Car Rental Rates, Surcharges To Increase In '97

<H1> Car Rental Rates, Surcharges To Increase In '97</H1>By Lynn Woods

After years of empty threats to raise rates, car rental executives can finally point to some progress.

"In the last year and a half, the car rental companies have achieved a significant breakthrough in achieving a compensatory rate," said Rolfe Shellenberger, senior consultant at Runzheimer International, the Rochester, Wis.-based travel management consulting firm.

It's a trend that's expected to continue in 1997. Analysts estimated that corporate travelers paid, on average, anywhere from 4 to 10 percent more on the daily rate in 1996 than they did in 1995. American Express, in the midyear update of its "1996 Trends and Forecasts for the Business Travel Industry," pegged the amount at 12 percent, taking into account increases in the price of gas, local taxes and airport fees. Prior to 1995-which saw an increase of 10.8 percent, according to the Corporate Travel Index, an annual survey conducted by BTN-rates had been flat for years.

Janet Burke, vice president of sales and reservations at Dollar Rent A Car, said her company's corporate rates increased between 3 and 5 percent in 1996.

As corporate contracts are renegotiated for next year, "we will attempt to go for a 10 percent lift," said James Collins, executive vice president at Avis Inc. Collins said he would be happy if his firm got the same increase it did in 1996-between 5 and 8 percent. Other car rental executives came in with lower estimates-on average, between 3 and 5 percent.

According to forecasts by Runzheimer International, Collins won't be disappointed. Runzheimer predicted an increase in corporate car rental rates of 8.5 percent in 1997-higher than its estimated increases for airfares (4 percent) and hotels (7.5 percent).

But reports from consultants about what's actually happening at the negotiating table are mixed. Gerard Smith, senior partner at The T&E Group, a travel management consultancy in Newport Beach, Calif., said many corporations are paying an extra dollar or more a day on car rentals. "Clients have been rudely surprised at the amount of the increase," he noted.

But Tom Wilkinson, president of Travel Management Group, an Alexandria, Va., consultancy, said the car rental firms' initial attempts to introduce increases at the beginning of the year have weakened. "In the last several months, they've been less aggressive," he said. "Companies going out to bid face favorable rates now."

The overall picture that emerges is of an industry that has finally reformed and gotten its runaway costs under control. Tighter fleets and more efficient yield management of supply through the use of sophisticated automation systems have enabled car rental companies to price their product more intelligently, according to William Plamondon, president of Budget Rent A Car. Shellenberger noted that vendors are keeping fleet levels at a six-day demand.

But, as always, vendors noted that their fleet costs continue to outpace prices, putting pressure on them to raise rates. "We're still trying to catch up to the fleet cost increases of two and three years ago," said Bob Thunnel, national sales vice president at Thrifty Car Rental. Those increases amounted to a staggering 100 percent between model year 1993 and 1995; they declined in model year 1996 to a more modest 3 to 7 percent.

Although vendors intend to charge higher rental rates, that's not where the price hikes end.

"The real increases will come in the form of charges for no-shows, mileage and other extras that corporate clients have come to expect," said Judie Shyman, president of the National Business Travel Association.

That's a mixed blessing for corporate travel managers. On the one hand, it means vendors can identify a corporation's extra costs and can help it work to eliminate them. "The big-volume accounts get lower rates, but volume accounts that work to take costs out will get the lowest rates," Plamondon said.

On the other hand, it means more byzantine rate structures as surcharges-on everything from location to duration of rental-proliferate. Some corporate travel managers resent the confusion this causes when it comes to tallying up what they're paying.

"The most annoying thing is you can't figure out the rate," said Cyndi Perper, director of corporate travel services at Colgate-Palmolive, New York. "I'd like to know just what it costs." In an effort to simplify costs, Colgate-Palmolive negotiated net rates into its car rental contract last year.

Analysts said multilevel pricing is the only way the car rental companies have been able to get significant increases. "The car rental companies will take a price increase any way they can get it," said Harold Seligman, CEO of Management Alternatives, a Stamford, Conn., travel management consulting firm. "The initial approach is they try to raise rates, then they create add-on opportunities. I don't see anything that will change that strategy."

One of the wild cards that could influence corporate prices next year is the ongoing consolidation in the industry-specifically, the acquisition of Avis by HFS Inc., the nation's largest hotel franchiser, and the purchase of Budget by Ford Motor Co. Analysts said the HFS deal in particular could stabilize or even reduce prices in some markets because of future synergies between the car rental company and HFS' hotel and real estate companies. HFS also is rumored to be considering another purchase, this time of Alamo.

But analysts agreed that the overriding factor that has always kept rates relatively low, and that will continue to dampen efforts to implement big increases, is the competitive nature of the business.

"You can shift share a lot easier in car rental than you can on air," Shellenberger said. Recently, he recalled, after a car rental firm introduced a host of add-ons on one contract, the corporation shifted its business to a competitor. "The outfit that tried to add on the costs lost a lot of money," he said.