Car Service Cos. Struggling W/ Costs Of Staying In Biz

Despite steady increases in volume and signs of economic recovery, chauffeured car companies still are feeling the pinch of rising insurance and fuel costs, leading at least one major player to raise its rates.

The country's three biggest chauffeured car companies—Dav El, Carey International and BostonCoach—are reporting a steady climb in sales, but those sales are not making up for rapidly increasing costs. Dav El president Scott Solombrino blamed the escalating expenses for the need to implement the company's first significant rate increase in three years. "We don't have a choice," he said. "It'll be worse if we don't, and there will be some degradation of our business as a result of that. But we've been operating at a point where we needed rate increases, and we never took them."

Solombrino said Dav El is seeking to implement a 6 percent to 10 percent rate increase by the end of the second quarter. While the hike may elicit a negative response from corporations, "We will prove to clients that we can justify rate increases by delivering a high level of service," Solombrino said. "We're going to have to sell more business and be more aggressive in the marketplace, and we'll have to provide more services and be better than the competitors."

Solombrino, who was just unanimously reelected for a third term as president of the National Limousine Association, pointed to the rental car industry, where a number of companies were put out of business because operating costs skyrocketed while rates stayed level. "We could end up like that if we don't learn from these failed models," he said. "There's a lesson there. We need to hold the line on what costs should be."

While a rate increase is not in the immediate plans of BostonCoach, senior vice president Todd Stephens said it's not out of the question. "We continue to monitor the factors that would cause a change. It's unbelievable when you look at the costs of fuel," he said. "If something changes drastically in the cost structure, then we would have to consider a change." BostonCoach, however, did shut down its company-owned Minneapolis location. One of the company's 350 affiliates now will operate in that city. Stephens said the office did not have a significant volume of business, and noted that the closing is not a sign of things to come. "No other locations are being closed," he said, "and we're considering opening up in some secondary markets."

Meanwhile, Carey International president Vince Wolfington said there are no plans for rate increases, despite rising costs. "We don't see 2004 as a year where we can pass these costs on," he said, "and it keeps the emphasis on running a tight ship." Despite signs of a slow and steady economic recovery, Wolfington said the coming months will see higher costs, especially in fuel. "The cost of gas is way too high, and we're surprised that the federal government hasn't gotten involved," he said. "The outlook on fuel cost is not great, and that continues to be a problem for us."

All three executives expressed optimism about building momentum in the industry as a whole. Fourth-quarter sales were up for each company, with increased volume that is showing slow incremental growth. "I'd say that with the volume turning up, we believe the business will remain strong," Stevens said. "We're not seeing a huge spike or anything dramatic, but we're seeing a solid, consistent trend that business travel is coming back. I'll take strong, consistent incremental growth over rocketing growth any day."

Solombrino reported strong sales in November and December of 2003 and a sustaining of that momentum in the first quarter of the new year. Carey has seen double-digit percentages of volume increases since January.

Volume increases are encouraging, but Wolfington said Carey was less affected by the down year of 2003 because of its reputation for safety. "We think it played to our strengths," he said. "Now there's some catch-up of pent-up demand and a recovery of confidence with regard to travel safety issues."



Technical Advances

Solombrino said Dav El just signed a three-year agreement with car manufacturer GM, which will supply the company with 80 percent of its 15,600 vehicles worldwide. Each new vehicle will feature XM satellite radio, as well as Onstar emergency and concierge services for all Cadillacs. In addition, Solombrino said Dav El has responded to client demands for such sport utility vehicles as the Cadillac Escalade and will fill out 15 percent of the company's fleet with the trucks, up from just 1 percent of the fleet five years ago.

"The SUV is another vehicle category, and it's here to stay," Solombrino said. "Our client base feels safer in them, it is extremely stylish and our clients are demanding them."

Solombrino said Dav El also has ramped up its Internet technology systems for booking on the Web, with instantaneous responses, rates, bills and comprehensive account monitoring, a popular request of corporate travel buyers. Customized corporate account monitoring can be made using up to 30 ways of sorting and reporting. Clients also can make reservations through wireless devices.

According to Solombrino, Dav El is concentrating efforts to better train its all-employee staff of drivers, increasing training programs from seven to eight days, including enhanced defensive-driving classes. "The reason we're putting so much into training is that we're trying to maintain the lowest possible liability from an accident perspective. We're trying to have the lowest insurance loss ratio that we can have," he said.

Carey International also has revamped its IT services after hiring IBM to conduct an assessment and consultation on the company's communications efficiency. As a result, Wolfington said his company has implemented better communications systems between the company and the customer, the dispatchers and the drivers and "the guy in the back seat and his office." He said this is enhanced by Carey's customized cars, which feature four power ports and Wi-Fi access in some cars in select markets.

Each Carey vehicle also has an in-car PDA for client use. While not a service enhancement, Wolfington said the company has maintained its greeter program, in which drivers go into airports to meet clients and escort them out of the security area to an awaiting car. "We've maintained our commitment to the level of service in a down market that we did in an up market," he said, "and we've just made sure that we've been true to that."

Wolfington said the Carey fleet will expand 10 percent to 12 percent in the coming year, adding to its 8,000 vehicles worldwide. He noted that driver turnover is low, with more than 750 Carey drivers having more than 15 years on the job.

In other news at Carey, there has been a transition in upper management. Wolfington on March 1 stepped down as Carey CEO to focus more of his efforts on being the newly appointed chairman of the World Travel and Tourism Council. Devin Murphy, who was COO, replaced Wolfington, who will continue his role as Carey president.

"What prompted the change is that we have a young, able management team who's deserving of running their own thing. Being 64, it was a natural progression, and I'm stepping aside to let them do their thing," he said. Wolfington has been at Carey for 32 years; Murphy has been with the company for seven years.

Meanwhile, BostonCoach recently rolled out a new booking script for use with the Amadeus global distribution system, similar to the one that already is online with the Sabre, Worldspan and Apollo GDSs. Stephens said the new script enables any company to book roundtrip transportation in a matter of seconds, as opposed to minutes. Additionally, BostonCoach has optimized its real-world response times, making it more efficient in responding to last-minute clients and, in effect, creating capacity without additional cars and drivers.

BostonCoach is testing other technological initiatives, such as the availability of in-car Wi-Fi connectivity and using global positioning system chips located in much of the fleet, but has no plans for a large-scale rollout of new technology.

"We want to endorse the quality of the service before we bring it to our customers. We want to build synergies and take advantage of them and help the customer," Stephens said. He also pointed to the importance of the corporate travel buyer to BostonCoach's core business. "They dictate what our business plans are, to tell the truth," he said. "We will continue to offer innovative programs to deliver service that is most convenient for corporate buyers and increase their buying power with us through consolidation of service and using one primary supplier."

Solombrino concluded that despite economic indicators pointing in the right direction, there is still the reality that mergers and acquisitions can happen in the industry. "There has to be a consolidation of the high-end chauffeured limousine service because there are just too many players and not enough clients," he said. "It's just a matter of time and who's going to be dancing with who."