Car Rental Business Models For Fleet Utilization under Scrutiny at ICRS
April 29, 2019
Convention reveals days of 60% fleet utilization are long gone
There was no shortage of takeaways delivered at the International Car Rental Show earlier in April in Las Vegas. The predominant theme had a great deal to do with changes in the industry, but according to Auto Rental News the buzzphrase of the weekend seemed to be that the days of 60 percent fleet utilization have since passed.
Car rental firms that manage to squeeze out three-fifths of rental time from their fleet traditionally would be doing alright in a more predictable market, if the metrics offered by BizFluent are any indication. A generic case of a company with a fleet of 100 would normally have 36,500 rental days in one year; hitting the 22,000 mark would mean that same firm would be doing just more than 60 percent. Or if your total fleet is worth $500,000 and your rental revenue totaled $300,000 for the year, the company’s dollar utilization would also be at 60 percent, which still wouldn’t be too shabby.
But with recent reports, such as a March study issued by Epsilon-Conversant, revealing that ride-sharing firms like Lyft and Uber are starting to eat away at the car-rental market, 60 percent fleet utilization, whether measured by time or dollars, will be much harder to achieve.
Fortunately, there were a few success stories shared by numerous panelists, including a few players from South Korea who told Auto Rental News about a strategy they started following. Apparently, South Korean auto rentals are getting maximum fleet utilization from 40 percent of their fleet through long-term transactions ranging from half a year to two years.
Then there was one nugget of wisdom from a Pennsylvania-based Budget operator who originally rolled the dice on getting as many bookings from his airport office. That is, until he expanded into subscriptions, which now account for three-quarters of revenue at his location.
Subscriptions has been bandied about a lot among car rentals for quite a while, although many have been skittish to introduce them, especially with a younger demographic that apparently doesn’t have brand loyalty nor any interest in long-term product commitment. Yet Enterprise is planning to launch a subscription-based service later this year, all the while still continuing to rely on its four-day rental model, a rule of thumb revenue generator that almost every car rental sticks to these days.
All the major car rentals are big on technology to realize profits, in the hopes that efficiencies will reduce operating costs, as was the case with Avis at the convention. The company pointed out that additional features in their fleet and their apps, through a number of work-in-progress connectivity programs, is a win-win for all involved. That is, if they can balance the acts of offering consumers more choice and achieving greater efficiencies.
But even if all car rentals jump on the progressive bandwagon to stay competitive, count on even greater changes in the market to alter those business models again and again down the road.
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