What makes business travel a worthwhile investment in 2022?
Rising fuel costs, inflation and lost revenue due to load shedding are impacting business operations. Figures from technology company Yoco suggest that about 30% of small businesses in South Africa have lost up to 10% of their annual revenue to load shedding alone.
With travel and procurement managers bearing the brunt of the necessary cost savings, the cost of business travel must inevitably come under scrutiny to compensate for the losses. However, instead of cutting back on business travel, there is an opportunity to rethink budgeting strategies to maintain contact with customers. This is especially important during tough economic times when face-to-face communication can increase sales and improve competitive advantage.
A statistical analysis of post-recession business travel shows that industries that continue to spend more on business travel experience higher profits during and after a recession. The results of a study conducted by Oxford Economics show that companies that maintain their spending on business travel have a better chance of recovering quickly from a recession than those that make cuts in this area.
While companies need to make rational decisions about how they spend their resources, maintaining high levels of business travel can prove very beneficial. As business travel costs continue to rise, finding creative ways to compensate is more critical than ever.
Raylene Pienaar, Leader of sales and retention FCM Travel, acknowledges that anticipating and planning for airfare increases is challenging. In the past, this was easier due to predictable factors. Today, airlines are in a crunch and forced to raise prices to stay afloat.
Pienaar says, "Ticket yields are increasing more often than we have seen in the past couple of years. Clients could previously plan for and accommodate rises in ticket prices once a year. But due to the volatile oil price, increased demand for travel, countered by reduced airline availability and options, budgeting for business travel flights in 2022 and 2023 requires a different approach."
In the South African context, budget forecasting for domestic business travel is even more complex and challenging, considering that more than 60% of all air transactions are domestic flights, Pienaar says. It is increasingly difficult to predict price changes on South African routes because so few airlines are operating, and those with a monopoly can set their own prices. "The cost per transaction has increased by 17-25% when you include land costs," Pienaar says.
"For budget forecasting, we have typically advised our customers to take the average ticket cost on certain routes, taking into account POS, and then add a percentage increase. In the current climate, that would be pure guesswork," Pienaar says. "We are seeing such volatility in the market, with some fares doubling in five days, that even looking at Global Distribution Systems' (GDS) current fares is not an indicator of how high they may be soon."
In response to this challenge, customers should be realigning the budget for 2023 to at least a 30% increase pre-COVID and keep a close eye on creeping cost increases in the second half of 2022, Pienaar says.
Pienaar explains that clients have recognised that business travel is essential and a worthwhile investment and that despite the increase in ticket costs, there has been no downturn in demand for business travel from customers.
However, booking behaviour has changed, with more customers reviewing their travel policies to reduce business class travel and pushing for better discounts with their preferred suppliers. Customers also plan travel more in advance and look for more cost-effective options rather than choosing the fastest route.
Cost-saving efforts are unavoidable, but given the current uncertain economic climate, evaluating business travel's potential return on investment (ROI) is more important than ever. The reality is that businesses can't grow without face-to-face meetings made possible by travel. Productivity gains from business travel can take many forms, including new sales, customer retention, collaboration, employee satisfaction, networking, industry knowledge and idea-sharing.
Oxford Economics analysed the data and found that for every dollar invested in business travel (R17), companies realise a return of $12.50 (R212). This will offer some comfort to travel and budget managers.
When budgeting, it's vital to be proactive and prepare for changes in the travel industry. Plan as much as possible and seek advice from your travel management company. The volatile travel landscape means you need to be flexible and agile if you do not want to jeopardise the necessary budget to invest in your business.