As we continue to see a trend of more ancillary spending and higher fees being charged for business travelers, we recommend that this expense is something your organization pay attention to and plan for. Travel vendors are benefitting significantly from adding these fees for the travel experience. Recent information from IdeaWorks and CarTrawler indicate that airline ancillary fees were projected to be more than $5 billion in 2015.
These fees, which start as low as a few dollars and seem small, can start to add up to significant costs for your organization; up to a quarter of the cost for the average business trip. So while a justification can be made to pay for these “small” ancillary fees, most are optional or can be avoided with good planning. Also, some are not so small. For example, Spirit Airlines charges $100 for a checked bag at the gate, or if you book a British Airways Hand Baggage Only fare you could pay $100 each way if you wind up checking a bag. These charges occur before you even step on the plane, so you can see how they can start to add up.
A quarter of your travel budget, which is the second largest controllable expense for the average organization, is significant. Travel is already a challenge to process, manage and interpret. Add to that the myriad of ancillary fees for air, hotel, and car that must be addressed as suppliers continue to commoditize their base pricing, and offer up more options to personalize the reservation in ways that are often not addressed and drive up costs, makes for an even more complex expense reconciliation. So how does your organization go about understanding their ancillary spending more strategically?
First and foremost, you want to determine what ancillary fees are. The Global Business Travel Association (GBTA) and Business Travel News (BTN) each list a number of common ancillary fees that travelers are subject to including:
Keep in mind that some of these fees are difficult to identify at times or are “hidden,” such as hotel resort fees which are mandatory. The Federal Trade Commission (FTC) is petitioning Congress right now to address the issue of hotel resort fees, which the FTC’s chairwoman says are “a deceptive and unfair trade practice.” (Source: LA Times) This is why understanding the full scope of ancillary fees is important as they are not always clear.
Once you understand what ancillary add-ons travelers have available to them, next you want to sort these expenses into categories based on when and where they take place. By categorizing in this way, you can see where expenses occur and determine whether changes need to be made to control these costs within your organization:
The next step is to understand why each ancillary expense has been incurred, analyzing specific factors of the transaction or the trip, including type of service or product bought, overall spending behavior of the travelers, what “class” of traveler (road warrior, one time traveler, executive VIP, etc.) incurred the expense, and the context of the expense. Having this analysis brings your organization closer to understanding actions that are needed to reduce costs.
We have done an airline to airline comparison to show the different amounts that travelers can pay for seat assignments with extra legroom on the Washingon Dulles to Los Angeles route. These airfares generally start at $149 each way prior to ancillaries being charged:
Virgin America - $35 for an Exit Row with limited recline
American Airlines - $80.93 for Main Cabin Extra, which may have a limited recline
United Airlines - $146 for Economy Plus, which may have a limited recline
Again, you will want to analyze the spending behaviors of your traveler and determine which travelers will be allowed to take advantage of perks like these for the fee that comes with them.
Once you have this understanding, you should go back to your travel policy and ensure that there is clear language regarding ancillary fees. You may want to evaluate your policy in regard to preferred supplier, class of traveler, adjust the number of trips employees make, setting an expense limit at the start of the booking, or create a virtual card with an agreed upon limit. Addressing these items within your policy will ensure that you are able to enforce your parameters while allowing your road warriors to have some flexibility when they travel.
After taking the actions listed above, you want to create awareness about your ancillary fee policy and ensure that the policy is enforced. Clearly communicate the policy to your travelers and make sure that managers and approvers are on board. Ask for continual feedback from your road warriors on how the policy is working for them and repeat the steps above as needed. By following this process, you will have improved your organization’s overall understanding of what fees are able to be charged, when, and for whom, from finance to procurement to the travel manager to the road warriors, resulting in improved control and predictability and a drop in expenses.
For more trends to keep on your organization’s radar this year, check out our 2016 Trends in Corporate Travel Management for the SME Marketplace..