Ground War? : Alamo Cuts Rates on Car Rentals as Low as $15 a Day

While the airlines have struggled in high-profile fare wars, car rental companies have been entrenched in a less publicized, albeit equally competitive, ground battle the past decade.

The tooth-and-nail competition heated up this week when Alamo Rent a Car scrapped an industry practice that set rates on a city-by-city basis in favor of standard, nationwide prices. At the same time, the firm temporarily cut its rates to as low as $15 for economy cars.

The price cut, in effect until June 24, coincides with a shake-up in air fare schedules that is designed primarily to benefit business and last-minute travelers.

However, Alamo’s price cut will appeal primarily to leisure travelers, who have been receiving more of the industry’s attention as business travel has taken a beating.

Business travelers make up 60% of the car rental market, but corporate travel budgets were squeezed during the recession and many analysts do not expect the corporate market to grow as quickly once the economy picks up. Leisure travel by car rose, however, as vacationers also sought to save money.

“It is aimed at either the leisure traveler or the little guy who doesn’t work for a big corporation and really watches the dollars,” Jan Heffington, president of JBH Travel Management, said of the new rate structure.

JBH is a Denver-based firm that audits travel expenses for corporate clients.

Alamo’s plan is “an aggressive bid to capture additional market share in a relatively flat overall travel market,” President Charles Platt said.

Under its three-tier system, Ft. Lauderdale, Fla.-based Alamo applied the new cut rates to company locations nationwide instead of varying them from city to city, as is the industry practice.

For example, under the old system, Alamo’s daily rate for an economy car ranged from $17 to nearly $34. Now, an economy car rents for $15 a day nationwide, a midsize for $19 and a Cadillac for $29.

The lower prices carry restrictions that make them more attractive to vacation, rather than business, travelers.

To qualify for the rates, an Alamo customer has to reserve a car 24 hours in advance and rent it over a Saturday night. Many corporate travelers cannot meet such restrictions.

Hertz quickly matched the rate for economy cars but balked at lowering prices on larger models used primarily by business travelers.

Other rental firms, including Avis, Budget and National, said they are studying Alamo’s move.

“The consumer makes out very well with these rate adjustments,” said Gary S. Rubin, executive editor of Auto Rental News, a Redondo Beach trade publication. “These rates are about as low as they are going to get. I don’t think the car rental car companies will go much lower.”

Even before Alamo announced its lower prices, many industry executives had complained that rates were already too low. During the past 10 years, rates rose a scant 2.6%, according to the American Car Rental Assn., a Washington-based trade group.

“It’s almost nothing,” association official Jan Armstrong said of the price increases.

Prices stagnated while auto rental firms expanded dramatically to meet a travel boom during the 1980s. The industry doubled the size of the rental fleet to more than 1.1 million cars between 1980 and 1990, according to Business Travel News.

The competition got tougher last year when the recession and Gulf War prompted people to cancel travel plans, especially business travelers.

“The auto rental business, more so than other segment of the travel industry, is heavily dependent on the business traveler,” said industry consultant Donald Tatzin of Arthur D. Little in San Francisco.

Now, after many rental companies had expected relief with signs of an improving economy, Alamo’s rate changes raised fears of a price war.

Alamo, however, is one of the smallest nationwide car chains, and that raises doubts about its ability to force others to match its lower rates and new pricing system. However, auto rental companies, like the airlines, are loathe to let a competitor--no matter how small--undercut their rates, say industry observers.

“If others follow,” said Tatzin, “it can touch off another price war.”

Who Rents the Most Cars Hertz dominates the auto rental business at airports, where most travelers pick up their cars. Figures show the market share of auto rentals at the nation’s 100 largest airports. Hertz: 29.5% Avis: 25.2% Others: 2.9% Alamo: 2.3% Dollar Rent A Car: 5.2% National: 16.3% Budget: 18.6% Source: Auto Rental News