The Takeoff Episode 02: How Startups Can Adapt and Pivot Sponsored This content is created collaboratively with one of our sponsors.
Hertz acquired Dollar Thrifty last year, and Avis Budget picked up Avis Europe and Zipcar in 2013. Now the two companies, along with Enterprise, are turning their attention toward raising rates. With just three firms running the show, there’s not much standing in their way.
With Hertz, Avis Budget Group, and Enterprise wielding about a 98% airport market share in North America, the three companies can raise rental rates with near-impunity, and they are enjoying the new-found freedom that consolidation has delivered.
So far it’s been leisure customers who have felt the brunt of the rate increases, but rate hikes for corporate customers are on the agenda.
David Wyshner, the CFO of Avis Budget, says the company introduced “half a dozen” price increases for leisure travelers in the first quarter, a pattern that continued in the second quarter, and the latest effort to “ratchet up” rates will become effective June 24.
Just in time for the summer travel season.
Wyshner said Avis Budget saw a nice competitive reaction to its price increases, meaning Hertz and Enterprise raised rates, too.
Most of these price increases are impacting leisure travelers, who saw 8% increases in the first quarter of 2013 while corporate rates were flat.
Wyshner said hiking rates 4% produces about $120 million in additional EBITDA annually while leisure customers see their rental rates spike just around $1.60 per day.
“We don’t think people will decide not to take a vacation because the rental car costs $1.60 more per day,” says Wyshner, who spoke at the Deutsche Bank Global Industrials & Basic Materials Conference in Chicago June 12.
But commercial rates have been flat, driving down profitability to low levels and, in some cases leading to losses, for specific accounts, Wyshner says.
Avis Budget will look for opportunities to negotiate prices increases for large corporate accounts, Wyshner says. In so doing, Avis Budget may strike a different balance than it does now between retaining accounts and pricing, he adds.
In other words, Avis Budget is willing to lose some corporate accounts in exchange for charging higher rates.
The company recently has been focusing on growing its customer base among small businesses, where Avis Budget doesn’t need to provide substantial volume discounts, Wyshner said. But Avis Budget will obviously now turn its attention to securing price increases from its larger corporate accounts.
In other developments, Wynshner said Avis Budget is very pleased so far with its aquisition of Zipcar, completed in March, and the car-sharing service now has a presence at 11 U.S. airports.
He said Avis Budget sees a huge opportunity for Zipcar in Europe, where it currently operates only in the UK, Spain and Austria. As promised, Avis Budget has been allocating its cars for Zipcar to use on weekends when demand for Avis Budget has been slack, and this “generates highly profitable revenue,” Wyshner says.
The only negative in the Zipcar acquisition so far, Wyshner said, is that Avis Budget has had to slow down acting on some of the opportunities it identified because there is “only so much we and Zipcar can do at once.”