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Optimising Business Travel
Costs in Turbulent Times

Erik van Winkel
Edgar, Dunn & Company
Brussels, 2 March 2009

   Implications from the global economic downturn on business travel

   Opportunities for business travel cost reduction beyond budget cuts

   Research findings: cost reduction from travel payment solutions


   Implications from the global economic downturn on business travel

  Opportunities for business travel cost reduction beyond budget cuts

  Research findings: cost reduction from travel payment solutions

Global economic downturn: implications for
business travel
 How the crisis impacts the demand side
   – Slow down of business activities across most sectors
        • Less interaction with clients reduces part of business travel
        • New sales activities could off-set part of this
   – General cost cutting measures at corporate level to address bottom-line issues:
     business travel budget is easy target (typical objectives of 10-20% reduction)
        • Travel for internal meetings gets hardest hit – this part can represent up to 40% of total
          travel budget
        • Attendance of industry forums and conferences limited to in-market events
        • Alternatives to physical travel are on the rise (videoconferencing, webinars, …)
   – Lay-offs at many organisations: also reduces the number of effective business
   – Increased scrutiny on corporate spending (especially in sectors getting
     government support)
        • Tighter control on procurement activities, travel justification, class of travel, travel
          policy compliance, fraud, internal audit, etc
     Global economic downturn: implications for
     business travel

                Business travel budgets are on the top list of cost cutting measures to
                 address the crisis, globally and more specifically in Belgium
                Some companies react with a total travel freeze except for revenue
                 generating trips (10% of ACTE/KDS survey respondents)

             Companies expecting lower travel spend for 2009                                      Pre-crisis survey

                                                                           Higher travel
Belgium sample
                                                                          budget for 2009

                                                                       Lower travel budget
    US sample                                                               for 2009

                                                                         Flat travel budget
 Global sample                                                                for 2009

                 0%     20%         40%        60%        80%   100%                      28% 29% 30% 31% 32% 33% 34% 35% 36% 37%

                                                Sources: ACTE/BATM survey, ACTE/KDS survey
Global economic downturn: implications for
business travel

 How the crisis impacts the supply side

   – Financial crisis makes financing of investments more expensive or
     impossible (e.g. new planes, innovation, green solutions)
   – Profit pressure due to sudden drop in revenues and high (semi-)fixed
   – Increased price competition (due to overcapacity) but little room for
     additional discounts
   – Cost reduction measures (e.g. less personnel, cheaper
     features/benefits) may impact (perceived) service levels
   – Leisure customers turnover likely to further drop as result of delayed
     effects (summer holidays)

   Implications from the global economic downturn on business travel

  Opportunities for business travel cost reduction beyond budget cuts

  Research findings: cost reduction from travel payment solutions

Opportunities for cost reduction: creating a
win-win for all stakeholders

                                                              How can I
               Tighter control,                              support my
              bottom-line focus,                            customer with
                 compliance                                his challenges?

                          CPO /                                  Travel
                      Travel Manager                            Suppliers
                                       New customer
                                        (directly or via
 Business                              third parties) to
 travellers                              drive mutual
                 Comfort during               cost
               travel, less admin,        efficiencies
                 no big brother,
   How to optimize costs across the travel
   value chain

Travel suppliers                                                                   Expense                Travel cost
cost & contract               Travel planning            Actual travel
                                & booking                                          handling               monitoring

                                        Can I reduce the time I spend                      How can I monitor
 Can I get better deals
                                         providing cash advances?                             the travel spent more
  from my travel                        How do I know whether I am
  suppliers?                                                                                  efficiently?
                                         receiving all the refunds from
                                         unused travel tickets?

    Can I reduce the Travel Agency’s
     handling fees?                                          How can I reduce the time spent in the back office to
    How can I reduce out of policy spent?                    upload the travel costs onto the accounting system and
    How can I be sure that I am benefiting                   reconciling/paying invoices?
     from all the discounts I am entitled of?                How do I reduce late payment penalty fees?
                                                             How can I recover the VAT on foreign travel expenses
                                                              more easily?
How to optimize costs across the travel
value chain
 Most obvious way to reduce cost is cutting the budget and lowering
  the travel class
    – No win-win: business travellers will be upset, and suppliers will not be open to
      negotiate good deals

