Car Rental Rebounds

More than five weeks after the Sept. 11 terrorist attacks, business in the car rental industry has rebounded somewhat, with bookings about 80 percent of what they were before the disaster, despite ongoing concerns about the impact of U.S. military action and the possibility of more terrorism. As car rental companies pursue full recovery, however, they are divided as to whether to seek federal help.

The day after the bombing of Afghanistan started, "the phones stopped ringing" at Dollar Rent A Car's call centers, said president Gary Paxton. He added that transactions picked up again one week later. While rental cars were sold out in the days after the attack, as stranded travelers rented cars to get home, the car rental industry has been heavily impacted by the loss of airport-related business. In the week after the event, car rental bookings were off 50 percent in major markets.

Three companies—Dollar Thrifty Automotive Group Inc., Budget Group and ANC Rental Corp., which consists of National Car Rental and Alamo—have lobbied for passage of legislation that would amend the airport bail-out bill to include $1.5 billion in federal loan guarantees for the car rental industry.

The three firms also are seeking federal assistance to make up the shortfall in the minimal annual guarantees to airport authorities (the volume-based fees they negotiate and pay to be on-airport) and unforeseen expenses related to security. Because of the drastic fall-off in traffic, car rental firms are unable to meet volume requirements tied to their payment to the airports and are asking the government to pay the difference. Another problem has been the elimination of the car rental firms' express rental return lots at some airports: Lots located within 300 feet of the terminal became off-limits after the Federal Aviation Administration implemented a ban on close-in parking. "We had to alter our operations and the cost was considerable," said Dollar Thrifty's Paxton.

Neither the Hertz Corp., nor Avis Rent A Car System support the legislation. Hertz spokesman Richard Broome noted that booking levels remain below normal at most U.S. locations and that the company has implemented staff and fleet reductions along with the delay of some capital projects to help defray costs. But he said restoration of air travel would be the surest way to boost business back to normal.

Perhaps more to the point is the companies' ownership by large, well-financed corporations—Ford Motor Co. in the case of Hertz, and Cendant Corp. in the case of Avis—which provide a level of protection not available to the rest of the industry. And among those firms seeking help, the needs of Dollar Thrifty, which has been profitable, differ from those of ANC and Budget, both of which were struggling before the disaster.

"Dollar Thrifty does not have any present need for loan guarantees," Paxton said. "We are financially strong and solid. But depending on future events, in the worst-case scenario, we might have that need in a year."

Car rental companies that have substantial business in local markets also were somewhat buffered by the disaster, since local rentals remain strong. Budget, for example, earns half of its revenues from non-airport-related activities, such as local market rentals and truck rentals.

According to Budget spokeswoman Jennifer Sullivan, the company has "adjusted our seasonal staff levels," shifted airport staff to local market locations and offered reservation and front line staff up to four weeks of unpaid leave—but announced no major layoffs. It has downsized its fleet an additional 10 percent to 12 percent over the 15 percent decrease it already had initiated before the attack.

Jon LeSage, vice president and director of research at Abrams Travel Data Services, said that not being able to make their annual payments to the airport authorities particularly was onerous because it could affect the car rental firms' financial investments in the new consolidated car rental facilities that have sprung up in recent years. Another painful repercussion is the depreciation of used-car prices. As the car rental companies cut their fleets and seek to resell risk vehicles—cars that are purchased and owned by them, as opposed to the vehicles that are bought back by the manufacturers—they are taking a hit as the vehicles sell for less due to the faltering economy.

Dollar Thrifty is laying off 20 percent of its staff at headquarters and regional offices. Those cuts do not include the small, continual reductions that have occurred in operations, Paxton said. Both Dollar and Thrifty have reduced their fleet by about 20 percent compared with a year ago. Dollar also has seen a precipitous decline—upward of 35 percent, according to Paxton—of inbound U.S. travel, much of which derives from foreign tour operators.

As U.S car rental companies seek to regain their business, corporate buyers are in a good position, according to LeSage. But in the long term, travel managers might have to cope with some additional costs, such as mileage fees and additional airport add-ons—a provision of the proposed car rental legislation—as the car rental firms attempt to recoup their losses from the disaster.