Business Travel Costs | Why Executives Spend More on Business Trips
There’s never been a better time to be a traveler. You might beg to differ, especially if you find yourself sitting in the middle seat. But in some ways, the experience of getting from point A to point B is cheaper, more convenient, and more customizable than ever before.
Air travel is case in point. Say what you will about shrinking seat sizes, devalued frequent flyer miles, even the worsening quality of on-board snacks, the fact is that Americans are flying more than ever. Airfares have fallen by roughly 50% on average since the industry was deregulated in 1978. Even after accounting for ancillary fees, the per-mile cost of flying is half of what it used to be.
Concurrent with the long-term trend of decreasing average ticket prices, there’s been growth in the number of fare classes travelers can choose between. From no-frills options offered by discount carriers such as Spirit, to three-room flying apartments costing nearly $40,000 one-way (butler included) there’s something to fit every budget.
The same is true on the ground. Not only do travelers have a greater range of hotel and rental car options than in decades past, they also have sharing-economy alternatives in the form of Airbnb and Uber. These market entrants have fundamentally changed the service and pricing model for their respective industries.
Add in the pervasiveness of online comparison sites and last-minute booking apps, and it becomes clear that we’re living in the Golden Age of Affordable Travel. These innovations first took hold in the consumer space, but have more recently gained adoption among business travelers.
Still, there’s one place that remains largely untouched by tech-enabled, cost-effective travel: the C-Suite.
All Employees Are Equal, But Some Are More Equal Than Others
Business travel used to be the preserve of the corporate elite. Now it’s a routine part of the job for millions of professionals in sales, client services, consulting – or any other career imaginable.
Roughly 300 million business trips will be taken this year in the United States, altogether costing just under $300 billion. Elegant as it would be if each of these trips cost an even $1,000, there’s a huge amount of variation in the price of business travel.
Of course, differences in itineraries explain much of this variation. A day trip from Cleveland to Cincinnati costs a lot less than a month-long trip from New York to Tokyo. But the cost of a business trip doesn’t just depend on the where and when: the who also matters.
It’s not uncommon for a company’s travel policy to vary spending allowances by employee title or department. There are valid reasons why this might be the case. Restrictive travel policies create real friction and increase the risk of employee churn. One way to counteract this danger is to allow senior employees (who often are the heaviest travelers within an organization) a little extra leeway.
Overspending Starts at the Top
However, there’s a meaningful difference between adapting rules and throwing out the rule book all together. Too often, the question of what’s reasonable for an executive to spend on his trip isn’t even raised.
Let’s face it: no one likes having to babysit employees about their expenses. Examining the issue though reveals several factors that contribute to travel overspending at the top of an org chart:
Peer pressure – Travel perks are like other forms of executive compensation in that companies benchmark themselves against peers. Whether they’re granting stock options or making allowances for personal use of a corporate jet, many companies worry that they’ll have problems attracting and retaining talent if they don’t rise to the level of the market. This creates an upward spiral of spending.
“Drop in the bucket” syndrome – Despite travel being the second or third largest operating expense for most companies, it’s easy to ignore. What’s a few thousand dollars spent on a business trip taken by an employee who’s contributing millions to top-line revenue? When this attitude trickles down through an organization, however, a few thousand dollars quickly becomes a few million – enough to materially impact the bottom line.
Communication breakdowns – It can be hard enough to plan your own business trips; imagine having to do it for someone else. When an administrative assistant books a business trip on behalf of an executive, he or she often defaults to whatever airline and hotel the traveler is loyal to, regardless of price. There might be more affordable, perhaps even more convenient, options available, but the known quantity will always be seen as the safest. If you were booking a business trip for your boss, would you risk it?
Imprecise notions of convenience and cost – Sometimes it really is necessary to spend more on a business trip to ensure that you’re comfortable, safe, and productive while on the road. But when applied indiscriminately, this principle can be used to justify any expense. Cost and convenience have to be balanced, which brings us back to the topic of improvements in the modern travel experience.
In the age of smartphones and ubiquitous wifi, is it reasonable to ask employees to take connecting flights when there’s a significant difference in price? Traditional car services are certainly more expensive than Uber, but are they any more convenient? There’s no “right” answer. But these are the type of questions that need to be asked in order to get executive leadership onboard with responsible spending.
Executives aren’t hard-wired to waste money. Assuming that they are is to miss an opportunity for improving a company’s finances and culture. It’s not easy to have conversations about cost-control, but it’s better to rock the boat than ignore spending that would make a drunken sailor blush.