 Identify ways to reduce travel spend in areas that do not add value
  to any stakeholder
    – Travel spend related efficiencies (direct impact)
    – Travel payment and expense management related efficiencies (indirect impact –
      often hidden costs)

 Each step in the travel value chain has opportunities for cost
  efficiencies – cooperation of the stakeholders can help achieving
Travel suppliers cost and contract
 Optimised negotiations leveraging full buying power
   – MIS capabilities to slice and dice travel activities across suppliers, segments,
     destinations, etc
   – Covering more of total travel activity with supplier deals
 Win-win from travel suppliers cooperation
   – Mutually accepted reporting and figures on actual travel volumes avoids
     cumbersome reconciliation
   – Defining new travel propositions that fit better with new environment: only
     include (and charge for) services that add value to corporate client, e.g. flexible
     ticket, fast check-in,                                       Other expenses, 7%

                                                             MICE, 7%
     additional hand luggage, in-flight WiFi         Train, 7%

     (improving business traveller
     productivity during trip), etc
                                                                                                                                 Air, 50%
   – Support corporate client CSR objectives     Car rental, 10%

                                                                   Hotel, 19%

                                                                   Air   Hotel   Car rental     Train   MICE    Other expenses

                                                                                              Source: AirPlus
Travel planning and booking
   Actively promoting electronic alternatives (videoconferencing, webinars) for non-
    critical meetings such as internal company events, training courses etc.
     –   Interest among organisations increased from 32% in 2008 to 50% in 2009 (ACTE-KDS

   Travel Policy related measures
     –   Stricter booking class policy and preferred supplier selection
     –   Guidance for business travellers to optimise booking (either advanced booking of flexible
         tickets vs. last minute non-refundable tickets)
     –   Policy compliance (also linked into e.g. expense reporting tool) to optimise use of corporate
         rates (minimise missed savings) – 67% of ACTE/BATM survey respondents will take
         measures in this area in 2009 (mainly air)
     –   More predictable travel volumes by supplier will allow better negotiations
   Win-win from travel suppliers cooperation
     –   Align loyalty rewards with corporate rate structure
     –   Develop specific benefits for business travellers from corporate clients with preferred
         supplier contract
     –   User friendly services to allow ticket changes, refunds etc.
   Savings related to travel policy change and compliance enhancement can reach up
    to 15-20% of total travel budget
Actual travel
   Stimulate payment using corporate card
     –   Reduce admin related to expense claims
     –   Reduce employee cheating in expense claims (35% of ACTE-BATM survey respondents will
         take measures in this area)
     –   Improve travel MIS
   Avoid cash advances via petty cash or travellers cheques
     –   Reduce internal admin related to cash advances
     –   Reduce foreign exchange fees
     –   Simplify expense claims and processing
     –   38% of ACTE-BATM survey respondents still provided petty cash
   Guidance to business travellers around invoices/receipts from expenses to
    improve foreign VAT recovery (e.g. use company name/address in hotel)
   Refund of unused tickets - 41% of survey respondents will focus on this area
    in 2009
   Win-win for business travellers
     –   Less time spent on gathering (cash) receipts
     –   Provide incentives to ensure unused tickets are reclaimed
Expense handling
   Process related efficiencies
     –   Automated invoice reconciliation for lodge account travel purchases
     –   Integration of travel payment solutions with accounting/ERP systems
     –   End-to-end expense reporting automation
     –   52% of ACTE-BATM survey respondents will improve process automation in 2009

   Financial gains
     –   Foreign VAT recovery
     –   Improved cash flow
     –   Avoidance of late payment penalty fees
     –   Reduction of travel agency exception handling fees

   Win-win from travel suppliers cooperation
     –   Support invoicing formats to enable VAT recovery and electronic integration

   Win-win for business travellers
     –   Less cumbersome admin process
     –   Faster and correct expense reimbursement
Travel cost monitoring
 Enhanced MIS capabilities
   – Allow easy control of actual travel spend status during the year and identification
     of variance
   – Allow pro-active intervention by travel manager to steer travel behaviour during
     the year towards specific suppliers in order to optimise overall discounts
   – More effective budget control – avoid over-spending
   – Less effort for internal audit

 Win-win from travel suppliers cooperation
   – Check points during the year to discuss actual contract performance and to fine-
     tune wherever possible to maximize mutual benefits

