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CEO Blog: The Rising Cost of Travel

business travel expensesMost of the questions we are being asked at the moment sit around the rising costs of travel and how we as a credible TMC, can help to mitigate these and the impacts this has on our clients travel expenditure. It is helpful to understand what has caused this near perfect storm to create the rises that we have seen over the last year and accelerated particularly over the last three months or so.

Our industry and the wider supply chain that sits around it is recognised as being the hardest hit as a result of Covid-19. Most companies in this space have operated at a loss for probably two years now and have been supported by funds coming in from shareholders or new debt. The new debt will need to be serviced alongside any old debt. and with interest rates now rising. the cost of this is increasing. Although in most cases shareholders will take a longer-term view on returns, they will expect to see, as trading recovers, business return to profit or at least operating on substantially reduced losses which will ultimately give a pathway to returns.

Achieving this will mean a combination of becoming more efficient and that’s not just about reduction in head count, far from it, it is about looking at your business model and making it genuinely fit for purpose in a pre-Covid era which in most case is now different to what it was two years ago with new layers of cost and a multitude of new complexities to consider along with investment to make the business “fit for purpose”. All of this may require capital investment and addition of new costs to the business.

It is impossible to talk about rising costs without considering the impacts that the wider global economy has on the industry and one particular and obvious example is the rising cost of fuel and how this impacts everything. It is too simple to think of this as just an impact on airlines - although here the impact is massive and easier to see and directly translate into a cost per seat increase - but fuel is consumed at some point across everything we do, and that rising cost has to be recovered somehow. The margins generated from a sale of a seat on a plane or a train or a night in a hotel are just too small to absorb the rising costs. These costs now must be passed on which directly impacts the cost of most purchases consumed in the wider travel industry. This puts suppliers in a very difficult position as altering the cost of travel too much could impact on people’s decisions to make a purchase in a fragile market versus not increasing the cost and absorbing the additional cost. As a result, this can have a huge impact on a company’s profitability and, perhaps in some cases, their overall viability as a business which sways towards the decision to increase the cost of travel rather than absorb and lose money.

mark blog 1The cost of employing people has gone up – it’s a simple fact and is felt in every business, not just travel. We have some extra dimensions here at play as well, this is not just the additional cost of the NI increases to both employee and employer and the associated WPP costs, we as an industry had to very sadly let large numbers of people go from our business (although furlough was a help it was not the right answer to everything) and as a result lots of people have decided not to return into the industry and found work in what they perceive as being safer places. Add to this the impact of people who had worked at key touch points in the supply chain like airports and hotels who were workers from Europe and have now returned home we have a void of people across the whole sector. That means to keep people the market has become competitive, and employees have got a strong hand in the salaries they command, and the industry has had to offer packages to people to come back into the industry that have never been seen before. Add into this the rising cost of living and the direct impacts the cost of this has on staff and the need by companies to increase basic pay to accommodate this and keep staff in a position where they can hopefully do better than just survive.

Add this to an unprecedented demand for travel, at a point where there is still reduced capacity in many cases, and you end up with the key components of the industry including air, hotel and car hire being in higher demand than is available (you would historically have include rail but that is a different situation at the moment as it tries to remodel itself). Demand is out stripping, in most cases supply particularly on key flights, and this gives the airlines the unique opportunity to take advantage of this situation.

Prices have gone up in most things we consume in our day to day lives and travel is no exception to this. My personal view is that this situation is here to stay for a while. Travel has always been something that we have expected to get as cheaply as possible, and perhaps those views of the past are unrealistic for now and the foreseeable future. All companies across this space (ours included) need to return to a point where we are making profits again, in most cases, costs are cut to a point where they can go no lower. We all did a good job of that during the pandemic so we could survive. Now we need to survive by making a profit and using that profit to invest in a better and more sustainable future.

This is a complex subject, and this is only intended to be a summary of the situation. As a business we are well positioned to help our customers navigate through this and present the best of the opportunities that exist to, where possible, save you money on travel. Despite all that has been said in my discussion, there are still ways we can help you buy as cleverly as possible, save money as well as time and effort.

I am always happy and willing to chat with clients or potential clients over things in general or future opportunities.

Kind regards
Mark Kempster - CEO

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