Buyers Drive Down Car Rental Rate Hikes

Corporate travel buyers largely have been able to stave off increases in negotiated car rental rates, although major suppliers recently have reiterated a need to push higher revenues from corporate clients in order to offset increasing business costs.

American Express Business Travel in March reported that car rental rates increased by 4.5 percent, year over year, in 2006. That number includes a mix of both corporate negotiated rates and rack rates available to the general public, although the bulk of Amex's measurements come from its corporate rates, said David Balfour, American Express senior practice leader for car rental.

Hertz Global Holdings, the rental car industry's leader in revenue from corporate rentals, increased rates in corporate contracts by about 3.8 percent on average at the beginning of 2006, the company reported in its full-year financial results. Rate increases were softer throughout the rest of the year, but that's because the bulk of its corporate contracts are up for renewal at the beginning of the year, according to Hertz.

"We are the price leader, recognized by most industry standards, and the issue comes down to timing," Hertz chairman and CEO Mark Frissora said to investors in March. "We always lead most price increases."

Avis Budget Group, meanwhile, acknowledged in its earnings call in February that its corporate rate increases in 2006 were lower than expected. Leisure pricing was up in the mid- to high single digits, compared with corporate pricing in the low to mid-single digits, according to Bob Salerno, Avis Budget's president and COO.

Just the year before, Avis Budget—then a part of Cendant Corp.—had notified corporate customers of a 7 percent to 8 percent increase in rates (BTN, Aug. 15, 2005). This year, the company will make a continued push to increase corporate negotiated rates, as previous increases were noted as barely sufficient to achieve forecasted earnings.

"Make no mistake, financial results in 2007 are highly dependent on our ability to get pricing in both the commercial and leisure arena," Avis Budget chairman and CEO Bob Nelson said in February. "While we continuously manage our costs as carefully as anyone, we cannot cut our way into growth. The full-year impact of higher fleet and financing costs cannot be overcome simply with cost reductions."

Dollar Thrifty Automotive Group primarily focused on the leisure travel market and said in its 2006 earnings report that this year it would push for a 7 percent to 9 percent rise in revenue per day, even though same-store rental days were expected to be flat or slightly