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Enterprise Rent-A-Car this decade has steadily increased its modest share of the U.S. airport car rental business, but a proposed acquisition of Vanguard Car Rental could propel the company into the thick of the corporate travel market. By obtaining Vanguard's National and Alamo brands, Enterprise would complement its off-airport, insurance replacement and fleet services businesses and compete more directly for business travelers and corporate accounts. However, the degree to which this type of industry consolidation would impact car rental pricing and competition is unclear.
St. Louis-based Enterprise already is the top player in the overall vehicle rental market--claiming a total fleet of nearly 900,000 vehicles--but its share of on-airport revenue in the United States is only in the high single digits. By comparison, Avis/Budget and Hertz each command roughly 30 percent of a market that a recent Hertz presentation estimated at $10 billion. The combination with Tulsa, Okla.-based Vanguard--with its roughly 20 percent share including both the National and Alamo brands--"leapfrogs" Enterprise into the on-airport segment, and therefore provides more opportunity "to serve large corporate customers," said Neil Abrams of Abrams Consulting.
"For the corporate market, this strengthens the National brand," Abrams continued. "Enterprise is very strong financially, with an ability to invest. It is arguably the largest and most successful car rental company in the world."
Enterprise claimed $9 billion in revenue during its fiscal year ended July 31, up from $8.3 billion a year earlier, covering all lines of business, including commercial leasing and fleet management services for business customers (in which it claimed "the largest share of the mid-sized market--business fleets of 15 to 125 vehicles"). Without disclosing specifics, it reported "solid profitability." It also added 17 on-airport locations during the fiscal year, bringing its total to more than 220, 11 years after opening it first-ever airport facility, at Denver International Airport.
According to an Enterprise company statement, the proposed transaction "will enhance our ability to compete vigorously in every segment of the industry and for all kinds of customers." Currently, National targets business travelers and corporate business while Alamo is positioned as a leisure brand that also serves groups, small businesses and other customers.
Mike Koetting, executive vice president of global supplier management at Carlson Wagonlit Travel, offered a hotel analogy: "The large global hotel chains have multiple brands they can position to a corporation based on what a corporation wants to spend. This may be similar to the strategy by the owners of car rental firms--to be able to offer different brand choices to a corporation as opposed to always having to discount their premier brands."
With the Avis and Budget brands together under the Avis Budget Group umbrella, and Dollar and Thrifty similarly joined as part of Dollar Thrifty Automotive Group, Hertz is the only significant car rental competitor with no sibling brands in the market--though it is the single brand with the largest share of the U.S. airport car rental business.
Source: Hertz Corp.
Meanwhile, Enterprise also said that by more efficiently using combined fleets, it would be better positioned to offer lower prices. Abrams said operational integration and joint procurement could help the combined entity lower costs and therefore lower prices, but also pointed to Enterprise's financial strength. "To get more market share, it can take a hit on the margins," he said. "On the other hand, they do not have to be as aggressive from a pricing standpoint because they are such a strong company." He added that Avis and Hertz "will not allow them to buy market share."
Car rental pricing last year rose nearly 5 percent, according to American Express, owing to higher fleet costs. Average daily rate in 2006 was $69, compared with $61 in 2000, Amex said.
The addition of Enterprise would not change Alamo/National's position as the third largest player at U.S. airports--behind Avis/Budget and Hertz--and the impact, if any, on corporate car rental competition remains to be seen. "That kind of strategy has not been worked out," said an Enterprise spokesperson when asked about the company's corporate sales intentions. "We are at the very beginning of the transition process."
According to Enterprise, the transaction between the two privately held companies is expected to close in the second half of this year, after clearing any regulatory scrutiny. Terms were not disclosed.
The proposal follows a February report by the New York Timessuggesting Dollar Thrifty Automotive Group was pursuing a merger with Vanguard. It also came after a November announcement that Vanguard agreed to sell European operations to Europcar owner Eurazeoand to create a "strategic alliance" between Europcar and its North American operations.
Because of the Enterprise deal, Vanguard on Tuesday told the U.S. Securities & Exchange Commission that it had discontinued all activities related to a proposed initial public offering, which it had initially registered for last summer.
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