Car Rental in Australia-Qualitative Research Study

Dissertation and Thesis on Car Rental in Australia

 

Qualitative Research Study-Car Rental Industry in Australia

 

  Thesis Proposal on Car Rental in Australia-Qualitative Research Study

HEADLINES

• Car rental declines by 4% in value in 2010, falling to A$1.1 billion

• Much of this decline is due to the 9% fall in leisure car rental value as Australians travel overseas in 2010

• Avis leads car rental with a 25% value share in 2010 while Hertz followed behind with 20%

• Car rental value sales are set to remain static over the forecast period as growth is limited to business car rental

TRENDS

• Car rental in Australia is in a particularly awkward position following the 4% decline registered in value sales during 2010. Prior to 2010, car rental experienced two years of double digit negative growth as declines of 13% were recorded in 2009. This is a strong indication that the golden age of car rental in Australia might be over, but also that care rental is on the edge of precipice over which it is likely to topple during the forecast period.

• Due to a combination of the good condition of Australian roads and the fact that roads in the country are relatively uncongested, not to mention the high prices of taxis which further encourages the ownership of some mode of private transport, Australia has a well developed car rental industry. The dominant target for car rental in Australia is domestic leisure tourism, and the levels of domestic tourism in Australia have fluctuated considerably during the previous decade. The boom in domestic tourism during the 2000s which stemmed from the growing popularity of fly-drive holidays saw Australians embracing the opportunity presented by the growing number of low-cost carriers to have a holiday in Queensland or other popular domestic destinations. This gave them the opportunity to explore the more far flung corners of their vast country and expanded the frontiers of domestic tourism beyond what was possible when a driving holiday using their own car was the most popular option.

• Car rental in Australia is primarily operated for the benefit of customers renting cars for leisure purposes. Leisure car rental accounts for more than double the value sales of business car rental. As mentioned above, however, domestic leisure tourism in Australia fluctuates considerably, whereas business tourism is far more stable and, as a result, it was business car rental which provided car rental players with the most solid support in 2010 as value sales increased by 10%.

• The dominance of leisure car rental is largely because large corporations, which tend to make up much of the bulk of business travel in Australia, tend to have their own fleets of cars and do not need to rely upon car rental companies. The same goes for employees who travel on government business. This is particularly the case in relation to companies in the mining sector, where the bulk of the growth recorded in Australian business travel during the review period was generated.

• Australians travelling domestically make up the bulk of leisure car rental and the patterns of domestic leisure travel are currently undergoing a fundamental shift. Domestic leisure travel is no longer the default option for Australians taking their holidays. Travelling to outbound destinations such as Fiji, Bali and Phuket is now the preferred option. This leaves domestic tourism to become increasingly focused upon short holidays such as weekend getaways. Such short rental durations are not as profitable as the longer terms of rental which were more popular in the past as domestic holidays. Therefore, the duration of car rental terms become progressively shorter and so the average transaction price declines. Furthermore, the number of transactions also declines as Australians increasingly travel overseas. If this trend does not turn around, Australian car rental companies are likely to suffer during the forecast period. Offering discounts for customers who rent for more than a certain period of time—such as five days—may be one means of fighting against this trend but it is unlikely to be enough.

• The trend towards domestic travel being centred more on weekend getaways and less around week-long holidays creates an addition problem for car rental operators since it leads to demand being concentrated almost solely on the weekend. The problem comes from operators having to maintain substantial fleets of vehicles in order to cater fully to the inflated demand at the weekends, despite the fact that there will be little demand for this fleet during weekdays. Such a situation has the potential to considerably thin the profit margins of car rental companies.

• As the appreciating value of the Australian dollar continues to encourage Australian to travel abroad to destinations such as Thailand instead of Tasmania, a negative impact will continue to be felt in car rental, particularly those outlets located at airports which accounted for much of the growth which occurred in car rental in Australia throughout the 2000s. This growth was fuelled by the rise in low-cost carriers and the corresponding rise of fly-drive holidays. The mass exodus of Australian leisure holidaymakers overseas represents a particularly serious situation for car rental players in Australia as leisure car rental is unlikely to return to its previous popularity over the forecast period. Car rental operators may well need accept that the lower levels of demand from domestic leisure tourists may be here to stay and the market will need to adjust accordingly, with potentially negative implications for some operators.

