Connecting Flights: The Time Sink That Kills Profits

Business travel can be a hassle—and connecting flights create the greatest hassle of all. Connections result in more than just headaches, though: Our research shows that longer travel times can significantly hurt the bottom line. We studied some 1,200 companies over a 13-year period, focusing on Japanese businesses and their U.S. subsidiaries. The mean travel time between headquarters and subsidiaries, including ground transport, was 16 hours—as we’ll discuss, a tipping point of sorts. We found that the longer it takes to travel between the two, the less likely the subsidiary is to be profitable. If all else is equal, a unit that’s an hour farther from headquarters than another unit has a 7% lower chance of making a profit. Note that the important factor is time, not distance. For example, after controlling for local economic and industry differences, we found that a subsidiary in Lexington, Kentucky, was about 25% less likely to be profitable in a given year than a subsidiary in Houston, even though the two cities are essentially equidistant from Tokyo. The reason: Flying to Lexington takes more than two hours longer than flying to Houston, because the former trip requires a connection. Factor in ground travel, and the time is well above the mean. Why is extra travel time such a profit killer? Interviews with dozens of executives, along with the findings of other researchers, suggest several contributing factors. Added time in transit, and the resulting fatigue, hamper executives’ ability to share knowledge and learn from the local operation. They can lead to poorer oversight of people, projects, and operations; result in slower strategy execution; and reduce opportunities to develop relationships, teamwork, and trust. Over the course of 13 years, we saw 23% more turnover among general managers of units that were farther than 16 hours from headquarters. Indeed, increased travel time from headquarters is linked to lower employee satisfaction and retention at the staff level as well. And traveling impairs executives’ performance in general: Managers reported productivity losses of about 90% while in transit and 50% while at the remote location. Longer travel times can only exacerbate this effect. Successful multinationals recognize the downsides of having hard-to-reach subsidiaries and tend to expand geographically in ways that minimize executives’ transit time—choosing cities that can be reached by direct flights and finding sites close to the airport. Companies with less experience abroad often choose far-flung locations, unaware of the costs of interacting at a distance. Many of them change their minds, however: Subsidiaries farther than 16 hours from headquarters are more likely than other subsidiaries to be relocated. One additional hour of travel above the mean increased the likelihood of relocation by 11% during the course of our study. Managers often fret over the impact of rising jet-fuel prices on travel budgets, but airfares pale beside the damage that extended travel time can cause. Smart companies will keep this in mind when choosing locations for their subsidiaries. Although mobile technology has increased managers’ ability to be productive on the road, time wasted in airports—and the host of cascading consequences—can take a big financial toll. A subsidiary that’s an hour farther from headquarters than another division has a 7% lower chance of making a profit.

Connecting Flights: The Time Sink That Kills Profits

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