addition the company can increase employee satisfaction with such a rule. In fact, cost control is the art of spending and not the art of saving. Combining cost reduction, increased enterprise competitiveness, enhanced employee initiatives and creativity with increasing enterprise client satisfaction is an artistic form of cost control. Therefore travel management is not merely about saving money, it is a comprehensive plan that combines air tickets and hotel costs while giving considering employees' feelings and experience.
Zhang Jinghong said that CYTSIBC's clients are government departments and large companies in the finance, medicine, real estate, sales and consulting industries. He expected that when the number of clients is more than a hundred, the company will conduct a satisfaction survey, arrange special personnel for sales, and enlarge its business scope to provide a more comprehensive service for companies.
Travel Management Does Not Conflict With Employee Satisfaction
Zhuang Yuxiang, the vice president of Ctrip.com, told China Hospitality News that saving on travel costs is not just cheaper air tickets. Travel management should first solve the problem of transparency before providing professional policies for companies. Therefore a strict travel management policy should not conflict with employee satisfaction. In addition, travel management can not work alone. It is important that different departments of the company cooperate and coordinate.
Ctrip.com effectively manages the behavior of companies online and reduces travel cost scientifically for them via Ctrip Shanglvtong and Shanglvtong Intelligent Sheet. Ctrip.com is the first operation of its kind in China to provide digital and online intelligence reports on travel management.
Zhuang said that Ctrip's advantage lies in providing localized and customized travel management service for companies with its powerful resource control capacity. Travel management from Ctrip can help companies make travel management policies in addition to providing them with a professional and reliable booking service. It can manage a company's travel behavior through a strict system and explore savable factors to reduce unnecessary expenditure.
At present, the main clients of Ctrip.com are transnational companies and large size foreign and domestic companies. Ctrip.com helps these clients optimize their business travel expenses and efficiency by arranging their business trips, offering flexible cost settlement and professional business trip sheets as well as suggestions on cost saving. Ctrip makes its profits by charging a service fee.
As to what kind of companies need to use a travel management company, Zhuang stated that when a company develops to a certain stage and its expenditure on business trip becomes huge, it will need a travel management company whose role includes providing assistance in resource integration, expert suggestions, travel policy support, and professional data sheets. When a company decides to outsource its business trip services to a professional travel management company, it should be ready to adjust and coordinate its booking procedures, granting its booking rights and fixing the reimbursement procedures.
Because of the world wide financial crisis in 2009, many companies have begun to cut budgets. What solutions can Ctrip.com provide to help enterprises control expenses? Zhuang said that Ctrip.com conducts analysis and planning on enterprise expenditure before putting forward suggestions on cost saving, e.g. squeezing travel policies to control or reduce expenditure on business travel; reducing unnecessary business trips and making travel plans more reasonable; lowering business trip standard by asking the employees to take low-airfare flights or stay in lower star-rated hotels; requiring employees to book air tickets in advance etc, which can help enterprises save cost by an average of 25%.
As to how Ctrip.com ensures clients' travel experience and safety while controlling costs for the enterprise, Zhuang said that Ctrip.com will jointly release a pre-warning report with professional bodies and issue the safest travel plan based on the report. In case of an accident or disaster, Ctrip.com will release a travel relief report in the very shortest time.
Consider Business Travel As An Investment
In China, American Express Business Travel operates in a joint venture partnership with China International Travel Service as CITS American Express. Formed in 2002, the company has expanded to more than 100 times its original size over the past seven years. Gregor Lochtie, the vice president and general manager of American Express Business Travel Greater China and general manager of CITS American Express Business Travel, told China Hospitality News that there are still very obvious problems in business travel management among Chinese domestic enterprises.
