Travel per diems stuck in the past as prices skyrocket

3 min read

South African business travellers are starting to feel the pinch as rising inflation eats into corporate travel budgets. The financial squeeze can really be felt in the shrinking value of daily allowances, or per diems, which cover things like meals, lodging, and getting around while on business trips, shares Bonnie Smith, the GM FCM South Africa.

With the South African rand trailing by 6% against the US dollar over the past year and domestic inflation clocking in at 7.8%, overseas jaunts and local travel are packing a pricier punch. Smith adds, “The standard per diem, once a solid cover for meals, comfortable lodging, and transport, is finding itself at odds with the escalating global prices.”

Airfare and hotel prices soar, widening the per diem gap

Adding fuel to the fire, the FCM Global Trend Report 2023 Q2 unveils more of the budgetary burdens being shouldered by South African business travellers. Among the sore spots are the surging airfare prices with North American business class prices ramping up 13% and economy class 16%. Europe is just a little behind, with business class up 15% and economy flights 17%. And it’s a steep climb in the Middle East and Australia, where business-class seats have seen prices rocket by a third since 2019.

The report highlights a notable mismatch between the average daily rate in accommodation in key business travel destinations and the per diem rates by which many companies operate. For instance, the average daily room rate stands at R2 484 ($129) in London, R2 253 ($117) in Dubai, and R2 214 ($115) in New York. Closer to home, the outlook is equally glum, with Lagos hitting an average daily rate of R2 850 ($148) and Cape Town R2 330 ($121) for a hotel room.

In contrast, the current standard GSA (the US General Services Administration) per diem lodging rate is R1 849 ($96) per day (excluding taxes). For meals and incidental expenses (M&IE), the rates wobble between R1 059 ($55) to R1 464 ($76) per day, depending on the destination. The standard rate for incidental expenses, covering tips and fees, is pegged at R96 ($5) per day.

Some corporations are trimming down on travel expenditures to balance the books. However, this route runs the risk of dampening traveller morale and productivity. Outdated per diem rates might usher employees towards fast-food chains rather than healthier restaurant choices and less comfortable accommodations, leading to a weary and less productive workforce.

Striking a balance between costs and comforts

Your business growth lies with the people, so ensuring their travel allowances are sufficient is imperative. Smith suggests, “In light of the glaring discrepancies between the standard per diem rates and the actual daily rates in various cities, companies need to revisit and potentially revise their travel policies.”

Secondly, adopting flexible booking strategies might do the trick, says Smith. “By planning ahead and choosing less busy travel days, companies could save on airfares and accommodation costs,” she says.

Additionally, leveraging loyalty programmes offered by airlines and hotels could lead to savings and extra perks like free Wi-Fi and breakfast, which would otherwise dip into the per diem allowances.

Moreover, partnering with an experienced corporate Travel Management Company (TMC) opens access to pre-negotiated deals and preferential rates, especially on hotels, which can make room for more generous and employee-friendly per diem allowances without overstretching budgets. A TMC will also be able to help with valuable advice on how to best leverage your frequent flyer programmes.

Smith concludes, “It’s a balancing act for South African business travel in the current economic climate. However, with prudence and a focus on staff welfare, business trips can remain productive without overstretching corporate budgets.”