INDIA’S STORY OF GROWTH in all service sectors – despite the economic slowdown – still persists. Eight of the global Fortune 500 companies are based here, a steady climb from five in 2005. One of the prime reasons for this is the growing educated middle class, estimated at between 300 to 400 million people, and the huge demand for just about every service when compared to supply.
Another factor is that of the 1.2 billion population, 65 per cent are below 35 years of age, plus the country has one of the most positive earner-dependent ratios in the world. Family income in both urban and rural India is growing at a steady pace, raising the demand for services as disposable family income goes up.
Travel is no different from other sectors, and predictions are that in 2012-13 it will continue to see growth. Business travel, specifically, is expected to grow as corporate India shows buoyancy, despite the European economic situation.
The higher foreign investments and increase in global company presence in the country have lead to a rise in business travel spend-levels and maturity in the airline segment. But India continues to remain distinct from other areas within Asia Pacific and globally – both culturally and due to market differences – making expanding a global travel programme in India a unique challenge.
Regional Structures
One of the main challenges is the fact that India is such a large country, with multiple cultures and languages. While English is the common business parlance, different regional languages still take precedence in the
serving of clients. Corporate India is governed by regional management structures, which has created a fragmented market for corporate travel. Travel programmes can often be managed differently from region to region, rather than cohesively at a national level.
Another challenge the corporate sector faces is the poor level of available infrastructure. While some cities enjoy the latest technology and services, others have limited access, creating a huge disparity across regions. Unreliable phone lines and poor broadband infrastructure are just a couple of the problems businesses face. While the workforce is still “low-cost” and willing to work long hours, the unreliability of the infrastructure can cause disruption for travel management companies (TMCs) and other suppliers in providing quality, timely and reliable service to their corporate clients.
But despite these issues, the increasing demand for travel within India keeps the domestic air and rail routes at capacity. Increasing investment into the country and growth in exports maintain the demand on international routes, inbound and outbound.
In the hotel sector there is now significant investment into comfortable, clean and service-oriented three- and four-star establishments – however, the supply is nowhere close to the (mostly domestic) demand, so rooms are still expensive compared to similar accommodation in the US and Europe. To add to the challenge, most mid-range independent hotels, though they offer a good quality service, are not bookable through the global distribution systems (GDSs).
The majority of corporate India still demands a discount on services where the industry gets commissions, demands a credit period of 30 to 60 days, and has minimal use of credit cards – for international travel, executives traditionally take their per diems in traveller’s cheques and cash. Multi-currency debit cards and corporate lodge cards are becoming more popular, but the “old ways” still create challenges, often needing a large back-office workforce. This leads to delays and difficulties in data reporting.
Most multinationals accept these local nuances, but as spend levels grow and local companies see the benefits of consolidation, the TMCs will come under pressure to improve efficiency, cost effectiveness, service levels and timely reporting.
Changing traditions
What are the key areas of change for corporate travel on the subcontinent? The Indian executive of the past wasn’t always an experienced traveller – but this is rapidly changing as the frontline force of corporate India begins to hop more frequently between cities to meet clients, attend conferences, exhibitions and training courses, and participate in incentive trips.
Thus a change over the next few years see TMCs serving an experienced domestic traveller. While international long-haul travel will continue to be seen as complex and challenging, more so because of complicated visa requirements and foreign exchange regulations, regional cities within south-east Asia and the Middle East may soon be added to the list of most commonly visited destinations.
The no-frills airlines have added frequency and accessibility – the lower fares pushing a segment of rail travel into using air as its mode of transportation. With the increase in travel and experience gained, there is likely to be a shift in the mid-management traveller’s behaviour – becoming more demanding in the type of value-added services they desire at airports, on flights, and in hotels. Add to this the growing number of women joining the executive workforce – a new challenge for TMCs and suppliers is to structure business travel services for female customers in a still largely male-dominated travel environment.
The Pressure’s on
As more foreign companies establish presence in India, while at the same time the travel and expense (T&E) category moves higher up the balance sheets of large corporations, the pressure grows on corporate India to manage T&E more effectively. This will put pressure on TMCs and suppliers to re-evaluate their front-end service levels and back-office booking processes.
