Travel Policy: a case study to deliver cost savings to MOD business air travel

G. C. Parry, A. J. Towler & A. Graves

University of Bath School of Management Working Paper Series

2008.04 This working paper is produced for discussion purposes only. The papers are expected to be published in due course, in revised form and should not be quoted without the author’s permission.

University of Bath School of Management Working Paper Series

School of Management

Claverton Down Bath

BA2 7AY United Kingdom

Tel: +44 1225 826742 Fax: +44 1225 826473

http://www.bath.ac.uk/management/research/papers.htm

2008

2008.01 Ana Lozano-Vivas & Fotios Pasiouras

The impact of non-traditional activities on the estimation of bank efficiency: international

evidence

2008.02 G.C. Parry, M. James-Moore, A.P.

Graves and O. Altinok

Legal aspects of electronic signatures

2008.03 Glenn Parry, Andrew Graves & Mike James-Moore

Lean New Product Introduction: a UK Aerospace Perspective

2008.04 G. C. Parry, A. J. Towler & A. Graves

Travel Policy: a case study to deliver cost savings to MOD business air travel

1

Travel Policy: a case study to deliver cost savings to MOD business air travel

G. C. PARRY*†, A. J. TOWLER‡, A. GRAVES†.

† University of Bath, School of Management, Bath, BA2 7AY

‡ Defence Travel Team, MOD

Correspondence: *Dr Glenn Parry, Email: g.c.parry@bath.ac.uk

Dr Glenn Parry is a Research Fellow at the University of Bath, School of Management. A

member of the Agile Construction Initiative, his work focuses on the strategic application of

lean manufacturing principles at the enterprise level.

Group Captain Andrew Towler is the Team Leader for the Defence Travel Modernisation

team, MOD, London. He has been tasked with modernizing travel across the MOD.

Professor Andrew Graves holds the Chair for the Management of Technology and is the

Director of EPSRC the Innovative Manufacturing Research Centre at the University of Bath,

School of Management.

Key words: Entitlement, expenses, public spending, Ministry of Defence MOD, air travel.

Word count: 6514 excluding references

2

Summary

This study examines the programme of targeted savings of 10% from the annual Ministry of

Defence [MOD] £294 million business travel expenditure. Work focused on the £87 million

air travel budget and presents the financial analysis of air travel policy to the end of 2004.

Future policy scenarios are proposed with the financial implications of enacting each. The

MOD has opted to enact one of the policy scenarios, estimated to bring savings worth £18

million pounds per annum.

3

Travel Policy: a case study to deliver cost savings to MOD

business air travel

Introduction

This paper explores the potential to make savings on the annual Ministry of Defence [MOD]

business travel expenditure of £294 million [Financial Year 2003/04]. It examines the current

MOD travel organization and patterns of travel. The focus of this study is placed on the

financial implication for business air travel policy and investigates the MOD travel patterns

and changes in air travel market products. Companies can derive best value from these

changes through unambiguous travel policy, endorsed at the highest levels. The MOD has not

mandated it’s centrally provided travel service. The authors believe that it is not yet using its

large expenditure to leverage the best deals. The leverage it currently has is further diluted by

the large number of arrangements MOD currently has with different travel providers.

Individual business unit agreements have flourished leading to considerable investment in

separate travel cells and individual procurement arrangements. This suggests that current

policy does not follow best practice and that there is clear scope for the MOD to also make

savings.

Travel Policy

Travel policies dictate how personnel book and travel on company business. An

organization’s travel policy encompasses a number of different requirements and, like any

other policy, the difference between compliance and non-compliance is directly related to the

degree of importance that company personnel perceive senior management places on it. To

be effective, travel policies need to be unambiguous and then well communicated with

endorsement from the highest levels (Atlas Travel International, n.d.). A number of different

4

elements might be addressed in an air travel policy, including: approval and reporting of trips

taken; travel guidelines; booking mechanisms; and cost.

Approval and reporting standards may be drafted in policy, enabling control through the use

of pre-trip authorization. This can be at different levels; for instance, economy travel may

need no approval while premium classes may require authorization. When a traveller exceeds

his limits, then the policy needs to address the action that will be taken. For example, it may

be noted in a monthly exceptions report, the traveller may be informed that approval is

required before the tickets can be delivered or a designated individual in the company may be

contacted.

There are numerous issues that should be considered when writing policy guidelines. It may

be advisable for policy to include direction to prevent certain key personnel travelling by the

same means to reduce the risk to the business should there be a serious accident causing loss

of life (A Phillips 2004, pers. comm., 19 August). Travel guidelines may be established by

position. Some companies have a travel policy entitlement that is linked to certain job

characteristics or grades where there is greater flexibility in the choice of airline class (N

Everett 2004, pers. comm., 26 May). Guidelines may also drive travellers towards certain

deals to make use of corporate discounts. Many businesses have negotiated discounts with

individual airlines; in which case the policy might address the mechanism with which the

agreed number of seat miles are utilised to ensure full utilisation and to protect the future

advantage of negotiated rates (A Phillips 2004, pers. comm., 19 August). A basic guideline

could be distance-based, as some firms require economy travel on domestic trips but allow

business class for international journeys. In the UK such a distinction could be based on travel

over five hours duration which is another way of saying the destination is outside Europe.

5

Booking mechanisms will facilitate policy and guideline adherence. If there is a designated

agency for arranging travel, this should be identified in the policy. One method of achieving

compliance here, to ensure that all reservations are made through that agency, is to only

reimburse expenditure on travel booked through the appointed agency (N Everett 2004, pers.

comm., 26 May). If the majority of travel is arranged through self-booking tools, this will also

ensure the reliability and comprehensive nature of data collection. Thus, through business

rules built into software, travellers can be directed to follow travel policy without having to be

aware of it. This is important, because it has been suggested that although 90% of companies

have travel policies, only 10% of staff are aware of the content of the policy. (J Tucker-Jones

2005, pers. comm., 26 April). Nevertheless, elements of travel policy can be loaded into self-

booking tools to promote adherence.

Cost issues need to be clear as lowest cost may not provide an acceptable business case.

