Some companies pull back on business travel

updated 3:42 p.m. ET Feb. 24, 2008

NEW YORK - As the economy cools, companies are starting to shrink their travel budgets — a move likely to put further strain on struggling airlines.

Hotels, car-rental agencies and restaurants, which along with airlines employ roughly 4 percent of U.S. workers, will also feel the pinch.

So far, travel bookings are holding up. But corporate travel managers are taking a more active role in keeping on-the-road spending in check:

• Employees are increasingly being asked to provide an economic rationale for their trips.
• Rules that require employees to book the lowest fare, stay in pre-approved hotels or double-up in cars and rooms are being enforced more strictly.
• Executives are pushing alternatives to face-to-face meetings, including phone- and Web-conferencing.

"They expect you to be smart," said John Flynn, a sales representative for a San Diego health care software company. But while maintaining a tight budget is a priority, so is knowing when it's important to pay clients a personal visit. "There's no replacement for that," Flynn said.

Chicago-based accounting firm Grant Thornton International, for example, has spent the past two years trying to more aggressively reduce travel costs, especially on the administrative side. That has meant shunning expensive regional flights in favor of driving or taking a train, and relying more heavily on online employee-training sessions and video conferences. Still, travel costs remain Grant Thornton's third-biggest expense after personnel and facilities, said Cheryl Geib, national director of travel and meetings.

Companies are fighting an uphill battle.

Faced with rising fuel costs, airlines increased business- and first-class fares by 12.4 percent during the first half of February compared with last year, according to Sabre Travel Networks. Economy fares climbed 6.2 percent.

Airport rental-car rates have jumped at least 20 percent each week this month compared with a year ago, according to Abrams Consulting Group. And hotel room rates jumped 5.9 percent in 2007, according to Smith Travel Research.

For companies striving to tamp down their travel spending, deciding how far to go and how quickly to act is not easy.

Executives want to keep sales staffs on the road to drum up new business rather than pull back preemptively and give competitors a potential opening. That's why airline bookings don't typically fall until economic conditions have slowed noticeably.

Any reduced spending by corporate travelers — who typically pay more per ticket than leisure travelers — is bad news for airlines. Leisure travelers tend to be more sensitive to worsening economic conditions than business travelers, but leisure bookings also remain steady, industry officials said.

The last economic downturn, exacerbated by the Sept. 11 attacks, hit airlines hard.

Travel dropped off sharply, and four of the nation's six legacy carriers eventually turned to bankruptcy protection to retool their operations. The last two to emerge, Delta Air Lines Inc. and Northwest Airlines Corp., are now mulling a combination that officials hope will boost their financial health.

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