Earlier this year BTN featured an article authored by Executive Travel founder and CEO, Steve Glenn with the title Two Ground Transportation Predictions. After years in the ground transport sector and assessing the industry I cannot foresee what Glenn does in his article and would like to offer my own predictions by addressing his two comments.
1. Will Hertz buy Avis?
Glenn proclaims "there are too many car rental companies" and that "Enterprise/National is eating the cake of the other companies with amazing pricing and outstanding customer service".
In the US for the corporate travel buyer there are only three major firms: Hertz, Avis and EHI, all of which are global. In the US the majority of the corporate business to/from airports goes to National, Hertz and Avis. Enterprise receives a smaller portion of the on-airport business but absolutely dominates the off-airport business. The next two large global players are Europcar and Sixt although their US market share is minimal in comparison to the big three.
If Hertz would be allowed to purchase Avis it would have well over 50% of the on-airport business in the US and a large portion internationally. Corporate buyers would only have two choices: EHI or this new Hertz entity in the US, and a reduced choice everywhere else in the world. For that reason alone I would think the authorities would not let Hertz buy Avis.
Also, both Hertz and Avis financially are below investment grade, which is like saying Hertz -1 + Avis -1 = Hertz new entity -2. How would they compete with EHI, which has a healthy financial balance sheet?
Furthermore, the used car market was having a negative impact on rental car companies until the unfortunate weather disasters in 2017. Those incidents created a windfall for used cars sales that would not have existed, and hopefully there will be no more major disasters in 2018. But the automakers are cutting back on how many specially-priced fleet deals that they willing to sell to rental car companies. That will result in higher prices paid per car and some rental companies will hold on to their fleets longer, resulting in an aged fleet with higher mileages. This will be a monumental issue going forward for all rental car companies and would be especially problematic if Hertz bought Avis.
In prior articles I have speculated that it would be more likely that Hertz could be bought by another company or supplier that will have the ability to improve its financial status/purchasing power, provide instant buy-in or improve market share to the rental car global world. That prediction is based on what would help Hertz become more competitive or another supplier verses EHI.
2. Whether Uber or Lyft will dominate
Now let's look at the Uber/Lyft relationship and Glenn's prediction that "Lyft will grow faster than Uber in 2018 as Uber raises prices."
Lyft growing faster is very likely but that needs to be put into perspective. When any start-up or company owns the majority of the market share you will always be dealing with market share loss, as competitors will keep on eating at your largest portion of the pie. According to Fortune magazine Uber has revenues of US$7.5 billion and losses of $4.5 billion for 2017. According to Bloomberg last year (2017), Lyft is on pace for $1.5 billion in net revenue, the amount of money it generates after paying drivers, on losses of $400 million, based on documents prepared at the end of the second quarter. Since then, Lyft has spent heavily on a nationwide marketing campaign, anticipating losses of close to $600 million in 2017.
The numbers speak for themselves as far percentage of business and profitability; Lyft is nowhere near Uber in size and Lyft is in the US only. Lyft is spending money advertising to gain market share, which will affect its profitability.
Glenn also predicts that Uber will increase prices by 10-20%. Does Uber need to take a price increase? Yes, and more in the range of 50% if they want to be profitable, but there is an issue: competition. Lyft is spending money to gain share and other competitors are entering into the market all selling convenience and price. You also have chauffeur companies that are much safer (duty of care) and are developing on-demand or near-demand apps which will also slow down growth, especially if prices increase.
Raising prices is the elephant in the room and a big factor that drives customers to and away from suppliers. I have watched the rent car and chauffeur industry for many years and pricing is more competitive than ever. Yes market share will change: look at Hertz which had the majority 40 years ago and now is still a large company, but with much less share (most of it going to EHI). Corporate pricing today, adjusted for inflation, is substantially lower than 40 years ago. I don't see Uber trying much of a price increase as it will send market share flying elsewhere.
In addition Uber has settled some lawsuits that have added to its losses, including the $245 million to Waymo. Alphabet, the parent of Waymo, gained stock shares in Uber. But there are still more issues and lawsuits. In London Uber's license to operate ended in September but it is still operating while waiting for an appeal to be heard 25-29 June, which will most likely go on for much longer than that week. This also will be costly, especially if it lingers for a long time, as many speculate it will.
Glenn and I both have predictions and only time will tell what will be.
Two areas that need further attention
EU General Data Protection Regulation (GDPR) is silently creeping up. It protects the personal data of persons located inside the EU and doing business internationally and the deadline to be compliant is 25 May 2018. I feel this has been somewhat ignored so far by US-based suppliers and travel managers; I have not heard many talking about it. My understanding is that GDPR is not to be ignored as it comes with big penalties - up to 4% of global turnover or up to EUR20 million.
This will be relevant for corporate accounts that have travellers internationally, and the suppliers they use that do business internationally. Corporate travel buyers need to be sure that the suppliers they will be using, including rent-a-car and chauffeur driven companies, are GDPR complaint by 25 May 2018.
Finally, we all know the industry is changing rapidly and for now convenience and cheap rides are the driving factors. Technological improvement is the gift that the TNCs (transport network companies) have delivered to this segment of the travel world. But the TNCs are not profitable and correcting that, I believe, will be much harder than they are projecting to investors.
We are becoming numb or accepting of unacceptable behaviour that cross the line, both publicly and in our business responsibilities, in relation to duty of care. That unacceptable behaviour is still happening in TNC rides and, at the same time, companies are finding it hard to control TNC spend.
Just because we are turning a blind eye does not mean the liability and the duty of care for the travelling employee is still not a moral and legal responsibility with consciences to the company if ignored. That, by the way, is not speculation.