Amex Forecast For Car Rental Cost Comes In High

<B>Amex Forecast For Car Rental Cost Comes In High</B>

By Lynn Woods

It's enough to make you fall off your chair: In its just-released Preview Forecast of travel costs for 2001, American Express estimates the average daily cost of a rental car, as of the second quarter of this year, is a whopping $59, up 4 percent from 1999. In 2001, Amex is predicting another 5 percent increase to reach a grand total of $62--$14.35 more than the average cost of $47.75 in 1996.

Other analysts contest those figures, claiming they are on the high side. One explanation for the pricey average, according to Rolfe Shellenberger, senior analyst at Runzheimer International, is that "American Express has a disproportionate market in New York, which is the most expensive place in the U.S. to rent a car." Amex bases its figure by tallying up data from its corporate cards.

Nonetheless, Shellenberger conceded that contracted rates--as opposed to the total cost of the car, which is what the American Express figure refers to--definitely have taken a jump. In 1997, most negotiated rates were less than $40. "Now they're all over $40," he said.

Indeed, Runzheimer's Business Travel Cost Forecast for 2001, issued last May, predicted a 10 percent increase in rental costs for 2001. The precipitous jump mainly is based on the fact that "Car rental is still a bargain, with lower average unit (car per day) prices than air travel (trip fares) and lodging (room nights)," according to the report.

In the latest round of negotiated contracts, "people are paying 6 to 10 percent higher," said Kevin Iwamoto, global air and car travel supplier manager at Hewlett-Packard. When H-P was hit with proposals from its car supplier for a 10 percent increase in the rate year over year, "I hit the ceiling." His solution was to conduct a Web-based auction, which resulted in a decrease in its rental rate (BTN, Aug. 28).

But other estimates of the increase in rental rates for 2001 are far more ho-hum. Meg Saegebarth, a vice president at Goldman Sachs specializing in car rental, projected a 2 percent increase. A softening of demand that occurred last summer and helped to prevent from sticking a 4 percent across-the-board increase in retail rates initiated by Hertz Corp. is one factor in keeping low projected rate increases for next year, she said: "The Hertz price increase stuck for three weeks, then collapsed."

Similarly, Jon LeSage, vice president and director of research at Abrams Travel Data Services, said car rental firms are pushing for 5 percent increases in contracted rates, but "I don't think they'll get it." He added, "Maybe we'll be back to the 2 to 3 percent increase of the past several years," the anomaly being this year, when rates thus far have increased 4 percent to 5 percent.

But that doesn't mean travel managers can afford to be complacent. While rates may be fairly flat, car rental costs keep going up, thanks to the skyrocketing price of fuel and the growing list of extra charges--ranging from municipal taxes to airport concession fees to vehicle licensing fees. Indeed, Amex spokeswoman Melissa Abernathy said while the actual rate only grew by 1 percent from 1Q99 to 1Q00, "the average total cost rose 3.5 percent." Rising fuel prices were the biggest culprit, followed by the increase in surcharges.

Iwamoto said the extra charges had prompted him to begin recommending to his travelers alternative ground transportation at the airport. "Sooner or later, the airport surcharges will force everybody to do an alternative," he said. Most outrageous, he added, are new charges at airports that have opened remote consolidated car rental facilities, which are proving to be not only more expensive for travelers, but more of a hassle. He recently confronted one supplier, noting that "your transaction cost has gone down now that you use a shared bus system, but you're passing the cost to me."

Hanna Murphy, director of corporate travel and fleet agreements at Siemens Shared Services LLC, also is concerned about the surcharges. While rates have stayed relatively flat, she said, the increase in extras is "an amazing situation, in some cases amounting to 12 percent of the car rental rate. It's an extreme burden." Employees at Siemens are instructed to evaluate the amount of driving they do and find alternatives.

While Siemens' car rental suppliers break out the extras from the rate on the invoice, enabling Murphy to track the surcharges, one problem is that "it's difficult to project, since you don't know when a charge will go up." Another challenge for companies is inconsistency in some costs. For example, in California, the vehicle licensing fee varies depending on the size and model of the car. At San Francisco International, for instance, Dollar Rent A Car charges anywhere from 73 cents to $1.61 per day. And a recent check of car rental rates on Expedia revealed that all the companies, except one, were charging a $6.10 "transportation fee." At National Car Rental, however, the fee was only $5.

The newest surcharge companies are getting hit with is a frequent flyer tax recovery fee. Ever since the federal government implemented a 7.5 percent excise tax on the purchase of frequent flyer miles in 1998, the Hertz Corp. has been passing on the tax to customers, according to spokeswoman Lauren Garvey. Generally, the charge amounts to about five-and-a-half cents per 50 miles, and it is levied only on miles for domestic programs. But now Hertz has company.

In June, Avis also began passing on the tax, which averages about six cents per rental day. And last spring, Dollar began charging a 50-cent "frequent flyer tax recovery surcharge" for miles issued. Alamo also passes on the tax. National plans to begin passing it on in "late October." Average cost per rental per day will be seven cents. Budget did not respond by press time.