Internet Car Rental Rates Threaten Corporate Deals
<B>Internet Car Rental Rates Threaten Corporate Deals</B>
By Lynn Woods
An explosion of low weekly and daily car rental rates available on the Internet in recent months could represent a new threat to the autonomy of corporate rate programs. With negotiated rates averaging $44 a day, the deals, available in certain markets from big corporate companies as well as discount leisure ones, clearly undercut corporate negotiated rates. And they aren't just being offered in traditional leisure destinations.
Beginning in the spring, "the level of discount being given to Internet customers from the folks doing corporate business got very high," said Stewart Brown, vice president of revenue management at Dollar Rent A Car. For a weekly rental in mid-July, for example, National Car Rental was offering a $114.99 rate for an economy car in Los Angeles and a $87.99 rate for a compact in Houston; the firm also was pricing a full-size car in the Texas city at just $105.99 a week. Hertz was offering a $140.99 weekly rate for an economy car in Denver, and Thrifty Car Rental was offering a $29.90 daily rate for an economy car in the same market. In Miami, the weekly rate for an economy car from Hertz was $86.99 and from National, $79.99. All these rates were listed in Expedia's Car Wizard.
"When Southwest Airlines announced last March it was doing 25 percent of its business on the Internet, everyone got focused on the Web and set up a mini-gold rush to capture that share," said Brown. "The net effect is that rates got a lot more attractive on the Web in a hurry."
Of course, car companies always have offered cheap promotional rates in the retail market. The Internet, however, creates additional markets for those lowball prices and makes them much more transparent. The prices also are more accessible to individuals who can choose from a variety of distribution channels on the Web--online travel agencies, auction services, suppliers and consolidators.
The relatively new phenomenon of cut-rate car rental prices on the Internet hasn't yet caught the widespread attention--or ire--of corporate travel managers. However, informed about some of the recent car rental prices posted on the Internet, E.J. Hewitt, travel manager at Pilkington, responded, "that's awful. What's the value of consolidating your travel if they're offering lower pricing to people with no commitment to the company?" Brown said the long-term repercussions of the Internet on corporate car rental programs could be profound.
Internet pricing is "absolutely a management issue for travel managers," he noted. "When the price differential for a rental gets to be X, then they may be better off living with the risk of forgoing business insurance and going with the lower rate." But that risk, countered executives at other major car companies, is precisely why low Internet prices are largely irrelevant to their corporate accounts. Such benefits as collision damage insurance and liability transform the corporate rate into more than just a volume-based discount.
"National is service-oriented; we sell a product, not a rate," said National execs in a statement. "That product includes several aspects, including a negotiated rate, insurance coverage, reporting services, guarantees on delivery, and a higher level of service than an individual booking."
Price predictability is another benefit of using the corporate rate. Plus, noted Kirby Bonds, director of sales development at Avis Rent A Car, Internet prices still mainly are designed for the more flexible requirements of leisure travelers. "On the Internet, we have deals of short duration that are quickly made available," he said. "They're very specific to a location and timeframe. We had deals in Florida in which you had to keep the car for a week, book 21 days in advance and stay over Saturday night. Odds are, these are not much value to business travelers."
Furthermore, losing such benefits as liability and collision-damage insurance--the most common perks negotiated into the corporate car rental rate--is not taken lightly by some travel managers. Oracle prohibits travelers from booking rates outside the negotiated car rental program because they would lose the insurance coverage included in the corporate rate, according to Valerie Cordell, manager of the company's global travel program. (In contrast, the company is supportive of employees who snag a discount airfare on the Web, even providing an e-mail form for employees to fill out in such instances so that the company can capture the segment data and price.)
Another negative is that a retail Internet car rental rate booked with a company's preferred vendor may not count toward the company's volume commitment. Generally, Avis and Budget count only bookings made with the negotiated rate toward a company's volume requirements. At Hertz, it depends on the negotiated program, although the tradition of counting such bookings towards volume "is going away" as contracts are renegotiated, according to executive vice president of sales John Johnson.
None of the major car rental companies allow their accounts to retain insurance or other negotiated benefits when booking non-negotiated rates, with the exception of Thrifty Car Rental. "If you can find a lower rate" on the Web or elsewhere, "you can take it and retain the benefits," said spokesman Chris Payne. (However, Payne added that Thrifty discontinued its policy of offering an additional 5 percent discount to corporate renters who found a lower deal than the negotiated rate a year ago. "We decided it's not necessary to give away the store," he said.)
In some cases, Alamo Rent A Car will enable renters booking non-negotiated rates to keep the benefits, depending on the promotional rate and the account. Corporate accounts qualify for special weekend rates and discounts on standard retail rates for weekly rentals. In addition, any booking made through Alamo counts toward the account's annual revenue volume. But Thrifty and Alamo are clearly the exceptions.
Nonetheless, Brown said the Internet could have a broad impact on the form of corporate contracts in the future. This is due to one of the key qualitative changes wrought by the Web--the speeding up of processes ranging from price shifts to booking transactions. "The Net is quick," Brown said. Year-long contracts with fixed rates may prove to be too rigid in light of the lightning-quick price changes on the Web. In the future, "it may be the corporate agreement is not just annual. Or, maybe if X happens, you qualify for the deal as written into the corporate agreement."
Alamo executives noted that "in the long term, some companies may prefer or request to have their rates float at a discount off of retail pricing on the Internet." Instead of relying on a constant negotiated rate, "companies may pay less during low demand periods," they said. However, corporations "can also expect to pay substantially more during seasonal or high-demand periods. The market will ultimately decide the appropriate new model." Given these variables, the Alamo executives concluded: "We believe a guaranteed rate program still holds more advantages than relying on discounts or floating retail rates." Already, a few corporations that have direct links with their car rental vendor are benefiting from more flexibility in pricing. Some of Avis' customers, for example, have opted for complete exposure to the rates in Avis' system through their direct links, according to Bonds. But others "don't want to confuse the issue. They say, 'just give me the corporate rate.' "
Indeed, Johnson at Hertz said simplicity, as much as price, is a priority. "The feedback you get from travel managers is 'we want the program to remain simple,' " he said. Given that fact, "I'm not sure how widely accepted more than one distribution method will be accepted" in the corporate marketplace.