High Buyer Demand Makes 1996 A Profitable Year.

By Lynn Woods / August 04, 1996

High Buyer Demand Makes 1996 A Profitable Year

Lynn Woods

For both big companies and small, 1995 was a banner year for the sedan and limousine industry-and some firms say 1996 will be even better.

1995 "was probably the best year we had so far, and 1996 will eclipse it," said Don R. Dailey, president of Carey International System, headquartered in Washington, D.C. Dailey said his firm experienced a 20 percent increase in revenues in 1995-a figure that has doubled to 40 percent in the first six months of 1996.

Other companies also reported significant increases in revenues. Scott Solombrino, president of Dav-El Chauffered Transportation Network in Chelsea, Mass., said overall gross sales almost doubled and were up almost 85 percent this year. Revenue increases at BostonCoach, another network based in Everett, Mass., were up about 30 percent, according to president Perry Solomon. And Music Express, headquartered in Los Angeles, reported 20 percent growth in revenues in 1995.

Business was also up at New York-based Manhattan International Network Ltd. One of the largest regional firms, American Limousine in Chicago, had the highest growth in eight years: Business was up 13 percent in 1995 and is expected to increase by 20 percent this year, said president George Jacobs. At Teddy's Transportation, a small, 25-fleet family-owned firm in Norwalk, Conn., 1995 revenues were up 14 percent from the year before.

Clearly, the good times were mirrored across the industry. According to Mark Becker, managing editor of Limousine & Chauffeur Magazine in Redondo Beach, Calif., 72 percent of 150 limousine operators surveyed by his publication reported an increase in revenues in 1995, while only 7 percent reported a loss and the remainder reported no change. Of those operators reporting an increase, the average increase was 33 percent. The number of operators has doubled in the past eight years to 8,900 in 1995, according to the publication.

An upswing in the economy and a corresponding increase in business travel, more spending in the corporate sector and even the proliferation of cut-rate airlines were all cited as reasons why business was so good. But the growth also reflected an underlying change in the industry itself.

"The market is starting to mature," Solombrino said. Companies are allotting more money to limo services in their budgets as "people around the world realize the cost effectiveness of chauffeured transportation versus car rental," he said. "They're willing to spend money for both senior executives and middle management."

Corporate downsizing is another factor in the industry's growth. There's more pressure on many business travelers to convert their commuting time into productive time, fueling the demand for chauffeured sedans, according to Solomon.

An increase in incentive travel and meetings also has fanned the demand for limousine service. "In 1995, corporations had record profits, and they are spending more on their sales and marketing people. We're seeing a repeat of the 1980s," Solombrino said.

"In one day, we'll pick up 300 people in 300 different cities and take them to the airport for a trip to Florida," Dailey said. "There's a loosening of the purse strings."

Maureen Hawkins, director of sales at Music Express, said her company, too, had benefited from the growth in meetings travel. "We'll transport a board of directors to the Ritz-Carlton from the airport, and once they're at the property, they'll take several types of outings," she reported.

Ed Martinez, vice president of Manhattan International, said that more group travel had caused the stretch limousine to make a comeback. "Up until two years ago, we only ran six-passenger limousines. Now we have five eight-passenger limousines because of the demand in the corporate travel sector."

While some executives noted that corporations were still price conscious and that many top executives were continuing to book sedans rather than limos, Solombrino said his firm had seen no softening of demand for limousines. "People are spending more lavishly than they have in years," he said.

Overall, however, industry experts said the trend toward diversification of fleet was continuing. "Most companies are getting smarter," said Becker. "They're not just carrying wedding people, but going after more types of business. Sedan, van and bus transport are big."

According to Wayne Smith, executive director of the National Limousine Association in Washington, D.C., 90 percent of the business at the large networks such as BostonCoach and Dav-El is corporate, compared with a 60-40 mix at smaller companies.

Sedans remain the most popular vehicle, although Becker said the demand for them is beginning to taper off. Some operators are turning the back of the vehicles into portable workstations, with hookups for laptops and fax machines, he said.

Cellular phones have become standard equipment in the biggest fleets. In the New York market, Carey has just begun testing a dictating service using the car phone.

Minivans continue to occupy a small but growing niche in many fleets. Some firms also own as many as 26 minicoaches. Music Express maintains one for corporate travelers, and Hawkins said sometimes the demand requires her company to borrow others from its sister limo firms.

