TaxPersonal TaxTravel – Reach for the sky

Travel - Reach for the sky

Airlines have businesses in their sights, but there are ways to limit expense, says Catherine Chetwynd.

Air travel is never going to be cheap. And airlines construct fares so that the business traveller, who needs flexibility, is forced to buy the most expensive ticket in order to get it. Fortunately, there are ways of ensuring value for money.

About 25 years ago, business travellers were complaining at the top of their voices because their full-fare tickets yielded nothing more than a seat in economy class, the option of changing to another flight without penalty, and a fair chance of sitting beside a back-packer who had paid considerably less for a ticket he had bought from a bucket shop. Enter business class.

KLM claims to have been the first – in 1978 – to recognise the travelling executive by providing separate catering for full-fare paying passengers.

Then airlines went the whole hog, divided aircraft into three cabins and treated the benighted business traveller to unimagined delights: a little more legroom, better meals and the sort of attentive service that made people feel they were getting something tangible for their money.

In-flight service became the byword for serious competition, as standards were honed down to the last chocolate, centimetre of legroom or celebrated wine label. Gradually a separate (higher, of course) fare level was introduced, particularly for long-haul flights, but the executive was still being wooed.

Then came the Gulf War and with it came a precipitous falling off of passenger traffic. Recovery was slow. In their efforts to regain a much depleted market, the airlines slashed their fares. Between 1989 and 1993, they lost a punishing #9.6bn in aggregate.

Some sort of streamlining became vital. First class on short-haul routes was long gone, and now it started to disappear on long-haul flights too, particularly to the US.

The new service was sold as an upgraded business class, incorporating some of the attributes of first.

Standards rose noticeably.

Reconciling comfort with price in air travel is a balancing act. Frequent flyers are often perceived as sophisticated, spoiled executives, who jet off round the world in premium class, are wined and dined royally at their destination, and cruise home again full of the delights of foreign travel, while their partner has been walking the dog and leaving notes for the milkman. If only.

Some regular travellers may enjoy the challenges of doing business abroad, but most just accept it as part of the job and pare the whole exercise down to a minimum, leaving on an early flight and returning on a late service the same day. Taking an extra half day to enjoy Paris or Rome is simply not part of the deal.

And all this should be taken into consideration when writing a company travel policy. Controlling air travel costs is not impossible, but it should not be done in such a way that travellers feel they are being punished.

Travel policies work only if executives buy into them from the outset.

Jonathan Stobart, director of finance for Seagram’s global travel division, was involved in a re-writing of policy that saved the company a massive #4.3m a year on air fares alone. But the comfort and convenience of the traveller was still seen as very much a priority.

Upfront discount

‘We do all we can for the travellers. It is about balance between cost and service,’ says Stobart. ‘There may be the odd extra percentage point we could strip out of the benefits to executives, but we need them to support the changes from the outset. If we save an extra 1% somewhere, and compliance drops by 10% as a result, we have shot ourselves in the foot.’

One of the most important recommendations of the policy review was to appoint a permanent global director of travel. Despite widespread talk of a global view, most companies are regionalised. Few have worldwide agreements covering most of their spend, so they are not fully exploiting their buying power.

The other crucial factor is the net agreement. This is an arrangement whereby a company guarantees preferred airlines an agreed amount of business and the carriers make a commitment to providing services at a certain price, charging the company the discounted fare upfront.

So if a business class fare is #1,850 and the negotiated rebate is 20%, the company pays #1,480 from day one. Seagram covers 70% of its global spend with this agreement, and plans to raise that to 90% by the middle of this year.

The alternative is the retrospective discount. Airlines prefer this because it gives them more control and they do not have to pay if the customer does not deliver. But it also means the company receives cheques from preferred carriers at the end of the year and has to deal with the administration of them.

Seagram negotiates face to face, rather than through a business travel agent, although it uses Carlson Wagonlit Worldwide for two divisions in the group. ‘We wanted carriers to see our commitment,’ says Stobart.

