Managing business travel expenses: the hidden costs of business trips
Anyone who manages corporate travel expenses will know that there’s no simple way to measure the average cost of business travel. Destination and length can affect the costs of business trips, so understanding the kind of travel your business requires is essential to an accurate budget.
Throw in the mix the ongoing impacts of COVID-19, and it’s no surprise that business travel costs are constantly shifting. However, there are factors you can use to guide ‘average’ expectations and plan a business travel program that is both agile and reduces business travel costs.
1. COVID-19 and corporate travel: the average cost of business travel per day
With business travel expenses varying across different regions of the world, estimating the average cost can get a little convoluted. As Head of Customer Engagement Andy Jack explains, a lot has changed in the past two years.
“Back in 2019, we were still in the vein of the golden age of travel – it was still incredibly cheap and simple to travel.
“Fast-forward to 2022, and it’s normal to expect that prices have gone up, and that comes down to two interlinked aspects – increased regulations and complexities travelling in a post-pandemic world, and supply and demand.”
Get prepared for travel in a post-COVID world
The average airfare has increased for domestic, trans-Tasman and international flights.
That shift has been exacerbated by the rise in oil prices, as well as Air New Zealand increasing their international pricing by about 5%, similar to airlines around the world. However, as the demand for business and personal travel regains ground, it’s reasonable to expect that the average cost of air travel will progressively come down with travel confidence and competition.
“We also have to remember that New Zealand’s Omicron journey is behind the rest of the world, does make for a staggered airspace return as New Zealand starts reconnecting.. We predict that towards the end of the year and into next year, overseas travel will begin to soften as competition and capacity returns.”
Overall in look at air travel from 2019 to Jan-Mar 2022, domestic airfares increase by 16.77%; flying to Australia comparatively increased 85% and International increased on average by 60%.
Domestic flights have seen the slightest of increases, which is in line with increased purchasing of flexible fare types; with Corporate travellers preference for flexible fare types increasing by 15% compared to 2019.
“That’s part and parcel of the changing environment and people wanting a higher degree of flexibility when it comes to air travel”, Andy says.
Average car prices have increased too.
Similar to air travel, car prices have crept up in domestic, trans-Tasman and international areas. Before COVID-19, approximately 50% of car hire bookings through Corporate Traveller were for smaller car classes, but that has dropped 11% since 2019. That could be a result of fewer people on the roads, but the biggest challenge has likely been availability.
“Last year, there was a real shortage of available cars in New Zealand, another pandemic-related impact. So, it may not necessarily have been that people wanted bigger cars, it might just be simply that that’s what was available.”
As fleets return we expect this gap will close and we are also seeing more EV/Hybrid car types in fleets which is a great way to counter fuel charges.
Could hotels help offset the increases?
The good news is that Hotel prices haven’t varied wildly between 2019 and 2022. Trans-Tasman and Internationally, they’ve actually come down through competition and a desire to stimulate demand.
What businesses can expect to change this year locally is the reintegration of MIQ facilities into normal circulation.
“Across the Auckland, Rotorua, Hamilton and Christchurch regions, there are potentially almost 4400 room nights that might become available in existing properties. That’s not to mention new hotels that are set to open this year. This capacity cannot immediately return as workforces are needed and hotels will need the demand to support progressive staff regrowth as demand grows”.
“From that perspective, I think we can expect to see some great customer offerings in the domestic accommodation space, we’re already seeing exceptional offers through our fantastic local suppliers who we have great relationships with.”
The re-opening of the borders and the return of Trans-Tasman and overseas visitors will give a real boost to an industry that relies heavily on both local and international for both business travellers and workforce.
Where are people travelling overseas for business in 2022 so far..
For the first quarter, Jan-March 2022, it’s a 2 horse race with London narrowly pipping Los Angeles. Third place is a lot closer to home with Sydney. Availability remains the biggest challenge at present making booking in advance all the more crucial. Demand doesn’t appear to be the issue it is capacity, as complexities further relax we hope and expect to see far more flights, carriers and routes open up, which is key for New Zealand, business and personal travel.
2. Business travel expenses: the not-so-obvious costs of business trips
Business travel is an essential part of any industry, but when it comes to expertly managing business travel expenses, it’s often the hidden or unplanned costs that can significantly cause your budget to inflate.
Tax on airfares
Avoid basing your air travel budget on the face value of the ticket. Sales tax and various fees (e.g. paying by credit card) can add more than 25% to the price of a fare – and quickly result in overspending.
Airline add-ons (extra baggage, seat)
Also known as ancillary fees, everything from more legroom and seat selection to on-board meals, drinks and early check-in can drain your company’s travel budget. When these fees aren't thoroughly tracked and assessed, they're tough to control.
Hidden hotel fees
Just like airlines, many hotels generate billions of dollars in revenue just by charging ‘extra’ fees for services they consider standard. These often include newspaper delivery and access to hotel facilities like the gym and pool. You should also be aware of hotel service fees that tend to increase each year such as housekeeping, concierge, and even Wi-Fi fees.
