SMEs are key to the nation’s growth prospects – but are they getting the travel services they need? David Churchill investigates
WHEN GEORGE OSBORNE stands up at the Dispatch Box to deliver his third Budget on March 21, it is likely he will talk up the potential of the small- and medium-sized enterprise (SME) sector as a key plank in his policy to generate growth in a flat-lining economy.
After all, the UK’s 4.5 million SMEs account for 99.9 per cent of all private sector companies, employing 13.8m people and generating almost £1,500 billion in turnover, according to statistics released by the Department for Business, Innovation & Skills (BIS). If jobs are going to be created quickly and cheaply, it will be the entrepreneurs and small-business owners who can help steer the country out of the doldrums. But – and it is a big but – those same SMEs are struggling in the midst of a possible double-dip recession and are still being starved of funds by a risk-averse banking system. A survey from insurer Aviva earlier this year found, disconcertingly, that one in every three small business owners was so fed-up with struggling along that he or she was thinking of giving up and finding a salaried job.
The credit crunch, financial meltdown and recession has not been kind to SMEs – so it would be easy to think that in such a tough business climate, SMEs are cutting right back on their business travel. After all, when every pound counts there must inevitably be a drawing-in of the horns and travel – be it for big company or small – is an obvious target. Yet the picture is not so black and white. For a start, while SMEs may be under pressure, the sector remains truly dynamic: some 450,000 new small businesses were registered in the UK last year, a sizeable increase on the 380,000 registrations during 2010. A significant number of these companies will go under fairly quickly, since start-up SMEs have a high failure rate. But a good number will not only survive, but thrive.
At the same time, those travel management companies (TMCs) which have made a substantial push into the SME market report that the business is still there for the taking.
“January this year was our best-ever month and we are on track to increase turnover by another 30 per cent, totalling £200 million by the end of our financial year in June,” reveals Graeme Milne, general manager of Corporate Traveller UK, the SME-focused offshoot of FCm Travel Solutions.
Based on travel industry surveys, an estimated £10bn or so out of the £24bn annually spent by UK companies on business travel is “unmanaged” – carried out on an ad hoc basis rather than as part of a structured corporate travel programme. Typically, a large part of this is from the SME sector.
“It would be wrong to assume that all SMEs are the same,” points out Nigel Turner, director of programme management for Carlson Wagonlit Travel (CWT). “SMEs vary considerably in size and activity, and many are continuing to maintain or increase their spend on business travel in order to grow their companies.” CWT, notes Turner, actually has more clients from SMEs than bigger companies, although this is not so surprising given the overwhelming number of SMEs in the economy in comparison to the 6,000 or so major companies employing more than 250 people, according to BIS figures. This puts the ratio of small to big businesses at around 750 to one.
But it is larger companies which provide the most travel spend and, therefore, biggest rewards for the TMCs. Not surprisingly, the TMCs’ focus has traditionally been on these bigger corporates, especially as they are easier to establish relationships with, and most large companies are happy to deal with professional consultants, such as TMCs.
Cinderella sector
So it is hardly surprising that SMEs are still regarded as something of a Cinderella in the business travel world: hugely important in terms of potential but with merits that have still to be fully appreciated. Partly the reason is simply the fact that the SME sector is no more homogeneous than that of larger corporate entities. “Every company, big or small, has different needs and goals when it comes to business travel,” points out HRG UK managing director Ian Windsor. “SMEs are obviously very cost-conscious in the current climate – but this is a general trend among most corporates at present. But what they need to achieve as the most cost-effective solution varies from client to client.”
While the SME sector is officially defined by the Department for Business as comprising some 4.5m enterprises, the overwhelming majority of these (nearly 3.4m) comprise only one person, either as a self-employed owner-manager or a sole trader. In fact, only just over 200,000 SMEs employ between 10 and 249 employees. But if these statistics imply a low potential travel spend in the fragmented SME market, it would be a mistake to ignore the very small firms who can often punch above their weight in travel spend.
“There can be a small business with only a handful of employees but who still need to travel significantly, maybe because they are in hi-tech or media businesses with international clients,” points out Windsor. A larger SME with a couple of hundred employees could actually spend less on travel than a much smaller enterprise.
Corporate Traveller’s Milne says it is actually not a question of employee numbers but about the size of business-travel spend. “We have 1,500 clients spending anywhere between £50,000 and £2 million per annum on business travel, regardless of how many employees they have,” he says. “Our average customer spend is around £120,000 per annum.”
Fragmented market
The problem for TMCs and travel suppliers, such as airlines and hotels, is how to reach such a fragmented market. There is no doubt targeting SMEs has increasingly been the name of the game in business travel over the past year or so – hardly surprising given that the recession and austerity measures have put pressure on some of the larger players. But, equally, those with long memories in the business travel world have heard it all before. HRG’s Windsor, for example, admits there is a “cyclical” element to the current industry interest in SMEs, but says HRG decided a couple of years ago to give it a sharper edge by launching the Simply HRG programme aimed at SMEs.
“But we have always had a core SME business which we have built on over the years,” he says. “It is not unusual for smaller clients who initially had a spend of, say, £50,000-£100,000 to grow into bigger companies with a £3m-£4m travel budget – still spent through us.”
Yet with the growth of new technology for booking flights and hotels – along with the development of different distribution channels such as online travel agents (OTAs) – the TMCs are no longer necessarily in the driving seat. This generation of SME owners and managers are more than likely to have arranged and bought their own personal travel and, therefore, find it relatively easy to book travel for business as well.
This DIY approach may have obvious drawbacks – lacking the benefits of a managed travel programme – but from the SMEs’ point of view it is often simple and straightforward.
CWT’s Turner acknowledges that some SME clients may just want to use a TMC for its search engine capabilities and access to specially-negotiated fares and hotel rooms (although you have to pre-register and open an account to access these). “This is fine as far as it goes, but there is a lot more involved, especially when travel itineraries become more complicated,” he says.
Most TMCs, however, embrace the DIY approach to a certain extent by providing SMEs with self-booking tools (SBTs) to arrange flights. But Corporate Traveller’s Milne is not so sure about SBTs: “Clients with smaller spends are not suited to online options, as they do not necessarily fly point-to-point regularly on a particular route,” he says.
“Moreover, they may be wrong to assume they are better off booking their own travel online as there are hidden costs in using the internet and you can end up paying more in cancellation and change fees.”
Management information
Yet the business of managing the travel spend is less daunting than it used to be. Credit and corporate card providers are now more geared up to the needs of SMEs, not just because of the extended credit periods helping cash flow but also from the more detailed management information (MI) that is now widely available from card issuers.
Cards aimed at SMEs are coming on to the market all the time (see feature, p68). Airplus International, for example, last year teamed up with Santander to launch the Santander Airplus Corporate Card Compact, which includes benefits for SMEs such as additional travel insurance and emergency legal and medical assistance.
SMEs, moreover, have an advantage in managing business travel over larger companies in that there is usually less bureaucracy and decision-making involved, simply because there are fewer people concerned. The decision whether or not to travel is usually more obvious to those in a small company where the benefits – and costs – to the bottom line can be more easily perceived, unlike employees in bigger organisations who can see no direct correlation between spend and profits.
But whatever the justification, SMEs continuing to spend on their business travel is undoubtedly something the Chancellor would wholeheartedly endorse. n