Travel investments are a necessary part of generating sales and overall profits. Yes, save where you can, but shaving excessively hurts your business, long-term

The Great Depression of the 1930s, the internet bust of the 1990s and the current recession share a common effect: they humble all facets of society. There’s no discrimination between classes. It’s a sort of in-built disaster management system initiated perhaps by the Greek god of wealth, Plutus.

Job losses in the 500 000 range for 2009, declining profits and a business climate less accommodating than a Hong Kong immigration offer. The sum total of those factors results in a culture of fear. Fear creates uncertainty and masks any risk-taking desires. Our DNA coding generally makes us risk averse in such conditions.

This brings us to business travel, the perfect target when the brains trust decides to eliminate “unnecessary” costs. The Chairman of the world’s largest business travel association, the National Business Travel Association (NBTA), Kevin Maguire says: “Travel is an easy hit. Downgrade your travel and it takes some of the bite out of downsizing your business.” Instead of creative problem solving, we overcompensate. As a result, business travel has suffered a severe slump.

Current climate
At the NBTA’s meeting in San Diego, Southwest Airlines Chairman and CEO, Gary Kelly, said: “It’s very typical in a recessionary environment to see a drop in business travel. We’ve definitely experienced that. We’ve seen some markets off as much as 25-30%.” According to airline analyst Hunter Keay of Stifel Nicolaus & Co, “business travel, the key to airline profitability, usually comes back when unemployment falls and that tends to come toward the end of an economic recovery, not the beginning.” NBTA’s President, Craig Banikowski, said: “Despite the changed landscape, this was the best time for a travel management company to prove its worth.” Its worth will lie in the quality of its service and the repeat business it generates.

The study
IHS Global Insight, an internationally renowned research company, analysed travel data from the last ten years. They concluded that reducing your business travel budget is, in fact, hurting your business. Paradigm shift of note – a sort of “the world is not flat, it’s actually round” proposition. The first reaction is rejection. The notion offends your sensibilities. Perhaps our in-built bias is the problem. This is the first study of its kind focusing on the economic benefits of business travel. Their findings are voluminous and hence the focus will be on two key findings:

1. Business travel contributes to sales
A significant and measurable relationship exists between business travel expenditures and sales volumes. The analysis concludes that almost every industry would increase sales by increasing business travel investment to just the right level. It refers to the investment point which occurs when increasing business travel no longer yields additional profits and decreasing the investment actually cuts into profits. In short, it’s the optimum level for business travel investment to be worth it.
The study found that nearly all the industries researched function below their optimal threshold. On average, some industries need to increase current travel expenditures by as much as 3%, while other industries require a modest increase of 0.5%.
Statistics
- For every 35% of travel stripped out of a company, profits fall by 17%. It takes three years to recover.
- It’s estimated that 28% of current business would be lost without in-person meetings.
- 40% of prospective customers are converted to new customers with an in-person meeting, compared to 16% without one.

2. Sizeable returns on investment
Despite the clear link between business travel expenditure and sales volumes, I sense the skeptics require information. IHS concluded that across all industries, the average incremental return on investment was roughly $15 for every $1 spent on business travel. While these numbers may vary by industry, it’s clear that sales volumes are negatively impacted by reducing business travel budgets.

While the study is focused on the US market, it’s the principles that are of importance. The numbers will vary, and even more so by industry. The essence of the message to all industries is that travel investments are a necessary part of generating sales and overall profits. Yes, save where you can, but shaving excessively hurts your business, long-term.

For a full read of the report visit: www.ihsglobalinsight.com/Tourism