LinkedIn  Twitter  YouTube  Facebook

Travel Industry Trying To Assess ROI

The National Business Travel Association and the U.S. Travel Association recently released studies that measure the return on investment of business travel and indicate how business travel spending can impact revenue generation.

The studies purport to assess business travel's economic impact in dollar terms, but some travel management consultants and buyers see quantifying the value of trips as not yet attainable, citing difficulties in determining the value of non-revenue-generating travel for product development, training or employee development purposes.

While trying to quantify the return on business travel is not new, the soured economy has corporations searching under every rock for savings and demanding justification for every expense, prodding some travel buyers and suppliers to explore the ROI concept and come up with new tools for the purpose.

"In this economy especially, business spending has come under greater scrutiny than ever before," according to U.S. Travel Association president and CEO Roger Dow. "Budgets need to be justified based on the return of revenue growth and the bottom-line profits that they produce. Everyone is looking under the microscope at every business expense. Every business leader wants to know what can we cut today and what can we cut that is not going to hurt our business today and not sacrifice our growth tomorrow."

The development of return on investment methodology also has suppliers starting to figure out ways to deliver measurement tools.

GetThere is developing an online ROI calculator that will use a series of trip reason codes, algorithms and client-specific variables to assign the trip an ROI score, giving corporations an added piece in the pre-trip approval process. The company plans to release the tool in the second half of 2010, according to GetThere vice president of corporate segment, strategy and solutions Suzanne Neufang.

Last month, the National Business Travel Association, with research conducted by American Express Business Travel and IHS Global Insight, completed a study of how U.S. business travel spending contributes to corporate revenues and profits across 15 industry sectors and the total U.S. corporate economy from 1998 through 2008.

The report found business travel as a percentage of U.S. sales steadily decreased from 1.47 percent in 1998 to 1.09 percent in 2008. Likewise, business travel as a percentage of profits decreased from 7.14 percent to 5.18 percent.

NBTA research consultant and former IHS Global Insight researcher Kenneth McGill broke down those results across industry sectors to try to determine the point business travel spending maximizes profits—in essence, the ROI of business travel—and at what point that correlation is optimized.

"The research is not meant to be a prescription or a management consulting recommendation," according to McGill. "What we are trying to show is that statistically we found a fairly consistent and relatively strong relationship between business travel spending and increased sales and profit."

For most industries, McGill's research found corporations have cut travel spending too far and it has negatively impacted sales. For example, if the retail and wholesale sector raised travel spending by 3 percent, it could yield sales growth of 4.5 percent. Manufacturing sector travel growth of 2.3 percent would increase sales by 1.5 percent.

The business services and consulting industries have reached that maximization point and actually could reduce their spending by about 0.9 percent, based on 2008 numbers.

McGill also found that increasing business travel spending does not pay off indefinitely. If it surpasses that optimization point, sales will continue to increase, but at a slower rate. Business travel would become a larger portion of the costs, which would have a downward impact on profits.

While travel expenditure isn't the only factor in sales growth, McGill said that excluding all other business growth tools, "we can see that increasing business travel, particularly if the industry is in a non-optimal situation, you'll actually add more sales than costs with respect to business travel."

The U.S Travel Association's study, conducted by Oxford Economics USA, took a more subjective look at the ROI of business travel. The study, based on past studies and a May survey of 500 business travelers and 300 corporate executives randomly selected from online professional social networking site LinkedIn, claims every dollar spent on business travel yields $12.50 in incremental revenue.

The report also said that if a company were to eliminate its business travel, it would lose 17 percent of its profits in the first year. Of the 300 corporate executive respondents, an average of 28 percent of their business would be lost without in-person meetings.

Respondents reported that on average, customer meetings had the greatest ROI with $15 to $19.99 earned per dollar invested. Conferences and trade shows yielded $4 to $5.99 in earning per dollar.

Although some industry associations and suppliers have hopped on the ROI bandwagon, others see the reports as biased research that discount many other factors that go into increasing revenues and profits, such as research and development, advertising, innovation and marketing.

"There has been a lot of effort put out for people to say that if you just travel more on business, there definitely is ROI there, and it's an investment you should make," said Nokia global sourcing director for travel Paul Perry. "There clearly is industry bias there. It's people in the travel business trying to convince companies that you can make money by traveling more.

"Personally, I feel that is irresponsible. What we believe at Nokia is that business travel is a tool that has a use and like any other tool it should be used for that job. Customer-facing travel, strategic travel and some internal travel is necessary to achieve your business objectives, and if business travel is the best tool to use, then you should use it. However, there are a lot of other ways that you can have your work product and ideas travel to another place without getting on an airplane."

Eastman Kodak manager of global travel and fleet Bill Lasky said that business travel ROI cannot be determined on an aggregate basis within a company but it should be considered before getting on an airplane.

"On an individual trip-by-trip basis, there is no fancy tool you use but there definitely is an expectation that the individual requesting the trip demonstrates what's in it for the company," said Lasky.

While the verdict is still out on the validity of connecting business travel return on investment measurements to corporate profits, there are certain aspects that can currently be applied.

"The return on investment of business travel theoretically is feasible," according to Advito vice president of business development Bob Brindley. "You should be able to take a look at what's driving the need for travel and what kind of return is associated with that. Some of that is going to be overhead-driven, but that doesn't mean that it's not required to support the organization. It's always harder to put an ROI on that type of spend, but clearly if things are related to sales or directly related to customer or project work, it's much easier to tie ROI to it."

— Nielsen Business Media