Transport Cars

How Avis-Budget and Hertz are squeezing customers

@denschaal

May 02, 2013 1:43 am

Skift Take

It won’t be across-the-board, allowing for variations in this city-pair or that, but you can expect similar pricing dynamics when the American Airlines-US Airways merger goes through. Here again, there aren’t a lot of legacy carriers left for additional mergers in the future.

— Dennis Schaal

Free Report: The Future of Personalized Marketing in Travel


And, you wonder why travelers sometimes shudder when they hear about travel industry mergers.

After a couple of years of mergers, the car-rental industry has the upper hand, and is squeezing customers for price increases. An AvisBudget official last month characterized the industry as “right-fleeted.”

AvisBudget, which released its first quarter earnings yesterday, reported that its car-rental pricing increased 4% overall, including an 8% increase in pricing for leisure travelers.

For AvisBudget, which acquired Avis Europe in 2011 and Zipcar in March 2013, the rental-price hikes amount to a turnaround. A year ago, in the first quarter of 2012, AvisBudget’s rental prices headed in the opposite direction, falling 3%.

The same trend is well under way at Hertz, which acquired Dollar Thrifty in November 2012, and reported first quarter earnings this week.

Hertz reported that its pricing in North America rose 3.9% in the first quarter, with contracted rates jumping 5.6%.

And, the Hertz brand is doing especially well at the airport rental counter, where rates jumped 5.3% in the first quarter of 2013, compared with a 3.3% decline a year earlier.

Earlier this week, Expedia officials noted that car-rental mergers have played a role in dynamics that are pinching performance at its Hotwire unit, which is also feeling the heat from Priceline. 

“Firstly, the domestic car business has become increasingly challenging, primarily due to continued fleet constraints and associated efforts by rental car companies to drive up pricing,” said Mark Okerstrom, Expedia CFO. “This environment creates clear challenges for the opaque deep discount car rental business.”

That’s because when car rental companies limit their fleet sizes and raise pricing, they feel less of a need to provide Hotwire and others with attractive discounts, hurting Hotwire’s sales.

There’s good news and bad news in the car-rental pricing climate.

The rates are going up, but there aren’t a lot of potential mergers left that would pass regulatory scrutiny.

But, where were the regulators when they opined that these mergers wouldn’t harm consumers?

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