Setting a budget for company travel is daunting enough in a normal year. Right now, when business trips considered perfectly unremarkable during pre-Covid times aren¡¯t even legal, any kind of forecasting is uniquely challenging.

Even so, companies need a broad idea of how much they will pay once what is typically their second largest controllable expense is switched on again. To achieve a figure, they have to consider unit costs (average fare and hotel rate per trip) multiplied by the number of units they will purchase ¨C in other words, how many trips they are likely to take.

Calculation of the latter is being changed irrevocably by not one but two crises: coronavirus and the climate emergency. Stephen Lascelles, EMEA and APAC travel manager for the insurance company Willis Towers Watson, recently attended a virtual discussion with fellow buyers from the UK and Ireland¡¯s Institute of Travel Management (ITM). The unanimous conclusion, he says, was that ¡°for the sake of the environment no one wants to see travel return to 2019 levels.¡±

Willis Towers Watson has therefore been reviewing its historical approach to setting a travel budget: looking at what was spent the previous year and making relatively minor adjustments in line with shifts in supply and demand. ¡°We want to turn that on its head and say it¡¯s an out-of-date model,¡± says Lascelles. ¡°This is an opportunity to reset and ask instead what do we need to spend in order to be successful?¡±

It is an ambitious question and Lascelles is the first to admit his company is only at the beginning of a long journey to answer it. But if the travel team gets it right, much wasteful expenditure of both money and carbon could be avoided.

¡°Return on investment is going to be so much more important for our budget holders to understand,¡± says Lascelles. That will mean venturing into realms of corporate financial data analysis where travel managers have not traditionally set foot.

Initiatives could include measuring travel spend against revenue and profit margin for different parts of the business and trying to help departments where spend is high but revenue is relatively low. In such cases the travel team could present ideas for reducing costs and carbon usage, such as sending fewer colleagues to the same meeting or seeking virtual alternatives.

¡°It¡¯s difficult but we definitely want travellers to have this on their radar,¡± Lascelles says. He believes recent improvements in business intelligence will help, including more sophisticated capture of the purpose of each trip and post-travel surveys asking employees whether their trip achieved its business goals.

Willis Towers Watson is also starting to think about setting a travel carbon budget as well as a financial one. Horst Bayer, founder of sustainable business travel consultancy TravelHorst, prefers the phrase ¡°carbon target¡± to ¡°carbon budget¡±.

He believes it would be too messy to set limits for individuals departments or travellers and is something to which? companies as a whole should aspire. A target, he emphasises, is only meaningful if accompanied by an action plan specifying tangible measures the company would take to reduce carbon emissions, such as mandating train over plane where practical.

Bayer recommends businesses review progress towards their target on a quarterly basis. ¡°If you see your carbon use is getting too high, then you have to understand why it is happening and whether it is justifiable,¡± he says. ¡°For example, did you acquire a company? It¡¯s similar to what you would do on the financial side.¡±

As far as financial budgeting is concerned, the unit cost outlook once business travel resumes is that air fares will be a complicated picture but hotel rates will be lower than pre-pandemic.

¡°Our forecast is it will take a number of years for average hotel rates to return,¡± says Thomas Emanuel, director of the hotel data benchmarking company STR. This prediction is based on an assumption that room demand will be slow to recover. Border restrictions and lingering reluctance to travel will be contributing factors, as will what Emanuel calls depletion of the ¡°travel eco-system¡± ¨C fewer air routes, for example.

By an unfortunate coincidence for the lodging industry, its over-supply problem has been exacerbated because 2020 was set to be a bumper year for hotel openings, according to STR. Those properties which did open will drive prices further downward in some cities.

Yet other destinations may see upward rate pressure because they will have fewer hotels post-pandemic, especially in Europe, which witnessed more hotel closures than other regions. ¡°We expect most to re-open but there will be some casualties,¡± says Emanuel.

With volatility likely for some time to come, Willis Tower Watson category travel manager Clare Francis has adopted a strategy of negotiating dual rates with hotels: a discount on the best available rate to benefit from current low pricing; and a fixed corporate rate to provide a ceiling as occupancy and pricing strengthen again.

All five key hotel chains used by Willis Towers Watson have agreed to dual rates, representing 80 per cent of its preferred property portolio. Francis says the chains went along with the idea because of her company¡¯s strong track record of partnerships, including a reduction in supplier numbers.

For air budgeting, while ¡°long-haul, low-cost carriers are pretty much a dead model,¡± there will be ¡°aggressive pricing¡± by budget airlines on short-haul routes, says Tim Coombs, managing director of strategic aviation consultancy Aviation Economics. According to Coombs, the travel slump has been marginally less catastrophic for low-cost carriers, which have enjoyed better cash reserves and greater access to capital than legacy rivals.

The present situation in China also points to lower fares on short-haul routes.? ¡°The Chinese domestic market has fully recovered to pre-Covid levels yet average fares are still depressed roughly 30 to 40 per cent,¡± says a Chinese aviation industry insider.

Presently, long haul is virtually non-existent in China and everywhere else. Coombs believes fares may prove more resilient when these routes do return. ¡°Business travel is relatively price-inelastic,¡± he says. ¡°If they can find any business travellers willing to fly London-New York, airlines won¡¯t compete too heavily for them, nor on other routes where there are joint-venture agreements and not much competition. If at all possible, they will look to repair their balance sheets, so I imagine they will try to squeeze out every bit of revenue they can.¡±