Travel policy should define parameters for the lowest acceptable fare, such as the maximum

additional elapsed time for a connecting flight. Other low fare specifications include: use of

alternate airports, not allowing travellers to specify carrier or flight, or larger time "windows”

for international itineraries. Each additional parameter opens up more options for the agent or

booking tool when searching for the lowest fare (Atlas Travel International, n.d). Whichever

of the above elements the travel policy covers, it should be easily available, unambiguous and

written in plain language. Regular review is required to take account of the dynamic nature of

the travel market.

Travel policy requires endorsement from the highest levels if it is to be successful and gain

company-wide recognition. Different approval mechanisms can be employed to ensure

6

adherence to policy. Within the business travel market, increasing compliance with company

travel policy has evolved as a result of the trend that travel is tending to move away from the

control of travel specialists to procurement managers who have a better handle on costs in the

supply chain (Upton, 2004). Procurement managers are more likely to focus on volume

discounts, as airlines aim to claw back money from firms who do not meet volume targets

(Roper, 2005). In contrast, self-booking can be used to affect savings through encouraging

travel below entitlement by preying upon travellers’ 'self guilt' when they see the costs

incurred to their company when they travel at their correct level of entitlement. At the other

end of the scale, companies such as Warner Music have instructed their Travel Management

Companies [TMC] not to issue tickets which do not conform to the company policy (Upton,

2004).

MOD Motivation for Change

The MOD is running a reform of business processes across the whole Department (Defence

Change Programme, 2005). It has been recognized that senior support is required for this

programme where its strategic aim is to strengthen front line operations, either by freeing-up

resources or by improving outputs (McCartney, 2003). Those projects that have been

identified as the most important across Defence have been gathered into a single, coherent

agenda called the Defence Change Programme. The Change Delivery Group [CDG] was

created to support the Programme's change initiatives and to ensure that the projects are

handled in a co-ordinated manner. The programme has been part-funded by a Defence

Modernization Fund, worth some £600 million over three years, which was agreed in the

2002 Spending Review in addition to exiting allocations. Between this fund and money from

the Defence budget, a total of over £4 billion is to be spent on the modernization programme

in the next few years.

7

The concept 'burning platform' is often used to describe the catalyst for change. It came from

an oil industry analogy of workers resisting jumping from an offshore platform that is in

flames until the fire is at their feet and forces them to jump into the sea at the very last minute

(Langdon & Billet, 2004). The burning platform for MOD is that the Government’s priorities

during the recent period of public expenditure have been areas other than the MOD. (BBC

News 2004). The identification of economies will assist in balancing the books while helping

the MOD continue to meet strategic defence requirements. The Defence Change Programme

has support from the very highest levels in the MOD. The Secretary of State for Defence has

emphasized the importance of delivering reform right across the Services noting that staff at

all levels needed to be motivated to achieve this (MOD Annual Report of Defence Activity,

2001/02; Money, Money, Money, 2003). The Change Delivery Group, chaired by the Second

Permanent Under-Secretary and the Vice-Chief of the Defence Staff [who jointly manage the

MOD’s Head Office] has reviewed in detail the MOD’s Defence Travel Modernisation no

less than four times between February 2004 and November 2005. Moreover, Defence Travel

as part of the MOD SR04 Efficiency, is subject to regular reviews by the Treasury and No 10.

(MOD, 2004b) Motivated stakeholders’ optimism and assurance, communicated to the rest of

the organization, will encourage progress during chaotic or painful periods in the change

effort (The Price Waterhouse Change Integration Team, 1995).

At the 5 February 2004 meeting of the CDG, the Defence Travel Modernisation [DTM]

Programme was accepted into the Defence Change Programme (MOD, 2004a). The Group

recognized the project as one that was focussed on driving out costs and that, with the number

of different arrangements currently embedded within Defence travel practice, it was clear that

the MOD was not making best use of its buying power. The realization of maximum benefit

would probably require streamlining Defence travel policy. A burning platform was given in

8

the shape of financial targets, specifically with a stretch target cost reduction of 20% and a

hard target of 10% by Financial Year [FY] 06/07. The financial baseline for the Defence

Travel project was set against the full year 2003-04 business travel spend figures of £294

million. The DTM Team was directed to seek Defence Modernisation Funding. The

programme was scoped to include travel policy and mandating. It was agreed, given the

reliance on central authority, a stakeholder engagement and communication strategy would be

developed especially if potentially contentious travel policy changes were to be made

(HM Treasury, 2004). Faced with the burning platform, radical change to the way the MOD

manages travel would be required.

Research Methodology

A literature review was conducted to explore air travel policy. As there is very limited

information available it was necessary to supplement literature with primary data. Ten semi-

structured interviews, with domain professionals were completed. Further contacts with these

experts validated and corroborated findings. For this research into contemporary

phenomenon within a real-life context, a case study approach is appropriate (Yin, 2003). An

inductive approach “proceeding from the specific to the general” was employed (Sarantakos,

1998) so, to reach generalized conclusions, more than one case study was required. Smaller

analogous case examples were produced from five very large organizations with which the

authors had close engagement. The length of relationship and the seniority of the

interviewees provided internal validity and reliability (Yin, 2003). Overall spend analysis data

was collated from records of expenditure for FY 03/04 against contracts that are held by the

Defence Bills Agency [DBA], expense data held by the Government Procurement Card

provider and reimbursement details from the Civilian & Military Expenses system (TCMT,

2004). Neither the DBA nor the Government Procurement Card [Barclaycard] hold detailed

air travel records. British Airways were able to provide data that identifies the dates and

9

numbers of passengers that travel, their routes and their seat costs. They provided 10,261

records from 2003 data, which account for 130,100 trips. We have made assumptions that the

travel patterns drawn from British Airways data are representative of travel models with other

Defence Fares Agreements [DFAs]. The analysis and savings proposed therefore use travel

patterns and financial analysis based on this dataset.

