Business Travel News - June 8, 2009 - (Page 22)

CHAUFFEURED TRANSPORTATION COS. Chauffeured Cos. Face Perception, Demand Crisis By Chris Davis Chauffeured transportation companies began 2008 with just the initial whiffs of concern about a slowing economy and softening corporate demand. They ended the year in the worst crisis the industry has ever faced, watching financial services companies that proved some of their best corporate customers evaporate, seeing other clients all but consider their product radioactive and facing the prospect of hundreds of millions of revenue dollars disappearing. Perhaps most troubling to suppliers is the notion that there’s basically nothing to be done about any of that except wait out one of the sharpest U.S. recessions in recent history, with the knowledge that the chauffeured transportation industry that emerges will be markedly different than what exists today. Already, some smaller limousine companies have passed into history, jobs have been lost, some large suppliers are closing corporate-owned locations and rumors swirl about possible consolidation. Only a few corporate travel industry providers—luxury hotels, private jets—share the quandary facing chauffeured transportation providers, in that some clients are so fearful that the simple use of chauffeured products could be branded extravagant or profligate that no amount of discounting can persuade them to do so. “People say they just can’t deal with a chauffeured company,” said Scott Solombrino, president and CEO of the Dav El Chauffeured Transportation Network. “You don’t want to be perceived as frivolous or spending unnecessarily. We have customers actually asking us to rebrand our receipts as ‘taxi.’ ” He did not, he said. “It’s not about the price, it’s about the perception,” Solombrino said, drawing a comparison between chauffeured providers and luxury hotel brands. “In some cases, you could give them a room for free, and they’ll say no, it’s a perception issue. Which is horrendous. These are the best hotel companies in the world, and they’re fighting because their brands are too successful. We have a similar problem.” That said, corporations’ newfound dread of perceptions of reckless travel spending is neither groundless nor, likely, fleeting. Though indignation over corporations that received federal bailout money holding expensive group incentive programs seems to have passed, that’s in large part because companies have adopted strict controls on travel spending. As a consequence, chauffeured suppliers are in the position of needing to prove the value of their product. “It’s about productivity and safety. No organization can afford to have their executives late, lost or at loose ends,” said Larry Moulter, president and CEO of BostonCoach. “We must be more aggressive on the sales side, like in 1980s and ’90s,” Solombrino said. “A taxicab can’t give you the safety and security that you should get in corporate transportation. A rental car completely changes your efficiency as to how much you can do in a city—you might be able to go to two or three meetings in a day, but you have to park the car, you have to know where you’re going. With chauffeured, you can get to eight to 10 meetings.” Solombrino also pointed to safety and liability issues as key platforms in the firm’s corporate market approach. “We will have many clients revise their definition of cost-effective transportation solutions,” said Carey International CEO Gary Kessler. “However if their acceptable levels of safety, security, or productivity are threatened, they will find their way back to a product whose service level consistently meets their needs.” A far more quantitative problem than perception issues also is hampering the chauffeured industry: The collapse of several Wall Street financial firms deprived suppliers of a sizable slice of their revenue. “At Dav El, financial services has always been about 50 percent of total revenues, so we have taken an extraordinary financial blow,” Solombrino said. “We’re not seeing any major increase in financial services spending because they’ve been so hard-hit. People are not doing anything. There’s minimal M&A activity, and IPOs are nowhere. Until that spigot starts to take off again, chauffeured transportation is going to be in a depressed state.” Given the drop in demand, it seems inevitable that the chauffeured transportation competitive set will change. While a handful of suppliers—most notably Dav El, BostonCoach, Washington, D.C.-based Carey International and Secaucus, N.J.-based EmpireCLS—have been able to form national and international networks of affiliates, the industry also includes dozens of smaller, regional players. Those with primarily corporate bases of business could face a challenge. “The market can support those players who can do more than get travelers from point A to point B,” Moulter said. Added Solombrino, “We think onequarter to maybe even one-third of the industry might not be in business right now. A lot of that is very small operations with 10 cars and one or two clients. There are a lot fewer operations today than have ever been.” Finding a silver lining in such an environment is difficult, but chauffeured providers can hang their hats on one: Fuel prices, though creeping up of late, have dropped significantly from last summer’s record highs. Suppliers generally have kept their surcharge formulas in place. BostonCoach maintained its fuel matrix, which bases surcharge amounts on the price of gas listed by the U.S. Department of Energy. Dav El still charges 12 percent of the base price of a transaction, with an additional $5 fee. Carey International switched from a flat $9 surcharge to a market-based fee also indexed to federal government-listed gas prices. BETWEEN THE LINES Rental car firm Avis Budget Group last autumn declined an option to increase its stake in Carey International to 80 percent. Avis Budget had one year to assume the majority stake following an initial $60 million investment in Carey in October 2007. Avis Budget officials had described the initial investment as a way to diversify its offerings to offer a complete ground transportation solution to the corporate market, but cited the “challenging economic environment” in explaining its decision to decline the option. Avis Budget now owns 47.9 percent of Carey, according to its annual report, and last year recorded an $18 million impairment charge to reflect the declining value of the original investment. As of Dec. 31, Avis Budget’s investment in Carey stood at $43 million, including $2 million in deferred acquisition costs. BostonCoach last year appointed Larry Moulter as president and CEO. Prior to joining BostonCoach, Moulter was president of consulting firm Moulter Associates and a senior advisor to chauffeured transportation company Commonwealth Worldwide. Moulter replaced Jonathan Danforth, who left the company in January 2008. 22 June 8, 2009 • www.BTNonline.com • BUSINESS TRAVEL NEWS BUSINESS TRAVEL SURVEY 2009 http://www.BTNonline.com

Table of Contents for the Digital Edition of Business Travel News - June 8, 2009

Business Travel News - June 8, 2009
Contents
Agencies, Corporate-Owned
Airlines
Car Rental Companies
Chauffeured Transportation Companies
Corporate Payment Systems
Hotel Companies

Business Travel News - June 8, 2009