Car Firms Scale Back

Rental companie downsize fleets, stock up on older vehicles

By: Jerry Chandler

Consider an industry in which 30 percent of its market is held by companies currently in Chapter 11 an industry in which fleets are being slashed and cost-cutting is rampant.

Sound familiar? It’s not the airlines. It’s the car rental industry that’s under the travel agent microscope these days. They are wondering whether these ground-bound purveyors of travel will a) be around much longer, and b) continue to pay commissions.

Experts tell TravelAge West the answers are “yes” and “yes.” Though not doing particularly well, car rental companies are not as bad off as the airlines, said Jon LeSage, vice president and research director for Abrams Travel Data Services in Long Beach, Calif. While air passenger loads are off 15 percent to 20 percent at the major airports, they’re down about 10 percent at the car rental companies, he said.

LeSage said he expects the three car rental companies now in Chapter 11 Budget, Alamo and National to make it.

“There’s no reason to believe they’re going to cease operations,” he said. The reason is that the fate of this nation’s airlines and its car rental companies are not congruent. While car rental firms especially Hertz, Avis, National and Budget are still heavily dependent on airport-generated traffic, softening the blow at car rental counters is a growing trend among business and leisure travelers to forego the airlines and travel by road. LeSage said 40 percent of the business that car rental companies are doing these days is local or nonairport.

“People don’t want to fly,” said Steve Tucker, an agent with Mesquite Travel in suburban Dallas. “They want to drive.”

An increasing number of businesspeople are passing up the boarding pass and pressing the accelerator. Even the low-fare carriers are affected. Instead of taking a 75-minute flight from Dallas to New Orleans, Tucker said more clients are opting to rent cars and spend eight hours on the road.

Judi Rowand, president of Red Carpet Travel & Cruises in Spokane, Wash., said she sees her clients taking to the highway with increasing frequency. “Montana and Idaho are expensive places to fly to from here,” she said. “So they rent cars and drive. It’s a lot more efficient.”

This trend shows no sign of abating.

“I would expect it only to accelerate,” said Kevin Mitchell, president of the Business Travel Coalition and editor of BTC

Capacity Concerns Car rental companies are adapting to the migration and opening more suburban, nonairport locations. It’s a key component in Hertz’ strategy, as is shifting capacity to airports served by low-fare carriers.

“Wherever Southwest or JetBlue fly, you’ve seen a shift to those airports,” said Richard Broome, Hertz’ vice president of corporate affairs. “This has required us to make sure we have the right fleet availability.”

Availability is a concern. Car rental companies haven’t suffered as badly as airlines because their executives can cut capacity quickly. It’s a far more painful process with airlines.

“There are fewer cars available today,” LeSage said. “If you’re traveling Christmas week, you should probably book early. They’re running out of cars at times.”

So far, however, “downfleeting” hasn’t seemed to hurt agents in search of standard cars. Mesquite Travel’s Tucker said he has experienced no shortages.

“When you need them, they’re always there,” he said.

Specialty vehicles and SUVs are another matter. “There are certain kinds of vehicles that are hard to find,” said Antoine Georges, vice president of the Happy Traveler in San Diego. “But, on average, we haven’t had any problem.”

In addition to downfleeting, rental car companies are loading up with older vehicles.

“Compared to 10 years ago, [the fleet] has quite a lot more mileage,” LeSage said.

In 1992, the average age of a rental car was about 10,000 miles. Today, it’s more than twice that. Agents should advise clients that, when they rent, they’re more likely to get a high-mileage vehicle at a small, secondary airport than at a large one.

“Business travelers don’t want a car that’s got 30,000 miles on it,” LeSage said.

Nor do they want to pay a lot, no matter what the age of the vehicle. LeSage said the average mid-size automobile rents for about $44 per day about 10 percent higher than a year ago. After rates dropped dramatically in the immediate wake of Sept. 11, Hertz initiated a rate hike in December 2001. The rest of the industry followed suit.

“There are some good deals to be had out there,” said Hertz’ Broome. His advice to agents: “Book well ahead and look for specials.” Rental car executives insist travel agents are critical to their success that commissions are here to stay. This despite the elimination of commissions on negotiated corporate rates.

“That was a very narrow area,” Broome said. Travis Tanner agreed. In the past, the long-time CEO of Carlson Wagonlit made his living as a travel agent. Now executive vice president of ANC Rental Corp., the parent of Alamo and National, he said, “We’ll never abandon the travel agent.”

He said leisure and discretionary rentals will continue to render commissions.

“We’ll be willing to pay agents for whatever business they move our way, as long as they continue to prove to us they’re delivering the business.”

Tanner said a disproportionate piece of National and Alamo’s business comes from travel agents. He declined to say how much. Nor would he talk about the percentage of business generated by the Web.

Hertz said most of its car rental bookings come from travel agents, while 17 percent comes from the Internet.

Budget’s reliance on its Web site is more pronounced. Jennifer Sullivan,

Budget’s director of corporate communications, said 23 percent of its domestic reservations flowed from an increase of 12 percent over 2001 figures. Forty percent of its revenue comes from travel agents. LeSage said he thinks these numbers are too large to ignore that car rental firms will continue to pay leisure commissions. While some caps and cuts could loom around the next bend in the road, he said, “[Rental car companies] understand their need for the travel agency community better than the airlines.”