Car Rental Agencies Escalate Market War
Fear of terrorism and a weak economy have decreased travel demand and sent some major car rental firms into bankruptcy, according to Reuters. But business is profitable for other industry players, who have siphoned market share and pricing power from weaker rivals.
Profits at Avis Rent-A-Car and Dollar Thrifty Automotive Group were up this quarter compared with results a year ago, when the Sept. 11 attacks brought travel to a near-standstill and demand for rental cars dropped more than 30 percent.
Dollar Thrifty said that its third-quarter profit jumped more than 250 percent, as it kept its fleet size in line with lower demand and rental rates stayed strong.
Rental car demand has now leveled off about 10 percent below pre-Sept. 11 levels on average, said C.L. King & Associates analyst Michael Gallo. The slower revenue helped force leisure travel-focused Budget Group and ANC Rental Corp., burdened by both debt and vehicle obligations, into Chapter 11 protection.
But companies with stronger balance sheets, such as Dollar Thrifty, Ford Motor Co. unit Hertz Corp., and Avis, a unit of Cendant Corp., have been able to cut the size of their fleets to match demand and save on costs.
Hertz' rates have stayed high enough to allow rivals to fall in line underneath them and reap profits instead of aiming purely for market share. Fewer rental cars on the road due to cuts in capacity have helped buoy prices further.
Fort Lauderdale, FL-based ANC, which filed for bankruptcy last November, holds a 22 percent share of the car rental market between its Alamo Rent-A-Car and National Car Rental businesses, down from 25 percent before its bankruptcy filing, Gallo said.