An enviable record of low unemployment, a robust industrial base, consensus-seeking unions and flourishing SMEs – but what are the challenges in managing travel in Germany? Nick Easen reports
WHILE EUROPE’S overleveraged countries – southern ones and small ones – struggle in the post-financial-crisis world and look to slash costs, question travel budgets, rein in spending and roll out compliance with an iron rod, German companies are still reaching out to travel and trade globally.
“The business travel market in Europe’s largest economy is probably among the top three in the world,” explains Gerd Otto-Rieke, consultant at ITB Berlin Business Travel Days.
Ruediger Bruss is purchasing manager for global travel services at automotive giant Continental, based in Frankfurt. He says: “We saw tremendously strong demand for business travel in 2012”, and believes this will continue through 2013. He adds: “The Euro crisis had some impact for business in southern Europe, but the hope is that the countries directly affected by the crisis implement the tasks defined by the European Union, the European Central Bank and the IMF as quickly as possible, and thus can improve their situation.”
It helps that Germany was expected to return to weak growth in the first three months of this year and forecasts have been positive. The economy is still resilient, the labour market is stable and consumer spending is solid. This is reflected in the business travel market, which will remain steady this year and grow slightly in 2014, according to a preliminary survey of 1,500 executives by Verband Deutsches Reisemanagement (VDR) – Germany’s travel managers' association.
In the same survey, two out of five business travel managers in Germany predict that the number of flights purchased will increase in 2014, with more people travelling long-haul. The Mittelstand – the small- to medium-sized businesses that thrive in every corner of the country, specialising in machine tools, auto parts, chemicals and electrical equipment – are currently driving growth. This traditionally strong export base continues to go out on the road. “The nation’s engineers, company directors and sales people are increasingly reaching out to emerging economies in search of new business opportunities,” says Julian Munsey, head of strategic business development at Hillgate Travel.
Mark Spivey is sales director for the Maritim group, which operates conference hotels in the key German cities. He agrees the Mittelstand are helping drive his day meetings business, while trade show attendees are a key market. “Hanover has the largest trade showground in the world, and Frankfurt and Cologne are both in the top ten worldwide,” he says.
It helps that a previous decade of welfare reforms have largely kept a lid on wage inflation to date. Marry that with a boost in demand from developing nations for high-value-added manufacturing, and you have the recipe for Germany’s highly competitive economy and success in recent years.
GOOD NEWS, BAD NEWS
It’s not all rosy for the years ahead though. Already German executives are cutting costs as they see prices for flights and hotels rise this year; then there are fears of the global economy creaking. Fares for economy and business class air tickets are likely to rise 3-5 per cent in 2013, according to the American Express Global Business Travel Forecast, while corporate-negotiated hotel rates are likely to increase by up to 4 per cent in Germany this year.
Continental’s Bruss cites concerns that UK travel buyers will be equally familiar with. “The main focus of buyers here is continuous cost management, and increasing deployment and use of online booking tools,” he says. “Another concern is the rise of ancillary fees in air travel with the expansion of Germanwings and Hop, and how to manage this both from a policy as well as buyer perspective.”
Amex Business Travel’s general manager for Germany, Anton Lill, says: “With the high demand, prices will likely increase by more than the rate of inflation this year. But travellers are being prudent and economically conservative at the moment because of concerns around the euro.”
There is also unease that Germany’s competitive edge will be eroded by rising wages. Thousands of workers are now benefiting from strong wage hikes. Then there are soaring energy costs after a bitter and lengthy winter, and what some see as a growing state role in the economy, which is beginning to discourage investment.
The post-war Wirtschaftswunder, or economic miracle, came to an end because of a similar situation – bumper wage claims and a rise in regulation. The same could happen again, affecting business travel buying.
GERMANY IS DIFFERENT
The German economy, like its executive travel, is structured differently from other European markets, due to its federal and decentralised nature. In France and the UK, many large corporations and much of those countries’ travel infrastructure, such as large airports and transport terminals, are concentrated in Paris and London. In contrast, Germany has more than 20 international airports spread all over the country. For instance, Frankfurt, which is neither the capital nor the biggest metropolis, has the biggest airport in the country.
