The airport auto rental market is in a state of flux as more and more airports nationwide move to building consolidated rental car facilities. While airport officials are aiming to reduce traffic and make room for airport expansion, these new large facilities offer rental car companies the opportunity to expand.
With these developments in the airport RAC business, rental car operators may be considering venturing into this competitive market. The first in this two-part series is a primer on the airport car rental business, along with some pros and cons to weigh before making the leap.
3 Types of Airport Operations
At most major airports, there are three ways to participate in the airport car rental market.
One type is an on-airport operator. Companies with on-airport status have counters inside the airport, usually in the baggage claim area. They have ready/return lots at the airport as well as a service center or quick turnaround facility. The big companies — Alamo, Avis, Budget, Dollar, Enterprise, Hertz, National and Thrifty — take up most of these coveted airport spots.
“The top eight companies probably account for anywhere from 95 percent to 98 percent of the on-airport market,” says Jerry Copelan, president of Copelan Consulting LLC. He has been in the airport, airline and rental car businesses for nearly 30 years and worked closely on the development of consolidated rental facilities at five US airports, including San Francisco International Airport and Seattle-Tacoma International Airport.
Another kind of airport rental operator is the limited-service operator. They typically have a counter at the airport among the on-airport operators, but they bus their clients from the airport to an offsite facility.
Thirdly, there is the off-airport operation, which has no presence on the airport property but is located nearby. [PAGEBREAK] Guaranteed Customers?
You may have the idea that getting onto the airport will bring you an automatic captive audience. Thousands of travelers passing through the airport will see the signs for your rental car deals and stop by the counter. But it doesn’t work that way most of the time. At the airport you’re competing for a fixed market. The air traveler’s need for a rental car is already predetermined, unlike the local market traveler who may jump out his own car in favorable circumstances.
It is possible that a bargain-hunting traveler will ditch his rental reservation if he finds a cheaper alternative at the airport, especially when there aren’t reservation cancellation fees. But Copelan says the number of walk-in customers at airport rental operations is very small — about 2 percent, according to surveys of West Coast airports.
Web-proficient leisure travelers usually reserve rentals as part of travel packages online. Business travelers book similarly. While airport foot traffic is not much of a factor in driving business, rental rates are.
The Price Battleground
You’ll be competing for airline customers primarily based on price—a tough proposition against the larger, established brands. The airport customer has to pay added facility, concession and pass-through fees, making competing on rates even more cutthroat. Gaining airport business entails a different marketing strategy than your local market initiatives.
Instead of face-to-face contact and tailored advertising campaigns, you’ll need to establish yourself on a GDS and strengthen your search engine optimization. You’ll also need to partner with corporate travel planners and tour agencies.
Barriers to Entry
From the outset, the odds are stacked against small operators breaking into the airport market. Land and space on airport properties are limited, and most airports have existing lease agreements with rental operators.
The bright side is that leases are often good for only three to five years, so even large operators must re-bid every few years. This is when small operators get their chance. To bid, the operator must be qualified. This usually means the airport will require a minimum amount of gross revenues for three of the past five years, according to Copelan.
There is a threshold experience level, which varies based on the size of the airport. For example, an airport in the Colorado Mountains wouldn’t require as much experience as Los Angeles International Airport would.
Airports would also want some amount of experience dealing with flight activity, Copelan explains. Whether it’s dealing with Monday morning commuters on the West Coast or late evening arrivals, rental operators need to demonstrate sufficient resources and staffing to accommodate airport travelers around the clock. [PAGEBREAK] Costs and Conditions
Airports structure rental lease agreements so that they receive a concession fee, which is typically the higher of a minimum annual guarantee or 10 percent of gross revenues.
“They’ll be required to guarantee the airport X amount of money per year, payable monthly, and even if they never rent a car that month they have to pay that money,” Copelan says. “So it’s like a base rent.”
Being part of the airport also means being subject to any living-wage or prevailing-wage requirements the city might impose. A city could determine that the living wage is $14 an hour, driving up your staffing costs considerably.
Airports have other conditions for their rental operators. They may enforce minimum hours of operation so that you would be required to be open at 11 p.m. even without customers scheduled to pick up or drop off at that time.
It’s also common for airports to require a new fleet, with cars that are three years old or newer, for example. And they may require in the lease that customers can pick up at one location and drop off at another, which a single-location operator couldn’t do unless he or she was part of a franchise.
With consolidated facilities, there are some additional challenges. If you’re a limited-service operator with facilities offsite, you will be doing the dreaded double busing. Your customers will be required to take an airport shuttle to the rental facility and then you will have to bring them to your office to get their vehicle. And you have to pick up the tab for the second bus ride.
If you are on-airport at a consolidated facility, chances are the facility has been built recently and you will be paying for the construction through a higher rent or through surcharges passed on to your customers.
Now you know some of the obstacles to entering the airport market. Do you still think it’s worth it? Stay tuned for part two next month, where we will talk to rental operators who have braved the airport business and offer a phased approach to entering it yourself