New Research Sees Link Between Business Travel, Profit

Despite anti-business travel rhetoric, business travel is actually being underutilized in the U.S, and increasing business travel could increase gross operating profits for U.S. businesses, new research conducted by IHS Global Insight reports. The research results debunk the misconception that business travel is a non-essential area of spend that does not generate revenue, and can therefore be slashed in a tighter economic environment, IHS says. The research, commissioned by NBTA and American Express Business Travel, used data spanning 10 years from 1998 to 2008 and across 15 industries and 9,500 U.S. companies.

In looking at the past 10 years, the study indicates an incremental 1 percent increase or decrease in travel spend yielded in aggregate a corresponding 1.7 percent increase or decrease in sales, looking at 2008 data— economy-wide corporate profits would be maximized at a point where business travel spending is increased by 5.3 percent or about $14 billion, increasing travel could result in increased total industry sales of 3.7 percent or $894 billion and gross operating profits for U.S. business in aggregate would increase by $224 billion or 4.4 percent.

IHS Global Insight Principal Christopher Pike said: "For most companies and industries, the pressure to cut business travel is actually counter to the goals of maximizing revenues and profits. Although the findings do vary by industry, in looking at the past 10 years, the study indicates an incremental one percent increase or decrease in travel spend yielded in aggregate a corresponding 1.7 percent increase or decrease in sales.”

"Having the ability to demonstrate the return on travel investment has increasingly become a focus and a key deliverable of our members to their organizations," said Kevin Maguire, NBTA Chair and former president. "We thought it was important to invest in this ground-breaking research to get past the pro-business travel and anti-business travel rhetoric and test the correlation between business travel and sales and profits. This study is a first step in better understanding the value of business travel to corporate top and bottom line performance and offers an important benchmark for companies across a wide industry spectrum."

American Express Business Travel Vice President and General Manager Hervé Sedky added, "Companies often view business travel as a non-essential area of spend, found at the front of the line when spending cuts are being considered. We supported this research to begin to apply the critical ROI business discipline to travel that business leaders need to guide decision making around all expenditures and tie them to business outcomes. Companies not only have to understand the optimal mix of travel for their industries and companies, but they need to know how to best use those dollars by investing in smart travel programs during the downturn so they are in a better position when the economic recovery takes hold.”

Kenneth McGill, NBTA Research Consultant, said, “When looking at the 10 years of data and isolating only the influence of business travel, the research suggests that business travel is being underutilized in the U.S, although it does vary by industry. Using 2008 results as a starting point, the study shows that economy-wide corporate profits would be maximized at a point where business travel spending is increased by 5.3 percent or about $14 billion. Using the correlation established over the last 10 years, increasing travel this much could result in increased total industry sales of 3.7 percent or $894 billion. Adding in the additional business travel expense and assuming other costs are proportional, gross operating profits for U.S. business in aggregate would increase by $224 billion or 4.4 percent. However, this correlation does not factor in the current recession of 2009 and the fact that business travel is expected to contract by 14.7 percent this year.”

The research also explored the optimal point of travel for each industry sector. Of the 15 industries studied, IHS Global Insight’s findings indicate that industries such as Chemical Manufacturing (which includes pharmaceutical and medicine) and Retail/Wholesale could have benefited by increasing their average yearly investment in business travel over the last 10 years. Other industries, such as Business Services and Consulting may have reached their maximum return on travel expenditures based on the last 10 years of average spending data, and an increase in business travel is not likely to correlate to increased sales and profit in those industries.

Visit www.ihsglobalinsight.com.

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