COPING WITH THE COST OF TRAVEL
Business travel in Asia is getting expensive. Here’s how you can better manage the burden.
By Don Durfee

Every month, scores of Western executives make the pilgrimage to India to see first-hand the miracle of the country’s low-cost outsourcing industry. But when they arrive, a surprise awaits: the home of cheap, skilled labor is no bargain for business travelers.

Flights to the country are expensive and packed with travelers. Business hotels are nearly always (on weekdays, at least) operating at full capacity. In fact, Bangalore now ranks as the world’s third-most expensive city for business travelers, according to a survey by corporate services and travel consultancy HRG. A night in the Oberoi Bangalore (a four-star hotel) starts at US$472, according Expedia.com, and a room at the three-star Taj Residency will set a traveler back US$302.

India is only an extreme example of something happening in other parts of Asia. Hotels in Singapore and Hong Kong have become more expensive in the past couple of years. Domestic flights in Australia have risen 14% since last year, according to Carlson Wagonlit, a global travel agency. And long haul trips to and from Shanghai are now packed with lawyers, bankers, and sales managers. “On some flights to China you have to consider yourself lucky if you can get a seat at all,” says Berthold Trenkel, Carlson Wagonlit’s COO.

Boom times

Asian economies are thriving and business travelers vying for business-class seats and hotel rooms. One rule-of-thumb holds that business travel usually increases one-and-a-half times faster than economic growth. Companies growing 20% a year – as many are these days – typically see travel increasing by 30%.

Supply hasn’t quite caught up with demand. According to Trenkel, many airlines had been counting on the new double-decker Airbus 380 planes, but delivery has been delayed. Higher oil prices are being passed on to travelers. And while companies are rushing to build new hotels in Asia, those buildings won’t be ready anytime soon. Granted, there are still bargains – for example, overbuilding in Shanghai has kept room rates merely exorbitant rather than outrageous; and lodging prices in Tokyo actually fell 3% last year.

But in many other markets the result is tight availability and high prices. “Customers are amazed at the prices that are being charged, especially because this is India,” says an executive at one major Western hotel chain, who adds that room revenue growth for five-star hotels in India has been growing between 30% and 40% annually since mid-2002.

That’s great news for hoteliers, but a headache for travel managers. “Travel is costing us more and it’s often hard to get a seat for our executives,” complains the Hong Kong-based travel manager for one major bank. Given that travel and entertainment typically accounts for between 8% and 10% of a company’s total operating expenses, it’s a cost few can ignore.

Limited options

Cutting back on travel is rarely an option. Even more than other regions, business in Asia calls for face-to-face meetings. And, after all, companies wouldn’t be growing so fast if their sales forces weren’t crowding the airports.

Consolidating spending with a smaller group of suppliers and negotiating lower prices remains a good idea, says Kevin Ruffles, president of Asia Pacific for UK-based HRG. A company that doesn’t coordinate its travel spending can usually save between 10% and 15% by picking some preferred hotels, hammering out lower rates, and enforcing a travel policy. With airlines, the savings are closer to 5% to 10%, depending on routing and volume.

But it remains a sellers’ market, and the sellers aren’t eager to cut deals. “It’s not quite ‘take it or leave it’, but it’s harder to negotiate,” says the financial services company travel manager. In some cases, hotels will offer companies an attractive rate, but won’t guarantee many rooms. Hotels in markets such as Singapore and Hong Kong are also getting savvy about dynamic pricing – tweaking rates to keep their rooms full and ensure as much profit as possible.

That’s yielding new discount models. “Instead of the fixed corporate rate for the year, some hotels will offer you 30% off of the dynamic rate,” says Trenkel. Such deals generally work out to be cheaper than the fixed rate, but the prices aren’t predictable.

Some flexibility may yield savings, too. For instance, smaller airlines such as Thai Airways or Malaysia Airlines are upgrading their fleets and may be more willing than the bigger carriers to negotiate preferential rates. Similarly, local hotel chains or hotels out of the town center can be cheaper. “It’s a behavioral thing,” comments Craig Pike, a consultant at American Express Advisory Services. “In Hong Kong, people may think it’s a necessity to stay in that beautiful hotel next to the office,” he says. “But you’re in a much better position to negotiate if you’re willing to take the Star Ferry to hotels in Kowloon.”

Some companies have found creative solutions to rising costs. Software firm I-Flex Solutions has rented out entire blocks of service apartments in Mumbai and Bangalore to house visiting employees and clients. Bangalore-based Infosys has long used guest houses on its corporate campuses. According to TV Mohandas Pai, board member in charge of human resources, education and research, and administration, cost isn’t the only reason for the guest houses – they are also convenient and safe. “Across India, we have over 3,500 rooms in operation and another 11,000 to be added in the next year,” says Pai.

Follow the rules

Beyond such tactics, companies may be able to achieve more enduring savings by getting their own house in better order. Most obvious is cajoling employees to follow corporate travel policies. The best way to do that, says Preshant Aggarwal, head of consulting for American Express’s global commercial card business, is to ensure that the travel policy actually makes sense. “You have to understand employee behaviors before setting your policy,” he says. That means surveying users (particularly the secretaries of heavy travelers) to find out where they travel, how often, and why. The morning flight that everyone takes may be more expensive than the noon flight, but there may be a good reason why employees travel at that time. Similarly, if a firm’s clients are in downtown Sydney, it makes little sense to negotiate a low rate with a hotel in the suburbs.

Expense management software can help, says Aggarwal, particularly when users are spending on a corporate card. A credit card transaction can be precoded and set up to flow directly into the IT system, providing a CFO the visibility needed to set rational policies and the data necessary to haggle with providers. And by automating the process, companies can get T&E reimbursements to employers faster and more cheaply.

A recent study by US research firm Aberdeen found that the use of expense management software – among other steps – could cut expense form processing time from 15 days to five, and reduce the cost from US$28 to US$12. Such systems (available as modules in ERP systems by SAS or Oracle, or as standalone software from vendors such as Concur, Spendvision, Incharge, or American Express) can be worthwhile for companies with as few as 50 employees, though they are better suited to those with at least 100, says Aggarwal.

The good news is that, like business, corporate travel is cyclical. In India, hotel chains such as Best Western, Marriott, and Hilton Hotels are pouring money into new properties, which will eventually bring prices down. Until then business travelers may have little choice but to take Pike’s advice, hop on the proverbial Star Ferry, and skip the glamorous parts of town.