 Win-win for executive management
   – Better forecast and budget control of travel spend
   – More transparency and better auditable processes

   Implications from the global economic downturn on business travel

   Opportunities for business travel cost reduction beyond budget cuts

   Research findings: cost reduction from travel payment solutions

Case Study: Travel Payment Solutions at
Fuji and Deloitte in the Netherlands

   Edgar, Dunn & Company (EDC) has performed a Cost-Benefit study
    for AirPlus with two of their clients in the Netherlands

   Objective of the study was to measure the cost savings at the clients
    resulting from the implementation of AirPlus travel payment solutions

   EDC has measured the different costs across the travel value chain
    (see next slide) before and after the implementation at both
    companies in order to determine the actual realized savings

   The figures from the study do not represent cumulative savings, but
    rather the annual savings between the two snapshots (annual savings
    during following years might be higher due to initial learning curve and
                 Step 1                    Step 2         Step 3                    Step 4                Step 5

                      Travel                  Travel
                                             planning            Actual                  Expense             Travel cost
                     cost and
                     contract                   &                travel                  handling            monitoring
                    negotiation              booking

           Air travel               Unrealized travel   Missed refunds on        Surcharge fees
                                    savings             unused tickets

           Car rental                                   Cost of corporate        Late payment fees

           Hotels                                       Foreign currency cash
                                                                                 Travel agency fees for
                                                        advance fees
                                                                                 payment handling
           Other travel costs
Costs      (e.g. restaurants,
           visas, taxi)                                                          Costs not recoverable
                                                                                 from clients*

                                                                                 Cash flow
                                                                                 gain/lossess on client

                                                                                 Cash flow
                                                                                 gains/losses on
                                                                                 supplier payments

           Travel data collection                       Internal cost of         Supplier payment         Cost of on-going
           for contract                                 providing cash/foreign   administration           reporting
           negotiations                                 currency
Indirect                                                                         Invoice reconciliation
                                                                                 and expense data
Costs                                                                                                     Cost of internal audits

                                                                                 Cost of completing
                                                                                 and validating
                                                                                 expense reports

                                                                                                             *: only applicable to companies
                                                                                                             recharging travel expenses to their
Deloitte selected a number of solutions which are
partially linked with other internal management systems

            Deloitte in 2005                                                       Deloitte in 2007

 External travel agency                                                 External travel agency
 lodge account                                                          AirPlus Company Account

 600 corporate cards (personal                                          1,200 AirPlus corporate cards
    liability)                                                            (personal liability)
                                                                         AirPlus Information Manager

                                                                         AirPlus Invoice Control

                                                                         FlexEbill (on-going implementation)

                                             Drivers for Change
     Lack of internal travel reporting tools (dependence on external sources, e.g. travel agency)
     Significant manual back-office activities related to travel expense processing
     Issues with reconciliation of invoices, resulting in frequent late payment penalties
     Part of client related travel expenses could not be charged to external clients because invoice
      reconciliation was finalized only after internal accounting had closed the project cost center
The implementation of travel payment solutions contributed to savings
in direct costs worth of €155K, the majority of which resulted from more
advantageous contracts negotiated with airlines

     Travel supplier costs: the Procurement Manager has succeeded to negotiate better discounts
      with certain air lines, resulting in annual savings of € 75,737. The new solution provided
      superior reporting capabilities versus externally sourced reports. Additionally, the airlines
      regard the flown figures from AirPlus reports as sufficient reference for negotiations, avoiding
      time consuming reconciliation and potential disputes of the figures.

                                           Deloitte: direct cost savings split

       € 80,000    € 75,737

       € 70,000

       € 60,000

       € 50,000

       € 40,000                     € 37,447
                                                          € 33,535

       € 30,000

       € 20,000

       € 10,000
                                                                                  € 3,859             € 2,900            € 1,544
                   Air travel   Late payments fees   Costs not recov. from   Cash Flow gains on   Missed refunds on   Surcharge fees
                                                             client             client billing     unused tickets
Additional direct costs savings include the elimination of
late payment fees and unrecoverable client related travel