Analysis of current MOD business Travel

From the collated records of expenditure for FY 03/04 data it was possible to break down the

total spend of £294 million on business travel into the following classifications: road 35%, air

30%, hotel 18%, rail 12%, booking fees 3%, and ferry 2%. The DBA holds records of

expense against Unit Identification Numbers [UIN]. The UIN expenditure has been grouped

by business unit, referred to as Top Level Budget [TLBs] by the MOD, and an aggregated

spend profile developed for each TLB. Moreover, Government Procurement Card data can

also be apportioned to TLBs from the UIN breakdown. This precise correlation between bill,

UIN and TLB gives assurance that the spend allocations against individual TLBs is accurate

(TCMT, 2004).

The greatest cost is incurred in Hotel and Road [e.g. costs associated with periodic hire cars]

expenditure. Investigation with individual TLBs to divide this more accurately is part of a

separate current exercise to agree and align spend data. Until this task is complete,

expenditure has been assigned to TLBs in accordance with their proportion of the individual

travel budget (TCMT, 2004). While it is possible to identify expenditure against different

modes, there is limited availability of further information about behaviour within these

categories. The temptation to proceed with diagnosis of information based upon assumptions

and to act on limited data could lead to false conclusions. This can be avoided when it is

possible to develop data through trust with other partners that can be subjected to the rigour of

10

analysis (Bennis, Benne & Chin, 1969). This study is focused on business air travel where,

fortunately, it has been possible to glean more detailed information on travel behaviour from

travel providers.

Examination of FY 2003/04 overall MOD Air Travel expenditure reveals that, of a total spend

of £87 million, 90% of the air travel spending is accounted for by the DBA which represents

expenditure with airlines through DFAs. DFAs are non-contractually binding agreements that

the MOD has with airlines. Spend attributable to the Government Procurement Card

amounted to 9.3%, with 0.5% ascribed to Civilian Expenses. The DTM’s goal is to recognise

a 10% minimum saving on the total travel budget. It was recognised that some areas would

present more scope for generating savings than others and that this would accrue to 10%

across the piece. Air travel presented a viable area for making savings, mainly achieved

through air travel policy change.

MOD Air Travel Policy

The MOD’s policy of air entitlements for Service personnel is laid down by statute for the

RN, RAF, and Reserve Forces and by Royal Warrant for the Army (JSP 356, n.d.). The

policy for civilian air entitlements is documented in MOD Travel Regulations (MOD Civilian

Travel Manual, 2003). An individual’s rank or grade determines their entitlement to choose

air travel at a certain class [First, Business etc.] in line with standards used in the airline

industry. It has not been possible to identify precisely when MOD entitlements for air travel

were last revised and it is likely that they have not changed since before the policy was

disaggregated from Central Government in 1996. The current entitlement to class of travel

for Service and civilian personnel devised around a journey time rule of two and a half flying

hours and by grouping individuals by rank or grades resulting in a complicated matrix of the

different combinations possible, depicted at table 1.

11

Flying Time Flight Class

Structure

available on

aircraft

4* Service

Officers &

above. Civil

Service Grades

1 & 1a

2/3* Service

Officers, Senior

Civil Service,

ML 1/2

Senior Civil

Service, ML3

& all other

personnel

First Economy Economy Economy Economy

Business

Economy Business Business Economy

2.5 Hours or

Less First

Business

Economy

Business Business Economy

First Economy First First Economy

Business

Economy First Business Business

2.5 hours or

more First

Business

Economy

First Business Business

Table 1 : Current MOD Air Travel Entitlements

DFAs are negotiated by the Defence Transport and Movement Agency [DTMA] on behalf of

the MOD (TCMT, 2004). Traditionally the MOD has managed to secure competitive

agreements with airlines on the basis of fully flexible fares and reimbursement. The

disadvantage of these arrangements is that they allow for flexible timings and are therefore

relatively more expensive than if they were for specific flights where changes could avoid a

fee or are not possible (I Flint 2005, pers. comm., 14 February). The DFAs are also open-

ended without any contractual commitment or guarantee that the MOD will use the agreement

or that the airline will be able to offer the seats at the agreed price. There are twenty eight

agreements at different stages of negotiation (TCMT, 2004). This number of contracts,

although providing flexibility of carrier on the same routes to the MOD business traveller,

12

requires more contracting staff than for a smaller number and, more significantly, it suggests

that the MOD is diluting its procurement power. There are ten main DFAs worth some £52.7

million pounds. For some carriers there are multiple DFAs so in this analysis we have totalled

the expenditure in these multiple contracts within figures for a single carrier. This break down

gives seven major carriers with a share of spend; British Airways PLC 61.6%, British

European Airways 9.8%, Virgin Atlantic Airways Ltd 8.7%, British Midland Airways Ltd

8.5%, Air Canada 6.3%, Lufthansa 3.5% and Gulf Air 2.1%. This analysis demonstrates that

there was a considerable amount of air travel with British Airways in 2003/04, taking 61% of

the £52.7million DFA spend, amongst large carriers, partly because of British Airways’

comprehensive route coverage as well as an historical relationship with the MOD for

ticketing.

Developments in Travel Product Offering

Pressure on companies’ travel budgets has been recognized by airlines that now, as a result,

offer an additional class to what used to be the simple cabin structure of First, Business [Club]

and Economy Class. There is some debate whether EVA or Virgin Atlantic was the first

airline to establish the innovative fourth class, called ‘Premium Economy’ by Virgin, offering

more facilities and services than economy but at a fare below business (Khare, 1997; Airline

Travel News, 2005). Nevertheless, many other airlines have now adopted it. The extra class

was seen to alleviate pressure on travel budgets while providing more space and better

facilities for travellers than those in Economy Class. (Papworth, 2004a). Airlines have

observed an increased uptake in Premium Economy seats and in December 2004, the 5%

better-than-expected British Airways growth was partly due to increased sales in this class at

6.8% compared with 3.7% for other classes (BBC News, 2005). The 2003 Barclaycard

Annual Travel Survey showed that only 15% saw Business Class as value for money and 22%

of travellers justified its use by saying they were following company policy (Travel in

