Business travelers are given many incentives to spend too much. Nowhere is this more true than with credit card rewards. An effective travel policy is essential to tilt the scale in the direction of savings.
It’s no surprise that credit card rewards encourage people to spend more. Credit card companies offer a variety of rewards beyond cash back. Frequent flyer miles and other travel rewards are the most common. One experiment showed that consumers were willing to pay twice as much for sports tickets when a credit card was accepted. More typically, consumers are willing to pay 5% to 10% more when using a credit card. However, a typical reward is worth just 1% of the price of the purchase. This illustrates how cards encourage people to make decisions that are not in their best interest.
The credit card rewards problem is much worse for business travel. Employees often choose an airline or hotel where their credit card gives bonus points even if it is more expensive. They are bombarded with offers for upgrade packages which offer modest benefits but include extra rewards. These rewards are compounded when purchased with their rewards credit card.
Rewards are front and center on employees minds as they travel. The miles and points they are earning from their flights and hotels serves as a subtle reminder to spend more on meals and entertainment that they can charge to their credit card. Employees have little incentive to save money because the company is picking up the tab.
Can a travel policy curb this behavior?
Here are some strategies a travel manager can use to fight back:
Require employees to use a corporate credit card. Corporate cards pay cash back to the company instead of the employee.
Use a ghost card to book travel. A ghost card is a single credit card used to pay for travel for many employees. The ghost card is perfect for employees who don’t travel often enough to need their own corporate credit card.
Develop an effective travel policy. Require travelers to book with the lowest cost vendors. Set sensible limits on meals and entertainment.
Notify a manager when travel is reserved outside of the travel policy.
Keeping track of corporate credit cards and enforcing a travel policy used to be a lot of work. Today. an integrated travel and expense system automates the process. Contact us and we will show you how!
Big changes have come to airline frequent flyer programs in the past five years. Southwest Airlines was the first to change its travel rewards program, known as Rapid Rewards program. In 2011, Southwest began awarding points based on the cost of each ticket rather than the number of flights. Southwest also began offering additional points to travelers purchasing refundable fares and to travelers who fly often enough to be in its A-List elite program. Delta and United mimicked Southwest’s changes in 2015, awarding travel rewards (miles) based on the cost of the ticket and the traveler’s elite status rather than based on the distance of the flight. American Airlines announced that similar changes to its AAdvantage program will take effect in the summer of 2016.
What impact do travel rewards from airlines have on a corporate travel program?
Are these changes good news for a corporate travel program? In short, no. They incentivize the behaviors that the travel policy is designed to avoid. Everyone knows that airfares usually rise closer to the date of departure. In fact, a study revealed that tickets sold one week before departure are 30% more expensive than they were two weeks prior. Tickets sold a few days before departure are often more than twice as expensive. The new programs encourage business travelers to wait to the last minute to buy their ticket so that they earn the most miles by paying the highest price.
Elite status has always provided an incentive for the business traveler to choose their flights based on the airline rather than the price. However, the bonus miles and points take this perverse incentive to a new level.
How can corporate travel managers curb this trend?
Corporate travel managers can fight back with a few powerful tools.
Require travelers to choose the flight option with the lowest logical fare. An online booking tool with a rules engine can determine which flights are “logical” based on departure and landing times, duration, and number of stops.
Require travelers who make last minute bookings to justify them with a written explanation. The explanation can be captured using your corporate travel system when the reservation is made.