Different sales tax rates when travelling overseas
Sales tax rates will change depending on your destination. While you’ll be familiar with 15% GST in New Zealand, in Europe it’s known as value-add tax (VAT), and every country has its own rules around rates and when they are charged.
In New Zealand, we’re lucky to have access to free healthcare, but this is not the case in most places around the world. If you require medical treatment while travelling, it will come at a cost and it can be a big one, particularly if it’s an emergency. Even the most basic treatments can carry a significant charge – taking out business travel insurance before you leave will help keep costs down.
ATM withdrawals and card fees
Many business travellers will encounter foreign transaction fees while making purchases or withdrawing cash from an ATM in a foreign country. The easiest way to avoid a foreign transaction fee is to use a debit or credit card that waives such fees while travelling abroad, and keep cash withdrawals to a minimum.
Fuel and parking for hired cars
Renting a car is a big-ticket expense, but it’s often the petrol and parking expenses that get miscalculated – or forgotten altogether.
Transport is usually the most expensive when demand is highest. That means, when you travel during peak times and seasons, expect to pay more. The obvious solution is to travel outside of peak times and seasons. The more flexible you can be, the more money you will save.
Wi-Fi and international calling
Whether your business travellers are using a work or personal phone while travelling, it pays to check the cost of international roaming and calling as well as Wi-Fi availability. They’ll likely need access to the internet throughout their trip, and if they don’t have enough data, the business will pay extra for flexi-data.
Booking changes or cancellations
Be prepared for additional fees usually charged when a booking needs changing or cancelling. This is where paying a little extra upfront for a flexible or refundable ticket option is worthwhile.
While they aren’t always unavoidable, last-minute business trip expenses are pricey. Do your best to plan, and put aside an emergency fund for those unexpected bookings.
Don’t forget to tip
While it’s not standard to tip in New Zealand, there are many countries where tipping for service is expected. The amount can also vary depending on the country, which can make planning travel costs even harder. For example, in Italy, you’ll often find a ‘coperto’ (service charge) added to your restaurant bill. In the USA, a tip of 15-20% of the pre-tax food bill is normal too.
The intangible costs
Most business expenses can be assigned a dollar amount, but there are also lots of ways a business can blow out its travel budget on less tangible things .
- Time and productivity. Employees in charge of their own business travel often aren’t up to speed with the most efficient ways to book and arrange travel, and this can quickly eat into working hours. They could easily spend those hours preparing for the meetings that will take place during the business trip instead – and increase their chances of closing the deals.
- Duty of care. Providing adequate care is a significant business travel expense that tends to creep up on businesses, mainly because these expenses can expand significantly depending on circumstances beyond your control.
- Employee burnout. Business travel can be stressful and exhausting. Add jet lag and the extra work they need to ‘catch up on’ to the mix and it can all take a toll on an employee’s health and wellbeing. All these problems will lead to employee burnout, which, in the short and long-run, hurts productivity.
Develop (and communicate) a travel expense policy
A clear travel expense policy is the first step to controlling your travel expenses. It also helps you monitor your total travel expenditures more effectively, and know whether the proposed budget for a business trip should be revised. Even with a company charge card, employees need to know when they can use it and on what. Otherwise, either the business or the employee will be out of pocket.
The best way to avoid this is to make sure every employee knows the rules. Communicate the rules clearly and regularly, and invest in business travel expense management software.
3. Reduce business travel costs – work with a travel management company
Managing small business travel expenses takes time and resource, and hidden costs will blow out what is often an already tight budget. However, by working with a business travel management company, you can negate the negative effects of unexpected costs and gain more value from corporate travel.
By leveraging the latest in travel technology, a TMC makes it easier to manage travel at every level—from planning and pre-trip approval to bookings and business travel expense reconciliation.
“If there is one piece of advice I would give customers right now, it’s book everything – your flights, hotel, car – all in one go, in advance, and book it through a travel management company,” Andy says.
“It comes back to that supply-and-demand factor – it’s about making sure you can access the best price and choice at the time of booking using our online booking tool.”
Adding value at every stage of the journey, so you can travel confidently
Streamlining processes around business travel spending will be a key part of making quick, informed decisions and giving employees the confidence to get back to travel, Andy adds.
“Smaller businesses have certainly led the return to traveller, less bound by red tape – they’ve been the first ones to bounce back and start booking international travel.”
The value of a TMC is in having a trusted partner that can guide you through the complexities, so you can travel confidently and cost-efficiently. Whether that be the most direct route to your destination, making greener choices when it comes to inner-city travel, e.g. hybrid or EV cars, or reducing overall spending while optimising value, safety and efficiency, a TMC will help you increase the visibility of costs so you can better understand and control them – which is key to improving your long-term travel savings.