Increasing Fleet Efficiency and Revenue in The Car Rental Industry

In the quest for improved fleet utilization (fleet efficiency) and Revenue Per Day (RPD), car rental companies are trying out multiple tactics and solutions to maximize two of the most important KPIs in the car rental industry.

Those who are already familiar with the car rental industry would easily know that independent operators and car rental franchisee companies generally have two levers to grow revenue, the first being an increase in pricing, i.e. charge more per day rented, the second being to rent a car for more days during a period, thereby generating a higher utilization rate.

To increase both the utilization and pricing, the key is to find out, what car do your customers want? When do they need it? And for how long do they need the car etc.

Today, Marcello, our revenue advisor, shares some insights that will help you get your business running smoothly. Read on…

Post-COVID, getting relevant data points has been a nightmare for many companies. Car rentals are hit the hardest by demand volatility and have very little bandwidth or technology support to adapt. Which makes you rethink and ask yourself a question: “to be or RPD?” If only, there was a solution that could essentially bridge the gap between forecast and revenue maximization so that every rental is profitable, reduces time, effort and improves margins.

Fleet Optimization

Industry reports suggest the continuance of fleet shortage into 2023. Such being the case, Pricing Analysts and Revenue Managers across organizations are trying their best to maximize this metric.

If we were to rely on the data on the web, then the European car rental market, the range of rental lengths (1-14 days) has drastically declined for the majority of the car rental players and is continuing to do so even today. With all the restrictions and lockdowns, similar trends have been observed in the US and APMEA markets as well. This is not unique, as post-COVID, many have restricted themselves from venturing out, and for those who do, car rental companies find it difficult to price their products accurately, leaving them unable to attract new customers and optimize fleet utilization.

Price and Demand Paradox

Car rental pricing is a tricky subject – Price your products too high, and conversion drops, price it too low, and you end up losing revenue. Seasonality in demand can also cause revenue managers to price their products inaccurately. Simply taking into consideration previous daily, weekly and monthly variations does not always help. In such a case, it becomes essential to forecast demand by carefully analyzing multiple parameters such as fleet type, season, location, and more importantly, the Covid restrictions in place at that location.

In the race to grab new customers, car rental companies often lure customers by offering discounts on their cars. This is a great way of attracting new customers, beating the competition, and increasing sales. However, one should determine how these short visioned strategies affect other parts of your business and whether they are right for your future plans. The actions we take to capture demand can determine our success or failure.

Bringing Automation Tech

As an industry, car rental is one of the most competitive sectors, and perhaps one of the most complex ones to manage due to consistent operational challenges and dynamic inventory. Yet, it is the slowest sector in the travel industry to adopt automation for its Revenue Management systems.

Furthermore, it relies heavily on competitive intelligence and spreadsheet solutions that it often forgets the simplicity of customer journey and purchasing funnel: plane, hotel, cars.

So, what if you could gauge demand at the outset?
What if you could see where these customers are coming from, in what quantities, and how are they filling the hotel sector, or which destination are they searching for?

Perhaps now more than ever is the time to increase the level of RM sophistication and stop looking at internal KPIs as a way to gauge and interpret demand.

And this is where it is imperative to give up the false sense of security that following the market is safer and better than leading from the front.

Some early adopters have tried classic RM solutions, some are already ahead of the pack with Artificial Intelligence now embedded in the revenue management operations and practices. Users of our cutting-edge AI technology solution revAI which uses AI to forecast demand and price have observed better fleet utilization and higher RPDs without resorting to unprofitable discounting.

In such a case, it becomes essential to forecast demand by carefully analyzing multiple parameters such as fleet type, season, location, and more importantly, the Covid restrictions in place at that location. Old and tested methods which were working before for the revenue managers are no longer going to reap similar benefits and hence, the demand for AI-operated tools in the car rental industry is the need of the hour, not just for the revenue manager or data analyst, but the car rental industry as a whole.

About the Author

Marcello Leonardi
Associate Vice President – Customer Success, RG Labs
RateGain

In his current role, Marcello Leonardi takes care of revenue advisory & customer coaching at revAI. He is a confident and creative individual with significant experience in pricing and revenue management and has been managing the car rental customers in the revAI portfolio.He has over 30 years of rich experience as a revenue manager in the travel industry, having worked for major car rental brands like Europcar, Hertz, and Avis Budget Group.A troubleshooter with a proven track record of success, Marcello has been in charge of creating and implementing profitable business development strategies. He has collaborated closely with company executives, directors, and other team leaders to create new strategies that have aided the company’s growth.