Car Rental Cos. Counting On Corporate Rate Increases
Having tightened up its supply of cars to the point that, on average, fleets are 20 percent smaller than they were a year ago, the car rental industry is pressing hard for price increases from their corporate accounts.
The timing couldn't be worse, considering that the recent elimination of travel agency commissions on negotiated rates means that many corporations no longer receive the 5 percent commission payment passed on to them by their travel agencies. Meanwhile, taxes and surcharges on rental cars continue to proliferate, with a "customer facility charge" becoming a standard fee at airports with new consolidated car rental facilities.
Since the beginning of the year, retail prices have climbed at a rate in the double digits. According to the second edition of Abrams Travel Data Services' Car Rental Market Scan, a research report issued in April, airport rates listed in the global distribution systems have increased nearly 30 percent. Although Jon LeSage, vice president of Abrams Travel Data, said those rates have since stabilized a bit, the upward trend is expected to continue. The recent Market Scan noted it was unlikely "any one company will be able to add back enough fleet in the next few months to create an over-fleeted market, which could bring down rates."
The price increases started with an across-the-board 10 percent rate hike introduced by industry leader Hertz in November. Although that increase has clearly held, Hertz Corp. spokesperson Richard Broome said, "corporate rates are lagging and that is an issue for us." But some corporate travel managers, themselves dealing with reduced budgets and perhaps lower volumes as the result of reductions in travel by employees, already are feeling the pain.
Noting that the car rental firms' "costs have gone up just as the number of rentals has dropped," Gabriel Eshaghian, manager of global airline and car rental programs at PricewaterhouseCoopers LLP, said negotiated rate increases range on average from 8 percent to 12 percent. He added that "significant increases" were appearing specifically at the city level, with the car rental firms both increasing the amount of their city surcharges and adding more of them.
Clive Armitage, director of travel, meetings and fleet purchasing at pharmaceutical company AstraZeneca, hadn't noticed any dramatic increases. He said rates were keeping pace with the Consumer Price Index, meaning they were pretty much flat. However, he added, he wasn't thrilled that the industry's elimination of the 5 percent commission—a payment that was passed on by the agency to his company—was announced right after he signed a new contract with his car rental supplier. In effect, that meant his company has to eat the cost.
Robert Langsfeld, a partner at The Corporate Solutions Group, a travel management consulting company in Incline Village, Nev., said a lot of corporations are in AstraZeneca's position, since "more than half never had any net type of arrangement." These companies "now need to reassess their rates," although he said it won't be easy, given that it's "much more difficult to get a lower rate" than automatically receive a payment the firms already were doling out. With the rate increases and commission cuts, companies are getting hit with a "double whammy," Corporate Solutions Group's Langsfeld said.
Meanwhile, corporations continue to be bombarded with an ever-increasing array of ancillary charges. Following the passage of a law in California on Jan. 1 enabling airport authorities to charge a $10 fee for their new car rental facilities or related transit needs, Ontario International climbed on the bandwagon and now charges a $10 fee, in addition to 7.75 percent sales tax. San Jose charges a $5 "transaction fee," and San Francisco International has raised its facilities charge, once $5, to $12. San Francisco was exempt from the law's $10 limit.
California also allowed the car rental companies to raise the price of the collision damage waivers they sell to customers, although it simultaneously outlawed their ability to pass on vehicle registration fees. According to Neil Abrams, president of Abrams Consulting International, a car rental consulting company based in Purchase, N.Y., the states of New Jersey and New Hampshire recently lifted their bans on such fees, so when you rent a car at, say, Newark International, renters now pay a $0.51 per day vehicle licensing fee. (That's if they're renting from Dollar Rent A Car; the fee may vary by company.) At Newark, they'll also pay a $0.75 "customer contract fee," which helps fund the monorail, a concession fee, which is 12.5 percent at Dollar (this fee also varies by supplier), and 6 percent state sales tax.
Once upon a time, only a few car rental companies were charging airport concession fees, and at only a few airports. They also exempted their corporate accounts. Now, however, in states where they're allowed, the fees are ubiquitous, frequently reach into the double digits and everyone pays.
The pattern is being repeated for the latest airport fee to make its appearance, the customer facility charge, which helps pay for new remote consolidated car rental facilities. All the dozen or so airports that have built such facilities are passing on the cost to customers, and it can be hefty. For example, at Albuquerque, where a new facility opened last year, the car rental firms are charging $1.95 a day. Renters also pay 10.81 percent tax, a 9 percent concession fee and a $2 per day rental surcharge. The end result is that an intermediate car rented for one day from Hertz at a rate of $63.99 actually costs $81.67.
Customers start paying the charge once the project has broken ground—well before construction is complete and the facility has opened. Houston Bush Intercontinental and Baltimore Washington International, both of which plan to open new facilities next year, each have implemented a $3-per-day facilities charge. Oakland International, which hasn't yet broken ground on its facility, introduced a $10 per transaction charge on April 1. Actual cost of the Avis intermediate car rented at a daily rate of $75.99 at Oakland is $92.26. Some airports, however, are putting plans for such facilities on hold. (See story, page 14.)
Municipalities also continue to target car rental customers to help pay for their projects. On April 1, a 5 percent tax on car rentals, which will help pay for mass transit projects, was implemented in North Carolina's Guilford and Forsyth counties, which encompass the Greensboro and Winston/Salem airports. That brings the total ancillary charges for a car rental at Piedmont Triad International (the Greensboro airport) to as much as 26 percent.
In their defense, car rental firms claim that they are committed to full disclosure of the total price of the car before customers book it. Indeed, at least two companies, Hertz and Avis, display the total cost of a rental, with a breakout of the surcharges, when you request a rate on their Web sites—without requiring the user to click to another screen.
Customers may be vulnerable to yet more insidious charges. Langsfeld said one of his corporate clients recently disputed a refueling "topping-off charge" that had been added to the bill. Even though the traveler had refueled the car before returning it to the car rental lot, the customer was hit with the fee, perhaps because the gas tank wasn't completely full. Langsfeld said the travel manager particularly was incensed because the "topping off" charge was in addition to a charge for the gas itself—priced at a premium, of course.
In general, are corporate travel managers paying attention to the nickeling and diming? Probably not, considering they have bigger fish to fry with their air and hotel programs. Nonetheless, such charges slowly are increasing the bite car rental is taking out of travel budgets.
"There was a time, in the past decade, when car rental was about 7 or 8 percent of the travel dollar," Abrams Travel Data's LeSage said. But now, he estimated, accounting for the all extra charges, "it's more like 10 percent."