"While Internet use is becoming popular, companies are still in need of tools capable of fulfilling their cost reduction targets, compliance rate objectives and, data consolidation from fragmented sources. Non-cash methods only emerging slowly as alternative methods of payment," said Lochtie. He added that the vast majority of companies in China are in fact using two or more travel agencies, thus not benefiting fully from using a single travel agency as expenditure is spread over a number of agencies, making expenditure more difficult to control. Companies who take change management and compliance seriously can reduce costs on average by 3% to 12%, based on total volume of air travel, by optimizing current spend and increasing policy and preferred supplier adherence.
American Express has been promoting a corporate card. In Lochtie's view, a corporate card is more than a payment tool and it provides compelling benefits which helps corporations manage and streamline business processes, identify opportunities for cost savings, and give better support to employees during business travel. It helps companies to maximize savings. Corporate cards provide companies with reporting to analyze spend by industry and suppliers to identify opportunities for rate negotiation. Corporate cards usually provide a range of different options to help companies save on their business expenses. By eliminating cash advances and leveraging on the interest free repayment period, companies can improve their cash flow and utilize funds more effectively. Corporate cards also help companies to maintain control of expenses as they offer a variety of reports to monitor expenditure against budget. Companies can exercise control and flexibility when they assign credit limits to employees according to their needs. In addition, a centralized billing and payment system offers companies better administration.
Employees who carry corporate cards can also travel with peace of mind with the ability to obtain worldwide emergency assistance offered by the card issuing company or even benefit from an attractive rewards program or higher level of safety and security by receiving additional benefits like travel insurance.
Lochtie stated that with the implementation of business travel management, knowledge and control are key. Understanding where travel and entertainment spend is being concentrated will help corporations negotiate better contracts, particularly when they can prove they are able to drive market share to a particular airline, hotel, or car rental supplier. Policies should be reviewed and improved to keep up with the changing dynamics of the industry. Stronger wording should be used to give very specific direction about what is and is not within the policy, moving the policy from being a guide, to being a mandate.
According to Lochtie, most of American Express's clients are multinational corporations, however more local corporations now become their customers and they continue to build their local customer base in China. American Express creates value to customers through: (1) globally integrated online and offline solutions to manage 100% of clients' total travel and entertainment spend, (2) offering personalized solutions to suit every company's needs and (3) offering tools, technologies and expertise to drive reporting and compliance. American Express helps clients think strategically about their entire travel program and delivers valued-added services to drive savings. Their clients pay them based on the value they deliver to them and the transaction costs account for a very small percentage of their total program expenses.
How can the right travel policy optimize transportation costs (air tickets and train tickets) and accommodation costs, the two major expenditures involved in business trips? Lochtie said that a proper travel policy can increase compliance. It enables aggregation and transparency and provides information from one repository, which allows corporations to make an informed cost/benefit judgment. It can also give customers the option of choosing from multiple expense management vendors, and will enable service spend management to extend beyond air-fares, hotels and cars.
Finally, Lochtie said that in China, companies are increasingly viewing business travel as an investment and are interested in doing everything they can do to maximize their return on investment. American Express will continue to educate companies in China on the importance of business travel management in the areas of cost savings, compliance, and control.
Use Premier Suppliers And Cut Costs
In answering to China Hospitality News' question on the development status of "Travel Management" company in China, Albert Zhong, general manager of Carlson Wagonlit Travel China, said that it's been six years, from 2003, since the "Corporate Travel Management" concept was seriously introduced to the Chinese market. In general, TMCs in China have experienced rapid growth over the past five to six years. For example the CWT China JV has grown at a compound annual grate of over 30% since it was established in 2003. Despite the current turbulent ecomomy, the TMC development in China market will no doubt have a successful future thanks to the fact that China's economy has boomed continuously over the last 20 years.
"For many Chinese companies, they tend to focus very much on the result of a single travel transaction instead of having a managed program of optimization e.g. having no preferred supplier strategy. In addition, very few organizations have detailed policies in place that govern the type of air fare to be used or an efficient payment and reimbursement process." Zhong said that most companies do have a designated travel agency through which corporate travel must be transacted, which means they have actually outsourced their travel management to a third party. However many of these agencies are just doing basic travel fulfillment services minimal focus on data reporting and program optimization. This is the area that many domestic companies should further focus on when making a selection regarding outsourcing their travel.
