Limo Cos. Assess Fuel Surcharges

A handful of large, networked limousine and sedan companies are tacking onto the base rate extra fees to offset the increases in fuel and insurance costs. The practice may wreak havoc on unsuspecting travel managers who are just beginning to control this portion of their budgets by consolidating suppliers and going out to bid.

"When you ask for a bid and submit no parameters, the prices between companies are all inconsistent," said Kevin Iwamoto, global air and car supplier manager at Hewlett-Packard, based in Palo Alto, Calif. "Some charge by the roundtrip, some price one way, some include gratuities and some don't add it in."

Iwamoto discovered just how confusing ground transportation pricing could be when he went out to bid last year as part of an initiative to reduce his company's more than 100 suppliers to just four. The process, he said, was akin to "dealing with used-car salesmen."

After finding that "some of the pricing we negotiated wasn't correct," due to add-ons, he requested flat airport transfer rates from HP's suppliers. "We also asked them for one-hour, two-hour pricing. Basically, we said, 'You fill in the blanks.' " Particularly infuriating is the fact that while ground transportation represents a mouse's share of the budget—$2 million or $3 million annually compared with $300 million in air and $35 million in car rental at HP—figuring out how to streamline its costs "takes so much time."

Executives in the ground transportation industry "need to send a message to customers that their cost of doing business has increased," said Tom Mazza, executive director of the National Limousine Association. However, fear that an honest-to-goodness rate increase will chase off corporate business prompts the car services companies instead to resort to add-ons. "People underestimate that doing a good job creates loyalty from their customers," even in the face of a rate increase, Mazza said.

Complicating matters is the fact that the surcharges may not appear in an automated booking system. For example, GT3, a ground transportation third-party reservations system, only lists the base rate, so travel planners cannot easily get an accurate amount of the total cost at the time of booking.

In the industry's defense, the reality is that right now there is "a huge price war on," said Scott Solombrino, CEO and president of Dav El Chauffeured Transportation Network in Chelsea, Mass. Solombrino said he cannot even consider upping the 6 percent fuel and insurance surcharge that Dav El introduced as an add-on to the company's rates two years ago.

"Companies are underbidding other companies. We don't think the environment as such enables us to raise our surcharge," Solombrino said. Dav El also charges 15 percent gratuity.

Vince Wolfington, chairman and CEO of Washington, D.C.-based Carey International, said his company levies a "surface transportation charge" of 10 percent to 15 percent, depending on location, which covers the company's increased fuel and insurance costs. Tip is another 15 percent to 20 percent, depending on location.

Empire International, based in Norwood, N.J., charges a "surface transportation fee" of 9 percent, plus gratuity that is generally about 18 percent, based on location.

BostonCoach Corp., based in Everett, Mass., adds an 18 percent "standard service fee," which includes tip. BostonCoach president Russell Cooke said that although the company is not yet charging a fuel fee—when the price of gas increased three years ago the company "built it into the rate structure"—it might introduce one should the price of gas exceed $2.20 per gallon. Cooke said that corporate contracts, which normally are in effect for one or two years, prevent the company from raising or introducing new fees more than annually or biannually.

All of the major networks charge separately for parking and tolls, mobile phones and other amenities, meet and greet service at the airport, sales tax, as well as pass onto customers airport fees, averaging about $3, that are charged by some airports.

Some companies also have fees for pickups or deliveries on holidays and after midnight, as well as wait charges. In a few locations, there also are municipal-related charges that are passed onto customers—such as the 1 percent Public Utility Commission tax in Pennsylvania and the $1 fee for each pickup and drop off that is levied by the city of Chicago.

In contrast, a couple of smaller providers limit the add-ons and simply have raised rates. Air Brook Limousine, for example, a company based in Rochelle Park, N.J., with a fleet of 205 company-owned vehicles, recently increased its flat airport rate by $2, which includes tolls. Air Brook did not increase the hourly rates. Customers also pay 15 percent gratuity, a fee for pickups at airports and a meet and greet fee that covers parking, according to vice president of sales and marketing Joseph Valenza.

Long Island City, N.Y.-based London Towncars also recently increased its flat airport rates—in this case, by $5, although the increase only applied to limos, vans and Suburbans; sedans were excluded. Hourly rates were increased by $2 for sedan service only.

Cost for insurance and fuel "are all normal charges that are part of our regular expenses," said London Towncars president Stephen Spencer. "If we can't absorb them, we raise our rates." The company, which has 104 cars, also charges 20 percent gratuity and extra for parking and tolls. Both London Towncars and Air Brook Limousine charge extra for holidays and off-hour pickups or deliveries.

Insurance costs are by far the most onerous burden on the limo and sedan industry. According to the National Limousine Association's Mazza, insurance costs are up 40 percent on average from 2001. Many companies have reduced their coverage. Carey, for example, which is paying three times as much for coverage compared with two years ago, has reduced $100 million liability coverage to between $25 million and $30 million, according to Wolfington.

In addition, "companies are taking extremely high deductibles," Mazza said. "Every fender-bender that occurs, they're paying for."

According to Dav El's Solombrino, who also is president of NLA, high insurance costs have been a significant factor in putting 10 percent to 15 percent of limo companies out of business. The combination of poor-performing stocks and bonds that the insurance companies had invested in and the hit to the industry in the wake of Sept. 11, 2001 account for the crisis, he said. Ground transportation firms have been targeted for dramatic increases because they constitute one of the least profitable segments for the insurers.

A sample increase, according to Solombrino, was the quadrupling to $2,000, from $500 two years ago, for $300 million worth of coverage. In California, workers compensation now costs $24 per $100 million worth of coverage, compared with $5 or $6 in some other states, he said.

The hikes at gas pumps are not helping either, and the fiscal crisis looming in many state and city budgets might open the door for more municipal fees. There also are the multiple licensing fees that some states require. For example in Florida, Solombrino said, "it costs $5,000 per car just to be licensed." He added, "Every town and county requires a different license. A car driven from Palm Beach to Naples crosses seven counties, therefore it must have seven licenses. It's outrageous."