Federalism means German corporations are also spread out in various regions – goods-trading and shipping in Hamburg, insurance and consultancy in Munich for example. Major industry players can also be found in very rural areas. “This has a strong impact on the local infrastructure and economy, as well as on travel buying patterns,” explains Carlson Wagonlit Travel (CWT) vice-president Martina Eggler.
This leads to more fragmented routing. The majority of flights in the UK start or finish in London, while in Germany it is much more spread out. The dispersion of businesses throughout the country fuels a strong domestic travel market, with many executives taking trips mainly by road or rail to visit local customers and suppliers. “Given the large amount of in-country travel by air, rail and car there is a high degree of cost comparison in Germany. It is a high priority here,” says Otto Schweisgut, managing director of ATPI’s network partner in Munich.
This healthy domestic market supports a thriving small hotel industry, local business travel agents and many travel management firms who cater to the specialised buying patterns of the Mittelstand. HRG Germany managing director Wolfgang Strasser says: “The top five TMCs [travel management companies] account for less than 20 per cent of the market. Small players have a huge role to play here.” This fragmentation is also reflected elsewhere. For instance, there are quite a number of different local booking engines in place, which need to be maintained by both travel buyers and agents.
CHECKING THE FIGURES
Even though figures for the German market now look healthy, technically over the last ten years it has come down off a high, according to VDR data. Ten million travelled back in 2002; less than nine million did so in 2011. Trips sank from almost 230 million to 164 million over the same period, while expenses dropped from almost €50 billion to less than €45 billion. There are a number of reasons – travel management and buying has become smarter and more professional, and there are also now more cost controls and procurement processes and policies in place. “Suppliers have also reacted with new products – for example, low-cost airlines and budget hotels, which are also used by business travellers,” explains ITB Berlin’s Otto-Rieke.
Domestically, rail journeys dominate the landscape for executive travel. The country has an extremely efficient and punctual network, albeit a monopoly, and the fares are nearly always cheaper than flying domestically. German rail also offers direct online booking to their customers and self-printout tickets. Trains are used for most trips, even when booking air, since most airports in Germany have good rail links. It is not surprising that bookings on Deutsche Bahn will increase in 2014, with shorter journeys on the rise, according to VDR.
Rail travel is generally booked outside of any large fixed travel contracts, and hotel bookings are also now going the same way. “While rail travel is a good option for many, it can prove to be more expensive than the alternatives because the market is dominated by one national rail provider,” says Amex’s Lill.
STATE OF INDEPENDENTS
Germany’s vast network of good quality independent hotels that are frequented by many executives, colours both attitudes domestically and internationally. “Travellers are typically happy to stay in these properties, ahead of branded chain hotels, due to the monetary savings on offer,” explains Hillgate’s Munsey. Many are also not even bookable through the GDSs.
This means that the touch points of value-for-money, functionality and convenience that are sought after in Leipzig and Dusseldorf are also sought after in Shenzhen or San Francisco. Whether it’s a Hilton, a Hyatt or an Intercontinental is a secondary concern.
Domestically, the cost of hotels rose by 15.5 per cent from 2009 to 2010, which has led to companies reconsidering what room nights they purchase, according to VDR. This is why the middle ground – three to four-star properties – are thriving: 87 per cent of business travellers use this type of hotel, to the detriment of five-star providers.
“You will find that mid-range hotels established close to company premises, in rural areas, or even those established in co-operation with companies have a high level of customisation and specialisation towards business traveller needs,” reiterates CWT’s Eggler.
What is unique and a rarity within Europe is the situation with Berlin, the capital. While hotel accommodation in other European capitals can be eye-wateringly expensive, Berlin, due to high levels of competition, historic and geographical reasons, offers competitive rates and conditions.
This makes the capital attractive for meetings, events and exhibitions. Costs for executive travel to the capital are a lot more reasonable when compared with cities such as London and Paris.
A CHANGE IN THE AIR
A PROMINENT CHALLENGE at the moment is the transition that is happening at Lufthansa, Germany’s flag carrier, as it moves domestic routes into the Germanwings network. It is a major change for many business travellers as they need to adapt to a new air product and service levels on some of their frequently travelled routes.
