Report blasts cuts in travel: Corporate trips drop with economy

Posted on: October 8 2009 | Posted in: Latest News
Report blasts cuts in travel
Corporate trips drop with economy



Wednesday, September 16, 2009
Times-Picayune
By Jaquetta White

Business writer

Hoping to revive the business travel market, the U.S. Travel Association released a study Tuesday that shows the impact of face-to-face meetings on corporate revenue growth. The travel association hopes the data will convince companies that have been cutting back on executive travel to begin spending again.

According to the study, conducted by Oxford Economics, there is a return on investment of $12.50 in revenue for every dollar invested in business travel. The study also reports that reducing business travel can result in the forfeit of 17 percent of the profits of an average business in the first year.

"Decisions to cut travel are very short-sighted," said Adam Sacks, founder and manager director of Oxford Economics' Tourism Economics division. While there are "bottom line benefits that can be recognized in the immediate environment" decreasing travel budgets is ultimately "foolish," he said.

According to the report, companies spent $229 billion on travel last year. Sacks said the amount is equal to about 1 percent of "the average company's revenue." But more than half of the companies surveyed cut their business travel budget this year.

The study assesses data from various industries over a 13-year period. About 500 business travelers and 300 executives were also interviewed as part of the research.

The report was commissioned by U.S. Travel Association in response to the sharp decline in corporate travel during the past year. Many companies that cut travel have said they are being prudent in a time of economic uncertainty. Others have canceled events for fear that extravagant spending would draw the ire of Congress and the media at a time when large companies were posting huge profit losses and requesting help from the government to stay afloat.

A study released last month by PhoCus Wright, a Connecticut research firm, found that corporate travel as a share of the total travel market shrank to 37 percent in 2008 from 39 percent in 2007.

"In December through February this year there was a tremendous amount of vitriolic rhetoric from politicians and the media that (business travel) was damaging and an abuse of funds," Dow said. "We found all of that rhetoric caused the industry to lose $2 billion in January and February in cancellations."

New Orleans has not been immune to that decline. Two companies, Levi Strauss & Co. and Blue Cross Blue Shield, canceled major meetings here earlier this year. There also have been a handful of cancellations at hotels by groups that do not book through the New Orleans Metropolitan Convention and Visitors Bureau.

The visitors bureau is on pace this year to book about 65 percent of the meeting business it normally would in a year. Visitors bureau President Stephen Perry praised the study's findings.

"We know that business travel is good for New Orleans' economy, but this study quantifies the return on investment that businesses experience when they hold meetings, conferences and events here," Perry said in a statement. "In addition to the $3.80 in corporate profits returned on travel investment to our destination, companies strengthen business relationships, grow employee's morale and job performance, build industry partnerships and retain customers."

Among the findings was that a majority of executives surveyed believed they'd lose more than a quarter of their customers if they eliminated in-person business meetings.

"Certainly where we are now, virtual meetings are a viable alternative, yet 85 percent of executives find it less effective than in-person meetings with prospective customers."

The study also reported on the benefits of incentive and reward trips, among the most criticized of business travel. According to the report, nearly 80 percent of executives indicated that incentive travel had an important impact on morale and job satisfaction. Beyond that, those trips provide a $4 return on every $1 invested, the report showed.

"Travel is an investment, it's not an expense, although in the (profit and loss statement) it shows up as an expense," Sacks said. "Our candid hope with this study is to move the needle a little bit and to make the argument to companies that part of recognizing their fiduciary responsibility is to look beyond the short term benefit of making these cuts and think about how making these cuts might affect their businesses."

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Jaquetta White can be reached at jwhite@timespicayune.com or 504.826.3494.