Editor’s note: Dan Ruch is the founder and CEO of Rocketrip.
The foundations of the business-travel ecosystem are under more strain than ever before. U.S. companies are projected to spend $310 billion on business travel in 2015 (up 6.2 percent from last year), but how they spend that money has become a source of tension and uncertainty.
Sharing-economy startups like Airbnb and Uber are challenging traditional travel vendors – and in the process, they’re forcing many businesses to reevaluate travel policies and conventions that are pillars of the current system.
The corporate travel ecosystem is traditionally powered by relationships between travel managers and travel providers, the latter of which includes travel-management companies, airlines, hotel chains and rental car companies. Travel managers and providers negotiate rates and perks based on the volume of travel that a company will book.
For example, a multinational company that commits to one airline can often secure a flat discount, free upgrades, free baggage check and last-minute rates that are as much as 75 percent lower than what a leisure traveler would pay. A hotel chain might offer discounted rates, free breakfast, free last-minute cancellations and more.
Although these relationships can save companies tons of money and improve quality of life for business travelers, many employees see corporate travel policies as a hindrance. They’re discovering that sharing-economy services that they use in their personal lives are often more convenient and less expensive than what is available inside their corporate travel platform.
As hotels compete more aggressively on prices and extend their lead in services, travel managers and business travelers will ultimately win.
Tapping a smartphone screen to get an Uber has become second nature for many professionals, who often perceive it as more convenient than booking a corporate car service. Then there’s the matter of cost. We’ve found that Airbnb saves 41 percent, or an average of $102 per night, compared to hotels. If services like Uber and Airbnb make employees’ lives easier and save their companies money, there’s no reason not to use them.
People’s preference for using sharing-economy services in their personal lives has already begun to extend to their business lives – with or without the travel manager’s blessing. Concur, a top travel-management company, reported in July 2014 that Airbnb transactions in their expense reports had increased by 27x year-over-year while Uber transactions had climbed 5x.
In many cases, this shift collides headlong into the travel manager’s strategy and perceived mandate. The first conflict is one of volume: the more employees who book in the sharing economy, the less they book with traditional travel vendors. If the company fails to spend above the minimum threshold negotiated by the travel manager, the deals and perks may be voided.
The second conflict is about safety and insurance. One of a travel manager’s duties is to use vendors that provide the company’s employees a reasonable level of protection against harm when on the road.
Today, many insurance policies do not cover the sharing economy. Hypothetically, if employees were on a business trip and suffered bodily harm in an Uber, they could potentially sue the employer for failing to ensure their safety. Most employees are completely unaware of how complicated, stressful and restrictive this issue can be for a travel manager.
So as the new travel economy challenges the old guard, the travel manager faces a catch-22. Travel is typically a company’s third-largest expense after salaries and rent, so the travel manager is under pressure to encourage cost-effective choices. She could promote the sharing economy, but doing so would eventually undermine all the perks and conveniences she worked so hard to negotiate.
Without support from legal and compliance, the travel manager is inclined to avoid Airbnb and Uber for safety reasons anyway. But banning employees from using the sharing economy creates more friction with travelers who already use and prefer these services.
The travel manager’s dilemma and the overall trends in corporate travel suggest that travel-management companies and traditional vendors will have to evolve. The sharing economy is consciously targeting the corporate market. Airbnb launched a business platform that offers 500,000 rooms spread across 190 countries. Uber, too, launched a business edition.
Given the popularity of the sharing economy, the travel manager’s responsibilities and the value of the corporate travel market, I think we can expect the following developments in the near future.
First, sharing-economy services will meet travel managers halfway on safety and insurance issues. Uber, for instance, could restrict business travelers to drivers who meet a minimum standard for experience and average customer rating. Airbnb could rework its own insurance policy to protect client businesses from accidents that are more likely to occur in a private home or apartment (e.g. a cooking accident).
Second, sharing-economy companies are going to compete head to head with the old guard on perks. Airbnb might offer flat discounts, last-minute travel rates and relaxed cancellation policies, or they could even work out a deal with Uber to provide top-tier guests with free transportation to and from the airport.
The sharing economy is consciously targeting the corporate market.
Third, we’re going to see more conversations between travel-management companies and the sharing-economy startups. American Express Global Business Travel, Carlson Wagonlit and BCD Travel ultimately have more to gain than lose in partnering with Airbnb, Uber and their peers. The concern in the back of everyone’s mind will be revenue sharing: Will a travel-management company generate enough profit per booking? What partnership model is economically viable?
The corporate travel ecosystem is due for disruption, especially if these three scenarios come to fruition. Importantly, these developments could help rescue travel managers from their catch-22.
Traditional travel vendors – hotel chains, in particular – will challenge the sharing economy’s rise. As hotels compete more aggressively on prices and extend their lead in services (dining, fitness centers, conference space, etc.), travel managers and business travelers will ultimately win. Most businesses will welcome the disruption of the corporate travel ecosystem, and they will take steps to maximize the potential savings.