Corporate travel flies budget amid slowing economy

Otto Marine's Mr See says improving cost-efficiency is key to staying competitive.
Otto Marine's Mr See says improving cost-efficiency is key to staying competitive.

Offshore chartering group Otto Marine has been taking aggressive steps to slash its travel expenses over the past year or so, even flying its staff on budget carriers wherever possible.

The group, whose global operations require a substantial amount of travelling, has stopped taking business class flights completely.

It is also trying to reduce the need for business trips by making use of video-conference calls instead.

Group chief executive Michael See told The Straits Times last month that taking the "most economical" of options is now a requisite for all staff - including management - amid the oil price crisis and the slowing global economy.

The group's travel costs, as a result of its cost-cutting measures, have declined by 70 per cent or about US$300,000 (S$404,200) in the past year.

"Cutting down on travelling expenses has been an important part of our cost-rationalisation exercise in response to the market conditions," Mr See said.

"For now, improving our cost-efficiency is key to staying competitive in the industry."

Increasing numbers of firms - including those outside the oil and gas sector - are taking the same approach and tightening their belts when it comes to travel costs, according to market consultants.

Mr Victor Tay, a business representative of Reach Supervisory Panel, noted that the depressed economic sentiment has prompted firms to trim their costs, with small and medium-sized enterprises being the keenest to do so.

"When it comes to expanding or dealing with transactions overseas, companies will travel, simply because they have to," he said.

"But for more exploratory activities like mission trips, which may not translate into any tangible contracts, there has definitely been a slowdown."

Firms have also been looking at ways to stretch their travel budgets "without greatly reducing the amount their employees travel", said Mr Alvan Aiau, Asia-Pacific vice-president of global sales and programme management at travel management firm Carlson Wagonlit Travel.

"These would include changing their travel policies and asking employees to fly economy or premium economy... for shorter flights where they were previously entitled to fly business class," he noted.

"Some corporates are also... moving part of their travel from full-service airlines to low-cost carriers."

Carlson Wagonlit Travel recorded a reduction in travel spending for the energy sector last year, although its overall transaction volumes in Asia-Pacific remained stable. It declined to reveal figures.

Still, travel companies agree that the corporate travel segment remains healthy - a bright spot, even - given that it is still seen as a key part of a company's operations.

Mr Simon Er, general manager of Global Travel, which specialises in corporate travel management, noted that business trips are "typically regarded as an essential part of developing and sustaining business growth".

"2015 was a good year for us, and we have not seen a drop in corporate travel in 2016 thus far."

Dynasty Travel has seen corporate travel volumes expand by 8 to 10 per cent this year, and is expecting further growth in the segment, which makes up about 30 per cent of its annual turnover.

Ms Alicia Seah, its director of public relations and communications, said: "When business is slow, we see more executives travelling in order to generate new leads, seek new opportunities or maintain and secure current relationships with their clients, especially with multinationals and bigger corporate organisations."

That said, travelling costs remain high, which could eventually affect companies.

"In Singapore, we have not yet seen a big reduction in fares by airlines operating out of this market," said Mr Aiau.

"Over the past few months, some airlines have marginally reduced the fuel surcharge component of their fares, but not to the same extent as the drop in fuel costs."

However, he added that "the longer fuel prices stay low, suppliers like airlines are likely to feel increasing pressure to pass the benefits on to travellers".

"These benefits could be either in the form of lower fares or through better service, for example, if airlines channel the higher profits towards upgrading their facilities and planes."

A version of this article appeared in the print edition of The Straits Times on April 04, 2016, with the headline 'Corporate travel flies budget amid slowing economy'. Print Edition | Subscribe