ANC Consolidates Rental Counters At Airports
Legally bankrupt ANC Rental Corp., which owns National Car Rental and Alamo Rent A Car, has begun consolidating its two brands into a single location at a handful of airports, a practice that could yield more than $100 million in savings by year-end if it is not derailed by a lawsuit brought by competitors.
Both brands have been operating at one counter at Cincinnati/Northern Kentucky International Airport since the end of January, followed by Detroit, Hartford, Conn., Jacksonville, Fla., Huntsville, Ala., and Springfield-Branson, Mo., in late March.
The bankruptcy court also approved dual branding at Pittsburgh International, and scheduled a hearing on Las Vegas, Memphis, Houston Hobby and Nashville airports the last week of March. On March 15, bankruptcy court Judge Mary F. Walrath stated in her ruling regarding ANC's plans at Detroit, Hartford, Springfield, Jacksonville and Huntsville airports that she found "nothing in the contracts or in the statutes to prohibit dual branding," which was consistent with her findings at Cincinnati. She determined it is the bankruptcy court's interpretation of the concession agreement that permits dual branding. The court also ruled that the consent of the airport authorities was not required for ANC's dual branding. The decision allows ANC to follow through on its plan to drop its Alamo agreements and assign the National contracts to ANC.
The airport dual branding is a central plank in ANC's attempts to staunch the flow of red ink and return to profitability. The Fort Lauderdale, Fla.-based company filed for Chapter 11 protection last November. Under turnaround specialist Lawrence Ramaekers, ANC has been engaged in an aggressive restructuring, including the scrapping of Global Odyssey, the soup-to-nuts automated system implemented by National four years ago. By year-end, company executives plan to consolidate the National and Alamo brands at 74 airports, resulting in an annual savings of $125 million to $150 million. ANC also plans to add a brand at 20 additional airports at which there is currently only one brand.
At Cincinnati, where the Fast Forward dual-branding concept was launched after meeting bankruptcy court approval, "our business service for both brands has improved," said Mike Going, ANC senior vice president of worldwide sales. He said staffing was more efficient, thanks to more consistent levels of demand: Peak days for business-oriented National are Monday through Wednesday, which dovetails nicely with leisure-oriented Alamo's Thursday-through-Saturday peak days. The airport shuttle bus, which now serves both National and Alamo customers, is operating on increased frequencies. ANC executives estimated the savings of the move at Cincinnati is $900,000.
While ANC's airport dual branding finally may enable it to achieve the kind of systems and fleet integration between National and Alamo that it long has been seeking, vehement opposition from Hertz Corp. and Avis Rent A Car System is raising questions about the firm's ability to carry out its plan. The two competitors have appealed the bankruptcy court's decision and filed lawsuits in federal district court in Kentucky (where the Kenton County Airport Board oversees the Cincinnati Airport), Detroit and Hartford.
The Kentucky federal district court's injunction sided with Hertz and Avis, preventing the Kenton County Airport Board from executing any future concession agreement with ANC. However, the injunction also preserves the status quo—in effect allowing ANC to continue operating its dual-branded operation at Cincinnati.
The parties are in the process of submitting briefs and a decision by the federal district court judge is not expected for at least six weeks.
Hertz and Avis executives said they were limiting their objections to existing contracts that in their view were being broken by ANC. On the other hand, Hertz spokesman Richard Broome noted that the airport authorities at Norfolk, Va., and Baltimore/Washington International airports have prohibited dual-branded bids, suggesting that Hertz was lobbying for a broader restriction on ANC's co-branding.
Bob Muhs, vice president of government affairs at Avis, said his company's basis for complaint was the violation of state competitive bidding laws by airport authorities. "The bankruptcy court was the creation of Congress to assist debtors. It has biased metrics." He added that Avis was limiting its fight to existing concession agreements at Philadelphia International Airport, for example. Avis is not contesting ANC's proposed dual branding because the car rental companies don't have such agreements.
"The fundamental question is, what do concession agreements mean? We rely on our contracts to operate our business," Broome said. "If you're dealing with competition that makes a change midstream, it creates serious issues."
Indeed, "Hertz and Avis and the rest of the industry have no choice but to look at creating a barrier to this happening," said Neil Abrams, president of Abrams Consulting Group in Purchase, N.Y. "They've agreed to concession contracts based on a certain scenario. Allowing two brands at one counter changes the dynamic." From ANC's perspective, the dual branding makes perfect sense and basically "is a good thing," he added.
Howard Schwartz, ANC Rental senior vice president and general counsel, doesn't believe the federal district courts ultimately will rule in Hertz's and Avis' favor because "they'd be in contempt of bankruptcy court. All they can do in Cincinnati is recover damages from the airport." ANC also is protesting the bid restrictions at BWI. Schwartz said BWI's position was particularly unfair given that "of the nine spaces available at the airport, on the ninth they're allowing two small local companies to co-brand." At Norfolk, the company has dropped its plans to dual brand, since the facility is small, although it filed a motion against the airport authority in Charleston, S.C., which doesn't want it to co-brand.
Under the dual branding agreement, ANC is paying the same minimal annual guarantees as before—the percentage of revenue the car rental companies pay to the airport authorities each year—since it is occupying the same space, although in some cases it is paying slightly higher guarantees because of added volume.
Provided that ANC will win out on the legal issue, which, despite the difficulties, seems plausible, it faces another, possibly more serious challenge: whether and how its two brands will maintain their competitive edge against each other. "In the end, the question is whether the customer will take to two brands at one location," said a former industry executive. "I don't see how the customer will go for the higher price car" offered by National when a lower price on what is essentially the same car is available at the same counter, the observer said.
Going said the company was taking pains to "differentiate the product between brands." Emerald Aisle, National's express rental service, will continue to have a dedicated line at the counter and offer a choice of cars, with free upgrades to a full-size car at a midsize rate. In contrast, Alamo's Quicksilver product will be de-emphasized. ANC is eliminating Quicksilver's self-service kiosks at dual-brand locations and Quicksilver members will have to stand in line with everyone else, although an expedited rental agreement will await them at the counter. On the plus side, Alamo now will offer customers a choice of cars within a given category. There won't be any free upgrades associated with this, however.
ANC is taking other steps to cut costs. It is shutting down 179 of its 531 Alamo Neighborhood locations, which serve the local insurance market. And, in a move that initially had some observers scratching their heads, it is dropping Global Odyssey—the advanced automation system at National that, after initial glitches, purportedly gave the firm a technological cutting edge. Instead, it is adapting Alamo's legacy system companywide. Going said scrapping Odyssey and merging both brands on one IT platform would save the company between $65 million and $75 million. Indeed, "Odyssey was a huge investment and it was on the books as a significant liability, with very significant depreciation each year and other costs," said Abrams.
Meanwhile, the industry suffered another tremor when Budget Group Inc. was delisted from the New York Stock Exchange in mid-March, after it failed to meet the exchange's criteria. Trading for mere pennies, the stock lost 40 percent of its value the day it was delisted, according to Abrams, raising the specter of a possible second bankruptcy filing in the car rental industry.