Business travelers cut back on perks

Demand for first-class and business-class seats is down significantly, though there have been some “green shoots” lately, says Atlanta-based Delta.

“We have seen stabilization in business demand and candidly, have seen a bit of an uptick, but I think it’s very early to be trying to call that fact a trend,” Delta chief executive Richard Anderson said last week.

The number of airline passengers paying for premium classes declined 23.6 percent worldwide in May, which “cast doubt on the view that a bottom to the travel decline has been reached,” according to the International Air Transport Association. British Airways’ chairman Martin Broughton has speculated that premium travel may never fully recover.

First- and business-class fares, which run hundreds or even thousands of dollars higher than coach fares, are crucial for airlines like Delta and British Airways. Premium passengers make up only about 7 percent to 10 percent of passengers, but they bring in 25 percent to 30 percent of passenger revenues, according to IATA.

Premium-class fares, along with cargo, are “basically what carries the airplane,” said Port Washington, N.Y.-based airline consultant Robert Mann.

Even when the economy recovers, margins on international business class fares may remain lower than they were historically, Mann said. “Corporate buyers have tasted the deals that are available now and they’re unlikely to go back to paying what were the previous prices,” he said.

“Hanging on in there and just hoping for old high-roller times to return is the road to oblivion,” British Airways chief executive Willie Walsh told shareholders.

Nearly 85 percent of companies have cut travel spending since October 2008, according to a National Business Travel Association survey of corporate travel managers. More than 70 percent expect continued decreases through 2009. Companies are cutting travel and entertainment budgets, encouraging or requiring less travel, sending fewer employees to conventions, conferences and trade shows, emphasizing advance purchase of airline tickets and more strictly enforcing travel policies.

At Sandy Springs-based UPS, “we have been doing everything we can to control travel costs by asking all of our people to really think twice and justify a trip before they buy a ticket,” said spokesman Norman Black.

Spending is likely to be cut for travel that doesn’t generate revenues or isn’t necessary for operations, and travel to meetings, conferences, retreats and professional development are especially likely to be restricted at most companies, according to an American Express/CFO Research survey this year.

Some executives are personally scrutinizing travel expenditures, limiting who can travel and instituting policies to eliminate spending on travel amenities.

At Fortune 500 companies, “the level of approvals that are required to travel today — I’ve never seen anything like it,” said Kevin Mitchell, chairman of the Business Travel Coalition.

Some of the savings involve judgment by employees while on the road, such as eschewing luxury travel amenities that have sprung up in recent years when times were good.

“When you go to an airport, there’s a lot of high-end restaurants that seven or eight years ago didn’t exist,” said Frank Schnur, vice president of global advisory services at American Express Business Travel. A company might encourage employees to “grab a sandwich instead of sitting down for a T-bone and a glass of Cabernet.”

“They’re asking employees to spend the company’s money as their own,” Schnur said.

American Express also has a “pre-trip auditor” tool for its corporate travelers, which allows managers to look over travel plans before trips take place and make changes if employees are “outside of policy” by booking business class instead of economy class, or staying at a luxury hotel instead of a moderate hotel, for example.

Frequent traveler Kevin Kiley said employees at his company are being careful about travel spending, trying to avoid the appearance of being “almost insensitive to the state of the economy by doing activities that appear to be somewhat frivolous.”

At Atlanta-based software firm Vector Networks Americas, where Kiley is executive vice president, all travel expenses are being scrutinized more closely. A dinner with clients at a fancy steakhouse with several bottles of wine “maybe doesn’t fly like it used to,” he said.

“We have to show our clients that what they pay us that we’re very careful with, and that it represents good value,” Kiley said.

Kiley said his company also has put a moratorium on business-class travel and has stopped paying for airline club memberships. It also has started using priceline.com to bid on hotel rooms and rental cars. Meanwhile, employees more often are working remotely instead of visiting client sites, and the company has seen an increase in interest in its own software for remote office support.

In the travel industry, some businesses are finding better luck catering to vacationers instead of business travelers.

Bag delivery service Luggage Forward has seen a decrease in the business travel segment, which makes up only about 10 percent of its business, said co-founder Aaron Kirley.

“Most of the increase in business that we’re seeing is luxury leisure vacationers,” Kirley said. There are fewer customers on business routes like New York to Los Angeles, he said.

Travel industry observers say the scrimping and saving may be here to stay, at least in some form.

“Companies are almost in a continuous cost-savings and re-engineering mode these days,” Schnur said. American Express recommends that companies look at their travel policies annually and benchmark them against peer companies.

“Over the last few downturns, it’s a ratcheting effect,” Schnur said. “It gets tighter, and after the recovery, it loosens up a little bit. But it never goes back to where it was before the downturn.”