13

Business Survey 2003/4). Passengers perceive that Premium Economy is good value in

contrast to Business Class where 71% of people believe the service does not match up to the

price (Travel in Business Survey 2004/5). In the 2004 study the number of passengers able to

use travel policy as the reason for adopting this class had reduced to 11% because there was a

migration of passengers out of Business Class to the two lower classes (Travel in Business

Survey 2004/5). Notwithstanding the facilities available in Premium Economy, of those

continuing to fly Business Class, 27% claim more flexibility and better service and 16% claim

better working conditions, while 8% said that their position merited it. Aircraft manufacturers

have recognized the changing demand and Airbus and Boeing offer aircraft specifically

configured with Premium Economy (Papworth, 2004a). Dedicated Airport Lounges offer

business passengers the ability to work and relax in a quieter environment away from other air

travellers who are confined to publicly accessible parts of airports (Papworth, 2004b). While

companies have cut back on their air travel budgets and have moved passengers from

Business to Premium Economy and Economy Classes, access to dedicated airport lounges is

seen as a way of smoothing the ruffled feathers of employees who have to travel at lower

classes. Increased check-in times for security purposes can mean that individuals may have a

couple of hours to spend at airports which could be employed productively away from the

distracting crowds and facilities in the terminal building. Table 2 compares Business Class,

Premium Economy and Economy Class by seat size, spacing and available facilities.

14

Class Seat Pitch

Seat Width

Seat Recline

Personal TV

Power Dedicated Check In

Seat Telephone

Lounge Access

Chauffer Driven car Transfers

Broad-band

Internet

Av Cost Heathrow - Washington

return1

Economy 31"-33"

17.5"-18.3" 60-300 Some £917.80

Premium Economy

37"-40"

18"-20" 110-1070 Some Some Some £1,316.80

Business 42"-60"

19.5"-27"

1110-1800 Some Some £4,258.80

Table 2. Comparison of Economy Class, Premium Economy and Business Class1

Analogous Company Travel Policy Case Examples

Having detailed current MOD air travel entitlement and air travel products, five analogous

organisations were identified and their travel policy examined to facilitate policy

development.

Case Example 1: UK Central Government

Until 1992, UK Central Government issued travel policy that included entitlement to class of

travel (A Khan 2005, pers. comm., 19 January). This was partly delegated to individual

departments in 1992 and full delegation followed in 1996. Nevertheless, the overarching

instruction is that travel should be by the 'most efficient and economic means’. In practice,

many Government Departments seem to have travel policy that can trace its antecedents to

when Central Government provided direction.

The Office of Government and Commerce, an Executive Agency of the Office of Government

Commerce in the Treasury has appointed OGCbuying.solutions to co-ordinate a cross-

1 Based on a North Atlantic return between Heathrow and Washington, 26 – 28 April 2005, on British Airways

(British Airways, 2005a) and Virgin Atlantic (Virgin Atlantic, 2005a).

15

Government Department initiative based initially upon the Department of Work and Pensions

whose existing travel arrangements end in 2005 (C Poulter 2005, pers. comm., 19 January).

Contracts will be let in an open manner that will allow other Government Departments to

share solutions. OGCbuying.solutions has approached British Airways who have indicated

that a single focus for procurement across some two hundred and fifty Government entities

would enable British Airways to reduce the number of account managers in place to manage

existing business. The benefit to BA is that they will collect a levy of individual departmental

travel spend; departments, especially those too small to justify arranging individual travel

arrangements will have access to better travel arrangements. Nevertheless, airlines could offer

OGCbuying.solutions cheaper tickets if a mandate to use negotiated arrangements were in

place. There is a perception that this might be difficult to achieve because of the myriad of

organisations concerned.

The OGCbuying.solutions approach focussed initially on the procurement of travel and was

not planning address change to class of travel entitlement until later in the programme (C

Poulter 2005, pers. comm., 19 January). However, individual departments are starting to

change and the Cabinet Office has been asked to identify the possibility of delivering best

practise travel policy. This policy could then be used to gain senior buy-in within separate

Departments. Notwithstanding the fact that many Government Departments have not

changed their travel policy since Cabinet Office disaggregation, there is already some best

practice. For example, government backed institutions such as The British Council and also

many Universities in the UK have moved away from travel by grade to a policy where travel

class is linked to length of journey coupled with business intensity. Both organizations believe

that there is corporate responsibility, a duty of care to individuals and that the cost of travel

needs to be balanced with the effect the selected class of travel will have on the individual’s

arrival condition (J Harrison and K Watts 2005, pers. comm., 19 January).

16

Case Example 2: US Department of Defense

Until May 2004 the US Department of Defense [DoD] travel policy was to use Economy

Class for all travel apart from those journeys exceeding fourteen hours, where Business Class

was permitted. However, in May 2004 this policy was changed so that Economy Class,

referred to as ‘coach’ in the USA, was to be used for all journeys and travellers were to

schedule rest days rather than use premium travel. However, four star officers are able to

sanction Business Class travel, although this may not be delegated below two star rank: nor

may senior officials sanction their own upgrade. All such permission for upgrades is to be

recorded and is subject to auditing and regular reporting. The language used for the policy is

very direct; it leaves no room for ambiguity and has been issued by the Deputy Director for

Defense (DOD Travel Regulations 2005)

Case Example 3: NATO

NATO staffs when travelling on NATO business are required to go by Economy Class.

Exceptionally, three and four star personnel may travel Business Class and the Supreme

Allied Commander Europe may travel First Class [NATO ACE Directive 50-60, 1994].

Case Example 4: ICI

ICI is a global company employing 35,000 personnel and had a turnover of £5.849 billion in

2003. ICI was formed in 1926 by the merger of four UK chemical companies. Since 1997 it

has transformed from a bulk chemical producer to concentrate on global paints and specialist

products that include fragrances, starches, adhesives and lubricants. (ICI Fact Book, 2004).

