Auto Rental Agencies Roll Out the Rate Hikes
If you’re feeling sticker shock at the car rental counter, it’s not just your imagination. Rates have gone up in the last few weeks.
Last month Hertz raised its weekly rates by 26% and daily rates by 10%, on average, it says. And on Friday it increased weekend rentals by an average of 14%. Several competitors, including Avis and Dollar, have also revved up rates. Some experts say consumers should expect another, more modest increase in the spring.
These may seem like odd moves given the post-Sept. 11 slump in travel. Business is down, so rates should be down, right? But pricing a car rental is more complicated than that--way more complicated, which can be frustrating for customers trying to find a deal.
“We probably change between 50,000 and 100,000 rates per day,” says Jay Foley, executive vice president of operations at Tulsa-based Dollar Rent A Car Systems Inc., which operates about 4,600 rental sites in the U.S. and Canada. Like airlines, much of the industry practices a fluid “yield management” system, changing prices moment by moment according to demand.
In fact, rental companies “change their rates probably more than the airlines do,” says John LeSage, vice president and director of research for Abrams Travel Data Services in Long Beach, which collects data on the industry. Unlike airlines, which basically have three types of products to sell (coach, first class and business seats), rental car companies have classes of cars, plus different rates for rentals by the day, week or weekend in different locations, he notes.
The major chains do exert general control over rates, though. And they have shared the same fate in the last year: Business has been sputtering, and the slowdown began long before Sept. 11.
In late 2000, by many estimates, business travel began to decline, and car rental companies soon began price wars to woo leisure customers. As a result, average rates shifted into reverse after increasing, by LeSage’s estimate, 2% to 5% per year since 1995.
The downturn varied by city. In Seattle, hurt by the dot-com crash, the average weekly rate--the one most leisure travelers care about--dropped 35%, from $245.15 to $159.03, between July 2000 and July 2001, according to Auto Rental News, a trade publication. (The Torrance-based bimonthly bases the weekly rate on an economy car with unlimited mileage.) Others in the 10-city survey fared better (Chicago’s rates were down 8.5%, for instance), and rates dropped in all but one (Phoenix, up 4.2%) in the period.
Then came Sept. 11.
Although the attacks brought a brief spurt in one-way rentals by stranded or plane-shy travelers, demand and rates soon dropped further, especially at airport outlets, where companies such as Hertz and Dollar typically conduct 90% or more of their business. (A notable exception is Enterprise Rent-A-Car Co., which gets only about 5% of its revenue from airport sites. “Our business has been more than holding its own,” says spokesman Pat Ferrell.)
Rental companies, which had begun to cut back their fleets, accelerated the process, and fleets are down 20% to 25% from a year ago, says Neil Abrams, president of New York-based Abrams Consulting Group, the parent company of Abrams Travel Data Services.
Meanwhile, business has started to pick up again, although as of late December it was still below pre-Sept. 11 levels, says Hertz spokeswoman Paula Stifter.
“Right now the demand is probably greater than the supply,” Abrams says. And when demand rises and supplies fall, prices increase, experts agree.
Stifter sees some other forces pushing up rates too. Besides the usual increase in new car prices and repair and labor costs, rental companies are getting less for the used cars they sell when they cut their fleets. The reason: a glut in the used-car market.
The industry’s pain is real. In November, ANC Rental Corp., parent company of Alamo and National car rental companies, filed for Chapter 11 bankruptcy protection.
Rates were “irrationally low” in the last few months, says Avis spokesman Ted Deutsch. That “may seem great for consumers, but it was not sustainable,” he says, citing ANC’s problems as evidence. And even with the increases, rates in December were generally lower than in December 2000, several experts note.
Deutsch contends that a car rental is still a good deal. “You’re getting hold of a $25,000 or $30,000 asset at rates that are sometimes $30 or $35 per day”--less than renting a tuxedo, he notes. (In case you wondered: A randomly chosen Gingiss Formalwear in Century City earlier this month quoted $49 to $99 per day for a tuxedo rental, depending on the style, not including vest and shoes.)
To drive the best bargain, “it can make a huge difference” to go online, suggests Cathy Stephens, executive editor of Auto Rental News.
LeSage agrees and suggests contacting travel agents about buying air-hotel packages that include car rentals. “Often the rental car will be thrown in ... at a really good rate,” he says.
Typically, renting a car in a neighborhood location instead of at the airport is a better deal because extra taxes and fees usually apply to cars rented at airports, experts say. But for a while you may do better at airports because that’s where business has fallen off most, LeSage says.
Just be sure to ask for the total charge, with all taxes and fees, to accurately compare airport and non-airport rentals. Airport-related fees, plus state and local taxes, can add 25% or more to the cost of a rental. And this year a new California law allows airports to assess a “customer facility charge” to develop and maintain rental car centers. On Jan. 1 Ontario (Calif.) International Airport began charging the fee, at $6 to $10 per rental.
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Jane Engle welcomes comments and suggestions but cannot respond individually to letters and calls. Write Travel Insider, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail jane.engle@latimes.com.
