Budget blues?

We’ve all felt it – the pinch of rising prices, the escalated cost of living and the resultant belt tightening. But it’s not just the consumer sitting at home – the majority of corporates have for some time been looking to cut their costs, particularly in the wake of the 2008 global financial crisis. Travel is one of the first areas looked at, as Kate Kennedy discovered.

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The corporate world may have re-looked its travel policies and video conferencing operators may be licking their lips, but a decreased travel budget doesn’t spell the end of the need to travel, particularly in the corporate world. We’ve all just had to become that much smarter and selective about the process, and travel policies have had to change to reflect a ‘new normal’.

That starts with the actual physical travel process, where budget airlines have clearly come into their own in the past decade.

“Low-cost carriers have taken the world by storm, accounting for more than a quarter of all airline bookings,” says Paul de Villiers, Vice-President of Amadeus Africa. “Twenty years ago corporate travellers would fly in business class on full-service carriers – no questions asked. They would be pampered during the flight with exceptional service, a glass of champagne, a delicious meal and ample legroom. It would have been inconceivable for them to consider paying extra for drinks, luggage or to pre-select their seats. The distinction between economy and business, between LCC and full-service carriers was clear-cut and very visible. But, today the world has shifted, the lines have blurred and it is perfectly normal for a corporate traveller to fly on a low-cost carrier.”

Travel management companies are at the coalface of the corporate booking process and are well-placed to comment on trends. But Michelle Jolley, Corporate Marketing Manager of Flight Centre Travel Group in Johannesburg says it’s not as simple as just searching for the cheapest fare.

“When we compare a best fare of day with an advance purchase of more than 21 days, with no auxiliary inclusions, such as onboard meals and checked baggage and stricter penalties, the savings could be in excess of R900 ($65) on a return ticket from Johannesburg to Cape Town,” she says. “However, many of our corporate customers still prefer to travel on the legacy domestic carriers, due to scheduling, more frequencies and fewer time changes.”

Point well made and understood, but perhaps there’s a need to delve a little deeper into just who exactly this corporate traveller is?

Kirby Gordon, Head of Sales and Distribution at Safair Operations, which operates the South Africa low-cost carrier Flysafair, identifies two types of business traveller – the traditional and the commuter. The traditional business traveller takes day or overnight trips to conduct business in another city. The commuter works in one city, but lives in another, spending the week in Johannesburg and the weekend in George, for example.

“They are business travellers in one sense, but leisure in another, as they pay for these trips themselves,” says Gordon. “We suspect that a number of these passengers fly with full-service airlines for business and low-cost when they commute.”

Corporates are, more and more, reserving business or full-service air travel for long-haul flights, when the luxury of extra legroom, full-flat seats and the room to work on a laptop are more important. Domestic and many regional flying times are short enough that the space and facilities offered by LCCs are comfortable, but it’s becoming more and more difficult to justify the price of a business class seat for a two-hour flight between Cape Town and Johannesburg in such tough economic times.

As a result, this has become a competitive space and South Africa is a good example, with three – Mango, Kulula and FlySafair – reputable low-cost carriers all fighting for market share.

“By the number of new LCCs with a specific focus on business travel, it’s safe to say that this is a global trend,” says  Luane Lavery, Brand Communications Manager for British Airways (operated by Comair) and its low-cost sister airline kulula.com.

This sentiment is shared by almost all of the LCCs in the African airspace.

“African business owners and their employees are aware of budget constraints and understand the need to get the best value-for-money out of their budgets,” says Nico Bezuidenhout, CEO of Tanzanian-based LCC fastjet, which also flies into South Africa. “They are choosing travel options that move away from high cost, frills and full-service offerings.”

Hein Kaiser, spokesperson for Mango, has noted a clear upward curve in the use of LLCs for business travel in the last five years.

“I believe that this is as much a testament to the product, service and value proposition of LCCs in this market as it is about price,” he says.

Kaiser touches on an important point, as it’s clear that low-cost airlines have had to adapt their product to meet the needs of the business travel.