Bindu Dominic is a seasoned travel manager, based in India and heading up the Asia-Pacific region for a global technology firm. She says: “We can expect rapid changes in the next few years to the way business travel’s been traditionally handled in India. But that’s not to say the present hybrid model of travel programmes adapting both the managed and traditional model won’t still be the norm. Cultural and regulatory nuances of the country will still mean there’s a dual aspect to implementing travel programmes, even for multinationals.
“Experts from both sides – local and global – need to work with each other to optimise travel procurement, addressing local values, traditions and culturally sensitive issues, while establishing consistent global standards.”
The client-TMC-supplier relationship comes under the spotlight as the market matures. Forward-looking travel professionals say there’s a definite need to move away from a local mindset that the best deal can be secured by getting multiple quotes, finally decided upon by an untrained travel person, usually a secretary, admin assistant or a finance clerk.
Dominic says: “The starting point of all change is bringing travel expertise into the procurement team, and ensuring the company’s requirements are mapped correctly before issuing requests for proposal for TMCs and suppliers.
“I’ve seen a surge in a new breed of knowledgeable, skilled travel managers in the last two years. In fact, some of the key tech firms in the south of the country are now giving their local travel managers APAC or even global responsibilities, and I expect this trend to continue, in the large and mid-sized companies.
“The one area where we’re direly lacking is good training facilities and courses for travel managers, and an association that helps them connect and benchmark.”
POLICY – what policy?
Designing and implementing the right travel policy – and measuring its compliance – is perhaps the biggest challenge for travel buyers in India. Often there are very basic travel guidelines – a few points on a page or an email circulated among the staff. Many companies have cumbersome manual procedures for approval of every trip, with compliance responsibility on the shoulders of each departmental head.
Not surprisingly the failure of policies and implementation has often been because the senior managers do not follow the set norms: not taking cheaper early-morning or late-evening flights, refusal to fly on a low-cost carrier due to their “social standing” – these are some of the reasons why recommendations by travel managers, offering huge rupee savings, are rejected by senior business figures.
Also, it’s not unusual to have different policies for different regions or departments within the same company. These traditional nuances are under pressure from multinationals pushing for compliance with a global policy.
High expectations
Even companies with annual spends in the region of US$200,000 expect to be served by a TMC implant within the firm. The client enjoys and expects high-touch service: face-to-face meetings to discuss international itineraries, delivery of travel documents by experienced consultants, and not forgetting the burdensome processes involved in obtaining visas – all this often seems best handled with the implant model. Travel agents, too, have found this a fitting service model, with personal relationships helping to retain traditional high-touch Indian client accounts, plus the staff workspace costs being transferred to the client.
But with new technology, and the communication infrastructure getting better and cheaper, the pressure is on for change to a more low-cost, low-touch model, and a rethink about implants is inevitable.
Air turbulence
India is one of the few countries where commission structures still exist among some airlines. If there aren’t the front-end commissions, the back-end overrides are, of course, extremely prevalent. Given that net fares are now available through not just the GDSs but direct distribution by no-frills and some legacy carriers, the discount model will perish over the next couple of years as the last few airlines give up paying commissions to agents. This change requires a total mind shift, which the smaller agents, in particular, are struggling with. Adding a fee means justifying value-add to selling a simple seat or hotel booking. There is already a shift to transaction fees by several multinationals and large Indian corporations.
There is likely to be a further change in the TMC-supplier-client negotiations. More three-party agreements offering direct corporate rebates, special fares and agency point-of-sale discounts will soon replace the rebate structure still retained by some airlines. There will also be an increased demand for greater transparency.
The future
It’s a conundrum that is both fascinating and frustrating: India is at the forefront of developing and deploying technology across several business verticals, and has led the way in the outsourcing and off-shoring sector, yet travel is several steps behind – relatively low-tech and high-touch. Low labour costs, complex documentation for international travel and low spends have been primary factors in this.
What’s most important for the future is recognising that investing in expertise, technology and training is essential if corporate India is to gain true value in this highly complex and emotional sector. n