Competition. This will be a theme of this blog for the foreseeable future. Four airlines control 87 percent of the market. Hertz, Avis and Enterprise control 60+ percent of the rental car market and even a higher percentage of airport locations. Half-a-handful of cruise lines control the cruise market. And, hotels? Well, they are the only place where aggregation is not rampant.
Today we are looking at airlines and rental car companies. At first look, most airlines and rental car operations look like they have a slew of competitors. In reality, they don’t.
Let’s look at airlines. When consumers look at metasearch websites they see American Airlines, Delta Air Lines, United Airlines, JetBlue, Virgin America, Alaska, Republic, Sun Country, Lufthansa, British Airways, Alitalia, Air France, KLM, South African, Brussels, SWISS, Finnair, Etihad, Emirates, Iberia, Turkish, Cathay Pacific, Aeromexico and so on.
Don’t be fooled. It is 87 percent legerdemain. This seemingly competitive group of airlines are for the most part joined together in airline alliances. When consumers see advertisements for all of these airlines, that is not the whole truth.
The reality, when one takes a closer look, is that many of these “separate” airlines are members of airline alliances. And on one hand, while the airlines advertise individually, 80 percent of them fly across the oceans as members of airline alliances. They codeshare. They fly on joint ventures (actually a separate and independent airline with its own board of directors and profit-sharing rules).
In many cases, what appear to be multiple airlines are all being booked on the same aircraft.
The same holds for rental car companies. A look at Orbitz, one of the best places to search for low-cost rental cars, shows a banner of different car rental companies, a bewildering array of options.
In 1999 there were 33 different car rental companies. Today there are 11. And, of those 11, 65 percent of these are owned by the same three companies. Here is the current line-up as far as I can quickly assess.
Enterprise owns National and Alamo.
Hertz owns Dollar, Thrifty and Firefly.
Avis owns Budget, Payless and ZipCar.
The almost a dozen-and-a half different rental car brands that adorn the top of the Orbitz rental car matrix are only a marketing veneer. The giant holding companies place brands in different segments of the market. This gives the appearance of more choice and competition. As far as the back office goes, activities and even cars are shared across the brands. So, at the airport, while the counters might have different signs above them, the inner working and ownership of the companies are merged.
The Enterprise Holdings CEO, writing in the Harvard Business Review, puts it this way.
Our back-office operations, though, were a different story. We were very interested in finding operational ways to leverage our joint ownership. Because Alamo and National facilities were generally co-located at airports, we tried to position Enterprise as close to them as possible, and we removed brand identification from vehicles so that the operations could share cars when necessary. (National and Alamo had pioneered this approach, allocating vehicles to National’s business customers during the workweek and to Alamo’s leisure customers on weekends.) This fleet management approach increased flexibility and lowered costs.
So from the Orbitz list, we are left with Midway, Fox, Sixt, E-Z, Ace, Silvercar and Advantage (spun off by Hertz and now in Chapter 11 bankruptcy).
Christopher Elliott, a co-founder of this blog and TravelersUnited.org, is fed up with the airlines, hotels, rental car companies and cruise lines, claiming that there is plenty of competition. It just isn’t so.
Ah, the myth of choice! When the industry is emboldened, they like to defiantly say “take it or leave it.” And believe me, we would leave it — if we felt as if we had a real choice. Industry consolidation has squeezed much of the competition out of the system. With the possible exception of the hotel industry, we don’t have any meaningful options. They know that, and if they don’t, they’re as intellectually challenged as their suggestions sound. How quickly they forget the full-court press to push government regulators to approve their little mergers. You know, the ones that left us with only a few big companies controlling everything.
The unfortunate truth is, many of us don’t have a practical choice. We’re in a market served by one or two airlines, so we pay the fares they demand or we drive. And don’t look now, but the cruise industry is becoming even more consolidated. Rental cars are pretty uncompetitive, too, in certain markets. Choice is all but nonexistent. Try renting a car if you don’t believe me.
Just to punctuate the effect of reduced competition — airfares have steadily risen since the conclusion of the American Airlines/US Airways merger and, according to Auto Rental News, that studies prices and consolidation in the rental car industry, “…rates are up in almost every month year over year since November 2012.”
Where are the trust-busters when you need them? It seems that the government is doing a poor job when it comes to limiting industry’s desire to merge and live under oligopolistic systems. Rather than bending to industry’s will, they should focus on what is best for consumers.
Charlie Leocha is the President of Travelers United. He has been working in Washington, DC, for the past 14 years with Congress, the Department of Transportation, and industry stakeholders on travel issues. He was the first consumer representative to the Advisory Committee for Aviation Consumer Protections appointed by the Secretary of Transportation from 2012 through 2018.
