Car Cos. Rethink Mileage Ties

Although the number of car rental and airline frequent flyer partnerships has increased dramatically in the past year, car rental industry executives are bemoaning the high cost of the programs and the concurrent loss of any competitive advantage in offering miles-a situation that is compelling some firms to seek new ways of getting more bang for the mileage buck.

Hertz, for example, just reduced the mileage earned per rental in its partnership with Delta Air Lines' SkyMiles program on government and corporate rates from 500 miles to 250 miles, effective April 1. To compensate, however, it is expanding the locations at which renters can earn SkyMiles from North and South America to anywhere in the world.

Avis is thinking about making a similar move, according to vice president of worldwide marketing Bob Cardillo. Avis already has taken steps to limit the number of renters who can earn miles: Last year, the firm tightened its restrictions on mileage accruals by requiring an airline ticket for each rental in all participating frequent flyer programs ("a conjunctive flight," in industry parlance), following a policy that Hertz has long adopted.

Other companies vary the requirement, depending on the program. Alamo renters, for example, must have a conjunctive ticket to earn miles on certain airlines.

"Frequent flyer miles as they relate to car rentals have changed dramatically over the last five years," Cardillo said. At first, only one or two car rental companies belonged to the programs, but the number has increased significantly in the past year, he said. "In 1996, for the major frequent flyer programs, an average of 3 1/2 car rental companies participated," Cardillo said. "Right now it's almost five."

Whereas in the past, Avis and other companies generated incremental business through offering miles, that benefit has disappeared, replaced by concerns about the cost. Participation in frequent flyer programs costs the car rental industry about $100 million a year, Cardillo said.

Brian Kennedy, Hertz's executive vice president of marketing and sales, said that because all the major vendors offer mileage tie-ins, the perk no longer gives one vendor an advantage. "Over the years, airline companies have invited nearly all car rental companies to participate in these programs, thus greatly diminishing, if not eliminating altogether, any incremental share gain," he said. "Because the majority of active participants in these programs are corporate customers who already receive reduced car rental rates, the cost incurred by car rental companies does not support the incremental revenue derived." As a result, he said, "a restructuring of mileage allocation to corporate and leisure customers must be evaluated."

Simply dropping out of the programs is an alternative that rental companies have found to be impractical, because renters have come to value those miles. In 1995, for example, Dollar Rent A Car dropped out of all its participating frequent flyer programs except America West's. But now the company has not only renewed its partnerships with TWA, Continental and United, but added others, the most recent of which was Delta on March 1. And Thrifty Car Rental recently extended its mileage benefits to its off-airport parking program: AAdvantage members receive 250 miles for every third time they park in a Thrifty lot.

One option that at least three car rental companies-Budget, National and Thrifty-are discussing with their corporate customers is the elimination of frequent flyer miles in exchange for a rate reduction. "We end up paying $420 to $500 for an estimated award of 25,000 miles," said Terry Hardy, vice president of strategic operations at National. At that amount, a company might as well forego the miles and use the savings on the car rental rate to purchase a discounted airline ticket, requiring a 30-day advance purchase and a Saturday-night-stay, and giving it to the employee, Hardy said.

When push comes to shove, executives said, corporate travel managers have so far decided not to investigate giving up the miles. However, Mark Sotir, vice president of worldwide marketing at Budget, suggested that in several recent negotiations, the corporate client did not have a choice. "There are people we don't offer miles to," he said.

And in Canada, a few companies have recently negotiated deals with Thrifty that exclude frequent flyer miles. In each case, the decision is tied to switching to net rates-a growing trend, said Tim Oldfield, sales and marketing director at Thrifty Canada Ltd. "Nine out of 10 corporate requests do not include frequent flyer miles," he said.

The combined savings from foregoing miles and travel agency commissions can be as much as $3 off the corporate rate, Oldfield said. "Eliminating mileage on its own doesn't have a huge impact on price, but with net rates it can be significant," he said.

Besides the cost, concern that the government might decide miles are a taxable benefit, along with the difficulty of tracking the mileage accrual of their employees, has been an incentive for these Canadian companies to eliminate the miles, Oldfield said.

Some of Avis' Canadian accounts also forego frequent flyer miles. But this has less to do with cost savings than Avis' agreement with Air Canada, which stipulates that miles are to be excluded from some corporate rates.

Furthermore, both the car rental companies and travel managers worry about compliance. "Employees might still use the preferred vendor, but they'd forego the corporate rate in order to get miles," said Harold Seligman, CEO of Stamford, Conn.-based travel management consulting firm Management Alternatives. Seligman said he also doubts that the rental vendors would pass the entire savings to the end user.

Despite these concerns, a few corporate travel managers said they would definitely be interested in foregoing their miles, provided the discount would be at least $1 a day. "Anything that would reduce the daily rate is something we'd see as a big win," noted Steve Davis, superintendent of travel at Dayton-Hudson Corp., a Minneapolis firm that spends $14 million annually in airline tickets.

George Odom, manager of travel services at Eli Lilly and Co. in Indianapolis, said he'd also be "more than willing to consider anything that takes out the cost" from the corporate rate, depending on the discount.

Because mileage accruals on car rentals are insignificant compared with those earned from the airlines and charge cards, travelers might not resent their elimination. Foregoing miles "could give car rental vendors an advantage with large corporations who have mature travel programs, in which travelers are used to being directed to one car rental company," said Tom Wilkinson, president of the Travel Management Group in Washington, D.C.

But some corporate travel managers said they would never consider negotiating out frequent flyer miles, regardless of the cost benefit. Dorothy Arden, travel consultant at Aetna Life & Casualty, attributes her company's high levels of compliance in part to frequent flyer miles, which travelers can keep. In looking for "takeaways" at the negotiating table, Arden would consider net rates or some other element that's not as visible to the traveler as miles are.