• After dropping standard rental charges and reducing fleet sizes during the global financial crisis a certain degree of stability returned to car rental in Australia in 2010. During the dark days of 2009, the situation became so dire for Thrifty Car Rental that it began to sell its surplus vehicle stock as second-hand cars directly to its customers. The ability of the car rental operators to rebound from these tough times has largely been due to business car rental, demand for which returned in 2010 after subsiding in the aftermath of the global financial crisis in 2009. The trend towards trading down which suppressed revenues from business car rental as corporations asked their employees to travel premium economy rather than business class or with low-cost carrier Virgin Blue rather than Qantas had little negative impact upon car rental during 2009/2010. For example, few corporations required their car renting employees to switch from larger vehicles to smaller vehicles. Car rental also makes up only a small proportion of corporate travel expenses and has therefore benefited from lack of scrutiny from cost-conscious travel managers.

• Compared to transportation and travel accommodation, the evolution of online bookings in car rental has so far been minimal. Due to the power of the brands of the leading operators in car rental, it is the direct suppliers which have so far tended to dominate online bookings for car rental. This is despite the fact that the number of car rental price comparison websites is increasing in Australia, including DriveNow and VroomVroomVroom.com.au. Despite the presence of such a wide array of online intermediaries, it is the direct supplier websites which receive the bulk of traffic and bookings. For this reason, car rental has not suffered from the same level of transparency as accommodation and airfares have as the practice of comparing car rental prices is so far not so well entrenched in Australia.

• Campervans are becoming an increasingly important segment for car rental players in Australia. Over 80,000 international visitors used a campervan as their main transportation in 2010, according to the International Visitors Survey. There is also the growing number of campervans being purchased by Australians with the intention of using them as mobile travel accommodation for long periods of time during their retirements. In relation to car rental, this represents a negative situation as it limits the number of consumers who would wish to rent a campervan. However, the general growth in the interest in campervans is an indication as to the direction in which car rental in Australia is heading.

• Having contributed significantly to the popularity of campervans as a transport option for backpackers, Wicked Campervans has continued to find itself in trouble with 80 of its campervans being ordered off Queensland’s roads by the State Government due to the vehicles being considered not roadworthy. Whilst the backpacker lifestyle and philosophy does embrace a certain element of risk and danger, the mechanical faults were considered too much for most, and Wicked Campervans has struggled since the clampdown in January 2010. The situation has been made worse by the additional promotional efforts of other, better funded campervan operators such as Britz and Maui, owned by New Zealand-based Tourism Holdings Limited.

COMPETITIVE LANDSCAPE

• Up until 2010, car rental in Australia was apt to be accurately depicted as Avis and Hertz versus the rest, although this is a somewhat simplistic analysis. The competitive landscape in car rental in Australia began to tighten significantly in 2010 as the transparency created by online third party websites and the urge to save money led to a migration away from the more traditional full-priced car rental brands such as Hertz and Avis. The move was towards less expensive options such as Budget and Thrifty and, to a lesser extent, Europcar. This trend appears to be more prevalent in Australia than elsewhere in the world.

• The car rental company in Australia which found itself subject to the greatest decline in value share during 2010 was Avis, although it retained its leading position with a 25% value share, down from 26% in 2009. This slip in value share, although potentially problematic, is not of massive concern to Avis, since much of the migration away from Avis is directly befitting its low-priced brand Budget. Budget’s value share rose to 13% in 2010 from 11% in 2009. Such a shift in demand can be explained by reference to the downtrading in leisure travel as the difficult economic times limited the holiday budgets of Australian leisure tourists. It is possible then that this does not represent a fundamental and permanent shift in the makeup of car rental in Australia and is just an aberration, a temporary blip, and consumers will soon shift back to Avis once the economy recovers and travel budgets increase once again.

