Would You Fly Economy on a Business Trip If You Got to Keep 50% of the Difference in Airfare?

Most companies have a travel policy that outlines which employees and under what circumstances said employees are allowed to fly business class. Typically, there is some duration threshold (e.g. over 8 hours) that employees are allowed to fly business class on domestic and/or international trips.

Business class fares can range from 2 to 15x more than economy and account for a significant discretionary expenditure for firms. I recently did a search, 3-weeks out, for nonstop flights between Chicago (ORD) and Beijing (PEK), which returned $500 for the cheapest one-week round trip ticket. The same flight in business class was $6,000. That is 12x more expensive!

So why are firms willing to spend so much money on flights? There are two main justifications. First, if the company requires the employee to travel a great distance for work, the least the company can do is ensure the trip is comfortable. Second, because business class is far more comfortable than economy class, the risk that an employee arrives and is not able to work at peak performance due to fatigue or jet-lag is largely mitigated. The rationale is that the economic loss in productivity would be far greater than the incremental cost of business class.

For several years now, I have been thinking about a new approach to the company travel policy that would be mutually beneficial to the company and employee. It’s rather simple. Companies can maintain the traditional approach, allowing business class for trips over a certain duration threshold. However, there is a slight twist. Employees can elect not to fly business class and instead receive some percentage (e.g. 50%) of the savings that the company will realize. As per my example above (ORD <> PEK), the employee would receive half the $5,500 difference in fare, or $2,750. The firm retains the other $2,750. It’s a win-win solution.

This idea does not come without downsides:

  1. This policy would partially compromise the point of business class in the first place as it would increase the likelihood of employees showing up at their destination fatigued and/or jet-lagged.
  2. This approach would create incentives for employees to fabricate reasons (perhaps unnecessarily) why they need to travel in order to earn more money.
  3. It could create a negative stigma against those who choose to fly business class.
  4. Employees are sometimes expected to work on long flights, which is far easier to do in business class.
  5. Finally, while not a risk per se, the rise of premium economy presents an interesting substitute to business class. Additional comfort at a price point that is closer to economy than business might increasingly become an attractive alternative for firms.

Any change in policy needs to be carefully thought through. A small pilot program is a great way to study the impact of the change. While the risks identified above are serious, I do believe they can be appropriately mitigated through creative policy and incentive structure design.

What are your thoughts? I would love you hear from you. Do you think this is a good idea or a bad one? What are other downsides?