“2016 was a tricky year economically for most and travel was an area with capacity for corporates to save money,” says Gordon. We noted a large increase of corporate travel on our aircraft, which definitely picked up after we introduced our Standard Fare, which allows customers to make two flight changes without penalties.”

Since almost a third of corporate travellers change their return flights, according to Gordon, it’s easy to see why the airline has attracted more corporate business.

Flexibility is an important element of business travel. Meetings will occasionally run late or be rescheduled completely, and the ability to roll with these punches can make or break a deal. Those low-cost carriers that traditionally didn’t offer that flexibility craved by the business travel community found themselves losing out, so it’s no surprise to see the major players in the space now developing offerings that are more suited to their corporate travel constituency.

Customer satisfaction

“As consumer expectations grow, LCCs will have to place more focus on what customers want other than a cheap seat,” says Vanya Lessing, CEO of Sure Travel. “In domestic markets, full-service airlines are looking at differentiation, with a particular focus on the business traveller, to compete with LCCs.”

Players in the LCC space seem to have taken this to heart and many have made changes to their offerings to entice corporate clients. Mango redeveloped its on-board product two years ago, with new seats that offer more legroom.

“Several years ago we introduced two industry-leading products aimed at business travellers that have since been implemented in several low-cost airlines around the world,” says Kaiser. “Mango Plus provides several benefits including full flexibility, while Mango Flex is a single-minded flexibility product. While both options allow for changes to ticket bookings, Mango Plus also offers lounge access, on-board snacks and a 15% executive parking discount at O.R Tambo International Airport.”

Along similar lines, another trend that has developed is that of the unbundling of airline products, with many airlines now offering the option of paying separately for the likes of checked luggage, extra legroom, an on-board meal, preferred seat etc.

With only 36% of FlySafair passengers booking checked luggage, it would seem that this is working for them, along with other initiatives.

“FlySafair’s cancellation option, which allows you to cancel your flight for a voucher of 80% of the price of the ticket works well for people who know they will need to travel again,” says Gordon.

Kulula has partnered with Avios, the global travel rewards programme, enabling customers to earn Avios when travelling. Avios are redeemable for a number of different items, and will soon be redeemable for kulula flights.

FlexiTrip is a package recently introduced by fastjet, and is a flight bundle solution that allows frequent flyers to purchase 10 one-way flights at a fixed price inclusive of taxes and fees. It provides flexibility, as flights can be booked up to six hours before departure time and is valid for travel within a year of purchase, subject to flight availability. The 10 flights can also be used by any of the three passengers nominated at the time of making the booking, allowing passengers the choice of who can benefit from the bundle flights.

The airline also offers ‘Freighty’, a baggage upgrade option that allows international-route passengers to transport up to 80 kilograms of checked-in bags, as well as being able to pre-book preferred seats, rent a car, book accommodation and pre-book airport parking, just to name a few of the benefits.

Onboard wi-fi

So, what else are low-cost carriers doing to differentiate themselves and ensure that they remain attractive to corporates and their travellers?

Just as every airline searches for efficiencies that provide business travellers with the opportunity to truly maximise their time away from the office, so on-board wi-fi has become a bit of a talking point. A few high-profile full-service airlines have decided that it isn’t for them, just yet, but some have ploughed significant investment into this area of on-board product.

Interestingly, South Africa’s Mango decided some years ago that the investment was worth it, and it is currently the only low-cost carrier in the country offering this service.

That’s largely due to the fact that the process of equipping a fleet with wi-fi capability is costly, and to recoup these costs ticket prices would have to increase, negating the primary appeal of a low-cost airline.

“The commercial affordability of a reliable, high-speed network that will allow for a dependable and scalable service is currently too costly,” says Lavery.

FlySafair, though, are not ruling out going the wi-fi route, and appear to be advanced in their research.

“The equipment required is fairly expensive, but a new supplier has pitched an interesting product to us which may provide the service we need,” says Gordon.

