By David Frangeul, Director – Air & Rail
Integrating air & high-speed rail will optimize spend, and maximize sustainability and traveler satisfaction benefits in your travel program.
In the past, rail has not been a key focus for many business travel programs – and there are several reasons why. First and foremost, rail is usually a relatively small component of travel costs. For a quick comparison, air travel typically accounts for about 42% of travel spend, while rail only makes up 6% of spend. Second, rail pricing is competitive. Average fares are low and there is not really a need to negotiate anything. For most travel managers, conducting a sourcing event for rail suppliers didn’t add a lot of value.
There have been several changes in the travel industry in the wake of COVID-19, and there are two major trends bringing rail to the forefront. First, sustainability is high on everyone’s agenda – and second, global high-speed rail networks are dramatically growing. In part one of this series, we covered the three benefits of high-speed rail for business travel programs. Having an integrated multimodal approach will help you reduce carbon emissions, increase traveler satisfaction, and boost your negotiation power with suppliers to reduce your travel costs.
There are three concrete steps that buyers can take today to integrate air and rail and adopt a multimodal approach to business travel.
Step 1: Assess your rail needs
First, you have to assess your rail needs. And to do that, you’ll need to analyze both air and rail data (2019 baseline data).
A rail strategy review can provide a clear picture of where you stand today – and help you shape your rail program to align with your overall business needs. You need to answer key questions like: what is my current rail spend? On which routes? Is this spend covered by a contract with a railway? How can I compare my rail and air average price on specific key routes? Is there any opportunity to shift from air to rail to realize additional cost savings? How can I be more compliant with my travel policy? Or more compliant with my sustainability goals?
This analysis of your historical air and rail data will allow you to understand your holistic travel footprint. You can identify the railways that are the best fit for your program based on your business and traveler needs. And at the end of this review phase, you will have a clear idea of the optimal portfolio of rail suppliers eligible for sourcing.
Step 2: Source the optimal portfolio of suppliers
The majority of rail suppliers worldwide have designed corporate discount programs and tailor-made services for business travel clients. It is comparable to the negotiations you do with airlines – you can get negotiated fares, back-end rebates, and additional services for corporate travelers.
There are some differences between railways and regions on the maturity of their corporate policies. In Europe and in America, the corporate discount across all operators ranges between 15% to 20% – and you have leverage based on volume of spend and potential for growth vs air. It is more complicated in Asia. For example, in Japan, you get flat corporate discounts without any differentiation between clients. In China, the state-run railway provider, China Railway, does not yet have a corporate policy. This will change in the near future.
The momentum is there for a big uptick for rail in business travel. With more and more rail content included in client RFPs, railways must seize this opportunity to develop their corporate offerings. It’s what we are currently observing in Europe and in the US and it will expand to Asia as well. If you take a multimodal approach and air and rail content, you create stronger leverage to negotiate better deals with both rail and air suppliers alike.
Step 3: Shift towards a multimodal approach – integrate air + rail
Our final recommendation is to use adopt a dynamic program management strategy. Focus on continuously monitoring and adjusting your multimodal program. That way, you’re ready to make supplier or program changes when market conditions and business needs shift.
Over the past five years, 90% of Advito clients have adopted a Dynamic Performance Management (DPM) approach to build and constantly optimize their air program. It’s been successful in achieving a variety of travel program goals – from reducing the amount of time and effort spent on annual sourcing engagements to realizing significant YOY cost savings. Today, we expand the content by adding high-speed rail into this framework. On any route with air and rail competition, we will integrate all suppliers into the picture. For example, on the top route used by Advito clients – London to Paris – our analysis and recommendations include British Airways, Easyjet and Air France on the air side and Eurostar on the rail side. This allows us to find the right mix of air and rail to optimize spend and reduce their program’s environmental impact.
Taking a multimodal approach will expand your contract coverage so you can identify missed savings opportunities. It will increase competition in selected domestic and regional markets, putting pressure on air suppliers to provide better deals. And most importantly, it will also capture opportunities for more sustainable travel by identifying routes where travelers can switch to rail to reduce carbon emissions.
If you missed our recent webinar, Transform Your Travel Program with High-Speed Rail, you can watch the recording here.