Executive Travel : Rising, Erratic Air Fares Make Company Policy Vital

Higher air fares are sticking this year, giving companies sticker shock.

And prices are going to continue their trend upward, said Valerie Estep, vice president of Topaz Enterprises Inc., a travel management consulting firm in Portland, Ore. Estep was part of a team of attorneys and consultants that presented survival strategies for corporate travel managers in Los Angeles last week.

Typically, business fares go down in the summer and pick up in the fall, she said. But last June and July, business fares were the highest they’ve been in five years.

“Domestic ticket prices are increasing and [it] looks like it will stay that way,” Estep said. In December, 1994, for example, the average domestic price for a business ticket was $462. In September, 1995, it was $557.

International business fares are also going up. The average fare in September was $2,367, compared to $2,201 a year ago, Estep said. Topaz data covers actual fares paid by business travelers among its clients, regardless of what kind of class or restrictions were associated with the tickets.

Some markets have been hit particularly hard. For example, the average fare for the Newark-Cleveland segment nearly doubled from $153 last September to a high of $293 in May.

Topaz’s findings mirror those of other travel management organizations. The American Express business air fare index shows an 8% increase in typical fares over September, 1994, with much higher increases in some markets. Customers flying out of Baltimore, for example, saw ticket prices shoot up 33% between January and July. Fares out of Los Angeles went up about 13% over the same period.

Of course, markets can be dramatically affected by the abrupt entrance and exit of low-cost carriers, Estep noted. Such erratic fare behavior makes it critical to have a business travel policy in place that is well understood both by employees and the travel agencies that book the flights.

What’s more, despite a lot of talk about telecommunications replacing the need for some travel, business travel is running at an all-time high. According to the Travel Industry Assn. of America, 38.4 million Americans took 220 million business trips last year, a 25% increase in trips over 1991.

The trend is toward a smaller core of travelers making more trips, according to Shawn Flaherty, a spokeswoman for the TIAA. For example, although the percentage of all business travelers who took 10 or more trips last year fell in 1994 compared to 1991, the average number of trips they took rose from 21.9 to 28.6.

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Amid more trips and higher prices, companies have a choice between two types of corporate policies, Estep said. For example, they can make their rules more restrictive, requiring executives to fly lower classes of service, make connections or leave and return at less favorable hours of the day.

“The latitude to choose service becomes a precious privilege reserved only for the highest-ranking corporate officials,” Estep said.

Such policies can save companies big bucks on their travel budgets--at least on paper. The drawback, however, is that they can cause so much frustration and resentment that productivity and morale suffer. Even the travel agency the company uses to book its tickets may find its performance lowered if it must adhere to a plan that is extremely unpopular with its corporate clients, Estep said.

So some companies, such as Apple Computer Inc., have tried the opposite approach: making their corporate policies more lax.

A looser travel policy makes it easier and more comfortable to travel. The trade-off is that employees are expected to treat the company’s travel money as though they were budgeting their own, Estep said. For this approach to work, the company must trust the employee to make the most economical and efficient choice given the constraints of the trip, she said.

Some companies with loose policies have realized tremendous cost savings, according to Estep, while some with restrictive policies have not.

In developing a successful travel policy, companies must also look at who in the company is doing the most traveling. If a lot of travel restrictions are put on a highly paid executive, “the savings will be more than eaten up by the loss of productivity of that individual,” Estep said.

In determining its policy, a company must also look at the reason for its travel, she said. An insurance company that needs to dispatch claims adjusters to the scene of a disaster as quickly as possible is going to need a different policy than a company whose primary travel purpose is to make sales.

In order for agencies and companies to work most efficiently together, they must understand each other’s expectations, Estep said. An effective corporate travel policy considers and spells out everything from acceptable windows in travel departure times to how much a trip can be lengthened to save money. For example, the policy should address the issue of using alternate airports, specify when negotiated air fares should be used, itemize any carriers with which the company has preferred arrangements, and state the circumstances under which connections should be offered even though the traveler has requested a nonstop flight.

One of the mistakes companies make in trying to develop policies is merely telling their agencies to “use the lowest logical air fare,” Estep said. “But what’s the definition of logical?”

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Gaining Altitude

The average air fair cost of sending an employee on a domestic business trip has risen during 1995.

Sept. 1995: $275

Note: Figures average all fares paid by Topaz corporate clients, regardless of class or restriction.

Source: Topaz Enterprises Inc.