ICI’s travel policy is linked to the nature and proximity of the activity enabled by travel. The

company uses American Express as a TMC, utilizing the Corporate Travel On-line self-

booking system. A considerable amount of store is put on 'visual guilt' where individuals

17

make responsible decisions when they see the costs involved. Individuals may upgrade to a

higher class if they have to attend a very important meeting shortly after a long-haul aircraft

flight or to avoid a poor connection or carrier. However, the traveller is made accountable

through pre-trip reporting in these instances and a level of justification is required. This is

reinforced in the certain knowledge that reasons for journeys above entitlement will have to

be explained to senior company executives. Mason notes that there remain some variations of

travel policy within today’s company which reflect the large number of acquisition and

mergers over the years. (D Mason and B Aldington 2004, pers. comm., 9 December).

Case Example 5: British Telecom

British Telecom has an £18.5bn turnover with 100,000 employees and provides

communication services. The company started life in public ownership as part of the Post

Office and is now owned by major institutional investors as well as individual shareholders.

BT uses a TMC to provide their travel service. A self-booking tool is available through their

company intranet to make bookings which may also be affected through telephone calls. BT

encourages use of the self-booking tool because Management Information reveals that

booking on-line is 11% cheaper than arrangements made in other ways. They have identified

that this saving is the result of ‘visual guilt’.

BT mandated their travel service eighteen months ago. Senior management were convinced of

a need to mandate not least through the increased leverage that would deliver savings, but also

because it would provide an enhanced duty of care. BT could be knowledgeable of the

whereabouts of individuals in case of an emergency and key personnel can be prevented from

using the same flights, even inadvertently. The on-line booking service was used for 78% of

bookings from April 2004 - March 2005 compared with 71% for the previous year. BT has

18

calculated that they have gained a 15% saving by mandating the travel service through being

able to negotiate better contracts with airlines that can rely confidently on BT’s air volume

predictions.

Passengers are accountable for their travel choices through pre-trip reporting and BT’s travel

policy allows the use of Business Class for international travel. They require justification for

flights that are booked with carriers for whom they have no procurement arrangements.

Although BT has inherited eighteen different travel schemes from previous company

acquisitions, they are in the process of producing a single travel policy. (J Tucker-Jones

2005, pers. comm., 26 April).

Analysis of current MOD air travel patterns

While it is possible to define how much money has been spent on travel types by the MOD

[Road, Rail, Air etc.]; neither, the DBA, nor the Government Procurement Card provider

[Barclaycard] hold actual travel details within their records. The split of DFA expenditure

across the ten largest contracts is covered by seven carriers previously identified. Each of

them was contacted and requested to supply any information they might hold on MOD

bookings. All airlines, bar one, were unable to provide comprehensive data (TCMT, 2004).

The airline that was able to help was British Airways, identified in the analysis as taking over

61% of the DFA spend. Due to the paucity of other available data it was necessary to make

assumptions that the travel patterns drawn from British Airways data are representative of

travel models with other DFAs. British Airways holds comprehensive data about the style of

travel by Corporate Customers, including MOD, for each calendar year. Here another

assumption is made that the data for a calendar year will be broadly similar overall to the

MOD financial data held by accounting year i.e. each set of statistics covers twelve

consecutive months and it is assumed that the patterns of air travel are similar over both

19

periods. The British Airways data identifies the dates and numbers of passengers that travel,

their routes and their seat costs. There are 10,261 records in the 2003 data, which account for

130,100 trips (S Cattell 2004, pers. comm., 22 July).

Destination First Business Premium Economy Economy

PAX £ (Mil) PAX £ (Mil) PAX £ (Mil) PAX £ (Mil)

UK-USA 46 £0.15 3,497 £8.13 1,559 £1.15 3,346 £0.88

Intra Europe - - 8,468 £3.11 - - 42,892 £6.68

Domestics - - 82 £0.01 - - 63,056 £8.57

UK-M East 57 £0.10 2,420 £2.86 370 £0.33 577 £0.40

UK-Africa 13 £0.05 841 £1.58 103 £0.13 711 £0.45

UK-SW Pac 29 £0.09 427 £0.93 37 £0.05 168 £0.18

UK-Lacar2 8 £0.03 318 £0.71 54 £0.05 215 £0.16

UK-Canada 3 £0.01 199 £0.35 50 £0.03 116 £0.04

UK-S. Asia 8 £0.02 212 £0.36 19 £0.02 27 £0.02

UK-Japan 4 £0.02 53 £0.13 2 |£1.6k| 18 £0.02

UK-Far East 5 £0.01 45 £0.08 - - 14 £0.01

Other3 2 |£4.96k| 21 |£7.97k| - - 8 |£668|

Total 175 £0.48 16,583 £18.25 2,194 1.76 11,1148 £17.41

Table 3. Movement of personnel and cost per class divided by global sectors with British

Airways.

2 Lacar covers Latin America / Caribbean

3 Other Covers, Abu Dhabi, United Arab Emirates, Muscat and Oman, Rio De Janeiro, Sao Paulo, Brazil, and

Guarulhos Intl, Bahrain, Doha and Qatar.

20

In table 3 the number of passengers carried by British Airways and the cost of these journeys

is examined against the different travel sectors, arranged in cost order. Geographically the

sectors are self-explanatory apart from ‘Lacar’ which covers Latin America / Caribbean. The

'other' sector concerns a relatively small amount of passenger traffic not already catered for

elsewhere. In terms of the number of passengers carried, domestic and Intra Europe sectors

account for 88% of the total volume of travellers and the USA brings this percentage to

94.5%. Such patterns are explained by the fact that the Domestic and Intra Europe sectors are

where the majority of MOD business takes place within NATO and also, that a significant

amount of travel to the USA is indicative of the close relationships between the UK and the

USA. These three sectors account for 75.7% of the total MOD spend with British Airways on

business air travel [£28.67 million]. The dominance of expenditure for these routes, as

opposed to the other nine sectors, echoes the predominance of passengers using Domestic and

European travel and for the longer, more expensive USA flights. It can be seen that the USA

sector is carrying 6.5% of the total passengers while attracting over 27% of air travel

expenditure. This volume to cost relationship balance warrants further analysis through

studying the correlation of passenger numbers by class of travel.

