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MP63038

MAPS CORPORATE TRAVEL FEBRUARY 1998

Overview

Table of Contents

Executive Summary

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EXECUTIVE SUMMARY

Recovery from worldwide economic recession and increased industrial globalisation have resulted in strong growth in the corporate travel market. In particular, the economies of Asia and South America are beginning to develop and the multinational partnerships that arise from this will stimulate demand for corporate travel to these destinations. The UK economy is currently relatively strong although the rising value of Sterling is posing a threat to the price competitiveness of UK exports.

Currently other major influences in the UK corporate travel market are the changing regulatory environment of European air travel, and technological developments impacting on corporate travel management and the characteristics of international travel. Air fares are currently estimated at 50 percent of total corporate travel expenditure and therefore trends in the air travel industry have a direct impact on the corporate travel market.

Over the past five years the numbers of visits abroad by UK residents for business purposes has increased by 52 percent to reach an estimated 8 million visits in 1997. Expenditure has outperformed volume with corporate travellers spending an estimated £7.7 billion in 1997, an increase of 69 percent since 1993.

Increase in expenditure is due to a range of factors, including exchange rates, length of stay and fuel costs. However, one of the main factors is the return to premium class travel. During the recession, corporate travellers were forced to downgrade to economy class due to major cost-cutting exercises. In recent years, airlines have observed a return to premium class travel although at business class level rather than first class. In response, major scheduled airlines have been readjusting their premium class services in order to provide a high class service at business class prices. Air fares are becoming increasingly competitive, a factor which, although beneficial to the consumer, has had a less fortunate effect on business travel agents. Travel agencies are now forced to charge lower commission rates and, as a result, profitability amongst large multiple agents has been stifled. Travel agents are under pressure from increasing demands from corporate clients and are moving towards a consultancy service, offering added value services such as management information. The development of Computerised Reservation Systems (CRSs) has enabled airlines to sell tickets direct, thus increasing the pressure on corporate travel agents to introduce new services.

Air route liberalisation in Europe, enabling airlines to operate on any route within the European Union (EU), is putting pressure on airlines, particularly national ‘flag carriers’. Many new operators are entering the market, offering services to and from regional airports throughout Europe. Whilst this has obvious benefits for the consumer in terms of time saved travelling to and from main airports and lower cost air fares, some of the smaller carriers are being forced out of business. Continuing air traffic control difficulties and airport congestion are tempering the effects of deregulation measures.

The development of the Channel Tunnel offers an alternative to corporate travellers. Eurostar, the operator of the high speed rail link from London to Paris and Brussels, presents a cheaper alternative to air travel, although not necessarily a quicker one. Other advantages to rail travel are uninterrupted journeys, rather than a combination of transport modes, and centre to centre travelling times offering the corporate traveller more time for sustained work.

The effects of technological developments on the corporate travel market are twofold. Improved communication mechanisms, such as video conferencing, are presenting an alternative to corporate travel, although this development is widely regarded as an add on to telecommunications rather than a substitute for face-to-face meetings. Moreover, the motives for corporate travel may not be to conduct a discussion, rather they may be used to carry out practical tasks. Other technological developments are improving efficiency in the corporate travel industry. For example, Computerised Reservation Systems are in increasingly widespread use and are now available to the public via the Internet. This is an obvious threat to travel agents although currently the customer is referred to a travel agent to actually make bookings. Indeed, travel agents are benefiting from enhanced CRSs as they allow a more informative service to the client in terms of producing management information. In addition, the speed of airport check-in and immigration procedures is improving due to automated developments such as electronic ticketing and biometric immigration.

Recent consumer trends include the widespread implementation of corporate travel policies providing guidelines for class of travel and other entitlements. Corporate consumers are increasingly demanding complex services from their appointed travel agents. The main development is management information systems whereby corporate travel managers can access employees’ travel activities by destination, class of travel and individual employee.

The leading supplier to the UK corporate travel market is the airline industry. In the UK the main suppliers are British Airways, British Midland, and Virgin Atlantic. There are a number of smaller operators such as Air UK and EasyJet which are making an impact on the market by taking advantage of liberalisation measures. In terms of corporate travel agents, there are a number of independent specialist business agencies in operation although large corporate ontracts tend to go to the large multiples such as Hogg Robinson, American Express and Carlson Wagonlit. Airlines are also the main advertisers of business travel services in the UK, and expenditure on main media advertising by leading airlines has increased by 67.3 percent from 1995 to 1996. The introduction of customer loyalty schemes in the form of Frequent Flyer Programmes (FFPs) is the latest trend in airline marketing and this is cause for concern for corporate clients who feel that the benefits should go to the company rather than the individual. The prospects for corporate travel are very positive, with a forecast 50 percent rise in the number of business trips abroad in the next five years. This is largely due to predicted economic growth and globalisation, although improvements in the speed of air travel and deregulation measures in the EU and world wide will have still play a role.

Text © 1998 MAPS

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