Two important travel industry studies have shown that deep cuts in travel can harm a company’s bottom line. Oxford Economics, in a study released this week found that each dollar spent on travel by a U.S. company can expect an average profit boost of $3.80. Meanwhile, a study from IHS Global Insight estimates that U.S. companies could miss out on $193 billion in profit for 2009 because they cut too deeply into business travel.
“This study shows that not all spending cuts are smart cuts,” said Adam Sacks, managing director of Oxford Economics. “When companies reduce their travel budgets, there are negative consequences that we can now quantify, in terms of lost revenue and profit growth, and in terms of giving competitors a distinct advantage.”
This is the first time that the return on investment of business travel has been successfully measured. The study found that curbing business travel can have a strong negative impact on corporate profits. The average business in the U.S. would forfeit 17 percent of its profits in the first year of eliminating business travel, and it would take more than three years for profits to recover.
“Business travel IS economic stimulus,” said Roger Dow, president and CEO of the U.S. Travel Association, which commissioned the study. “In order to grow, businesses have to invest. This research shows that face-to-face meetings and incentive awards to top performers are among the smartest investments companies can make.”
Business travel in the U.S. is responsible for $246 billion in spending and 2.3 million American jobs; $100 billion of this spending and 1 million American jobs are linked directly to meetings and events. In the first six months of 2009, business travel spending is down by 12.5 percent and business travel volume is down more than 6 percent. A 10 percent increase in business travel spending would increase multi-factor productivity, leading to a U.S. GDP increase between 1.5 percent and 2.8 percent.
“In tough economic times, many business executives have an understandable short-run focus on managing costs. The report points out the less visible - but significant - long-term benefits resulting from business travel, such as partnership building and new business opportunities,” said Dr. Martin A. Asher, adjunct professor of finance at the Wharton School. “Increased business travel in this economy can actually increase sales and reduce the financial decline companies might otherwise suffer.”
Both executives and business travelers estimate that 28 percent of current business would be lost without in-person meetings. Roughly 40 percent of prospective customers are converted to new customers with an in-person meeting, compared to 16 percent without such a meeting. Executives cited customer meetings as having the greatest returns, approximately $15-$19.99 per dollar invested, with conference and trade show participation returns ranging from $4-$5.99 per dollar invested.
Meanwhile the study by IHS Global Insight suggests businesses can realize more than $15 in profits for every $1 spent on business travel. The groundbreaking research shows that companies are potentially losing out on nearly $200 billion in 2009 in additional gross profits because they are not optimizing their investments in strategic business travel.
The IHS Global Insight study was conducted on behalf of the National Business Travel Association (NBTA), an organization representing professionals in the business travel industry and American Express Business Travel. The report, “Can We Afford Not to Invest in Business Travel?,” published this week expands upon findings previewed last month at the NBTA International Convention & Exposition and is part of a comprehensive business travel research initiative. The project also includes elements examining the size and scope of the global business travel industry and the industry’s economic impact completed in partnership with Egencia, the corporate travel arm of Expedia Inc.
The analysis shows a clear link between travel spending and corporate profits, with the return on investment varying across the 15 industries examined. The study also illustrates that for each industry there is a point at which increasing business travel spending begins to cut into profits.
“Face-to-face client meetings and trade shows remain the primary tools for increasing sales, yet many companies view business travel as an expense to be cut rather than the rewarding investment it is,” said John Larson, Managing Director of Decision Analytics and Economic Impact Analysis at IHS Global Insight.
NBTA Research Consultant Kenneth McGill added, “Executives know from experience that travel facilitates the types of exchanges that help keep clients, gain new business, and make employees more effective, but making the business case for travel has been challenging without supporting data. Now for the first time the discussions around travel budgets will be informed with research establishing the link between business travel and profits.”