    Late payment fees: the implementation of the new lodge account in
     combination with the automated invoice reconciliation has simplified the
     reconciliation process, eliminating late payment fees of € 37,447
    Costs not recoverable from clients: based on Deloitte estimates, € 33,535 of
     unrecoverable client travel expenses have been eliminated in 2007 due to
     weekly statements and automated reconciliation, allowing timely invoicing to
     Deloitte clients (before accounting closure of projects)
    Cash flow gains on client billing frequency: having weekly statements,
     Deloitte was able to also bill the travel costs to clients on a weekly basis,
     resulting in a cash flow gain of € 3,859
    Missed refunds on unused tickets: Deloitte has discontinued a refund system
     from the travel agency for unused tickets after an analysis based on MIS
     reports, revealing that the refund of unused tickets was well below the cost of
     the service from the travel agency (50% of savings attributed to new travel
     payment solutions, being € 2,900)
The indirect costs savings are estimated at € 4.3K, mostly
derived from streamlined invoice reconciliation and
accounting data input

    Invoice reconciliation and expense data input: with the new
     solution, the travel expense data are imported automatically into the
     accounting system, thereby eliminating the time required for manual
     input and reconciliation. The resulting annual savings amount to
     € 1,841
    Travel data collection for contract
     negotiation : enhanced reporting                                                      Deloitte: indirect cost savings split

     capabilities eliminated the need to    € 2,000
                                                                        € 1,841
                                            € 1,800
     purchase external reports, resulting
     in an annual saving of € 1,500         € 1,600                                                                      € 1,500
                                            € 1,400

    Cost of internal audits: time          € 1,200
                                                                                                                                                               € 1,000
     reductions in the on-going             € 1,000

     monitoring of the travel expenses       € 800

                                             € 600
     and the performance of internal
                                             € 400
     audits led to an annual saving of
                                             € 200
     € 1,000                                    €0
                                                      Invoice reconciliation and expense data input   Travel data collection for contract negotiation   Cost of internal audits
Deloitte Conclusions
   Up to 2005, the travel data required for on-going reporting and for the travel
    contract negotiations was provided to Deloitte by external entities.
   The implementation of travel payment solutions was very easy and had a
    negligible cost.
   These tools have allowed Deloitte to consolidate the travel costs data and to
    automate their upload into the accounting system, which led to a number of
    indirect cost savings:
     –   MIS reports and analysis used in the contract negotiations
     –   Enhanced reporting and monitoring of travel costs
     –   Optimization of the invoice reconciliation process
     –   Elimination of late payment fees and unrecoverable client travel expenses
     –   Cash flow benefits from more frequent client billing process

   The resulting annual savings in 2007 amounted to a total of about
    € 160K
   A further integration of corporate card data with an expense management tool
    could provide additional savings in the future
At the end of 2005, Fujifilm integrated a broad suite of
solutions within a new end-to-end travel management

         Fujifilm in 2005                                                    Fujifilm in 2007

  External travel agency
                                                                     Fully integrated set of solutions
  lodge card
                                                                     External travel agency
  Corporate cards                                                   AirPlus Company Account
  Travelers checks                                                  AirPlus corporate cards

  Manual expense handling                                           AirPlus Information Manager

                                                                     AirPlus Electronic Billing, Invoice
                                                                     Automated expense management tool

                                            Drivers for Change

    Lack of automation in travel expense reporting and processing – Fujifilm wanted a holistic solution to
     optimize the end-to-end process from travel booking to expense handling

    Lack of reporting and analysis tools put constraints on travel budget optimization and supplier
 The roll out of travel payment solutions has led
 to a reduction of 8% of the direct costs (*)
        Travel supplier costs: the superior reporting features of the new system has
         contributed substantially to concluding better deals with travel suppliers. The
         part of incremental discounts attributable to the new solutions is estimated at 3%
                                                                       Fujifilm: direct cost savings split
                                                                                       COSTS 2007     SAVINGS     COST INCREASE

         € 160,000

         € 140,000

         € 120,000
          adjus tme nt

         € 100,000

           € 80,000

           € 60,000

           € 40,000

           € 20,000

                                                                                                                66%             100%                96%
                                                                        100%                                                                                       100%
                            Travel suppliers   Unrealized travel    Missed refunds        Travel agency   Cost of corporate   Late payment        Foreign      Cash flow loss on
                                                   savings         on unused tickets    handling fees for      cards              fees         currency/cash       supplier
                                                                                        payment handling                                       advance fees       payments

