The Hertz Corp. on Wednesday will begin charging a $2.50 reservation fee for "all reserved U.S. rentals booked domestically"-sans those in eight states, which do not allow such surcharges.
The company last week sent a memo to corporate clients, notifying them of the fee and clarifying that Hawaii, Indiana, Illinois, Iowa, Nevada, New York, North Carolina and South Carolina do not permit such fees, hence reservations in those are exempt from the add-on cost.
In its notice to corporate travel managers, Hertz said it is adding the fee "due to the proliferation of increasingly complex reservation systems and distribution channels over the past decade. Managing stand-alone and integrated systems and distribution channels has resulted in significant increases in staffing and IT-related expenses."
Neil Abrams, president of Purchase, N.Y.-based Abrams Consulting Group said that while adding on fees for reservations is a new tactic for car rental companies, passing along "costs of doing business" is not unprecedented. "Going back 10 years ago, as pricing became more unbundled, it wasn't unusual and has since been the case where what many consider the cost of doing business is passed on to the customer," he said.
Abrams likened the additional fees to similar fees levied by airlines. "The airline industry has done this as well and I think Hertz is taking advantage of a certain mood or trend in the industry to see how the marketplace will respond," he said.
So far, other car rental companies have not announced similar fees and it is unclear whether Hertz's competitors will match.
Business Travel Coalition chairman Kevin Mitchell concurred with Abrams, saying that Hertz's strategy follows similar tactics seen in the airline industry, particularly Northwest's decision last August to levy a $7.50 "shared GDS fee" for roundtrip airfares
(BTN, August 24, 2004).
"Hertz is taking a page out of the airlines' book and they're signaling," he said. "They can wait a couple days to see if they're matched and if not they don't go forward." Mitchell continued, "What came out of the Northwest Airlines issue is the same here: If you have a problem with the cost of distribution, solve that problem with your distribution partner."
Mitchell today encouraged feedback of the news on his Web site-the BTC Travelblog-and several travel managers, consultants and other industry figures have responded, largely condemning Hertz's move. "Based on the dozen or so e-mails I woke up to this morning from pretty large companies, they were pretty upset," Mitchell said.
Steve Ritter, corporate travel manager at Corning Inc., told BTN he was surprised Hertz did not discuss the move with corporate clients before enacting the fee. "On the one hand we have these financial aspects of our relationships, which I think deserve attention and we talk openly in a cooperative way," he said. "The process of how we go about addressing these financial issues is another. An open and cooperative approach is preferred. But sometimes suppliers take a different approach."
Ritter added: "Some suppliers don't view demand as being elastic and they think they can make changes to the price point without adding any long-term, adverse impact on demand. I wonder if Hertz is under the impression that the demand for their product is inelastic, that it will not move."
If so, Hertz may be mistaken, according to several travel buyers, including Ritter. "There aren't that many differentiators in the rental car industry; price is one of them," he said.