Checking into Hotel Partnerships

Four years ago, Go Rent-a-Van/Go Rentals in Newport Beach, Calif., started receiving overflow business from luxury hotels like the Ritz Carlton in nearby Laguna Beach. The onsite rental company wasn’t equipped to handle the high volume of business. Go Rentals’ combination of high-end vehicles and its top customer service made the business a perfect backup. Two years later, Go Rentals received an exclusive contract offer from the Ritz Carlton and a decision was made: Go Rentals would focus primarily on servicing hotel markets.

Over the next two years, Go Rentals acquired 24 additional exclusive contracts. The shift in strategy has proven to be a winning formula for Go Rentals, which did approximately $1 million in business with hotels alone in 2002. That’s a 100% increase over hotel business in 2001, says Kavous Gitibin, vice president and general manager of Go Rent-a-Van/Go Rentals.

Though marketing exclusively to hotels doesn’t make sense for every rent-a-car company, such partnerships can serve as a powerful tool in growing your bottom line. Think your business might benefit from a strategic alliance with a hotel? There are several important factors to consider in finding the right partner and in negotiating an agreement. Not all markets are ripe for investment, and the hidden costs of doing business are important considerations in choosing your next business move.

One-Stop Shopping

One of the greatest advantages of hotel partnerships is the ability to offer convenience and flexibility to customers. Whether visiting for business or pleasure, hotel guests often don’t need a rental for the full length of their stay. If hotel booking agents alert guests about their onsite rental car counter, guests have the option of reserving a car for the days they require without the expense of renting for the entire stay.

“This kind of partnership works best with hotels that are close to airport locations and have a convenient shuttle service for their guests. It doesn’t work for hotels on Interstate 4 in who-knows-where,” says Bob Fore, a Thrifty franchisee. Fore operates a location at John Wayne Airport in Santa Ana, Calif., and a location adjacent to the West Coast Anaheim Hotel near Disneyland.

“We’ve had success with our hotel location by offering guests the convenience of picking up a car at the airport and dropping it off at the hotel or vice-versa,” Fore explains. “That way we pick up the one- to two-day business, saving clients the cost of renting for their full stay or the hassle of returning to an airport location if they don’t need a car for their full stay.”

Scott Cato, director of local sales for Advantage Rent-A-Car, agrees that the right hotel alliance can prove beneficial to the bottom line. With 6% of its total locations part of formal hotel partnerships, Advantage works closely with a variety of hotels. “From developing room-and-ride packages, to our staff making joint sales calls with the hotel staff, Advantage takes an active role in letting hotel guests know about the convenience of our services,” Cato says. “Having a highly visible rental counter on-site also helps us to capture those impulse buys — guests who may not have thought to reserve a car but now may want to have one for a day to explore the city.”

Cato adds that partnering with a hotel was a great way for Advantage to get a foothold in Orange County, Calif. “We had been unable to get a terminal location at [John Wayne Airport],” he says. “Several months ago we formed a partnership at a Hilton Hotel that was a short shuttle ride from the airport, and the business has gotten off to a great start. We expect tremendous growth in this location in the coming year.”

A partnership with an exclusive resort hotel can also provide extra exposure and marketing opportunities. Travel agents will often use an on-site rental company to book packages for clients. Event planners who book conventions and meetings will alert attendees of the on-site rental facilities. Go Rentals receives a regular list of new bookings at its partnership hotels, and then the staff goes to work in contacting group leaders planning the events.

Fore also previously enjoyed success partnering with a resort while he owned a franchise in Myrtle Beach, N.C. With just 25 cars, his bookings exceeded $600,000 annually.

Market Evaluation

But not all business plans and car rental markets lend themselves to such partnerships. With all of its 22 locations in cities that aren’t considered vacation destinations, Triangle Rent A Car doesn’t consider a hotel location advantageous. “Triangle looks for a balance of leisure, corporate, insurance and dealership business,” says Karen Smith, Triangle’s director of sales and marketing.

With two airport locations and 20 freestanding stores, the company is free to service all markets equally and without limitations, Smith says.

“I would worry that outsiders won’t necessarily want to go into a hotel to secure their rental, and we would lose the opportunity to service other markets,” Smith says.

Finding its niche in smaller cities like Greensboro, N.C., Triangle focuses on serving the convention center hotels from nearby freestanding locations. The company has made it easy for hotel concierges to call or e-mail for car reservations, and the Triangle staff delivers or picks up cars from the hotel. With preferred corporate rates established through the hotel, Triangle offers hotel guests an affordable convenience and service, without additional cost to Triangle.