• Part of this shifting downwards from premium to economy brands has been facilitated by the growth in price comparison websites, which have created an element of transparency within car rental in Australia. Such transparency, to the extent that it is occurring, favours only the existing five large players—Avis, Hertz, Budget, Thrifty and Europcar—or to be specific, the smallest three of the so-called ‘big five’—Budget, thrifty and Europcar—since it is only the big five who tend to be featured on third-party websites. Unlike the case of travel accommodation, the use of price comparison websites does not also include the wide array of smaller players, which continue to be largely locked out of the competitive environment.

• Avis and Budget’s leadership of car rental in Australia is likely to expand further over the forecast period as Qantas has announced the exit of both Hertz and Thrifty from its frequent flyer program as of November 2010, leaving only Avis and Budget within the scheme. This will serve to funnel a large proportion of Qantas customers to Avis, while Jetstar customers will tend to head towards Budget.

• Australia is one of Europcar’s primary non-European markets and the company enjoys a frequent flyer rewards programme agreement with Virgin Blue. Europcar has made good use of this strategy, building up a 12% value share in car rental. Europcar outlets are located predominately in airports, commonly airports which cater to the domestic leisure tourists which Virgin Blue typically appeals to. Europcar has thus gained a significant slice of demand for fly/drive leisure holidays. Europcar now needs to go beyond its airport-centric distribution model and is increasingly expanding its presence through the opening of more non-airport outlets throughout Australia.

• Since being acquired by the National Roads and Motorists Association (NRMA) in 2006, Thrifty intended to undertake a significant and aggressive expansion of its car rental business, not only in New South Wales where the NRMA is based, but across Australia. Once the worst effects of the global economic slowdown hit, however, and Australian holidaymakers decided to holiday abroad, Thrifty began to suffer from rather intense cash flow problems. Although demand for business car rental returned strongly in 2010, Thrifty maintains little presence in business car rental, focusing instead on leisure car rental, which remained in rapid decline during 2010.

PROSPECTS

• The primary target for car rental in Australia remains domestic leisure tourism; however as Australians are increasingly holidaying overseas, the level of demand for care rental among domestic leisure tourists is now in serious decline. It is domestic leisure tourism such as fly-drive holidays in Queensland which have suffered the most from the exodus of Australian leisure tourists overseas and it is for this reason that car rental in Australia is likely to continue struggling over the forecast period. Without a reversal of the underlying trends which have so far produced this shift away from Australians holidaying within Australia such as a reversal in the fortunes of the ever-rising Australian dollar, it is likely that domestic tourism will continue to decline during the forecast period, a trend which will have a negative impact upon the growth of car rental in Australia, particularly leisure car rental, which will decline in constant value at a CAGR of -1% over the forecast period.

• Rather than leisure car rental, it will be business car rental which demonstrates the strongest growth opportunities over the forecast period. Business car rental is set to increase in constant value at a CAGR of 2% over the forecast period. This will allow car rental operators to focus on the premium end of car rental, where profit margins are more attractive. It also suggests that the shift away from Avis and Hertz and towards Budget which characterised car rental in Australia during 2009/2010 may in fact have been an little more than a temporary aberration. With the majority of business travellers in Australia flying Qantas and many such travellers following the recommendations of their respective frequent flyer programmes in a bid to earn more points, the leadership of Avis, which is included in the Qantas Frequent Flyer programme, will become more secure over the forecast period.

• Campervan rentals, on the other hand, are likely to boom due to the rise of the so-called ‘grey nomads’. Many of these retired perpetual tourists are planning to spend at least a significant portion of their retirement years travelling around Australia at their leisure. The most popular means of doing so will be to actually purchase and maintain a campervan; however, for those who do not wish to get so deeply involved with the so-called grey nomad lifestyle, campervan hire will be a popular alternative, potentially boosting value sales of leisure car rentals during the forecast period.

Source- Euromonitor International-Car Rental in Australia-Category Briefing | 18 Apr 2011

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