The Domestic and Intra Europe sectors offer only Economy Class and Business Classes and

there is no Premium Economy in the UK-Far East or Other. The table shows the significant

number of passengers carried in Economy for Domestic, Europe and the USA. It can also be

seen that Intra Europe and UK-USA have the largest number of Business Class passengers

and that this last sector attracts the most Premium Economy fares. There was no entitlement

in policy for Premium Economy yet the table shows that passengers are using this class. It

seems that MOD passengers are attracted to the combination of value for money and the

facilities offered by Premium Economy. The large numbers of passengers travelling in

21

Economy in Domestic and Intra Europe sectors attract a proportionate price. However, the

effect of the higher cost per seat of the premium classes can also be seen. The UK-USA, UK-

M East and UK-Africa sectors show that a relatively small number of passengers are

attracting significant cost, especially in Business Class.

Policy Scenarios and cost implications

It was identified that the MOD entitlement policy was based upon a mixture of entitlement by

rank or grade and length of journey with a demarcation at two and a half hours. Organisations

from the analogous case examples identify differences in entitlement for journeys that exceed

five hours.

In the analysis that follows we will present scenarios to examine the effect of policy change in

entitlements. A split will be used, based upon Domestic and European and long haul air travel

which roughly equates to five hours. The data supplied by British Airways does not identify

MOD passengers by rank or grade, so analysis on this basis is not possible. Therefore

analysis shall concentrate upon different entitlement and pattern of travel options compared

with existing patterns before contrasting their costs.

In earlier analysis it was shown that the balance between spend and passenger numbers were

disproportionate, particularly for the USA sector, and that the current MOD Air Entitlements

policy does not include Premium Economy even though its travellers were using this class.

This section will analyse what would happen if passengers travelled in a variety of different

ways. Three different scenarios are proposed. The first assumes mandation of Economy Class

for less than five hours and Business Class for journeys over five hours. The second assumes

that all journeys over five hours would be Premium Economy on routes where this is

available. For the sectors where this class does not exist, it has been assumed that these

22

journeys will be taken in Business Class based upon an assessment that the Economy Class

seat and facilities are too meagre for journeys lasting over five hours. The third scenario

assumes that all journeys, regardless of their duration, would be undertaken in Economy Class

in line with NATO and DOD policy. The effect of these policy scenarios on British Airways

spend would produce the cost patterns at table 4.

The data for scenario 1 reveals that the greatest differences are between the Domestic,

European and USA sectors which have been ringed. There has been a saving in the Domestic

and Europe market of £1.78 million per annum because flights within these sectors take less

than five hours, therefore Economy Class would be used. Prices have increased in the other

sectors because of the migration to Business Class for journeys over five hours. This has been

particularly marked for the USA where there would be a cost growth of £9.33 million per

annum. The overall difference between costs against flights based upon current entitlements

and switching to the Business Class concession for journeys exceeding five hours would be a

cost growth of £9.68 million per annum. The advantage of adopting this policy would be that

passengers could travel in improved comfort, albeit that there may not be any business

justification. Obviously, the disadvantage is the cost growth.

23

Destination Passenger

Numbers

Current Cost

Scenario 1: CLUB CLASS

FOR ALL JOURNEYS

OVER 5 HOURS,

REMAINDER ECONOMY

Scenario 2: PREMIUM ECONOMY FOR ALL

JOURNEYS OVER 5 HOURS,

REMAINDER ECONOMY

Scenario 3: ECONOMY FOR ALL

JOURNEYS

£ millions £ millions £ millions £ millions

UK-USA 8,448 £10.31 £19.64 £6.25 £2.21

Intra Europe 51,360 £9.78 £8.00 £8.00 £8.00

Domestics 63,138 £8.58 £8.58 £8.58 £8.58

UK-M East 3,424 £3.69 £4.05 £3.01 £2.36

UK-Africa 1,668 £2.20 £3.14 £2.06 £1.05

UK-SW Pac 661 £1.25 £1.44 £0.96 £0.71

UK-Lacar4 595 £0.95 £1.33 £0.52 £0.44

UK-Canada 368 £0.44 £0.65 £0.26 £0.13

UK-S. Asia 266 £0.41 £0.45 £0.22 £0.15

UK-Japan 77 £0.16 £0.18 £0.06 £0.10

UK-Far East 64 £0.11 £0.12 £0.12 £0.07

Other5 31 £0.01 £0.01 |£2,600| |£2,600|

Totals 130,100 £37.89 £47.58 £30.03 £23.81

Table 4. Total costs for three different policy scenarios for current British Airways spend

4 Lacar covers Latin America / Caribbean 5 Other Covers, Abu Dhabi, United Arab Emirates, Muscat and Oman, Rio De Janeiro, Sao Paulo, Brazil, and Guarulhos Intl, Bahrain, Doha and Qatar.

24

For Scenario 2, Premium Economy Over Five Hours, as with the previous analysis, there is

the expected saving for both Domestic and European sectors when travel time of under five

hours would be in Economy Class. There have also been financial savings in all other sectors.

Savings on the USA route are particularly marked at over £4 million per annum. Adopting

Premium Economy for air travel over five hours and using Economy Class for other air travel

would deliver savings of £7.86 million per annum. This would amount to an upgrade for some

travellers who currently do not enjoy an enhanced travel class for flights that exceed five

hours. On the other hand, a disadvantage is that there may not be a business justification for

travelling at Premium Economy rather than Economy Class. Moreover, there is a risk that

individuals might attempt to book at the last minute when Premium Economy seats are

unavailable, thereby hoping to attract an upgrade to Business Class. The downside of their

gamble could be that the entitlement policy includes a reversion to Economy Class if

Premium Economy is full. It may be possible to use the MOD’s leverage of spend with

carriers to influence priorities so they upgrade MOD passengers in this instance based at

minimal cost.

Our final analysis is for Scenario 3, Economy Class for All Journeys. From its pattern, it can

be seen that the Domestic and European sectors have a greater proportion of spend compared

to long haul routes. This is because much of the Domestic European travel is already

undertaken at Economy Class. As expected, there is the repeated saving for the Domestic and

European sectors but there have also been economies in all of the others. For instance, heavy

traffic to the USA could attract substantial savings of £8.10 million per annum and, in total,

adopting Economy Class for all air travel could deliver savings of £14.08 million per annum

on British Airways travel. The advantages of cost savings are significant although they may

be outweighed by some of the disadvantages. This policy would assume that all passengers

25

travel Economy Class even though the business justification might warrant travel in better

conditions offered by the more expensive classes.

