I got this the other day from a reader:*

“Some of my business friends say car rental rates will never go up. My boss says, ‘If you see it in Auto Rental News, it is so.’ Please tell me the truth, will rates ever go up?”

Signed, Virginia O’Hanlon

Well, Virginia, though no one can predict the future, we can be thankful for signs of optimism that rates will head northward — just a bit — in 2016.

In the November Auto Rental News 50-airport rate survey, conducted with data from Rate-Highway and analysis by Jim Tennant of The Tennant Group, the average quote for an intermediate car was up $1.31 from a year ago. This may not seem like much, but it’s only the fourth year-over-year increase since we started collecting year-over-year quotes in 50 cities in June 2014.

In ARN’s just completed Business Outlook Survey of franchised and independent car rental companies, 40% of respondents believe their rates will increase in 2016. In the same survey conducted two years ago, 30% believed they’d increase. This is an opinion survey, but directionally positive on the tenor of operators.

What factors would positively affect rates?

On the demand side, travel is being propelled by fuel prices at their lowest point since 2008. This Thanksgiving holiday, 300,000 more people traveled compared to last year, according to AAA. Expect similar gains for Christmas.

Looking further out, the Global Business Travel Association (GBTA) predicts business travel spending will increase by 5.4% in 2016, a greater percentage than the growth in 2015. The GBTA predicts total business travel volume to increase by 3% in 2016, accounting for 38,000 additional business trips every day.

These are positive signs, but then again, past positive demand environments have not propelled car rental rates, or “pricing” in investor-parlance. So what’s different on the car rental side?

The industry saw one of the largest fleet turnovers in the history of car rental in the first three quarters of 2015, as Hertz initiated a refresh and rightsizing of three quarters of its fleet. This depressed pricing at times, as well as off-rental auction values. Hertz is exiting the woods here.

Hertz CEO John Tague admitted in the company’s third quarter conference call that it lost about three points in share over the last few years, yet “It was sort of a necessary reset that we had to go through,” he said.

While the pre-F.R. (pre-Financials Restatements) Hertz might have been on the warpath to regain share — at the expense of pricing — the new Hertz has adopted a much more cautious stance.

Enterprise, the primary beneficiary, is not exhibiting signs of a share grab. On the contrary, Enterprise, not Hertz or Avis, was the latest initiator of two price increases. These increases may or may not have stickiness, but the fact that the privately held player of the Big Three motivated them is cause for optimism. Indeed, in ARN’s latest pricing survey, Enterprise’s premium brand, National, priced in the middle of Hertz and Avis.

On the corporate pricing side, let’s just give up on any dramatic swings one way or the other, especially with large corporate contracts. It’s just the nature of the beast — major car rental companies have long-standing and mutually-beneficial relationships with their major corporate clients, and they won’t endanger that by pushing hard on price during contract renewals.

For what it’s worth, American Express Global Business Travel Forecast predicts commercial car rental rates to increase 0% to 1% in 2016. Let’s not despair, there is room to play in non-contracted commercial, and increased business travel volume in 2016 will benefit car rental.

Another potential factor is the softening used car market: lower wholesale values mean higher holding costs. While the commonly held notion that higher costs push price increases is true, car rental companies have mitigated cost gains through remarketing science in recent years. Slight upticks in holding costs should have only minimally positive impacts on pricing.

With right-sized fleets, “rational behavior” and barring any wild cards, let’s be cautiously optimistic on pricing for 2016. In this holiday season, that’s the best present the car rental industry will have had in a long time.

Oh, Virginia — everything you read in Auto Rental News is certainly true. But Santa isn’t real, in case you were wondering.

*Not really.

Originally posted on Business Fleet

About the author
Chris Brown

Chris Brown

Associate Publisher

As associate publisher of Automotive Fleet, Auto Rental News, and Fleet Forward, Chris Brown covers all aspects of fleets, transportation, and mobility.

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