Operations

New York and Boston Operators Feeling Financial Industry Squeeze

Posted on October 22, 2008 by LCT Staff - Also by this author - About the author

NEW YORK CITY – Chauffeured transportation consultants and executives are anticipating or experiencing a noteworthy demand slowdown, especially in New York City, epicenter of the financial industry's continuing meltdown.

"New York and Boston have been hit very hard, specifically New York, and some of our operator members are off 30% to 40% in their bookings," said Richard Kane, president of the National Limousine Association and owner of Washington, D.C.-based International Limousine. "If any of their client base is related to financials, they're off 30% to 40%." He added that nationwide, "operators were off approximately 10% before the credit crisis hit."

"In the New York area, especially for companies who a large part of their business is the financial area, it's going to have a large impact," according to Dave Kilduff, managing director of ground transportation for Carlson Wagonlit Travel's CWT Solutions Group. "There's nobody short-term who's going to replace that. It will continue to have an impact on them and certainly fleeting and staffing because you have the downturn at the airport too."

"We're in a situation where chauffeured car is being hurt very heavily here, because people are spending money very differently," said Scott Solombrino, president and CEO of Dav El Chauffeured Transportation Network. "If you're working in one of these firms that's hanging on by a thread, I can assure you they've cut their chauffeured car budget as they've cut their five-star hotel budget and their first-class and business-class air travel budget."

Some New York-based chauffeured transportation companies already are seeing a slight slowdown in business.

"Our business is down 10% over prior year," said Robert Mackasek, CEO of Long Island City-based Valera Global Inc. "The general economic condition is such that we're starting to see clients tighten their belts and take a closer look at what their travel spend is."

Mackasek added, "We haven't seen any cutback in airport travel and I take that as a very healthy sign. When that starts to fall off, we're in for a much tougher haul."

Valera Global had adjusted its fleet, Mackasek said, reducing it approximately 10%.

Mike Fogarty, CEO of U.S. operations for Beverly, Mass.-based Tristar Worldwide Chauffeured Services, said, "We're certainly seeing a bit of a slowdown. We do a lot of work for financial services firms. There seem to be fewer institutional roadshows than were happening in September."

However, he said the changes were not enough to make the company alter its cost structure.

"The ones that still are traveling, they're usually setting a new standard of who can use chauffeured car," said John Olinger, president and CEO of Newport, R.I.-based Rockstar Limo. "They're upping the bar internally on what executive level you have to be at to use a chauffeured car company."

Stephen Spencer, president of Long Island City, N.Y.-based London Towncars Inc., said he had seen a 5% travel decrease in September 2008 from September 2007.

"People are not traveling as much for business or pleasure so that affects us because we do a lot of airport work," he said. "The overall effect is that travel in general is down and by connection our volume is down. It's not significant yet but I don't know what's going to happen."

Spencer said he might cut back on fleet, but only by a few vehicles.

"We're hoping it'll be better, and if it doesn't we'll tighten our belts a little bit and cut back where we can to stay in the black," he said.

David Balfour, director of ground transportation advisory services for American Express Business Travel, said he has seen clients looking into airport travel for employees in order to cut costs.

"Some companies are talking to their employees about moving more to taxi-based services as opposed to a higher-car service because it's a little bit more cost-effective for the company," he said.

Companies that have seen a slowdown in business are "selling cars, they're laying off employees and they're just tightening in every direction," according to Kane. "Most people are cutting back approximately 20% to 25% of their fleets."

However, Kane said another aspect of the turmoil in the economy was the ability for capital-intensive chauffeured companies to get credit in the future.

"We are very capital-intensive. We buy equipment to service our customers. The big challenge any capital-intensive industry goes through is obtaining the sources of credit," Kane said. "We've seen the first foot drop but we haven't seen the second one. And the second one will be when many businesses across the country will go to renew their lines of credit and many banks out there will turn back and say, 'I'm sorry, your $1 million line of credit is now $500,000.'"

The possible decrease in capital could mean longer holding times for fleet.

"You have to turn your fleet. To turn your fleet you have to borrow money, and borrowing money is just hard to do these days," Kilduff said. "They'll hold onto the cars longer. They're not going to turn them as fast as they did in the past."

While the impact this will have on corporate travel buyers remains to be seen, companies now are trying to put their best foot forward to maintain their share of the corporate market.

"In order to maintain your position, you can't let you standards slip," Mackasek said. "You have to be on top of your game. You cannot cut back at all. "

"There's less of the pie out there for people to get," said CWT's Kilduff. "At some point, there's going to be a certain amount of competitiveness to either retain or to get customers."

"All I do know is that people are going to work twice as hard to maintain whatever levels of growth revenue they have, to maintain their biggest customer bases that are still in business," Dav El's Solombrino said, "and they're going to try to do every improvement they can to improve service levels in order to be the differentiator between you and the next competitor."

Source: Business Travel News

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