Scott Gillespie of tClara continues his tradition of challenging industry norms with an iteration of his recent thinking on corporate travel value, policies and sustainability. What do you think? Comment below.
Four years have passed since the Covid-19 tremors began earthquaking the travel industry, forcing The Great Zoom Experiment onto the workplace. Meanwhile, corporate concerns about the climate are crystalizing into action, in part due to looming regulatory reporting requirements.
Executive views about business travel are changing, with big implications for how travel must be managed in 2024 and beyond. Classic cost control will take a backseat to travel stewardship.
Cost-Focused Travel Policies
For over 30 years, travel policies have focused on reducing travel costs. These include well-worn policy planks such as prohibiting flights in premium cabins and stays in high-quality hotels, requiring nonrefundable tickets purchased weeks in advance of departure, using preferred (read: discounted) suppliers, and pushing travelers to the lowest “logical” fare.
These cost-focused policies have served many companies well if well means paying lower prices for business trips. But the pat-on-the-back satisfaction of paying lower prices for business trips has long cloaked two high costs, neither of which will be acceptable in 2024 and the years to come.
Low-Value Trips
The first cloaked cost of low travel prices is the enablement of low-value trips.
Imagine if every domestic business trip suddenly cost just $200 instead of $1,200. How many more trips would be requested – and approved? The answer isn’t small. Now ask yourself, how many of those newly approved trips would be considered a low priority, or in more judgy terms, low-value? Again, the answer isn’t small.
According to my research, 25 percent to 30 percent of U.S.-based trips taken in the last part of 2022 were indeed low-value — as in, not adding any expected financial value to the organizations.
Why are companies striving to save 10 percent or 15 percent on trip prices when they could be saving 100 percent of the spend on these low-value trips by not taking them?
Let’s agree that low travel prices enable low-value trips. Not all low-priced trips are low-value, of course, but the point stands — low prices make it a whole lot easier to approve trips that would get a clear, “No, you can’t go,” if the trip price was $1,000 higher.
Raise the trip cost significantly and you’ll weed out any number of low-value trips. Cost-focused travel policies work against, not toward, this goal.
Excessive Carbon Emissions
The second cloaked cost of low travel prices is excessive carbon emissions. The laws of supply and demand are simple. Lower prices mean higher quantities will be bought.
Given the aforementioned point, we can see that lower prices cause more, not fewer, low-value trips. The emissions from these cheap, low-value trips are not helping any company reach its carbon reduction goal.
Let’s consider the cloaked emission cost of low-cost policies in the economy cabin.
| Airfare | CO2 | |
|---|---|---|
| Last-minute, no discount | $800 | 53% |
| Last-minute w/discount | $725 | 59% |
| 3-day advance | $600 | 71% |
| Base case: 7-day advance | $425 | 100% |
| 14-day advance | $300 | 142% |
| Lowest logical w/connection | $200 | 239% |
The table shows illustrative economy-cabin ticket prices associated with several common air travel policies.
The more restrictive the travel policy, the lower the ticket price, as expected. Low ticket prices achieve the old-school goal of affording more trips from the same budget. You’ll buy four times as many tickets at $200 than you will if they cost $800.
The carbon implications are made clear.
The table also shows the percentage of the base case’s emissions from using a travel budget, e.g., $1 million, entirely by purchasing fares under a given travel policy, everything else being equal. In this illustrative example, were a company to spend all of its air spend on $200 lowest-logical fares, it would emit nearly 240 percent of the carbon associated with the base case’s $425 average fare.
Cost-focused travel policies are no friend of the climate.
A Stark Choice
Senior management will soon see that they have a stark choice: Stick with old-school, cost-focused travel policies, continue to claim “savings” and ignore the cost and carbon associated with low-value trips, or pursue higher returns and lower carbon intensity on travel spend by embracing the benefits of higher travel prices for justified, climate-conscious trips.
Buyers and their airline suppliers will need to work toward significantly reducing travel’s carbon intensity, measured in kilograms of CO2 per $100 of travel spend. Imagine making this mutually desired goal the new basis for airline contracts. Give up discounts, use higher fares to take more higher-quality and fewer low-value trips, and emit less carbon. That’s stewardship with a capital S.
I see no middle ground here. Keeping status quo, cost-focused travel policies will prove to be short-sighted.
Long-Sighted Travel Policies
Today’s managed travel programs need long-sighted travel policies designed for the dark clouds on the climate horizon and a growing intolerance for low-value trips. I recommend these three long-sighted travel policies.
- Require pre-trip assessments of the need for every trip. Ask for the criteria by which the trip’s success should be judged. Link every trip to its main business goal, e.g., “win revenue” or “improve our workforce.” Then require travelers or their managers to later grade the impact of their trips. This isn’t 100 percent sunlight for the low-value trip problem, but it is a good start.
- Eliminate all – yes, all — cost-focused travel policies for non-essential or non-government-related travel. Help managers make more disciplined decisions about using their travel budgets. Replace all savings goals with new goals focused on reducing travel’s carbon intensity.
- Implement a carbon intensity cap on all trips, where intensity is defined as the amount of CO2 in kilograms per $100 of travel spend, e.g., a cap of 300 kg per every $1,000 spent on a trip. This would allow a $1,000 trip to emit 300 kg of CO2 for air, car, and hotel. Need more CO2 for your premium seat? No problem, so long as the fare paid keeps the trip’s overall carbon intensity under the cap of 30 kg per $100. Fair warning: Doing so means paying a higher price for that seat, which forces the low-value question back into the sunlight.
Cost-focused travel policies are short-sighted. They are bugs, not features, in tomorrow’s well-managed, stewardship-first travel program. Replace them with long-sighted travel policies like those above.
Additional info: Economy class domestic U.S. ticket price data shown in the table above is fictional. To simplify, a discount factor was not applied to the four lowest-priced fare categories. Emissions data is based on tClara’s model using CO2 amounts roughly equivalent to those of a roundtrip in economy class between New York and San Francisco, per Google Flights, with additional CO2 added to calculations for lowest logical fares with connections to account for an additional take-off.
This Op Ed was created in collaboration with The Company Dime‘s Editorial Board of travel managers.
