The Value of Car Rental to Airlines and OTAs

Jul 2, 2018

With the car rental market set to grow by 12% in the next three years’ it is critical that airlines and OTAs maximise the ancillary opportunities it presents.

The car rental market is big business, and it is set to get even bigger. As a global industry, it has grown by 79% in just 15 years, and is currently worth $67 billion*. The online segment is a hugely significant part of the overall car rental market. Online car rental represented 30% of the total market just ten years ago, yet is predicted to make up 50% of the overall market in 2017* More and more people are turning online, to desktops, smartphones and tablets to book their rental car. Offering car rental as a viable ancillary product will put Airlines and Online Travel Agents (OTAs) in a fantastic position to take advantage of this growth in the market.

Car rental is the top earner

The IdeaWorksCompany report, sponsored by CarTrawler, titled Top 10 Airline Ancillary Revenue Rankings, states that the top ten airlines around the world generate 46% of their total sales from ancillary revenue. To understand car rental in the context of ancillaries as a whole, the first thing to do is separate flight-related ancillaries, like luggage and seat charges, from non-flight-related ancillaries, such as car rental, pre-booked taxis, hotels and insurance. When that distinction has been made, the value of car rental compared with other non-flight-related ancillaries becomes obvious.

When it comes to non-flight-related ancillaries, car rental is the top earner. On a per booking basis, the revenue from car rental is stronger than revenue from the likes of a hotel or an insurance product.

Bobby Healy, Chief Technology Officer at CarTrawler

In terms of implementation costs, hotel and car rental as ancillary products are similar. However, when you account for product management costs, car rental offers a simpler and more comprehensive product.

Juliana Ramirez, Head of Ancillary Revenue at Volaris

This is the case due to the nature of the product itself. Car rental benefits from the simple fact that it isn’t necessarily a personal purchase. If a customer sees the right car for them, they invariably choose it, rather than mulling over the decision like they would for, say, a hotel. According to Aileen O’Mahony, Chief Commercial Officer at CarTrawler, this is why the attach rate of car rental is much higher.

‘Personalisation brings a far greater return’

But even if car rental represents good value as an ancillary product, how can an airline or OTA ensure that they capture the largest piece of the pie? The key to maximising revenues from car rental is ensuring that the process of booking a car is as seamless as possible for the customer. This starts with segmentation and personalisation.

Essentially, instead of offering all cars to all people, segmentation and personalisation are about segmenting customers into groups, and personalising the offering on a case-by-case basis so that whatever car is shown to each customer will be appropriate.

“Personalisation brings a far greater return on the same customer base than you would have gotten beforehand,” says Healy. “It’s about getting a real-time view of customer data. The big differentiator is not about having all the products; it’s about choosing the best ones for each unique customer.” If customer segmentation and personalisation are done right, the results can have a significant effect on a company’s bottom line.

“Last year we challenged ourselves to better accommodate our customers,” says Ramirez. “They are extremely price-sensitive, so we worked with CarTrawler to modify our car rental product and offer a more basic package after analysing our customer data. The results were incredible – we have seen above 300% increase in car rental bookings and revenue in a year.”

‘Over 50% of our total traffic is now on mobile’

You can’t initiate a sophisticated personalisation function without having an effective mobile and app strategy. The two go hand-in-hand as the usage of mobile has skyrocketed, and can have a hugely significant effect on a company’s bottom line if done well.

For example, Ramirez says that “mobile is growing outrageously – over 50% of our total traffic is now on mobile, and we are still tailoring our customer experience with the help of analytics”. Healy backs this up, saying that some of CarTrawler’s partners have seen a 400% increase in mobile bookings of flights in the last two years.

The trend towards mobile is significant. And crucially, with personalisation, airlines can overcome the inherent challenge of small screens that cannot showcase nearly as many car rental options at a time as desktop can.

Traditionally airlines would have thought, ‘To make more money on my ancillary products, we need to put this product all over our website with big ads’. But as more and more passengers transition to mobile, that’s not going to be possible.

That’s why segmentation and personalisation will continue to optimise performance, but with a much smaller retail space. It will be about getting the exact product in front of the customer at exactly the right time, as opposed to every product at every opportunity.

Aileen O’Mahony, Chief Commercial Officer

The effectiveness of an in-path booking system is clear

Of course, a simple, quick and effective car rental booking process – on every platform – will also resonate with customers and has been proven to increase bookings. An in-path booking system reduces the amount of steps a customer has to take, and its effectiveness is clear.

Since we were introduced to a new, in-path booking system last year, we have seen a 20-25% increase in car rental bookings. This clearly shows that we are now able to offer the right car rental product at the right time to the right customer. Car rental has therefore become an extremely cost-effective ancillary offering for us.

Georgios Mazarakis, Director Commerce at Travix

Airlines and OTAs who implement an effective ancillary option have seen eye-catching results. We see a significant proportion of car rental bookings made on an airline website are made by people who are flying with competing airlines. You see clearly that its customers are going directly to one website to book car hire rather than any third party car rental company or aggregator because of the customer experience they receive. Norwegian has taken control of the car hire relationship with its consumers. That’s retailing at its best.

Aileen O’Mahony, Chief Commercial Officer

Ten-year enlightenment

So what does the future hold for the sector? The good news is that the growth is set to continue: the total worth of the global car rental industry is projected to rise by 12% to $74.7 billion by 2020.*

Another thing is for certain – the mobile platform is set to drive more revenue. To illustrate this, Mazarakis says Travix expects to see a 15-20% increase in mobile bookings over the next five years.

“There’s a ten-year enlightenment that’s going to happen in the car market,” says Healy. “Car ownership will come down over the next ten years, and car-sharing will increase. Taxi services will diversify and increase. But remember, mobile and personalisation underpin everything.”

Mazarakis agrees. “In the future, people probably won’t need one car for one holiday – they may use many. It will be a lot more fluid. Driverless cars will also come on stream, and car-sharing will become more significant. Will people have to book a car in advance before their holiday? Perhaps they can just arrive and go as they please.” Travelers will have everything within reach, tailored to their needs, at the touch of a button”.

Another area that is already changing quickly due to technological advances is that of customer service. The emergence of AI in the sector has seen features like Facebook chat bots and even Whatsapp functionality cutting down on email processing times by over 90% – and that’s just the beginning, according to Healy.

Car rental gives airlines and OTAs a cost-effective and profitable path to maximising their ancillary offering. The continued development of technology is already reaping huge dividends for forward-thinking companies that can appreciate its value, and will continue to do so.

Car rental is a fine-tuned engine for growth.

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