Last year saw the birth of a new network: Norwood, N.J.-based Empire International, which currently has 110 affiliates. But two reservation referral services haven't gotten off the ground: AirComm, a Chicago-based service that went online in 1993 with 98 cities, has disappeared. And Groundspan International, an online booking and billing system on which a New Jersey limo company had hoped to build a network, encountered some roadblocks. The system, renamed Genisys Reservation Systems, is still in the testing phase with the major computer reservations systems.

All of the established networks were experimenting with alternative booking systems, be it a Website on the Internet or software installed in the client's computer to provide a direct link to the limo company's database. But the consensus is that people prefer to pick up the phone. "This business is still about relationships," Martinez said. "If people have a problem, they like to know they can call someone they know. "

Far more important to the limo companies' success is upgrading automated systems in the back office, executives said.

The one area with which limo firms were dissatisfied was rates. "The industry needs to push up prices because of the rising cost of gasoline, insurance and cars," Solomon said. "The industry needs a 1-1/2 percent increase just to cover the higher cost of gas. A total price increase of 6 to 7 percent next year would be ideal."

According to Limousine & Chauffeur Magazine, in the past eight years the average hourly rate for sedans increased by $7, from $31 in 1987 to $38 in 1995. The average hourly rate for stretch limousines jumped a bit more, from $35 in 1985 to $57 in 1995. Several companies have instituted their first rate increases in more than five years.

As competition in the industry heats up and the bigger networks continue to grow and consolidate their services, while smaller firms proliferate, the question of participation in frequent flyer programs comes up. The limo industry is the sole holdout in the travel industry when it comes to participating in these programs. But so far, no one is willing to take the fateful step into that "quagmire," as Dailey calls it. "It's another cost item," he said. "I hope our industry won't start doing it."

Here's a company-by-company look at some of the major developments in 1995:

Carey International, which has 420 locations worldwide, continued its aggressive policy of acquiring affiliates and franchisees. In 1995, it purchased seven U.S. affiliates and three franchisees, bringing the total number of acquisitions in the past eight years to 28 companies.

This aggressive policy, said Dailey, has enabled Carey to benefit from economies of scale through the elimination of garages and consolidation of operations in some cities, and to expand its fleet base.

To smooth the transition for companies coming into Carey ownership, the company maintains a training department and uses an outside quality-assurance company to monitor its standard of service.

Carey also acquired its first company overseas-Camelot, an affiliate based in London, which has a network throughout the United Kingdom. It also planned to purchase a second U.K. company, Europcar Chauffeur Drive U.K., but that deal fell through. The acquisition of Camelot has allowed Carey to set up a centralized reservations center in the United Kingdom. Carey also has established a marketing arm in Europe, with sales reps appointed for France, Germany and Scandinavia.

Overall, revenues in Europe lagged behind those in the United States because of the lingering recession. That situation is beginning to change in 1996, Dailey said.

The company has set up a Website on the Internet with booking capabilities, which has received a number of "hits," particularly from Asia, said Dailey. Carey has long participated on all the computer reservations systems except System One.

Carey instituted a rate increase last year, although Dailey described it as "nominal." He said that more increases are needed, but implementing them is difficult because "everybody is price sensitive these days. Travel managers and arrangers are more judicious in purchasing now. They purchase a car based on the number of people in it. They reserve a sedan for two people and a limo for six. In the old days they would hire a couple of limos for six people; now they hire a van."

Sedans represent over 50 percent of Carey's fleet, limos about 25 percent and vans and minibuses make up the remaining 25 percent. The number of sedans and vans continues to grow, said Dailey.

Dav-El, which currently has locations in 346 cities, "had the best year ever," according to Solombrino. In particular, he said there was an increase in the big-car market. Part of this he attributed to companies' concerns about security for their top executives, along with insurance. But he also said it reflected more lavish spending by companies as the economy boomed.

Dav-El has a greater proportion of limousines than some of its competitors. The fleet is almost evenly split between limos and sedans, with a small percentage consisting of vans, according to Solombrino. He said the fleet had increased 40 percent between 1995 and 1996.

In January, Dav-El centralized its administrative functions and back-office systems at its location in Boston. This move is expected to save the company between $1.3 and $1.4 million a year in labor costs, Solombrino said. Dav-El has invested millions in the development of the new computerized system over the past three years.

Dav-El also unveiled an online reservations system, which it has been testing with a handful of corporate clients for the past six months. The system is expected to be available in the first quarter of 1997. The company also maintains a Website on the Internet.

