Mounting state and local taxes at airport car rental locations are spurring some travel managers to consider less costly off-airport sites. Yet, such decisions are difficult to implement.
Local and state taxes make up a far bulkier part of the total car rental cost at the 100 most heavily trafficked U.S. airports than at nearby off-airport locations, according to a Travelocity study released late last month. Such add-ons averaged nearly 26 percent of the whole, compared with a 14 percent average for off-airport locations.
"There are more fees associated with airport rentals," said Neil Abrams, president of Abrams Consulting Group. "That's one incentive, perhaps, for travelers to consider renting off of airport grounds where possible. You could take a cab from Logan airport in Boston and even if you paid 10 bucks to get a cab out of the airport and rent at the downtown location or a suburban location, you'd probably save money—even after paying cab fare," Abrams said.
Hewlett-Packard global airline and car travel supplier manager Kevin Iwamoto told his company's travelers to rent vehicles from off-airport locations when arriving in certain cities.
"As a general rule of thumb, we've asked travelers not to just automatically pick up the car at the airport. It's a whole mindset retraining," the National Business Travel Association chairman said. "We point out to them that if they pick up from the airport, they're going to pay full boat for every tax, every facility, everything they want to tack on."
"I have looked at this and have recommended, in key locations like San Francisco, to rent the car from a hotel desk to avoid the additional airport charges," he said. "Just by avoiding the rental at the airport, you automatically save on the $12 transportation utility surcharge, which goes towards the monorail service provided. If you pick up the car at the Hertz rental desk at the Burlingame Hyatt, for example, and take their free shuttle bus, you save a lot of time and money."
According to the Travelocity study, local and state taxes comprise 23.8 percent of the total cost at San Francisco International, while neighborhood car rental locations charge only 8.5 percent.
Quiznos Corp. travel manager Paula Fierstein has found ways to avoid costly airport rental in some circumstances. "On the Quiznos corporate side, I have asked field employees who are required to rent cars to do so at non-airport locations," Fierstein said. "However, if a flight is connected to a trip, it is more convenient for our travelers to rent at airport sites. For group travel, we have asked employees to use hotel shuttles."
While such companies as HP and Quiznos have made such an initiative work—at least on a limited basis—many others contend the strategy could be a burden to travelers.
"I've certainly heard of this (companies moving airport rentals to off-airport locations) and I've seen the encouragement, but in many cases travelers are saying, 'you want me to add an hour to my trip to save $10 in taxes. I'm sorry, I'm missing the point of my whole trip,' " according to Management Alternatives consultant John Ohaver.
As such, while significant car rental savings may be only miles away from the destination, travel managers as well as car companies find it difficult to avoid such fees. "Based on the cost of the cab and the travelers' time, I would not be successful in moving folks to an off-airport location," said Ernst & Young travel manager Linda Issenberg.
Car rental suppliers also have noted concerns about the widening differential between on-airport and off-airport rentals.
Cendant Car Rental Group, parent of the Avis and Budget car rental firms, in a recent memo sent to corporate clients noted this "worrying trend" of growing airport taxes and fees.
Up from 24.4 percent in 2003, state and local taxes at major U.S. airports now are a mere fraction of a percent away from matching the much-maligned 26 percent taxes and fees levied on airline tickets, which—as many travel industry advocates are quick to point out—surpass the "sin taxes" imposed on alcohol and tobacco.
Abrams said taxes on car rentals typically are earmarked to fund local projects. "It depends on what states and municipalities think they can get away with," he said. "There was a trend established about four or five years ago in which municipal projects began to find their way to rental taxes. As I've said many times, it's taxation without representation. You're taxing inbound travelers for projects that they won't be benefiting from: sports stadiums, roadways, convention centers."
The tax burden at the 10 airport locations with the highest state and local taxes ranged from nearly 39 percent to just over 66 percent of the total cost of the car rental. At airports in Houston, Dallas and Phoenix, the cost of taxes and fees actually surpassed the base rate. Austin, Kansas City, San Antonio, Baltimore, Tulsa, Cleveland and Albuquerque rounded out the 10 most tax-heavy airports.
In some cities there remains a wide gap between on-airport and off-airport costs. In Dallas, for example, 61.4 percent of the total cost of renting a car at the airport came from taxes, while taxes at nearby neighborhood locations only made up 17 percent of the total, and they continue to grow.
"These fees have recently gone up in airports like Dallas Fort Worth, San Francisco and Houston International," Cendant's car rental division said in the memo. Cendant contended it has worked with others in the industry "to monitor and track all such proposals and, whenever possible, to block the imposition of added charges."
"We have in fact been successful in some of these efforts, including in Columbus, Ohio, Minneapolis, Minn., and Pittsburgh, Pa., to name a few. Industry efforts to fight these measures can cost from $50,000 to $1,000,000 per state, depending on the specific response required."
Of those locations mentioned by Cendant, the 2004 on-airport burden of taxes and fees in Minneapolis went down to a 30 percent share from being nearly 40 percent of car rental costs in 2003—now mirroring taxes on neighborhood car rental locations. Columbus, on the other hand, levies more in taxes and fees since 2003, falling just around the national average and more than two times as great as its off-airport locations. On-airport taxes in Pittsburgh went down modestly to 29 percent since 2003 but still well above the 18 percent of tax and fee level for off-airport rentals.
While industry lobbying has been effective in certain cases, according to Cendant, HP's Iwamoto suggested travel managers and their companies not represented on a local level vote instead with their business.
"Because there is no local representation, these initiatives get passed. There's no one to raise their hand and say, 'wait a minute,' " he said. "Collectively, if everyone is doing the same thing—which is educating their travelers and getting them to avoid these extraneous charges—then the industry in the end gets the message. In this particular case, it's not industry, it's government. People should be even more active on a local basis, as well as a national basis, to make sure these charges stay off of our travel."
Travelocity conducted its research in December and studied the costs of bookings for a three-day period ending April 10. For each car rental location, Travelocity looked at a blend of full-size and compact cars. Travelocity used a methodology similar to the one BTN used to create the 2005 Corporate Travel Index
(BTN, Feb. 21), which examined costs of car rental, hotels and dining in 100 U.S. cities.