There is also an issue with accessing the best rates and lowest fares, which are no longer always featured on the GDS. In this respect, explains Helen Menniss, executive director, global account management for Global Star Travel Management, “many companies are reviewing their approach to air or rail on these domestic routes to ensure they are getting best value”.
There are also other challenges in the marketplace. Data security has become a major topic for buyers. Strong regulations make bookings difficult and individual arrangements have to be made by travel buyers in-house rather than agents.
“Profile data on executives now has to be kept in separate data warehouses, which then need to synchronise with distribution systems used by suppliers and TMCs,” says Franziskus Bumm, general manager, Europe, for FCM Travel Solutions.
WHO IS BUYING?
THE MITTELSTAND, the small- to medium-sized businesses that form the backbone of Germany’s economy, is the biggest sector. Largely export-focused, they need to travel even when times are tough. They demand specialised services. However, the use of online booking tools in this market is still relatively low. Typically adoption rates sit at around 10 per cent. This market still likes to work by telephone or email with their trusted travel agent.
German companies with less than 500 employees generate approximately 80 per cent of business travel spend, according to the VDR. Since the economic downturn, it is often the boss of smaller companies who is directly responsible for bookings.
In terms of the number of business trips, this sector travels more often than big corporations. “We have seen mid-sized companies have a high share of long-haul travel, and also have special requirements, such as excess baggage in the machine engineering sector,” explains CWT’s Martina Eggler.
Large corporations, focused on the chemical, pharmaceutical, electrical and automotive sectors – including big players such as Audi, BMW, BASF and Bayer – are the type of companies that have the majority of clout in the business travel buying market.
The trips from large corporations tend to be less complicated than those of the Mittelstand who are inclined to go overseas for longer. The larger corporations mandate travel policies and expect both buy-in and more compliance from their executives.
“Bigger German companies have not been consolidating their travel buying internationally in the past, but consolidation is happening now,” explains HRG Germany's Wolfgang Strasser.
Q&Ango BiehlExecutive director
VDR – Germany’s travel managers association
Who is travelling in Germany?
In recent times, small- to medium-sized enterprises have become more cost-conscious – but despite this, companies with less than 500 employees still spend nearly €36 billion a year on business travel.
Where are business travellers heading?
The trend to ‘go east’ rings true here. China is a top destination for German businesses, but equally so is the US. In the coming years, the BRIC countries other than China - Brazil, Russia and India - will be important, too.
What is unique about the German market?
Other European markets are very much focused on their capital cities, but this is not true in Germany. Our market is extremely decentralised with a huge number of business hubs across the country.
What specific challenges do German buyers face?
Rail travel is more restricted than in other European countries because it is run as a monopoly, and therefore we don’t have a choice in providers. We are also being confronted with a concentration of airline alliances, which effectively decreases choice. However, this is also now true in other markets.
Germany: trends, travel policies and more
- More than half of those who travel domestically book three-star hotels, according to VDR. Only six per cent book five-star accommodation.
- Germans are increasingly price-sensitive and are spending less on so-called ‘sundry costs’. Spending levels are back to 2007 levels.
- Peer-to-peer recommendations online are increasingly influencing business bookings.
- The latest developments in Travel 2.0 and open bookings are not yet gaining traction in the local market within any business sector; nor is sustainability – an area where the UK has taken the lead.
- German companies have a different approach to buying business travel. They tend to select preferred suppliers across all markets as opposed to splitting them up geographically.
- It is common for many German companies to mandate their travel policy and to gain a high level of buy-in from their executives – the rules are the rules.
- Data protection can go too far – strong and active Workers
- Councils can restrict the release of data. Some German firms cannot utilise traveller reports or flag up bookings outside of policies due to privacy restrictions.
- When it comes to buying travel there is a high level of communication with all stakeholders and a focus on compliance.
- The market sees less focus on hotel brands and more focus on convenience and good value.
- Billback is not common. German hotels are usually booked by the TMCs and paid by the traveller, so there is a strong focus on credit cards and the reporting.
A strong domestic decentralised business travel market has led to high standards and sophistication at home