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Let’s see: AvisBudget now realizes 15 months after touting all of the envisioned fleet-sharing synergies with Zipcar that there are costs involved in shuttling the vehicles back and forth between locations? Very curious. One solution is allowing Zipcar to introduce one-way rides, which is a very attractive option for customers regardless.
Zipcar is currently running a beta for one-way rentals, which are expected to be introduced in the third or fourth quarter, but the reason behind the new service isn’t merely for passenger convenience.
In fact, the Avis Budget Group found out the hard way that achieving all of those much-touted fleet-sharing synergies between AvisBudget and Zipcar — sending Avis and Budget vehicles to Zipcar during peak-demand periods on weekends and dispatching Zipcars to Avis and Budget locations when road warriors need them on weekdays — was a lot more complicated than initially envisioned.
Speaking at the J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum in Las Vegas earlier this week, AvisBudget CEO Ron Nelson said fleet-sharing has turned out to be more complicated than the company thought because there’s a cost tied to moving the vehicles from one location to another.
“The cost of shuttling can really impact the incremental yield you expect to get from delivering that car to pick up the incremental demand,” Nelson said.
While Avis and Budget do one-way rentals, they were prohibited at Zipcar until the beta began. The plan is to introduce the one-way Zipcar rentals in the third and fourth quarters of 2014 so the much-hyped fleet-sharing synergies can begin to be achieved toward the end of 2014 and into 2015.
In this way, customers will pay to bring the vehicle from the airport to a downtown area “so it is a revenue item and not a cost item,” Nelson said.
AvisBudget and Zipcar have already been doing some fleet-sharing, but the profits weren’t optimal, Nelson said. Once Zipcar begins its one-way rides “then we’ll be able to really optimize the fleet-sharing paradigm,” he said.
It’s unclear how these complications will impact the $50 million to $70 million in overall annual synergies that AvisBudget estimated would take place when the company announced its plans in January 2013 to acquire Zipcar for $500 million.
The bulk of the synergy-making has already been pushed back toward 2015. As part of a February 2014 AvisBudget investor presentation, Zipcar projected $20 million to $25 million in fleet-sharing synergies, which have not yet been accomplished.
Despite Nelson’s talk with investors about the Zipcar one-way beta, AvisBudget declined to elaborate on the topic other than to say: “Zipcar has begun testing a new and exciting one-way service offer. We look forward to expanding to members when we are confident it will meet our high standards for convenience and member experience. We will be communicating information with media about the new service at the appropriate time.”
In other AvisBudget and Zipcar news:
- Zipcar, which is currently offering service in the U.S., Canada, the UK and Spain, plans to expand into Australia in 2014.
- Nelson said in 2013 AvisBudget cut its inventory in online travel agencies’ opaque services, particularly Hotwire, by 40% to 50% in a climate of rising pricing, particularly in the leisure market.
- Nelson said AvisBudget expects to take a relatively tough stance when negotiating smaller corporate accounts this year as negotiating large, corporate accounts remains very competitive.
- While AvisBudget saw four quarters of “positive pricing in 2013,” Hertz has been “erratic,” participating in only one-third to one-half of the price increases, and Enterprise, which traditionally has been a “spoiler” in not matching price increases, has “now flipped roles and become the fast follower on most price increases,” Nelson said.