Developing separate lower-frills, lower-cost versions of
existing product lines is a concept that has a mixed history in the corporate
travel industry: Every attempt by U.S. airlines to do so failed, but the
strategy is the backbone of all the largest hotel companies in the United
States. Now, Carey International will test the concept in the chauffeured
transportation industry.
The vehicle for Carey's new strategy, so to speak, is
Embarque, a lower-priced subsidiary that offers chauffeur-driven Ford Fusion
and Toyota Camry cars at price points 30 percent lower than those of its
parent. Carey quietly rolled out Embarque in Chicago and Newark in 2009, and
this year expanded the offering to 10 more cities, including New York, Los
Angeles and London.
Embarque features a single base rate that includes all fuel
and other surcharges, with tolls applied as accrued and a driver gratuity
suggested. The use of hybrid Camrys and Fusions also makes for a greener
chauffeured option than a traditional black car, according to Gary Kessler,
president and CEO of Washington, D.C.-based Carey.
Embarque uses Carey's centralized reservation, dispatch,
billing and reporting system, so the result is a product that offers lower
frills but maintains Carey's infrastructural foundation, Kessler said.
"This is the difference between staying in a
Ritz-Carlton or JW Marriott and staying in a Courtyard or a Residence Inn,"
Kessler said. "It's the same company, Carey International, that stands for
the same aspects of standards-based service, safety, security and consistency,
but with two very different experiences."
Embarque's development predated the 2008 economic downturn
that badly hurt chauffeured transportation providers of all sizes, but the
subsidiary could appeal to corporations that restricted or eliminated the use
of black cars in its wake.
"In some of the current bids we're putting together, we
put Embarque in, because we see it as an alternative and want to make sure that
the client is aware there's a lower-cost alternative," said Dave Kilduff,
senior director of ground transportation consulting for Carlson Wagonlit Travel's
CWT Solutions Group.
Embarque was born after Carey in 2007 completed a two-year
effort to centralize its reservation, dispatch, billing and reporting systems,
Kessler said, but downturn-fueled changes to corporate travel policies enhanced
its importance.
"Once we had the platform and a firm understanding of
where Carey stood in the marketplace, we said there's a real opportunity here
to take that same infrastructure and have another offering that appeals to a
different class of traveler, or the same travelers who might be traveling for
different reasons. We had the infrastructure in place, and it was a matter of
laying a new standards-based brand on top of it," Kessler said. "Fast-forward
to the fourth quarter of 2008. We saw travel policies dramatically changing,
and the number of people who qualified to travel with Carey diminish."
Embarque, he said, could address those corporations.
Still, Carey's move is not without risk. Just as some hotel
companies have found downtrading corporate travel buyers restricting travelers
to midprice-tier properties at the expense of their luxury and even upper upscale
brethren, Carey too runs the chance that existing customers will choose the
lower-priced subsidiary over its higher-priced parent, denying the company
revenue.
"It's diluting the high-end product," said Edward
Martinez, chief operating officer of chauffeured transportation company
EmpireCLS, a Carey competitor. Martinez and EmpireCLS president and CEO David
Seelinger compared Embarque to Song, Delta Air Lines' failed 2003 attempt to
introduce a low-cost airline-within-an-airline.
"A horse is a horse," Seelinger said. "You
can call it other things, but it's still a horse. Embarque is still Carey,"
adding that EmpireCLS had no plans to introduce a similar product line. "We
have different types of green options, but we don't have Camrys because they
don't have the trunk space," he said.
Kessler said the current state of the market made
cannibalization less likely.
"When you look at cannibalization, you have to look at
it as a picture in time. Cannibalization is defined by where we were when we
launched Embarque: 2009, beginning of 2010. Most travel policies had already
changed at that point. Clients that were still using Carey and still found
value in the Carey experience despite the downturn are not going to leave to
drive in a Toyota Camry or Ford Fusion," Kessler said. "There are
some travelers that could not participate, but in these vehicles and at this
price point, they get to enjoy the value proposition in a different setting.
The risk of cannibalization, given where we are in the economy today, is fairly
low. Had we launched Embarque in 2006 or 2007, my answer might have been
different."
CWT's Kilduff said many restricted travelers that use taxis
as a primary option could switch to Embarque instead. "I see it taking
some of the black car business and some of the taxi business. Not everybody
will want to get into that type of a vehicle. Its smaller, a different ride,
and not for everyone, but it's a very good alternative for a lot of people,"
he said. "I could see a company having a few black car suppliers along
with Embarque."
Though EmpireCLS made it clear it would not follow in Carey's
footsteps, Scott Solombrino, president and CEO of Dav El Chauffeured
Transportation Network, said he would closely watch his competitor's progress.
"We're taking a look-and-see approach," Solombrino
said. "We want to see what the metrics look like. We could find ourselves
in that similar market space very soon, but we're a little bit more
conservative and want to make sure that it's working for them. We have great
respect for them for making an attempt to do it, and if it works, you can
probably guarantee that at some point we'll be in the same space."
Whether Embarque eventually proves closer to Courtyard or
Song, Carey's new subsidiary bears watching as perhaps a new frontier for an
evolving chauffeured transportation industry.
"I give Gary Kessler credit," Solombrino said. "He's
trying to do something a little out of the box. If it works, maybe the industry
will follow along."
This report originally
appeared in the Sept. 6, 2010, issue of Business Travel News.