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BBT July/August 2018
July/August 2018
For Business, Corporate Travel & Meeting Buyers & Arrangers

Oil on troubled waters

Travel buyers in the oil and gas industries have had to show their mettle to manage their  programmes through the price slump

Few industries have to cope with such a volatile environment for the price of its core products than the oil and gas sector. During the early years of this decade, the price of oil averaged more than US$100 per barrel, but those days seem to be long gone now.

Over an 18-month period, the price of a barrel of Brent Crude dropped from around US$114 in June 2014 to a low of under US$29 in early 2016. Even though the oil price has stabilised over the last 12 months and has been oscillating between US$45 and US$55 per barrel this year, there’s no doubt the industry has undergone some fundamental changes to the way it operates.

The persistently low price of oil has forced all companies in the sector, from the big-name producers to all the smaller support businesses and suppliers, to search high and low for ways to cut their costs – and a significant focus has fallen on the travel department and its budgets.

Travel in the spotlight
According to one travel buyer in the sector, the biggest change in the wake of the oil price crash was that suddenly everybody started to pay attention to what the travel department was doing. “Ask most oil and gas travel managers and they will say their strategy hasn’t changed – we were all trying to reduce costs, improve service and prioritise the duty-of-care of our travellers before prices crashed and travel budgets came more into focus,” he says. “Lower oil prices just made more people listen and sparked hundreds of travel managers within our companies with ideas of how to save money – some good, some not so good.”

Speak to travel management companies (TMCs) that specialise in the oil and gas sector and they will tell you there has been a fundamental change in the way travel is being managed. This has seen the introduction of more automated processes to remove costly and inefficient manual practices, as well as a tightening of travel policy, particularly around the ability to book premium airline cabins.

ATPI’s UK head of sales Pieter Rieder says the industry “adapted very quickly” when it came to overhauling travel programmes following the plunge in oil prices.

“The whole oil industry and supplier companies had to rebase their costs,” he says. “It’s been about taking away manual processes and automating the supply chain.

“We’ve become much more closely integrated with our clients. Instead of going through intermediaries employed by the oil and gas companies, the rig managers are now giving us their rotations directly and that information is passed on to the people managing the helicopters and vessels going to the rig. The automation makes it easier to deal with the many changes to bookings that you get with rotations.”

The energy companies’ move to clamp down on costs has meant that “non-essential” corporate travel has been slashed back, with many firms only allowing “business critical” travel to their installations and rigs. In addition, extra levels of authorisation for booking travel have been introduced at many companies.

“Cost is much more of a focus, with many companies reducing non-essential corporate travel in order to reduce costs,” says Wayne Durkin, head of sales and account management at Good Travel Management. “Most companies have reviewed and tightened up their travel policy over the last 24 months in order to drive greater value from their travel programme. 

“This has meant reviewing travel classes that fall within policy – with the scale of redundancies that have taken place in the industry, this has been met with little resistance as there’s a huge surplus of labour supply at the moment.”

One of the most common moves has been to tighten the rules on when business class flights can be taken by travellers – with the flight time typically being extended from four hours to six or seven hours for business class travel to be permitted.

Paul East, chief operating officer at Wings Travel Management, says that the number of its oil and gas clients flying in business class has “continued to decrease”, while more stringent rules have also been put in place on the booking of rail tickets.

“Some clients elected to continue to allow their travellers in business class for flights over six hours, but at the most economical fare, prompting some people to choose to fly on indirect flights to reduce the overall cost, while others will continue to travel on direct services but will use the offers that airlines are putting in place,” he adds.

Security and duty-of-care
While the collapse in the oil price has forced sweeping changes to travel policies and procedures across the industry in the past couple of years, one thing that has remained constant for companies is that duty-of-care to their employees continues to be the number one priority.

Paul Jarvie at FCM Travel Solutions says: “Security and duty-of-care have always been priorities in this sector as travellers are often going to non-traditional business travel destinations, such as the west coast of Africa – Luanda and Lagos, for example – which are also high risk. Most companies operating in the energy industry have extensive security and risk management processes in place.”

TMCs are also working constantly with the security and human resources (HR) departments of their oil and gas clients, including helping to rearrange travel for rig workers in an emergency, such as the recent evacuation of installations in the Gulf of Mexico due to Hurricane Harvey.

ATPI’s Rieder agrees. “Duty-of-care is hugely important and that’s not changed. It’s not something that’s nice to have – it’s fundamental to how the industry operates. Something is always happening somewhere in the world and we’re dealing with these things on a weekly basis. It’s a very specialist area because it involves business-critical travel and people have to work in hostile environments,” he says.

One energy sector buyer confirms that duty-of-care is “absolutely the number one” priority for the company, but says that there can be potential “conflicts” with other corporate goals, such as the drive to cut costs on travel.

“There is the risk that travellers will become apparent heroes by flying economy for 12 hours or staying in an unchecked hotel in the wrong part of town,” he says. “Simple, efficient messaging which puts their safety and security at heart, while showing what they can do to reduce cost, usually ticks both boxes for the traveller – and sticks to your policy, too. This is a win-win.”

Future moves
If you could successfully predict the future movements in oil and gas prices, you would be sipping a cocktail on your own private tropical island by now. But having said that, there are signs of some optimism within the sector as prices have picked up over the past 12 months, although nobody foresees a return to US$100 per barrel oil prices anytime soon.

TMCs say there has been a “gradual” increase in travel by oil and gas companies since the start of 2017, as investment returns to the industry, but it may never get back to the levels seen before the price crash. There also seems to be no going back to the previous ways of managing travel – even if there were to be a sudden surge in oil prices.

Carlson Wagonlit Travel (CWT) is predicting that a recovery in the sector will mean higher travel prices in 2018 to some key energy destinations, although there will be significant regional variations – for example, CWT is forecasting an 11.5 per cent rise in hotel rates in Stavanger, Norway, next year due to increased oil exploration, but hotel prices in the US oil capital Houston are set to fall by 2.2 per cent.

Raphael Pasdeloup is senior-vice president for CWT Energy, Resources & Marine (ERM). He says: “Companies in this realm are finally set up to operate with profits despite the continued lower price of oil. We are seeing investments going up, especially within supply chains. With this increased activity, ERM travel prices will rise, which means costs will need to be managed appropriately as budgets catch up.”

Most specialists in the sector are starting to sound a more optimistic note about the future growth in travel by oil and gas companies over the next year and beyond.

Michael Healy, general manager of CTM Scotland, says: “For the first time in four years, we may even see a return to positive cash-flow for the exploration and production companies, assuming they can keep a tight rein on costs, and prices hold. The policy changes will remain in place until there is significant improvement seen within the industry. With other outstanding factors such as Brexit still up in the air, even if energy prices rose, a cautious approach would still be pursued within the industry.”

Given the difficulties faced by the energy sector, it’s not surprising that caution is the watchword for now. But if there is one silver lining to this most monstrous of clouds, it is that travel buyers have been able to show the importance of what they do for their companies – even if it means telling employees that they can’t travel in business class for now.

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