And the company offers long contracts – three years generally. This not only provides reassurance for the airlines but also for travellers, who will be less willing to stick to United Airlines for all transatlantic travel one year if the contract might change to American or Delta the next.

Another, more local, way of saving money on services from the UK, particularly for those travelling from regional airports, is to fly with a continental carrier via its European hub. For example, to use Sabena from Birmingham via Brussels to New York costs #2,044 business class return, compared with British Airways’ #3,102 direct.

KLM bought Air UK last year and renamed it KLM uk. The airline provides connections with Schiphol Airport in Amsterdam from 22 airports in the UK, including Cardiff, Norwich and Newcastle. Fares quoted do not include tax and are quoted for 1 July departure.

Fares do not always work out cheaper, but it is worth the effort to research it.

These days, most companies institute a policy of booking economy class flights for journeys lasting up to five or six hours and business class for anything longer. The difference between economy and business class on short-haul routes is in any case negligible; legroom is roughly the same, making executive class fares an expensive way of eating off china rather than plastic and enjoying marginally better food and wine.

Comfort factor

If you can book a flight in advance, your ticket will be cheaper, but cancellation or alteration will also cost more. Shell International has a liberal travel policy which allows executives to fly business class, even to Europe.

According to travel manager Jim Thomas: ‘Where it exists, the full-fare economy rate on European routes is not much different from business class.

True, economy class tickets are restricted and travellers see that as a barrier, although it is perceived rather than real. People want the freedom to change travel arrangements even though they mostly stick to their original itinerary. It is a comfort factor,’ he says.

But he concedes there will be changes over the next few years. Not surprisingly when Shell’s spend on air travel last year was #23m, and is likely to exceed #30m in 1998.

The other factor that affects the value of fares is time of travel. If executives can travel off-peak, they will get much cheaper fares. If they want to leave early and return late the same day, the ticket will be more expensive.

Even taking advantage of cheaper tariffs, travellers incur additional accommodation and meal costs, in which case, the question to consider is: will the more leisurely pace of leaving late afternoon and spending one night at the destination leave the executive more fit to do business?

If travel managers’ expertise and corporations’ buying power make negotiating good rates with airlines viable, where does the business travel agent fit in?

Experienced travel agents can help write and monitor travel policy. Not only can they use corporate buying power to negotiate rates, but a good agent knows how to pull strings to get clients on to a flight that seems to be full. And technology shared between client and agent can identify areas where money can be saved and provide muscle in negotiation with suppliers.

Class of travel is a contentious issue. In the old days, board members travelled first class, directors in business class, and the rest in economy.

Now, many companies have eliminated such hierarchical privileges, or at least cut them down to more democratic levels. Often, if the most junior sales recruit flies between London and Paris in economy class, so does the chief executive.

Eric Brannan, managing director UK & Nordic countries for Hogg Robinson BTI, suggests possible exceptions may be long-haul services where senior staff have to work in-flight and go straight into meetings on arrival.

He adds: ‘Some companies will not sanction first or business class travel westbound to or from the US, but will allow it eastbound because people are travelling overnight.’

Executives travelling for Boots go economy class for flights of four hours or less, and may travel business class for anything longer. But budget management is the responsibility of each department. Steve Raven, manager of business travel services, says: ‘Some people choose to travel in economy to save money so they can afford to go back.’

Seagram’s executives can travel business class for flights of over six-and-a-half hours, except for flights to the former eastern bloc, to facilitate baggage retrieval and speed of exit on arrival – another example where more efficient services justify the extra cost.

Brannan says: ‘The quality of business class is such that it meets the demands of most business travellers.’

With average legroom of 55in, there is plenty of space to stretch, work or relax – and that is the crucial factor. If you are sitting with your elbows pinned to your sides and your chin resting on your knees, you cannot arrive in a fit state to work; and no amount of first growth claret will soothe your temper.

Catherine Chetwynd is a freelance journalist.

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