The savings presented against these three scenarios are based on British Airways spend alone.

It has been identified in this work that 90% of air travel was billed through the DBA and

related DFAs. According to British Airways 2003 data the MOD booked £37.89 million

worth of air travel with them. Assuming that travel patterns for the remaining DFA spend are

similar to the British Airways model, the potential effects of the proposed policy scenarios to

the balance of the £78.32 million per annum air travel expense identified can be calculated.

It has already been noted that the use of Business Class for flights that exceed five hours

would cost the department an additional £9.68 million per annum for the British Airways

spend. When the remaining DFA expenditure is taken into account, there would be a further

outlay to the department of £12.54 million per annum, which brings the total cost of this

option to £22.22 million per annum. This additional cost clearly does not achieve the aims of

a 10% reduction in air travel spending.

Premium Economy for flights over five Hours would save the MOD £7.86 million per annum

against British Airways expenditure. The remaining DFA spend would offer an additional

saving of £10.19 million per annum which together would bring the total saving to £18.06

million per annum. This exceeds the 20% [£17.4 million per annum] stretch goal for savings

on air travel.

Scenario three, Economy Class for all journeys would save £14.08 million per annum on the

British Airways routes and there would be a further £18.26 million per annum of savings for

26

the non British Airways DFAs, the sum being £32.35 million per annum. Mandating this

policy would achieve the 10% goal set for cost reduction from the annual £294 million budget

for all business travel.

In terms of entitlement complexity, all three options would be simpler than current

arrangements. It is envisaged that removal of complexity would lead to savings in time taken

to book and greater adherence to policy leading to even greater saving.

Conclusions

This analysis of optimum patterns for air travel was based upon a demarcation of journeys

lasting five hours, rather than the division within today’s MOD entitlement policy at the two

and a half hours marker. All journeys below five hours have been assumed to be taken in

Economy Class. Assumptions have been made based on the data drawn from British Airways

that travel patterns from this airline are representative of travel models across all other DFAs.

Adopting an entitlement of Business Class for Long Haul could increase costs by £22.22

million per annum. Economy Class Long Haul might deliver an annual saving of £32.35

million and with Premium Economy, the saving would be a forecast £18.05 million per

annum. All of these patterns would simplify air travel entitlements which may release

additional savings through greater policy adherence and reduced time spent on bookings.

Based on these findings, the MOD has opted to make savings based upon an assumed travel

pattern of Premium Economy for Long Haul and Economy Class for journeys less than five

hours duration. Adopting this policy is predicted to achieve the 20% stretch goal for savings

within MOD business air travel.

27

Future work

Future work will detail the process used for booking and also examine the opportunity for

cost savings to be made in this area. The analysis presented here may also be used by other

departments or company’s looking to make cost savings through changes in travel policy

entitlement.

The effects on motivation and morale of travel policy are a factor which has been excluded

from this study. The influences on individual’s motivation have not been captured. This work

has not been commissioned but the authors believe may add significant weight to policy

decisions.

The phenomenon of self-guilt in travel booking would be a useful area of study. This

phenomenon of self-regulation achieved through visibility of cost could be utilised in many

other processes.

An additional piece of work is proposed to measure the impact of enhanced cost savings

through the possibility of travel avoidance – this questions what needs to be in place for

personnel to avoid travelling in the first place, recognised as the ultimate objective to deliver

travel budget savings.

Acknowledgement

The authors would like to acknowledge the support of the Defence Travel Team

at Brampton and Andover, British Airways PLC and all the interviewees.

28

References

Airline Travel News (2005). ‘Airbus Unveils the 'SuperJumbo'’

(www.breakingtravelnews.com/article/20050118130121681) accessed 14 October 2005.

Atlas Travel International (n.d.). ‘Developing a Travel Policy’,

(http://newsite.atlastravel.com/sample_travel_policy.PDF) accessed 14 October 2005.

BBC News (2004). ‘MOD: 'Forces face cuts pressure'’,

(http://news.bbc.co.uk/1/hi/uk/3706661.stm) accessed 27 March 2005.

BBC News (2005). ‘Premium travel sees BA shares fly’,

(http://news.bbc.co.uk/1/hi/business/4152651.stm) accessed 6 January 2005.

Bennis, W., Benne, K. and Chin, R. (1969). The planning of change, Second Edition. New

York: Holt, Rinehart, and Winston

Defence Change Programme (2005), Version 2.0 - dated 31 Oct, London:MOD

DOD Travel Regulations (2005).

(https://secureapp2.hqda.pentagon.mil/perdiem/trvlregs.html) accessed 10 October 2005.

HM Treasury (2004). Defence Modernization Fund Approvals, London: Treasury

ICI Fact Book (2004). (http://www.ici.com/ICIPLC/ici-

ir/download/Files/ici_factbook_2004_05.pdf) accessed 21 May 2005.

29

JSP 356 (n.d.). Joint Services Publication of Travel Instructions, London:MOD

Khare, R. (1997). Why First Class Isn’t What it Used to be (http://www.xent.com/FoRK-

archive/july97/0372.html) accessed 27 July 2004.

Langon, L., Billet, B. (2004). A Technology Approach to The Burning Platform We Face,

Journal of Corporate Tax Automation, Spring 2004,

(http://www.planitax.com/pdfs/actspringjournal2004.pdf) accessed 27 March 2005.

McCartney, I. (2003). Review of Major Government IT Projects, London: Cabinet Office,

(http://ogc.goc.uk/embedded_object.asp?docid=2634) accessed 12 October 2005.

MOD Annual Report of Defence Activity 2001/02 (n.d.). Foreword by the Secretary of State

for Defence, (http://www.mod.uk/publications/performance2001/foreword.htm) accessed 12

January 2006.

