Business travel: Ripe for disruption?

While consumer travel has evolved with ever demanding customer, business travel seems to be languishing in the dark ages

We've come a long way since the times of queuing up for tickets, scouting for the best travel arrangement or relying on travel-savvy friends and relatives for advice. Today, more and more users rely on the internet to plan their travel - big or small, thanks to companies like Expedia, MakeMyTrip, Priceline,  Cleartrip, Ctrip, and Booking.com.

 

However, while consumer travel has evolved with ever demanding consumer base - the $1.3 trillion business travel segment seems to be languishing in the dark ages with more than 90% of the market still being served offline via a complex maze of travel desks, travel management companies and corporate travel managers.

 

A few months back, we had the opportunity to speak to several corporates, providers, and start-ups to understand what’s stopping start-ups from targeting this opportunity, and what kind of innovation is on the horizon. Here's what we found!

The good news – market is large. The bad news – There are structural reasons why the opportunity remains untapped. What gets us excited? We do believe that the sector is ripe for disruption!

What has held back this sector for so long?  

According to our research, there are several reasons why business travel has struggled to evolve at the same pace as consumer travel:

  • Lower margins, particularly for large enterprises;  and high fragmentation in the SMB market, makes it challenging to scale and unsustainable without scale. It is also difficult product to sell, with multiple stakeholders/ organization layers and host of integrations with internal/ external systems.
  • Most organizations have complex travel policies, with frequent deviations and last-minute service requirements
  • Longer working capital cycles especially in large corporates.
  • Most importantly, in our opinion, an agency problem, i.e., while the corporate needs to save money, the end user (traveler) has little/no incentive to save anything.

 

So, what's changed?

 

1. Businesses large and small are looking for more effective solutions

 

Increasingly there is a realization that old systems are not sufficient, and in fact, current solutions are struggling to keep pace with changes in business expectations.

For example, while a traditional travel desk may give you options, but by the time you say yes, the prices have already gone up. With technology, one can save up to 10% of these costs, pointed out a top executive who leads the corporate travel arm of an OTA.

"Businesses today have little visibility on how effectively the money is being spent"

Couple this with the fact that travel cost account for almost 5% to 7% in industries like IT services and Pharma, the opportunity to build a scalable tech play is massive.

Furthermore, businesses today have little visibility on how effectively the money is being spent. Questions like % saving on allocated travel budgets, department wise spend analysis, need a data-driven approach.

Thus travel spend remains mostly unoptimized.

 

2. Current solutions hardly show direct correlation with cost controls

 

Till date, businesses have tried to drive efficiencies by investing in automation of approval flows, integrating policies, travel desks and tie-ups across the board – but they have little to show on the front of cost control and in most cases, even struggle to quantify it.  

As the CFO of a leading enterprise shares, “Policy and controls do not rein it in; people always give good reasons for exceptions to the policy”. Not to mention employee engagement is the cost you pay for the steps taken for cost control. For example, budget airlines only travel, early morning flights, cheaper hotels do not make for a popular employer.

 

3. Product design targeted for enterprises is hard

 

Technology for a comprehensive business travel solution involves interfacing with multiple APIs/ suppliers, real-time integrations, with added layers of policies, hierarchy, back-end systems and offline workflows.

“This requires a superior design that can scale quickly, while having the capability to provide custom solutions.” pointed out a VP, Product of a leading OTA.  “And this necessitates a nimbleness which is challenging for established players and call for a fresh approach.”

 

Cost saving, and superior experience - not a zero-sum game

 

Today, an employee has no incentive to save travel costs. Globally, the market is already acknowledging this and getting ready to address the gap.   

"Many players are building solutions with elements like gamification, dynamic budgeting of trips, loyalty programmes and credits."

For example, companies like Google have created an in-house solution to align their employee's behavior to the company’s objective of cost control, while maintaining a healthy employee engagement.

 

Many other players are trying to build solutions that go beyond the traditional ask of efficiencies and prove effectiveness with elements like gamification, dynamic budgeting of trips, loyalty programmes and credits incentivizing employees to save cost while sharing benefits.

 

In particular, what catches our attention are plays that are aligning the employer and employee incentives while saving costs. For example, if someone is allowed Rs. 6,000 for a hotel, they try to come pretty close to it. Some of the new age companies we met are solving this problem by sharing the travel cost savings with the employees through different mechanisms.

 

That said, the market is still in a nascent stage, and it remains to be seen how this story pans out.

Possible outcomes?

 

We believe the show is just getting started in this space, and while business travel as a sector might be a little late to the party, we are excited to see how things shape up and look forward to partnering with teams on a mission to get cracking at this space.

 

  • Innovation by legacy players: Agents and travel desks like Amex, Thomas Cook, etc., who have till date relied on set consumer habits (where the user simply calls/e-mails the itinerary for bookings), may innovate and leverage years old relationship with the clients.
  • OTAs waking up to the potential of the corporate and creating value-added products, including incentives for employees to save costs.
  • Vertical Players such as Concur adding reward based booking in their existing application.
  • New entrants like Rocket Trip (raised $ 17 million), and Upside (raised $ 50 million) will disrupt the market and capture market share.

 

As the COO of a leading an OTA said, “While I do foresee significant challenges in adoption including displacing travel desks, change in policy management, and long payment and sales, etc. in corporates, I do believe they (top management) will see the value in technology and adopt a disruptive solution.”

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