Moreover, traditional wi-fi systems on certain aircraft types require the fitment of a ‘bubble’ on the top of the fuselage that houses the equipment.

“Work on the fuselage has quite a large impact, as you need to ensure the integrity of the pressurization, so it’s a pretty big job,” says Gordon.

To add to the expense, any leased aircraft will need to be restored to its original state before being returned to the lessor.

“The new tech we’re looking at will hopefully eradicate the need for that bubble and the severe engineering impacts of that installation,” says Gordon.

FlySafair has applied to South Africa’s Civil Aviation Authority for special dispensation to allow customers to use their laptops during more of the time they’re on board and also to be able to turn on their phones more quickly after landing, “all in aid of meeting the needs of people on the go.”

More savings

Cost cutting is not just about moving down a class or sending fewer travellers on a trip. Jolley believes a more sensible approach to booking and policy can also save a corporate a large amount of money.

“More efficient travel planning can also play a big role,” she says. “In a recent study that we conducted on advance purchase, we found that companies can spend up to 200% more on tickets purchased a day before departure versus 10 days in advance. Using a TMC that can assist in implementing these types of cost saving strategies can really pay dividends to a business.”

Another key in curbing expenses is travel policy compliance. There is little use in defining booking procedures and advance purchase mandates if they are not adhered to.

“We have found that the key here is to find a good balance between the needs of the company and the needs of the employee, and involving employees in the travel policy process,” says Jolley.

Lessing would seemingly agree.

“Costs can be better managed by including recommendations from the business traveller,” she says.

Lessing believes that travel procurement managers need to place more focus on travellers’ needs to ensure better compliance and less disruption of travel management policies.

“This will avoid frequent, costly changes and result in happier employees,” she says. ‘”The travel experience is important, particularly in today’s sharing world. Business travellers in particular, want their ‘pain points’ understood and taken care of.”

Another way of encouraging good travel booking ‘behaviour’ would be to ensure that additional authorisation is placed on trips booked within seven days of departure, as a way of discouraging late bookings.

Tracey van den Berg, Corporate Communications & Events Manager at Tourvest Travel Services believes the discussion around planning should also extend well beyond the booking process.

“Not only is it important to book at least 14 days in advance in order to take advantage of better fares, but planning your meetings ahead or combining trips with a colleague travelling to the same destination will provide additional savings opportunities, as travellers can share car rental, transfers and accommodation,” she says.

The hotel game

Hotels at the lower end – or middle tier – of the star grading system are also finding themselves more attractive to corporate travellers looking for more budget-sensitive prices on accommodation. And given that a hotel room is often just a place to get a night’s sleep, the luxury furnishings and amenities of five-star – and in some cases four-star – hotels are often not justifiable.

This appears to be a theme across the African continent, notwithstanding the fact that many international corporate travellers would still probably favour a five-star Hilton, InterContinental or Marriott offering over something in the mid-market range, purely due to brand loyalty and the comfort in knowing what you are going to get.

Speak to some hotel group execs, though, and they will tell you that the African continent is primed for a lot more mid-market offerings, thanks largely to the predominant supply of five-star properties in the majority of Africa’s major cities.

Hilton are one of the groups to have recognised this and are planning on rolling out approximately 15 Hilton Garden Inns in the next year or so.

Looking at the African brands, South Africa’s City Lodge looks to be well-positioned, and it’s no surprise to see this traditionally cautious group now spreading its wings after first testing the waters by going into Botswana and Kenya in the past few years. In its pipeline are City Lodge properties in Nairobi and Dar es Salaam, and a Town Lodge in Windhoek.

“The City Lodge Hotel brand is our three-star brand which we believe is appropriate for certain capital cities in Africa,” says Angus Macmillan, spokesman for the City Lodge Hotel Group. “It depends on the types of hotels that already exist in the cities that we go into. Town Lodge also has a strong role to play in the two-star market.”

“Our existing hotels outside of South Africa (Nairobi and Gaborone) are doing well and have developed a strong niche in the business travel market,” says Macmillan. “We expect our new hotels to attract strong appeal as they cover the important two- and three-star markets which are relatively under-serviced in Africa.”