Hidden Costs and Challenges

In addition to the obvious lease and start-up costs, space considerations often pose problems both inside and outside the hotel. A hotel that offers the option of a separate office, with an additional entrance from the outside, is ideal. A lobby location can work equally as well in attracting hotel guests, but may limit your visibility to walk-in traffic.

Space requirements become even trickier on the outside. “The biggest catch is that hotels rarely have adequate space for parking or cleaning in order to accommodate turnaround,” Cato says. “A close-by service station or car wash can be of help, but it proves to be a very costly part of doing business.”

Parking can also be an issue, depending on the volume of business from the hotel. A hotel that doesn’t have easily accessible cleaning facilities can mean that your turnaround time is longer, perhaps requiring that a larger fleet of vehicles be kept on-site.

Cato points out another hidden cost in having an on-site office — double paying for referrals. With hotel bellhops and concierges as the main source of referrals, Advantage has had its greatest successes in developing programs that include referral fees to these two groups. In most cases, hotel guests would use the on-property rental office by default as a convenience. However, Cato cautions that alienating hotel staff by not offering them an incentive is the quickest way to drive business elsewhere.

“The agreement gets you the space in the hotel, the relationship gets you the business,” Cato says. So with the up-front and hidden costs of doing business in a hotel, does it pay to form a partnership that does not include an on-site office? Many RACs say yes.

Smith says that Triangle’s fixed corporate rate for the hotel, along with exceptional customer service, ensures that hotel staff will continue to send business in the company’s direction.

Go Rentals has satellite offices at only two hotels of the 25 it services. Its exclusive arrangements allow Go Rentals to serve hotel guests from off-site locations, without having to worry about hotel staff driving referrals elsewhere. While Go Rentals does service other non-exclusive hotels, Gitibin adds: “We prefer exclusive arrangements where we have more control of the service. It’s a partnership where both parties win.” RACs with hotel partners agree that other options like courtesy phones and “call for preferred rates” stations go largely ignored in favor of a hotel staff referral.

Finding Your Niche
After thoroughly researching the marketplace and determining that a hotel partnership makes sense for your business, the quest for the right hotel begins. It’s important to look at the complete package in evaluating a hotel, not just the number of guest rooms or location.

A hotel with repeat conference and convention business might appear attractive in its promise of consistent business. But a newly opened hotel might also be aggressively targeting new business and be more open to working together on package deals. Like any relationship, communication is key. Finding someone who shares your vision of the market is an important consideration.

Once you’ve identified a suitable partner, contract negotiation is the final step in solidifying your new partnership. Most rental operators can offset some of the space leasing costs through a tradeout agreement giving the hotel use of cars. Fore uses a 6-8% ratio of his estimated time and mileage revenue to determine his desired rent range. While this is slightly higher than other operations, negotiating swap-outs for part of the rent keeps his costs down.

Other desirable lease options include a combination of rent and profit percentage as payment for the space. That way the hotel has an even greater incentive to drive business to the rental counter.

Like any other lease, the terms of length can vary. Most rental operators indicate their agreements are anywhere from one to three years, with the option of renewal at the end of the period. Unlike a traditional lease agreement, business partnerships also require taking a look at liability issues. With cars parked on-site, and hotel staff — willingly or unwillingly — dealing with car rental issues, terms of coverage are an important topic.

Los Angeles attorney Peter Bronstein’s practice focuses on business contract law, including franchise transactions. He advises that the best way to head off problems is to develop a strong contract from the start.

“The best agreement for the car rental company would be an indemnity provision, a contractual shifting of loss from the car rental operator to the hotel,” he says. But because most leases are drawn up to favor the landlord, this kind of protection is not likely to be agreed upon.

“There are many scenarios to consider in this type of arrangement,” Bronstein continues. “What does the hotel insurance policy cover? Does it cover their employees driving third-party vehicles? What if the valet gets dropped off the keys because someone is running to catch the airport shuttle?”

Bronstein advises that taking the time to consult with a transactional lawyer in contract development can head off a myriad of potential problems.

Expectations and Evaluations

What kind of growth can you expect from your new partnership? Even within the same geographic area, markets differ widely. Fore projects 10-15% annual growth at his southern California Thrifty locations. With Disneyland and the whole resort industry still recovering from 9/11, he anticipates slow but steady growth in his first year but of course hopes for more. “If it’s a good year, 2003 could jump as much as 50-60%,” he says.

Don’t be afraid to try to renegotiate a contract that’s failing to produce the level of business you anticipated. Auto rental counters at a hotel are a convenience to the guests, and an advantage to hotel operators. By delivering on quality and service, rental operators can quickly ingratiate themselves to hotel operators. It’s often in the hotel’s best interest to keep your rental counter in place, and hotel management may be willing to renegotiate terms that will keep both parties happy.

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