When the CEOs of Detroit’s Big Three automakers flew to Washington, D.C., on private jets seeking a collective bailout, the resulting scornful guffaws echoed around the country. Suddenly corporate jets, the usual mode of transport for many big-company executives, seemed not only woefully out of sync with the national mood but also a luxury expenditure that few companies could justify. Time Warner, Citigroup, and other companies put their jets up for sale, while many others began investigating ways to rein in travel costs.
True, belt-tightening can be relative. Some companies have moved away from corporate-owned private jets in favor of services like those offered by Sentient Jet, a membership organization where entrée still runs a steep $100,000. But compared with the $10 million to $45 million cost of a private jet — not to mention operating costs of $2,000 an hour — paying barely six figures to buy a piece of exclusivity seems like a bargain.
But what about those firms — the vast majority — whose executive teams were flying commercially long before the economic crisis kicked into high gear, and for whom business class was already a luxury restricted to flights of six hours or more? Where else are CFOs, many of whom have been cutting discretionary costs for more than a year, finding ways to trim their airfare spend, the largest segment of most companies’ travel budgets? A recent poll by the Association of Corporate Travel Executives found that 71 percent of business travel managers plan to spend less on travel this year than they did in 2008. Some are realizing significant savings by becoming more disciplined about travel planning — and making sure employees follow the rules.
Many finance chiefs are starting to trim airfare costs by reducing the number of trips taken or the number of travelers per trip, rather than downgrading the comfort of those who do have to fly. In travel-industry parlance, this phenomenon is called “demand management.”
CFOs are now approaching travel as an investment, says Hervé Sedky, general manager at American Express Business Travel. As a result, “the first thing the CFO wants to know is, Is there a return on this investment?”
“We’re not so much arguing over the class of ticket someone can buy as asking whether anybody actually needs to go in the first place,” explains Marty Moore, CFO at SVP Worldwide, maker of Singer sewing machines. “Before, we would have said it’s a good idea to get people together face-to-face, but now, we might just videoconference.” Each of the company’s operating units maintains its own travel budget, which is reviewed monthly, with managers expected to alert Moore if they anticipate exceeding their allowance. His approval is now required for all travel at the corporate level. Just knowing they need his signature, he says, gives people pause.
“It’s not that I’m a tyrant,” explains Moore, “but it does make people think, ‘Do I really need to do this?’ If they come to me to talk about it, obviously they feel strongly about the trip.” Moore says such a shift in thinking will save the company about 10 percent on travel. “One person not going can save a lot of money.”