MOD (2004a). Change Delivery Group (CDG) Meeting 5 February 2004, MOD Minutes,

(D/DGMO/455 & 490), London: MOD

MOD (2004b). ‘Focusing resources on the front line’, Government News Network (104525P),

(http://www.gnn.gov.uk/Content/Detail.asp?ReleaseID=133879&NewsAreaID=2) accessed

10 November 2005.

MOD Civilian Travel Manual (2003). UK Travel Edition, Volume 1, London: MOD

30

‘Money, Money, Money’ (2003). Paperclips, March, London: MOD

Papworth, B. (2004a). Class Act, Buying Business Travel, 10, September/October BMI

Publications Ltd, Surrey, UK

Papworth, B. (2004b). Cool Comfort, Buying Business Travel, 11, November/December, BMI

Publications Ltd, Surrey, UK

The Price Waterhouse Change Integration Team (1995). Better Change, Chicago, IL: Irwin

Professional Publishing.

Travel in Business Survey (2003/4).

(http://www.companybarclaycard.co.uk/information_centre/tibs/tibs2004_survey.pdf)

accessed 10 November 10 2004.

Travel in Business Survey (2004/5)

(http://www.companybarclaycard.co.uk/information_centre/tibs/) accessed 10 November

2004.

Roper, M. (2005). ‘Should travel be left to purchasers?’, (www.supplymanagement.co.uk/)

accessed 27 March 2005.

Sarantakos, S., Social Research, 1998 (Macmillan: London).

31

TCMT [Travel Category Management Team] (2004). Business Travel Source Plan,

Procurement Reform Team, London: MOD

Upton, G. (2004). ‘Travel Policy Compliance’, Buying Business Travel, 7, March/April, BMI

Publications Ltd, Surrey, UK

Yin, R. K., Case Study Research: Design and Methods, (3rd Ed edn), 2003 (Sage

Publications: California).

Personal Communications

B Aldington, Director Quantitive Analysis, Procurement & Logistics, 9 December 2004

N Everett, Sales Director for Large Accounts, Carlson Wagonlit Travel, 26 May 2004

I Flint, Independent Travel Consultant, 14 February 2005

J Harrison, Director for the Institute of Travel Management - Universities Purchasing Forum,

19 Jan 2005

A Khan, Cabinet Office, 19 January 2005

D Mason, CIO Corporate Centre & Director IT Strategy, 9 December 2004

A Phillips, Sales Executive British Travel International, interview, 19 August 2004

C Poulter, Deputy Chief Executive OGCbuying.solutions, 19 January 2005

J Tucker-Jones, Head of Business Travel, BT, 26 April 2005

K Watts, Global Contracts Director, British Council, 19 Jan 2005

World Wide Web Sources

http://www.britishcouncil.org/

http://www.britishtravel.com

32

http://www.buyingbusinesstravel.com

http://www.carlsonwagonlit.com

http://www.dod.mil/

http://www.itm.org.uk/

http://www.mod.uk

http://www.ogcbuyingsolutions.gov.uk/

Glossary of Terms

CDG Change Delivery Group

DBA Defence Bills Agency

DFA Defence Fare Agreement

DoD US Department of Defense

DTM Defence Travel Modernisation

DTMA Defence Transport and Movements Agency

FY Financial Year

MOD Ministry of Defence

TCMT Travel Category Management Team

TLB Top Level Budget

TMC Travel Management Company

UIN Unit Identification Number

University of Bath School of Management Working Paper Series

School of Management

Claverton Down Bath

BA2 7AY United Kingdom

Tel: +44 1225 826742 Fax: +44 1225 826473

http://www.bath.ac.uk/management/research/papers.htm

2007

2007.01 Fotios Pasiouras International evidence on the impact of regulations and supervision on banks’ technical efficiency: an application of two-stage data envelopment analysis

2007.02 Richard Fairchild Audit Tenure, Report Qualification, and Fraud

2007.03 Robert Heath & Paul Feldwick

50 Years using the wrong model of TV advertising

2007.04 Stephan C. Henneberg, Daniel Rohrmus & Carla

Ramos

Sense-making and Cognition in Business Networks: Conceptualisation and Propositional Development

2007.05 Fotios Pasiouras, Sailesh Tanna &

Constantin Zopounidis

Regulations, supervision and banks’ cost and profit efficiency around the world: a stochastic frontier

approach

2007.06 Johan Lindeque, Mark Lund & Steven

McGuire

Non-Market Strategies, Corporate Political Activity and Organizational Social Capital: The US Anti-

Dumping and Countervailing Duty Process

2007.07 Robert Heath Emotional Persuasion in Advertising: A Hierarchy-of-Processing Model

2007.08 Joyce Yi-Hui Lee & Niki Panteli

A Framework for understanding Conflicts in Global Virtual Alliances

2007.09 Robert Heath How do we predict advertising attention and engagement?

2007.10 Patchareeporn Pluempavarn & Niki

Panteli

The Creation of Social Identity Through Weblogging

2007.11 Richard Fairchild Managerial Overconfidence, Agency Problems, Financing Decisions and Firm Performance.

2007.12 Fotios Pasiouras, Emmanouil

Sifodaskalakis & Constantin Zopounidis

Estimating and analysing the cost efficiency of Greek cooperative banks: an application of two-stage data

envelopment analysis

2007.13 Fotios Pasiouras and Emmanouil

Sifodaskalakis

Total Factor Productivity Change of Greek Cooperative Banks

2007.14 Paul Goodwin, Robert Fildes, Wing

Yee Lee, Konstantinos

Nikolopoulos & Michael Lawrence

Understanding the use of forecasting systems: an interpretive study in a supply-chain company

2007.15 Helen Walker and Stephen Brammer

Sustainable procurement in the United Kingdom public sector

2007.16 Stephen Brammer and Helen Walker

Sustainable procurement practice in the public sector: An international comparative study

2007.17 Richard Fairchild How do Multi-player Beauty Contest Games affect the Level of Reasoning in Subsequent Two Player

games?

2007.18 Klaus Meyer, Saul Estrin, Sumon

Bhaumik & Mike W. Peng

Institutions, Resources, and Entry Strategies in Emerging Economies