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Car Rental No-show Fees: Are We Ready?

The hotel and airline industries offer parallels and a path to possible implementation.

January 14, 2010

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To paraphrase White House gatekeeper Rahm Emanuel, "Don't let a good crisis go to waste."

This post-Recession era might be the best chance yet at gaining industry-wide implementation of no-show fees. Consumers are not storming rental counters with pitchforks demanding low-mileage cars. And, albeit with a grumble, they're putting up with higher rates.

Crises spur change. We can look to the hotel and airline industries for examples.

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"We [the hotel industry] always had a policy that we'd bill you if you didn't show up, but if we didn't sell out, we didn't care," said Joe McInerney, president and CEO of the American Hotel & Lodging Association. But then the recession of the early Seventies hit. "We said, 'wait a second, if people have a reservation, they have a commitment with us and we're holding that room for them. We have to get paid for it.'"

More recently, after last year's oil shock, airlines reacted by charging for checked bags. American Airlines lead the charge. The rest fell like dominos, with Southwest Airlines being the famous holdout, as its recent ad campaign will attest. But have they gained market share as a result?

Rick Seaney, CEO of Farecompare.com, an airfare comparison shopping site, has seen data from Southwest that claims it has gained a market share bump resulting in $900 million of additional revenue. However, from a net revenue perspective on baggage fees, it's been about a wash, Seaney says.

The legacy carriers have claimed they have not seen any load erosion.

Bag fees are a fact of life moving forward. Will Southwest eventually cave? Veteran airline executive and analyst Bob McAdoo says Southwest's hesitance is less about customer fallout and more about getting its IT house in order to handle the change. Bill Swelbar, a 20-year air transportation consultant at MIT, concurs. Seaney is less convinced, but maintains that Southwest is feeling pressure from Wall Street. "They know they're in the eye of the hurricane in terms of investors," he said.

The checked bag fee/24-cancellation fee parallel to no-show fees is not perfect. Brand loyalty to hotel chains is greater than car rentals, which are more of a commodity by nature. And there are more factors in play with air travel, such as flight availability to a certain city.

Checked bag fees were a "no brainer" from a revenue standpoint, while no-show fee implementation would not have as great an effect for car rental.

But let's be distinct-charging for airline baggage is just one more extra fee, while a no-show fee is part of an avoidable cancellation policy. The consumer backlash would not present as much of a public relations nightmare.

The customer service aspect is not one to be taken lightly. I asked consumer advocate and travel blogger Christopher Elliott for his thoughts. "A no-show fee would be really difficult to get any traction on," Elliott wrote, "unless the industry can manage its fleet better."

Elliott cautioned against a potential double standard: if the car rental company runs out of cars, the renter is out of luck. But if the customer didn't show, he'd still be charged, even if he wouldn't have gotten a car anyway.

We should all fight against playing games with the customer in this manner, no-show fee or not. The simple fact is it's in every company's best interest to be able to manage fleet to a more solid target. This is an era of profitability, not market share. "For airlines, it is all about managing inventory, and it would seem to be the same for car rentals as well," wrote Swelbar.

And maybe, just maybe, consumers are ready to accept the inherent fairness in such a policy.

The car rental industry is getting its IT house in order to handle the change. Avis Budget Group has asked its GDS partners to set up a system to take credit card information to charge a fee if the renter fails to cancel 24 hours in advance. OpenTravel Alliance will address this issue during the course of 2010 by modifying at least two of its rental car XML messages, with a scheduled publication date of December 2010.

This is how bad the problem has gotten: "One man last week booked five reservations," wrote one multi-franchise owner. "His reservations cost me a minimum of $60 and I netted nothing from him. Even after calling him and explaining the rising costs and asking him to confirm just one of the reservations-which he did-he didn't show. Do you think he would have booked five reservations and then no-showed if he had to pay a fee? Reservation costs are soaring and no shows are an expense we could control."

I think it's time for one major car rental company to put their toe in the water and be the leader on this.

 

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Author Bio

Chris Brown

Executive Editor

Chris is the executive editor of Business Fleet Magazine and Auto Rental News. He covers all aspects of the fleet world.

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