(*) -The total € amount of the travel budget for Fujifilm cannot be disclosed; hence the related savings on travel contracts are being quoted in % terms
Other direct costs savings include reduced unrealized
savings and the increase of refunds on unused tickets
    Unrealized travel savings: a significant benefit was the reduction of unrealized travel
     savings due to out-of-policy spend. The monitoring capabilities have led to annual savings
     worth € 34,714.
    Missed refunds on unused tickets: the deployment of the centralized travel billing and
     payment system allowed Fujifilm to refine the control of the refunds of unused tickets,
     increasing the refunds by € 8,756
    Travel agency fees for payment handling: due to the reduction of exception items and
     automation of the travel expense payments, Fujifilm has seen a decrease in travel agency
     fees for payment handling by € 6,650
    Cost of corporate cards: the new corporate cards have a lower annual fee for Fujifilm than
     the previous supplier. The related annual saving amounts to
     € 5,700
    Late payment fees: the interface between the travel MIS system and SAP, as well as the
     automated reconciliation of invoices, has enabled Fujifilm to pay all travel invoices in a
     timely manner, thereby eliminating late payment fees, generating an annual saving of €
    Foreign currency cash advance fees: the introduction of the corporate card as the
     preferred means to provide foreign currency has eliminated the fees and handling costs of
     traveler’s checks, resulting in a saving of € 2,373
    Cash flow losses in supplier payments: there was, however, a small negative impact in
     terms of cash flow, originated by the reduction of the payment terms from 30 days to 10
     days. This cost increase is estimated at € 1,115
The deployment has produced indirect costs savings of about
€ 14K, representing a 46% decrease in indirect costs

   Cost of completing and validating expense reports: the automatic data feed into the
    expense management tool significantly reduced the time needed to manually complete the
    expenses reports and upload them into the accounting system. The annual savings are
    estimated at € 5,936

                                               Fujifilm: indirect cost savings split
                                                                       COST INCREASE      COSTS 2007   SAVINGS

    € 20,000

    € 18,000        34%

    € 16,000

    € 14,000

    € 12,000

    € 10,000

     € 8,000

     € 6,000

     € 4,000
                                             68%                                                            50%

     € 2,000                                                                            100%

                                                                                                                                        33%        100%
         € 0
               Cost of completing   Travel data collection Invoice reconciliation   Internal cost of   Supplier payment   Cost of on-going    Cost of internal
               and validating the       for contract         and expense data           providing       administration       reporting            audits
                expense report          negotiations                input             cash/foreign
Additional indirect savings

   Travel data collection for contract negotiation: the indirect costs
    associated with the workload of collecting and analyzing the travel data prior to
    the contract negotiations have been reduced, resulting in an annual saving of
    € 2,819

   Internal cost of providing cash/foreign currency: by discontinuing the
    travelers checks, the related internal back-office handling process was
    eliminated, representing annual savings of € 2,238

   Invoice reconciliation and expense data input: the number of working days
    allocated to the accounting handling of Company Account expenses has been
    reduced from 17 to 3 man days on an annual basis, leading to a saving of
    € 2,349

   Cost of internal audits and on-going reporting: the time spent on these
    tasks has gone up slightly due to increased access to data and superior
    analysis functionalities. These cost increases of € 164 and € 658 respectively
    are more than off-set by the resulting cost savings
Fuji Film conclusions

   The travel payment solutions have generated a direct cost reduction
    of 8% and indirect cost savings of 46%

   Based on the success in the Netherlands, the Travel Management of
    Fujifilm has started deploying similar solutions throughout Europe

   Roll-out for France, Germany, Spain, Denmark, Italy and UK

   If a similar set of solutions would be deployed at all Fujifilm entities in
    Europe, the estimated annual savings could be about € 1 million.

Implications from the global economic downturn on business travel

Opportunities for business travel cost reduction beyond budget cuts

Research findings: cost reduction from travel payment solutions

   The best way to address the economic challenges around business
    travel is by finding win-win situations for all stakeholders

   There are ways to “do more with less”

   Several hidden costs and non value-added activities can be optimised
    with innovative solutions

   Travel payment solutions can contribute in different ways to cost

     – MIS platform to enable more and better corporate deals

     – Process efficiencies and avoidance of negative costs (fraud, unused tickets

       Erik van Winkel

       Edgar, Dunn & Company

Phone: + 32-(0)473-829084
E-mail: erik.vanwinkel@edgardunn.com


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