City Lodge’s other brands are its Road Lodge (one-star) and Courtyard (four-star) brands, which are both well-known and regarded in South Africa.

Best Western is another group that prides itself on its consistency. It operates over 4,000 hotels worldwide, covering seven brands – including its flagship Best Western brand – with a growing number of properties popping up all over Africa. Its franchise model helps those hotel owners and developers to benefit from the expertise of seasoned professionals with 70 years of experience.

The addition of new brand offerings such as Vīb has added to the options corporate travellers have, meaning they don’t have to pick a five-star property to be assured of quality and consistency. Best Western has historically maintained strong ties with corporate travel markets and the addition of new brands has strengthened these relationships.

“In addition to Best Western Premier, we have recently opened our very first Executive Residency property in Nairobi and are working towards our first Vīb hotel in Cape Town,” says Karl de Lacy, International Development Director of Best Western Hotels & Resorts. “Vīb’s vibrant lobby, stylish design and focus on convenience and technology integration will exceed the expectations of today’s connected traveller.”

Executive Residency by Best Western is an upper-midscale hotel with flexible spaces, stylish design, and brand signature elements aimed at satisfying the needs of the longer-stay guest, believed to be one of the fastest growing segments in the hotel industry today.

Interestingly, whilst Best Western has the mid-market brands to service this particular market segment, De Lacy believes opportunity in the short-term may lie elsewhere.

“While the focus over the past three to five years was on mid-market travel, there is an ongoing demand and need for luxury developments to accommodate demand in new locations,” he says.

An African group that knows a little about luxury is South Africa’s Sun International, which operates its flagship Sun City in the North-West Province. But, whilst it has built its reputation as a luxury resort destination, it also offers something in the mid-market range, in the form of its Cabanas. All 380 rooms have recently been refurbished, the first major upgrade since 2007, and they now reflect the crisp, clean and laid-back ambience of the Cabanas hotel. Rooms are fully air-conditioned and equipped with flat-screen TVs with selected DStv channels, wi-fi, tea and coffee-making facilities, electronic safes, telephones and mini refrigerators.

“The African market has a mix of conference and accommodation needs,” says Raul de Lima, General Manager of Sun City. “Some want the total five-star experience, while others want a more affordable option. Cabanas is an entry-level accommodation option, which boasts access to premium facilities and is located at Africa’s premium lifestyle resort.”

De Lima makes reference to conferencing and this is where Sun City hopes to pick up sustained business at the Cabanas, particularly at the price point it is pitched, and with the recently re-launched Sun Central and Sun City Convention Centre further bolstering the offering.

“When it comes to conferencing, most companies want value, and they want to know that when they visit a star graded property, they will receive the expected facilities and service standards,” says De Lima.

Sun City as a conferencing destination has the added value of a multitude of leisure option possibilities once the conference has let out.

“This is one of the major points Sun City had in mind when launching ‘conferencing with a difference’, the experiential element that would give a conference the advantage,” says De Lima. “As a leisure, business and conferencing destination, Sun City has so much to offer. It is where water sports and outdoor activities, wildlife, nightlife, golf, adventure, a spa, a vibrant casino, four hotels, a vacation club, and world-class conferencing combine in one exquisite location.”

Conclusion

Whether you’re an airline, hotel, hotel group or conference venue, the time is right to pay closer attention to the mid-market and ‘budget’ ranges, as corporate travellers, in turn, pay closer attention to the bottom line.