CWT China has a large range of multinational clients that include manufacturing, finance, IT, consulting, automobile, medical and pharmaceutical, petroleum and logistics, etc. As a result of years of hard work, CWT China can now provide best-in-class air ticket sales, hotel booking and solutions, travel program optimization, online booking tools, data consolidation and reporting, traveler tracking for safety, visa application, and meeting and incentive services. Albert said that the services and concept of a travel management company, like CWT, are distinguished from a traditional leisure travel agent. CWT's key value proposition is not just to book a single ticket at a cheaper price than others offer. Instead, CWT provides its clients of all sizes with a total package of improved technology and processes (e.g. online booking solution), optimized travel programs, enhanced traveler safety and security tracking, timely and accurate reporting etc. These tools also come into play when a crisis strikes a particular location, and provides travel managers with the tools to locate, inform and assist travelers in high-risk locations. Their profit comes mainly from the management fees paid by their clients.
Due to the worldwide financial crisis in 2009, many enterprises have cut their expenditure. What kinds of optimized cost-control solutions can CWT provide in this aspect? Zhong believes there is great business potential. He said that actually many companies have taken the current economic downturn as a good opportunity to review their existing travel programs and policies. Most of them are further enhancing their travel management programs e.g. by consolidating all ticketing and hotel booking under one TMC to control travel policy compliance better. This helps encourage the use of the lowest airfares available when traveling, strengthening preferred supplier relationships to reduce travel cost and migrating the bulk of travel expenses to these preferred service providers to maximize cost reduction.
As for the two main costs in travel: transportation (airplane and train tickets etc) and accommodation costs, how does an effective travel system optimize these? Zhong said that as companies continue to search for ways to control travel costs in a challenging economic environment, demand management tools can be effective options. The key to effective demand management is to be targeted in the efforts — using a full range of actions to control costs. Best-practice companies employ a holistic demand management approach — one that prioritizes travel based on the business objectives of the company. When used correctly, demand management offers companies an array of systemic controls to affect the quantity, frequency, and specifications of travel as needed. It is a progressive process designed to encourage "smarter traveling," not necessarily less traveling.
In addition, a well-defined travel policy with clear mandates can help companies achieve significant savings in their travel budgets. These include booking trips in advance where possible, mandating the use of available restricted fares and using preferred suppliers. Used consistently, preferred suppliers deliver lower overall costs when compared to a mix of suppliers used on a "best price" basis. Their research has shown that companies pay on average 23% less for flights with preferred suppliers and 5% to 14% percent less per room night, depending on the hotel category.
How much money can be saved through corporate travel costs management? CWT's study shows that a well defined travel policy with a well managed program can result in up to 20% savings in travel spend; they help clients make these savings in five key areas — advanced air bookings; restricted airfares; travel data collection and program management; working with preferred suppliers; and using preferred booking channels.
What kinds of operations should an enterprise have domestically for travel management? Zhong's suggestions are for a managed travel program, the company should first have a clear and adoptable travel policy; then a proper approval process should be defined; maximize usage of preferred suppliers; change booking behavior towards using online booking tools; and enhance internal communication of compliance policies.
Recent global events such as the H1N1 virus and the unrest in Thailand have once again highlighted the importance of traveler tracking and safety. CWT offers a range of products and services to inform companies of potential risks, and help locate and assist travelers in a crisis. CWT supplies clients with destination intelligence, travel alerts and incident reporting, to keep companies and their travelers informed of potential and actual risks before, during, and after a business trip. CWT offers standard services for all clients as well as an enhanced offering for those clients with sophisticated safety and security needs. By providing these services, CWT facilitates decision-making and helps clients better manage security issues.
