The beginning of the recovery of demand in the car rental industry after the Covid-19 pandemic has sparked one consequence for business travelers: a lack of availability for shorter, last-minute rentals, a result of changing travel patterns, car rental revenue management strategies and, in some areas, a rental car shortage.
"That's so frustrating for corporate clients, especially our field teams that truly only need a one-day rental," said one commenter during a session at last month's Business Travel Show America virtual conference, which was staged by The BTN Group.
As reported by BTN in February, a combination of forces has converged to test industry fleet levels: After several car rental companies sold off fleet amid plummeting demand during the Covid-19 pandemic, a global semiconductor shortage—a critical component for automobile manufacturing—threatened to delay vehicle deliveries as car rental companies looked to re-fleet for rising demand as global industries recovered. Such a delay would come as car rental suppliers were operating on reduced revenue and looking to rev up both rental volumes and margins.
So far, however, car rental suppliers have received their deliveries, according to senior industry executives. "The deliveries we have expected, for the most part, we have seen," said Avis Budget Group CEO and president Joe Ferraro, speaking during Business Travel Show America. "We are fleeting ourselves to handle demand," he said.
Some travel managers have said their travelers have run into situations where their travelers couldn't reserve a vehicle. "One of our travelers actually shared that Chicago ran out of rental cars when they arrived at O'Hare, and to me that's really surprising, especially being a weekday," said Cognizant Solutions Americas travel director Drew Mitchell, who served on a panel during Business Travel Show America.
Changing Travel Patterns
Month by month, corporate demand is trickling back. "We've seen sequential improvement in our corporate commercial travel activity since the pandemic," said Ferraro.
Enterprise global strategic sales VP Mike Guadagnoli agreed and anticipated the demand picture would be intense for the next few months. "Enterprise Holdings, like the rest of the industry, is seeing increased demand for vehicles [and] for travel across all areas of the U.S.," he said. "We anticipate this strong demand will continue throughout the summer," Guadagnoli said.
Demand is also returning with new patterns. "One of the byproducts of Covid-19 was the booking locations changed and the booking patterns changed," Ferraro said.
Industry analysts, consultants and travel buyers have noticed those changes, one in particular. "Almost every corporate account I talk with says their average length of rental is going up," said ground transportation consultant David Kilduff. "A lot of that has to do with travelers driving to regional destinations [when] they normally would fly."
"The car rental industry is currently experiencing some very unique market dynamics unlike we've ever seen as travel rebounds, including tighter fleet availability and an increase of longer-term rentals," said Hertz EVP of sales, marketing and customer experience Laura Smith.
In some cases, Ferraro said, users may also be renting vehicles for their commutes. "We saw some people use a vehicle as a way of commuting." But all the trends point the same result: "We've seen our overall length of time people keep our cars commercially has increased," Ferraro said.
Longer Rentals, First Dibs for Bigger Accounts
To service the rising demand, car rental companies seem to be prioritizing customers with longer over shorter rental periods, according to multiple buyers. "Rental car companies are prioritizing longer rentals over short ones, and more advance-notice rentals over the last-minute bookings," one travel manager commented at a session at the Business Travel Show America, to which multiple travel managers agreed.
"Car rental suppliers have the ability to turn off certain types of rentals when there is a shortage such as a one-day or two-day [rental]," said Kilduff.
Bigger corporate accounts are more likely to be spared. "Some corporate accounts are protected but those are the very, very large ones," Kilduff added. "Leisure generally is first to shut down, and then corporate, with the largest accounts last."
"We were talking with our account managers, and we have the protections in place where if we reserve a car for an account, [it's there],'" said Cognizant's Mitchell, who manages travel for a BTN Corporate Travel 100 company. "There's hasn't been a case where a business traveler showed up and there was not a car."
Others may be more challenged in a variety of situations.
"Rental cars even with corporate accounts can be canceled if a car is not returned by the previous renter," another travel manager noted in a chat during Business Travel Show America. "They are also using the reservation date as a factor [to prioritize] who gets the next car. It happened to my employee a couple of weeks ago. If no cars are available, they can't give you one."
"We try to book a car for one to three days and [got] declined," said another, and yet another noted that "there are issues with limiting car rentals for two days or less. Car rental companies are prioritizing longer term rentals to maximize revenue."
Indeed, car rental companies—already in a tough spot financially—have a more profitable opportunity in prioritizing longer rentals. "If you are running out of cars, which ones are you going to shut down?" said Kilduff. "One-day rentals where you don't make any money, or the five-day rental?"
When asked about locking out short-term rentals to maximize revenue, Ferraro said, "It all depends on the location and place. … Obviously if it's during peak-period travel like a holiday there's going to be something that says, 'Yeah, you keep the car longer and your price will be different,' he said. "You keep a car a short amount of days, then there might be some yielding going on there. No different than the way it's been in our industry for a long time."
He added that the strategy is not different than how hotels and airlines revenue-manage their inventory.
Finding Ways to Ensure Vehicle Access
Corporates increasingly are requesting clauses in their service-level agreements that ensure they get a vehicle when they need them, according to Kilduff. "There are very few SLAs in corporate rental car agreements. This is probably the first time I've had to put them in," he said. "Now, some corporations are asking for them."
Service-level agreements, however, may not be enough to ensure vehicles for corporates, according to Kilduff. "Fleet at a location is controlled by the local operational team," he said.
"At the end of the day, an SLA is not going to get you a car if they're not there."
Ferraro asked corporate travelers and travel managers to be flexible and plan in advance for their trips. Enterprise's Guadagnoli made the same recommendation: "If you're planning travel, we encourage you to reserve a vehicle as early as possible. Providing flexible travel dates and branch pick up locations in your search may also help increase your options."