RENTAL CARS STILL GOING STRONG IN AGE OF UBER
Rental car companies are expanding their fleets and seeing an uptick in revenue despite the growing popularity of ride-hailing services such as Uber. But industry watchers warn that the industry could see its market share shrink — rapidly and dramatically — if it doesn’t continue to innovate.
“The car rental industry really needs to be on a continuous improvement program when it comes to making access to rental cars more convenient,” says Chris Brown, executive editor of Auto
Rental News. “Uber is kind of a wake-up call. ... I think there’s opportunity for car rental (companies) here. It’s just a question of whether the industry can take advantage.’’
Industry officials and observers say rental cars remain a popular option for those who need to travel longer distances, companies sending employees on the road and insurers who need to provide vehicles to customers who temporarily don’t have their own.
“Typically, auto rental is lumped into the general category of ground transportation, including taxi and livery services,” says Neil Abrams, an auto rental industry consultant. “However, whereas taxi and livery are of shorter duration and mileage, the rental customer normally has a different requirement, which demands more time and distance.’’
Avis Budget Group reported in its 2015 fourth-quarter earnings call that in cities where ride-hailing services are most popular — Chicago, Boston, San Francisco, New York and Washington, D.C. — rental day volumes increased 2%. Meanwhile, Enterprise Holdings said in October that its airport car rental revenue in the U.S. jumped 10% as compared to the prior fiscal year.
Laura Bryant, spokeswoman for Enterprise Holdings, noted that ride-hailing services are just one more option in the array of choices travelers long have had for getting around town.
“There are many diverse components that make up a city’s transportation infrastructure, from trains, subways and ride hailing, to shuttle buses and car rental,” Bryant says. “And they are offered at a variety of price points and levels of convenience and comfort ... all of these different transportation options are complementary and important in their own way. That fundamental point has not changed.”
Still, she says, “if you look beyond the big headlines and social media buzz, you’ll find evidence that the car rental industry continues to perform year after year. ... There’s a lot of car rental growth still happening.”
Avis Budget Group addressed whether ride-hailing services were taking a toll on its business when it reported its earnings for the fourth quarter of last year.
“The question of whether this is impacting us comes up in our discussions with many of you,” David Wyshner, Avis’ president and chief financial officer, said during an earnings call with investors.
When doing a year-over-year comparison of one-day rentals — the category most likely to be threatened by competition from ride hailing or taxis — the volume of those transactions “actually increased in 2015,” Wyshner said. Avis’ average renter drives a vehicle more than 450 miles over four days, but “when you look at shorter-length rentals such as one-day or two day transactions, the mileage per day actually increases,” Wyshner said. “These are clearly not trips where ride hailing, often at a cost of around $4 a mile, is going to be” economical. He says “The net result is that the data simply don’t support the argument that the growth in ride hailing is coming at the expense of car rental.” Still, the popularity of ridehailing services with business travelers is on the rise, while their use of rental cars is slipping. According to an analysis by expense management company Certify, the number of trips corporate trekkers took with services such as Uber and Lyft in the first quarter nearly doubled compared with the same period in 2015.
Meanwhile, there were 10% fewer trips taken in car rentals than the year before.
“That’s something to keep an eye on for sure,” Brown says. He added that with parking fees rising in various markets, “if you are renting a car for $30 a day and then having to park it for $30 a day, that makes Uber more attractive.”
Still, “if you’re moving multiple locations, and have multiple people,” Brown said, “you’ve got a three- or four-day trip, and you‘re in markets where parking a car is not going to cost you $20 dollars an hour, a car rental makes sense. And I don’t think that part of the market is really under attack.”
Matthew Egol, partner at PwC Digital Services and who has studied the impact of the sharing economy on traditional industries, says innovation will be critical if the rental car sector is to continue to thrive.
Hotels are losing some guests to options such as Airbnb, he says, and taxis have been impacted by ride-hailing competitors. “At what point will (the car rental industry) see real impact on their business, and how much ahead of it do they want to get?” Egol says.
For instance, airlines, hotels and online travel agencies such as Expedia currently offer rental cars to travelers when they are booking a trip but may start offering ride-hailing options as well, Egol says.
“Why wouldn’t they include them as a convenient choice relative to a rental car?” he asks.
Egol says that personally, he is renting a car less and less when he’s on the road for work.
“As a business traveler, I’m much less likely to rent a car than I used to be,” he says, “I can just take an Uber back to the airport. ... You don’t need the wait time. The pricing is better, and it goes straight to your expenses.”