No-Show Rental Car Fees Loom

While U.S. corporate car rental rates remain fairly stable, buyers are facing a tougher negotiating environment than they've seen in several years and soon may have to examine policies to brace for a new type of cost: the no-show fee.

Car rental companies—outside of Europe, at least—are among the few travel suppliers that do not charge a penalty for canceling bookings within a certain timeframe. However, at least one major supplier, Avis Budget Group, already has begun testing such fees on a small scale. In a recent industry forecast update, BCD Travel consulting division Advito said that will likely change soon, with penalty charges for no-show travelers an "increasingly likely scenario."

"It's been standard across the rest of the industry, with hotels and airlines with nonrefundable tickets, so it's just a matter of time," Advito vice president Bob Brindley said.

Avis Budget Group last year reported that it had begun working with global distribution systems to allow them to procure credit card information upon booking. Senior vice president of commercial sales Bob Lambert said the company already is testing the fees, labeled as non-cancellation fees, in "small city markets for Web-only, non-corporate-type business."

Further expansion would be done slowly, he said."You won't see us just flip a switch and say, 'Here's the non-cancellation fee,' " Lambert said. "The soonest you would see us in that situation would be the fourth quarter of 2010."

So far, no other major car rental company has publicly made motions toward such fees. "We still don't intend to introduce anything like that in the foreseeable future," said Brad Carr, vice president of business rental development for Enterprise Rent-A-Car, which also owns the National and Alamo brands.

Brindley said other companies either will see the fees as a positive source of revenue and follow suit, or they will determine a benefit from being an outlier in not charging the fees, as Southwest Airlines has done with checked-bag fees, he said.

Car rental consultant Neil Abrams of Abrams Consulting Group said Avis Budget's gradual rollout was a good strategy to gauge a competitive response. "The question is, if they get some pushback or resistance, will they hold their resolve?" he said. "I hope that they do."

Though a potential budget headache for corporate travel programs, car rental no-show fees are not without merit, said Dave Kilduff, senior director of ground transportation consulting for CWT Solutions Group. Car rental suppliers incur a GDS fee for a booking even if the traveler never shows up. Those can add up to a significant cost, he said.

As the fees become more common, companies should be able to avoid incurring them with simple communication, he said. "It could bring some control in just asking people not to book a car rental," Kilduff said. "We don't know what the rules are going to be yet."

The fees are the latest sign that the car rental industry is becoming increasingly focused on cost controls and yield management strategies. Companies have significantly trimmed fleets and cut costs, making the industry stronger than it's been in years, Abrams said.

As such, they are less likely to make concessions to corporate customers than they were in the past, he said. In BTN's preliminary benchmarking for its 2010 Corporate Travel 100 report, for the first time in several years, fewer than half of buyers said car rental companies were more receptive to favorable pricing agreements than six months prior.

Enterprise's Carr said rates remain "very competitive," as business travel remains down even as the industry gets healthier. Avis Budget, in its fourth-quarter 2009 earnings report, said it achieved a 9 percent composite pricing gain, split by a 4 percent gain on the commercial side and 14 percent on the leisure side. Hertz CEO Mark Frissora recently said he expected to see 2010 corporate rates trend "flat to positive."

Buyers could find other challenges with their car rental programs, such as tougher availability or even more rental-day minimums, in which travelers must pay for at least two days of rental even if they need the car for a single day, Brindley said. While such terms have always appeared in select markets, they have been popping up a bit more recently, he said.

While one-day rentals are generally unprofitable for car rental suppliers, there has been no dramatic increase in rental-day minimums, and they largely are not as applicable to the corporate side of the business. "You see more of it on the leisure side," Avis Budget's Lambert said. "It's something that could come more down the road, perhaps."

Leisure-side pricing gains and restrictions also can affect the corporate travel bottom line, Kilduff said, particularly companies with travelers who frequently book outside of preferred vendors or those that do not have a car rental program at all.

The biggest challenge to the car rental budget, however, remains the proliferation of taxes and surcharges states and municipalities assess. Abrams said a U.S. House of Representatives bill to squelch future surcharges, reintroduced late last year by Rep. Frederick Boucher (D-Va.), is gaining traction.

"It would stop this rampant trend that seems out of control," according to Abrams. "Every day you read of a new municipality studying and imposing these fees and surcharges, and it's very problematic for the industry."