Hertz Corp. last week ended paying base commissions to travel agents on U.S. and Canadian corporate and government accounts with negotiated rate rentals only, citing continued weak travel demand and pressure to reduce costs. There are indications that other major car rental companies may follow.
The company noted that travel agency override and bonus commissions will not be affected, nor will leisure and non-negotiated business rentals. Hertz will see a high seven-figure savings within a total estimated industrywide savings of about $60 million, according to Hertz's estimate—should every commission dollar that would be paid within this segment be withheld.
Mike Going, senior vice president of worldwide sales for ANC Rental Corp., parent company of National Car Rental, said National is analyzing the commission changes. Avis Rent A Car also said it is studying the potential impact of the move and officials expect to reach a decision shortly. "Corporate pricing has remained essentially flat in the past decade," said Avis spokesperson Ted Deutsche. "This is a necessary and positive decision for the business health of car rental companies."
Kevin Iwamoto, global airline and car supplier manager for Palo Alto, Calif.-based Hewlett-Packard and president of the National Business Travel Association, said, " I am a little surprised by the suddenness of how it happened. I would hope Hertz will give their clients a chance to renegotiate and match the commission they just created in the car rental industry."
Iwamoto said the impact on travel buyers with whom he has spoken who are on a net-net basis is marginal. "Those who are not on net-net arrangements will have to renegotiate their fees. My guess is that this is mostly smaller and medium companies," he said. "I think that the other major car rental companies will follow suit."
Agencies are not pleased with Hertz's latest move. Terry McCabe, president of Oakland, N.J.-based Stratton Travel Management, said, "A lot of travel agency executives are going to be annoyed by this because we walked Hertz into corporate deals over other suppliers."
McCabe said that although the majority of the accounts at Stratton have deals where car commissions are passed back to the client, the elimination of base commissons by Hertz still will mean a loss of revenue.
Bill Maloney, executive vice president and COO of Alexandria, Va.-based American Society of Travel Agents, said, "The timing on this is not good. Corporations and agencies are already facing financial pressure from low travel volumes and the elimination of airlines' base commissions."
Since his agency passes through car rental commissions to almost all of its accounts, Bob Briggs, executive vice president of business development and marketing for North America at Minneapolis-based mega agency Carlson Wagonlit Travel, said the Hertz move to zero commissions means very little for CWT's balance sheet.
Yet, corporate travel budgets will take a hit. "This is really a rate increase for corporate travel buyers," said Briggs, who was president of National Car Rental Systems Inc. prior to moving to CWT. Briggs said that most car rental commissions average around 5 percent, so that's what buyers should expect this to cost them.
"Corporate travel programs generally spend 10 times as much on air as they do on ground transportation," said Andy Menkes, CEO and chairman of Princeton, N.J.-based Partnership Travel Consulting. "If an account has $5 million in air spending, they may be spending half a million on car rentals."
Faced with the loss of the standard 5 percent base commissions Hertz and other rental companies used to pay their accounts, a hypothetical account with $5 million in air spend could lose $25,000 in commissions.
"From a general standpoint, this is certainly precedent setting," said Neil Abrams, president of Abrams Consulting Group in Purchase, N.Y. "The industry has steadfastly stood by the travel agent community, while the airlines have been chopping away at their industry. They've reduced fleet and labor, but the rental industry has been under more profit pressure than its sister industries. Softening began over a year ago."