Loyalty programmes

City Lodge runs a loyalty programme aimed at corporates that spend a minimum of R75,000 ($5630) in a year on accommodation. The account accumulates points for every night at any Courtyard Hotel, City Lodge, Town Lodge or Road Lodge. The online registration process issues a company ID and registers bookers and travellers. All bookings have to be made via the internet – agency, phone or walk-in bookings do not qualify. The system works optimally when a single person is in charge of booking accommodation for travelling employees. The City Lodge Corporate Club continues to attract new members every month, receiving more than 10 new applications a month with over 290 Corporate Club members. Best Western also runs a corporate loyalty programme, but it’s currently only available to businesses in the US and Canada. However, Best Western Rewards, for individuals, is open to everyone, and with such a huge network of properties globally, it presents a good option for savings and rewards. “We have recently partnered with South African Airways to ensure that those travellers loyal to the airline have the option to choose miles instead of points during their visit to Best Western-branded hotels globally,” says Karl de Lacy, International Development Director at Best Western Hotels & Resorts. “We’ve noticed a trend around companies partnering with reward and loyalty programmes, creating added value services for travellers,” says Luane Lavery, Brand Communications Manager for British Airways (operated by Comair) and kulula.com. “There is also a definite trend starting to develop with a focus on personalisation and recognition of travellers.” Kulula has partnerships with Europcar, Protea Hotels, Tsogo Sun and City Lodge. FlySafair has agreements with First Car Rental, Booking.com and Diplomat Luggage. Mango has partnered with Avis and Tempest.

Sun Park at Sun City

The Sun City refurbishment includes the completion of a new multi-purpose conferencing facility, the Sun Park, which is equipped to host lifestyle events, music festivals, product launches and other experiences in a versatile venue that offers the flexibility of indoor events and outdoor space. Sun Park is built around a sophisticated self-sustained grid that provides water, electricity, plumbing and wi-fi, making events hassle-free and cost-effective. The revitalised conference centre will boast a refurbished Pilanesberg and Royal Ballroom venue, new meeting rooms and an additional conferencing venue complemented by a dedicated ‘slow’ lounge and coffee shop. Guests and delegates will also have access to a permanent exhibition in the South African Hall of Fame honouring the country’s greatest sports people and performing artists. Sun International expects the new events offering to sit nicely with the Cabanas refurbishment, presenting a fresh and updated mid-market hotel product along with an innovative events option.

Low-cost air travel: Is nuclear the answer?

Kirby Gordon – Head of Sales and Distribution: FlySafair

The single largest factor informing the operating costs of an airline is the price of jet fuel. Up to 40% of the operating costs of moving a Boeing 737-800 aircraft between Johannesburg and Cape Town can be attributed to it, which can quickly amount to more than R26,000. Reducing or eliminating this cost would certainly reduce the costs to operate a flight. There are incredible strides being made with regards to alternative energy sources, including solar-powered and nuclear-powered flight, which could be a reality in our lifetime. Already, as technologies have advanced, fuel efficient design has come a long way. New generation aircraft offer greater efficiencies, but airlines face a difficult challenge weighing up the lower purchase or lease costs of older generation aircraft versus the fuel savings on newer aircraft. The ultimate solution would be to find an alternate energy source altogether. Technological advances in solar energy over the past few years have opened a number of new doors. The world’s first solar-powered plane, Solar Impulse 2 (Si2) has been making headlines as it completes a historical journey around the world. The Si2 will make major strides in advancement of the technology, but these solar-powered aircraft are very light vessels, essentially gliders that fly very slowly, and the most they have been able to carry is two passengers. Nuclear energy provides a very real alternative as a source to power jet flight. Modern submarines and ocean liners are often powered using nuclear energy, but the technology has yet to be completely effectively implemented into an aircraft. Nuclear power offers the possibility of a very clean and almost endless source of power, but the risks associated with the use of this technology in aircraft are vast – including the risk of radiation and the devastating results of a potential nuclear disaster. Nuclear-powered flight was first achieved by the Soviet Union in the early 1960s. One of the primary challenges was to develop shields that would protect the crew from radiation, the difficulty being the weight of the required shielding. Unfortunately, this aircraft had very crude shielding and the crew operating it died from radiation poisoning. Nuclear technology has however come a long way and Boeing raised a number of eyebrows last year when it patented a new design for a nuclear-powered jet engine. At FlySafair, we embrace innovation to provide low-cost fares and we look forward to what the future holds for the advancement in alternative energy sources for flight.