Auto Rentals Not Affected by Rising Gas Prices
Soaring gasoline prices may be crimping many U.S. industries, but fuel costs have done little to undercut business in the rental car market, experts said on Monday. Since up to three-quarters of their business based in airports, major auto rental companies such as Ford Co.’s Hertz Corp., Avis Group Holdings and Budget Group Inc. are feeling the pinch from the corporate travel slowdown. But company executives and industry experts said fuel costs have yet to put a dent in demand. “We have not yet seen a tremendous impact from rising gas prices, but we are closely monitoring them as we approach the peak summer travel season,” said Mark Sotir, Budget's president and chief operating officer. The U.S. Energy Information Administration said last week it expects summer gasoline pump prices to average from $1.50 to $1.75 a gallon, breaking the record-high levels set last year. The U.S. Energy Department's statistical arm said rapid increases in wholesale gasoline markets would continue to trickle down to the retail level. Rising fuel costs have cut into the leisure industry, with hotels and airlines reporting higher expenses in a sluggish business environment. Rental car companies are certainly not immune to the downturn. Budget, Avis, Hertz and Tulsa, Oklahoma-based Dollar Thrifty Automotive Group all note the slower economy has hurt either revenues or pricing. But analysts said high gas costs do little to deter consumers renting cars even in a slower market. “We find that it doesn’t have a tremendous impact on our customers’ travel, both on the corporate and the leisure side. People who are going to travel are likely to travel anyway,” said Ted Deutche, a spokesman for Avis, a wholly owned subsidiary of Cendant Corp. Market watchers agree that higher gasoline prices at the pump do not significantly dampen car rental activity. Car rental and gas costs remain a small portion of most trips compared with airfare and hotel costs, Salomon Smith Barney analyst David Riedel said. “Rising gas prices do not impact car rental unless they drive airfares higher, which can have an impact on travel and therefore on car rental,” he said. As gas prices are passed on directly to rental car customers, they do not have an impact on car rental company profits. And though corporate travel has weakened, rental car companies have benefited from the relative strength of leisure travel, Riedel said.
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