March 8, 2021

$97 in New York but $40 in Las Vegas: Making Sense of Car Rentals

The cost of doing business in different markets is a big factor — including labor, real estate and the price to insure a fleet of cars. Varying tax rates can also affect the final bill, especially in places that levy special taxes on car rentals.

But the number of car rental companies that serve a particular market also plays a significant role in price. And competition is a growing issue as the industry consolidates and leaves just a few dominant companies that each own several car rental brands.

Jonathan Weinberg, president of the car rental agency, analyzed September midweek rentals booked through the site and found customers were paying about $97 a day in New York City, including taxes, versus $40 in Las Vegas and $45 in Miami and Los Angeles.

“In somewhere like Los Angeles, you have so many different vendors at the airport, and many are low-priced value providers,” Mr. Weinberg said. “There’s so much competition for customers, it tends to drive prices down.”

In Miami, which recently built a combined rental car center near the airport, 16 companies compete for customers, including more than half a dozen discounters like Payless, Advantage, E-Z Rent-a-Car and Ace. Being in the same place puts the low-priced providers on more of a level playing field, since travelers take the same bus to get to the building and do not have to wait longer for a company that cannot afford frequent bus service. A new train running from the Miami airport to the rental car center replaced the bus last week.

Another competitor in Miami is Sixt — a German company that has locations worldwide but is just gaining a toehold in the United States.

“The new consolidated Miami rental facility provided Sixt an opportunity to get in there,” Mr. Weinberg said. Other cities that have at least 11 car rental companies at their airports include Los Angeles, Phoenix and Fort Lauderdale, Fla., whereas there are only six companies at Kennedy International Airport in New York, all major brands.

Richard Broome, a senior vice president with Hertz, acknowledged that the company reacted to rates set by competitors, especially the discounters that compete with Hertz’s Advantage brand.

“The more competitors you have in a market at an airport, the more pricing competition you would expect,” Mr. Broome said, though he also cited operational costs and basic supply-and-demand issues as rate factors.

“The price to rent a car in Denver around President’s weekend will typically be more expensive than to rent that same car in Cleveland,” he said.

Local taxes are another important variable in price differences — and one that has been getting more scrutiny as the travel industry fights municipalities that tax visitors to help pay for new stadiums and other projects that do not necessarily benefit travelers.

A study of travel taxes published this spring by the Global Business Travel Association, an association of travel managers, found that Chicago O’Hare, Boston Logan, Las Vegas McCarran and Kennedy airports levied the highest taxes on car rentals — adding 20 to 25 percent to the base price of the car.

Despite this growing tax bite, one bit of good news for travelers is that car rental rates have actually declined from their 2009 peak.

“It’s not like the price of a car is dropping through the floor — it isn’t,” said Neil Abrams, president of the Abrams Consulting Group, which advises car rental companies. “Rates are below what they were, but are still relatively high on a comparative basis.”

According to the group’s weekly survey of rental prices, the average rate for a midsize car at 10 major airports in mid-August, for example, was $85, not including taxes or fees, compared with $93 at the same time last year. In 2009, the price was $103, roughly the high point for rates in the decade the survey has tracked prices charged by the major car rental brands. (The Abrams index does not include discounters like Payless.)

The reason for the recent price decline is not weak demand: Avis Budget, Dollar Thrifty and Hertz all reported positive earnings in the second quarter of 2011, in part because of increases in rental days. But with a strong market for used cars, rental companies have been making money selling their older vehicles, so they have not set prices as aggressively as they did when the recession hit.

“There’s an incentive to buy cars, maybe even more cars than you can rent at an optimum price because you know you’re going to make a lot of money at the back end,” Mr. Abrams said. “That has a muting effect on rental pricing.”

As for the effect of competition on pricing, Mr. Abrams said that even with more airports building consolidated rental car centers, discounters like Payless or Fox Rent a Car faced challenges in capturing corporate clients. “Fox isn’t in Detroit, they’re not in Boston, and they’re not in Miami or Atlanta,” he said. “If you’re a corporate customer, and you’ve got people traveling all over the place, you can’t use a supplier that can’t meet your employees’ needs.”

But business travelers renting through corporate accounts have been somewhat shielded from sticker shock by discounted rates. Ovation Corporate Travel clients, for instance, paid an average of $81 a day for a rental car in New York City in the first half of 2011 and $40 in Las Vegas. Those prices include taxes, fees and options like navigation systems.

For those who do not benefit from a corporate discount, one way to save is checking to see if the price has dropped after making a reservation, or booking through a site like AutoSlash, which does this automatically.

“Rates start out very high, and then they tend to come down as the rental day approaches,” Mr. Weinberg said. “We see rental prices fluctuating wildly.”

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