Setting the right airline cabin policy is crucial to the success of most managed travel programmes. Make it too permissive, and air spend spirals up. Set the policy too harsh, and risk losing frequent travellers to more accommodating employers.
A traditional method is to simply benchmark the competition's policies, and set yours accordingly. But in today's more analytically-oriented world, there is a more sophisticated way to reach the best decision — while building stronger relationships with your senior management and HR leadership.
Step 1: Estimate the cost differentials by flight time
Estimate the costs of a) an all-economy policy, and of b) an all-upgraded policy. An all-upgraded policy would typically allow the traveller to book one class better than economy. For the sake of simplicity, let's ignore premium economy as an upgrade choice, and focus on the business class cabin option.
Group your spend by the flight time duration of each ticket's longest leg, and show the two different cost estimates in a chart like this.
This shows the impact on airline spend from allowing upgrades based on each flight's time duration.
Step 2: Factor in productivity costs
Most managers would agree that a traveller will be more productive having flown in business class rather than economy. To quantify these costs:
- Ask your HR colleagues for the average hourly value of your travellers' time.
- Ask senior managers in sales, field engineering, or similar owners of large travel budgets to estimate the in-flight productivity loss for the average traveller who flies in economy, versus flying in business class.
- Ask the same executives for their estimates about redeye flights and the loss of productivity on the day of arrival and perhaps one to two days after arrival to capture the presumed loss of sleep.
- Do the maths…for example, flying in economy for eight hours at an average hourly value of £70 times an in-flight productivity loss of 25% costs the firm £140. Factor in another 20% loss for two eight-hour days, and this example shows a total productivity cost of about £360.
The cabin cost chart now looks like this.
Step 3: Factor in attrition costs
- Sending Sally to Singapore in economy takes a toll on Sally. Send her to Singapore in economy one time too many and Sally will choose to work elsewhere. The cost of losing Sally is surprisingly high. A 2012 US study puts the cost at between 50 and 200% of the employee's annual salary.
- Speak to the key travel budget owners and HR to get their estimates of attrition rates among frequent travellers. Our studies show a clear correlation between frequent travel and attrition rates, but of course the degree will vary from firm to firm.
- Build the cost impact in a way that reflects a higher attrition rate for those travellers that travel on longer flights.
The chart should now look something like this .
Step 4: Find the lowest total estimated cost
Pretty easy, after all those maths. Find the cabin policy that yields the lowest total cost, and you are nearly done. In the chart above, we see that the lowest cost comes from a 10-hour minimum policy.
While this "lowest cost" accounts for the estimated cost of the ticket, lost productivity and excess attrition, it does not account for other, harder-to-quantify costs. These include:
- Health and safety costs incurred from flying long hours in economy, such as higher incidents of deep vein thrombosis (DVT), or more post-arrival ground-related accidents due to fatigue.
- Traveller morale
- Impact on recruiting good candidates for jobs requiring frequent travel
Since these costs are real but very hard to pin down, how should you factor them into the discussion?
Step 5: Find the "optically optimal" lowest cost
Let's assume the lowest cost of travel so far is £3.5 million at a 10-hour minimum flight duration. Now, using the cost estimates made to date, measure the incremental cost of each policy option with a lower flight time requirement than the 10-hour option. Your results might look like this.
Now ask senior management and HR leadership which, if any, of these options are worth paying to get the option's "optics".
For example, is taking the six-hour policy, at an extra cost of £ 300,000, worth the benefits of having a travel policy that clearly looks safer, healthier and more attractive than a ten-hour policy?
The decision will not likely be reached by seeking ever more facts; rather it boils down to combining a solid analytical framework with considered discussion and good judgment.
In today's data-driven world, this is the type of discussion that travel managers must tee up and lead with senior management.