Technology Has Helped Rental Cos. Boost Efficiency

Computer technology has transformed car rental yield management from a manual system requiring only historical experience and keen judgment calls into a virtual science. This shift has profoundly changed the car rental industry in two ways.

One is the increased productivity of rental fleets. Traditionally, entrepreneurial individual brand-name franchisees and smaller independents could achieve a higher standard of vehicle utilization than the larger companies could--for the simple reason that a small fleet in one locality could be tracked more efficiently than a centrally managed fleet distributed through a network of scattered locations. Although the bigger firms benefited from other economic advantages, when it came to fleet management they could not balance the size of their fleets to meet customer demand as well as the owner-operators could.

Beginning in the late 1980s, however, this changed as larger companies such as Avis, Alamo, Hertz and National began to employ sophisticated technology. They developed the capacity to marry their fleet management and inventory programs to reservation programs with yield management systems. By using certain methods, including special pricing for certain market segments during slow periods, they were able to forecast vehicle requirements, resulting in an annual utilization factor of more than 80 percent.

In comparison, the airlines typically experience an annual load factor in the 60 to 70 percent range. The higher load factors in the car rental industry means a company must become extremely efficient in order to compete effectively. Because the greatest single cost factor in the car rental industry is the vehicle, achieving this "on rent" factor of 80 percent or better has resulted in a reduction of the number of vehicles--and consequently a drop in the cost of serving customers. Companies employing this technology gained a comparative, if somewhat temporary, cost advantage in terms of fleet costs over those that did not achieve such efficiencies.

This put a considerable amount of pressure on smaller companies, system franchisees and independents. However, through the deployment of customized in-house systems and the availability of new, relatively inexpensive yield management software products, they are quickly catching up.

Marketing Methods Change

The second affect of the new yield management programs has been a change in the industry's marketing and pricing strategies. Like the airline systems, the yield management programs are diversified enough to accommodate specific promotional pricing programs, which limit the number of available car rental days in the program in a specific city for any given day without blacking out reservations for other programs, such as those targeting business renters.

But even more important to the business traveler, when a reservation is made, both the reservation and yield management systems communicate with the customer database. This qualifier built into the integrated system enables frequent business customers to obtain priority service, special pricing, corporate usage reports and other benefits.

Some yield management systems even roll up the forecasted revenues from all rate programs and customer segments, including business traveler programs, for a given time period. Assumptions, based on historical factors such as number of no-shows and walk-ups, are employed to give management a profile of the projected revenue stream.

In addition, this same information can be produced for actual past results, and it also can be broken out by average revenue per day of car rental use achieved from each pricing program or market segment.

Despite the new technology, there will always be sleepless nights for managers whose job it is to balance the most efficient utilization, without oversales and with maximum revenue production, and with pricing that is attractive enough to keep customers from going to the competition. Judgment calls still need to be made, and managers have to be sensitive to the competition and how it reacts.

But now they have access to more data than ever before to help them accomplish that task effectively. For industries ranging from airlines to hotels to car and truck rental and even supermarket chains, sophisticated yield management systems have revolutionized the potential for more imaginative marketing efforts and greater operating efficiencies.


<I>William Reiter is a car rental industry consultant based in Miami, and a former executive at Hertz Corp. and Alamo Rent A Car.