Don’t write off the car rental industry

The collapse in business travel, thanks to terrorism and economic slowdown, has hit car rental companies hard. There is hope, however – leisure travellers want cars, and soon city-dwellers may be renting too.

The car rental market has had a hard time recently, thanks to the effects of the global economic slowdown and the travel downturn following September 11, 2001.

But easyCar – part of Stelios Haji-Ioannou’s easyGroup – has not been put off by the rough ride. The company is planning to increase the size of its European fleet from 7,000 vehicles to 24,000 over the next two years, in preparation for a stock market flotation in 2004. As part of the expansion, easyCar is searching for a commercial director – a new position, with responsibility for the company’s European marketing strategy (MW last week).

However, the car rental market is still on the ropes. One analyst says: “Business rental is clearly still suffering, either from a reluctance to travel or from cuts in budgets.”

His comments are borne out by figures from the British Vehicle Rental and Leasing Association (BVRLA), whose members represent 85 per cent of the UK car rental market. The figures show a fall in business rentals, although the leisure market remains buoyant. Domestic corporate short-term rental, which accounted for 50 per cent of the total car rental business in 1999, dropped to 43 per cent in 2000 and 41.5 per cent in 2001. The in-bound corporate rental sector also weakened significantly, accounting for 17.2 per cent of the total market in 2000 but only 10.3 per cent in 2001. Domestic leisure rental has increased its market share, from 24.9 per cent in 1999 to 34.2 per cent in 2001.

The global economic downturn has claimed scalps in the US, with Budget Rent a Car and ANC Rental, which owns the National and Alamo brands, being forced into Chapter 11 bankruptcy protection, while Budget’s UK operation is in receivership.

But easyCar believes it can make inroads into the market. EasyGroup director of corporate affairs James Rothnie says: “In times of economic uncertainty, there are good growth opportunities for no-frills operators.”

Car rental companies have adopted different tactics in the face of the slowdown. Fleet management is a priority, as an idle car runs up overheads but is not earning money. Market leader Avis Europe, which licenses the Avis name from US-based Cendant, in a deal that runs until 2036, reported a 22 per cent year-on-year fall in first-half profits – to &£32.4m – at the beginning of September. Turnover fell by 5.8 per cent to &£355m.

Avis Europe blames the business travel slump for its woes, and has accordingly cut its fleet size by seven per cent. Avis Europe director of communications Chris Wermann says that the company can survive, as half of its business is leisure-based.

Leisure specialist Holiday Autos believes marketing is the key to success. The company acts as a broker: instead of owning its own fleet, it manages the excess inventory of other companies, taking bookings and placing customers with suppliers. Managing director Doug Sawers says that, with advertising rates depressed, the company “got good value” for its campaigns last year. He plans to increase advertising investment “quite substantially” – and the fact that the company featured in a BBC documentary series, The Secret Life of The Office, did its profile no harm.

Partnerships with successful airlines also help to deliver through-traffic to car rental companies. Hertz Europe marketing director John Wills says: “The development of the low-cost airlines has given the car rental industry in the UK and elsewhere exposure to a new customer base.”

Hertz and Avis have both responded to this by developing sites at the secondary airports used by low-cost carriers. Wermann says: “If you fly to a secondary airport, there is often no public transport infrastructure. We are picking up a disproportionate amount of business in those areas.”

Hertz Europe is the exclusive car rental supplier for Ryanair. Avis, meanwhile, has contracts with tour operators Thomas Cook and MyTravel and Internet companies Ebookers and Expedia. Holiday Autos has a partnership with Virgin Express in mainland Europe and with Go – although as the latter has now been bought by easyJet, this relationship could change.

In an effort to expand the car rental market, Avis has introduced a trial scheme, called Urbigo, in the London borough of Southwark. Customers are offered unlimited access to a car for &£160 a month, plus mileage and an hourly tariff. Whenever customers need to use a car, they contact the company – with as little as 15 minutes’ notice – and then collect the car from the local Urbigo parking bay.

As the car rental companies fight for market share, establishing a point of difference through seasonal tactical offers has become the norm – Holiday Autos, for instance, has a no-fee cancellation offer.

Overheads are also being reduced with the development of Internet booking. Sawers says that more than 40 per cent of Holiday Autos bookings are now made online, compared with 20 per cent a year ago.

EasyCar, primarily an Internet booking operation, has adopted other practices designed to cut overheads, such as allowing customers to choose between cleaning the car themselves or paying a &£10 fee.

Rothnie says the company is targeting leisure travellers, and intends to expand the market rather than steal market share: “We want to persuade more people to hire more cars more often.” He claims that easyCar’s low-cost business model will even allow it to compete with minicabs and will attract city-dwellers who don’t wish to own a car.

Wills admits that easyCar may attract some business on the basis of price, but adds: “Hertz believes that the brand has been, and will continue to be, important to customers as long as we continue to provide value, by which I mean reasonable prices for good service.”

Wermann points out that easyCar is smaller than its big-name rivals and cannot yet benefit from economies of scale in areas such as the mass transportation of vehicles from one city to another.

Industry experts believe that the sector is ripe for consolidation, with one analyst claiming that Ford Motors is considering unloading Hertz. Rothnie expects that the established operators will “start their own online brands for dealing with distressed inventory”, thus putting the likes of Holiday Autos under pressure. But neither Hertz nor Avis will be drawn on any plans to launch “value” car rental brands.

If business demand is not further jeopardised by conflict in the Middle East, and UK holidaymakers keep taking short breaks enticed by cheap air fares, the car rental industry should be able to get back on track. But it’s a big “

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