Last year, Dav-El introduced an across-the-board $4 increase on its hourly rates for sedans, limos and vans, its first in six years. "Costs are going up," said Solombrino. "All our contracts took the increase, but we also gave people added value with our new computer system."

To expedite the rate of its expansion, BostonCoach launched the BostonCoach Connection in the beginning of the year, a referral network representing 11 affiliates, including Atlanta, London, Los Angeles and San Francisco.

Solomon said the company is committed to its original plan of owning as many locations as possible, particularly in big cities. The problem, he said, was that "it takes so much effort. Expansion will be at the rate of one city a year. BostonCoach Connection lets us expand more rapidly." BostonCoach owns its locations in Boston, Philadelphia, Washington, D.C., New York and Newark, N.J.

The company, which uses a central 800 reservations number and participates in Sabre and Apollo, plans to open a site on the Internet later this year.

Ninety-five percent of its fleet is composed of sedans, with the remainder split between vans and limousines.

Solomon said that rate increases were easier to implement in point-to-point pricing than in an hourly rate structure. "Hourly prices have stayed flat," he said. "In order to grow, companies must offer point-to-point pricing."

Manhattan International's corporate-owned New York location (the company has a network of 389 affiliates) benefited from the boom in the Big Apple's hotel industry. "Business and pleasure travel into Manhattan is up," said Martinez. Manhattan International recently increased the number of full-time "greeters," who help coordinate the pick-up and drop-off of customers in New York, from one to three.

Europe also did well, particularly London, where Martinez said his company was marketing its services to two sets of travelers-business travelers from the United States and Europeans planning a tour of the States. "Most of these travelers come to New York and other major cities, where we have a string of affiliates," he said.

In April, Manhattan International signed an agreement with Aer Lingus to provide limousine service to its first- and business-class passengers. Also spurring growth was increased business to the United States by Asian clients.

Martinez said his company is upgrading its new computer system, which when fully up and running next fall or winter will contain a database of customer profiles and create a seamless interface between the reservations, accounting and dispatch operations. Manhattan also is in the midst of developing a Website on the Internet, although Martinez anticipated this would be more useful as a marketing tool than a booking service.

The firm's fleet increased by about 10 percent this year. Like Dav-El and Carey, Manhattan International has introduced a rate increase, its first in five years. Martinez estimates the amount to be about 7 percent. Along with escalating gas and insurance costs, the company has been hit by a 12 percent increase in the cost of vehicles, he said.

Music Express, which owns locations in Los Angeles and New York and belongs to a network of 362 affiliates, experienced "tremendous growth in L.A.," Hawkins said. She attributed that increase to two factors: rising demand for the company's fleet of sedans from corporations that previously booked limos, and the company's expansion out of its niche in the entertainment industry to more corporate business, including law firms and investment banking companies. "Music Express has been more active in the corporate arena starting in 1995," she said. The company also is pursuing business with associations.

In addition to sedans, the company's minivans also have grown in popularity, particularly with meeting groups, another expanding segment of the company's business. The company maintains one 26-passenger minicoach for larger groups.

This year, Music Express introduced a $2 flat charge on all orders for Los Angeles cars to compensate for the hike in gasoline prices. Hawkins said the fee is temporary and would be retracted once fuel costs decrease.

In May 1995, Music Express acquired a new, seamless automation system. And like its competitors, the firm is developing a Web page, probably to debut in 1997. The company had considered joining a CRS but instead decided to leapfrog over that option in favor of the more direct access available on the Internet.

Newcomer Empire International was launched in December with 35 affiliates, a number that has grown to 110 as of July. The referral network was formed by Empire Transport Service, a company in Norwood, N.J., as a way of meeting demand from its corporate customers for cars in other cities, according to Bob Van Ess, director of sales. The affiliates are located in 28 states, Canada and five European countries.

Affiliates are required to have at least $1 million of liability coverage per vehicle, plus a certificate of insurance from their insurance company listing Empire as an additional insured. The network has a nationwide 800 reservations number and uses Empire Transport's computerized reservations system, which stores customer profiles and has centralized billing capabilities.

Van Ess said a few corporate customers have installed Empire's software in their computers for direct booking. Corporate customers also can book Empire cars through a CRS, although Empire does not participate in any CRS systems directly. In July, Empire introduced a Website on the Internet, which will have booking capabilities by the end of August.

Since the launch of the network, Empire Transport Service has seen a 5 to 8 percent increase in sales, said Van Ess.

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