BusBank's acquisition of Buster expands the range of meetings, events, and group motorcoach and minibus business, especially for smaller fleet companies.
MALVERN, Penn. — On a golden, crisp afternoon last fall in the semi-rural rolling countryside near Philadelphia, operator Dennis Adams was in the kind of optimistic mood that reflected the picturesque day. His company, Celebrity Worldwide Chauffeured Transportation, was handling about 100 client runs that weekday, about 30 more than on an average weekday and far more than the 30 runs Celebrity averaged per day during the depths of the Great Recession.
Such an upswing in business travel comes at a cost, however, as operators like Adams are finding out. At the same time as its number of runs rose, Celebrity Worldwide went through two RFP processes with prospective clients and lost on both. While chauffeured providers have been seeing more business in 2011, prospective corporate clients are shopping around for lower rates.
“It’s just so competitive,” says Adams, who runs a 50-plus vehicle luxury fleet and a charter jet service. “My opinion is that among industry operators you have two groups: Those in business for a while who are the backbone of the industry, the operators who really know the cost of doing business. And then you have smaller operators trying to grow the business and willing to take smaller profits and who don’t know the true cost of operations. So they undercut you on RFPs.”
That tension affects both sides of the chauffeured transportation industry’s revenue coin: pricing and procurement. A combination of post-recession pickiness on price among clients and advancing efficient technologies are keeping rates flat or low while intensifying competition among operators. The challenges going forward for operators are how to maintain price integrity, minimize operating costs, and preserve gainful profit margins.
“Everyone is trying to get market share like in any business, and the corporations are benefiting from us having such a wide swing in our [industry’s] pricing,” says Adams, citing hourly rates for a Lincoln Town Car that can vary from $40 to $70 nationwide. “Everything has changed since the recession. Everything is a deal. Everything is a negotiation.”
State of market
The chauffeured transportation industry overall is not ready to respond to corporate America with a sales approach because the industry has not been corporatized long enough, says Lenore D’Anzieri, an independent travel and transportation consultant and former executive vice president of Luxury Worldwide Transportation in Brooklyn, N.Y., a 120-vehicle operation in the New York City region. D’Anzieri, also a certified travel expert (CTE) in corporate travel management, draws upon a vast array of professional experiences in customer service, sales, account management, operations, business travel analysis, business development, and marketing at major companies.
“There has been a dramatic change,” says D’Anzieri, managing partner of Driving Results global travel and transportation consulting group in New York. “We’ve seen many companies respond to the needs of corporate America by generically lowering prices. We’ve seen companies want to buy — and operators comply.”
D’Anzieri emphasizes an approach that echoes among many advanced chauffeured operations: Don’t lower base prices.
“The approach we took with [Luxury Worldwide Transportation] was we did not lower our prices,” D’Anzieri says. “We created thresholds and rebated X amount to a corporation for usage of our company. Creative pricing strategies allowed us to give a competitive offer to our clients and at the same time we did maintain our integrity and profitability.”
Rebates averaged about 3% but never exceeded 5%, she says. In most negotiable situations, the clients preferred to have money back as part of the overall deal. “We have never negotiated on base prices, regardless of the state of the economy. There are other ways to do it.”
D’Anzieri advises companies to add or take away line-items, or charges, such as administration fees, credit card fees, wait fees and surcharges. “If you have all-in rates, then you are compromising on pricing. If you have separate line-items, at least the perception from the prospect is the rate stays the same, and it’s great that you can take away a fee.”
Overall, the market is trending in the direction of “more for less,” says Evan Blanchette, manager of global alliances for Coastal Car Worldwide in Ft. Lauderdale, Fla. Coastal only offers one-time discounts on a case-by-case basis. “We don’t fluctuate much. We might do a one-off to help get the bid. We’re priced competitively already, not premium. We’re priced to grow so it’s hard for me to discount.”
Like Adams and Blanchette, Los Angeles operator Chris Hundley shuns across-the-board discounting. He chose to drop out of some nationwide markets during the recession instead of racing to the price bottom. “We knew we weren’t going to be the top guy in a RFP. We stepped aside for a while and have gotten back in in the last six months. I find everyone is far more stressed out and under the gun. Pricing has loosened up a little bit, whereas 18 months or two years ago it was all about the price.”
Hundley’s 33-year-old company, Limousine Connection, handles its pricing by city: A level is for major markets; B level for outlying cities; and C-level for what Hundley calls “oddball cities,” such as Fargo, N.D. The pricing levels have different mark-ups, allowing for higher margins in some areas to make up for lower margins in others.
“You make money on some cities and lose money on some cities,” Hundley says. “We have level A, B, and C. When people are shopping for a national contract, they want one rate for all cities. They don’t want to hear that cities are different amounts. I have found that to be a good tool to use for nationwide pricing instead of having 57 rates. But some might be losers.”
Hundley advises that in chauffeured transportation, higher volume rarely makes up for lower rates. “You lose more money in the volume. It’s generally not a good idea.”
The rise of more economical vehicles such as the Toyota Camry, along with the efficiencies of electronic booking via such online sites as Limos.com, are leveling prices, says Dan Goff, general manager of A. Goff Transportation, which operates in all major Virginia cities. “If 10 consumers are willing to forgo human interactions for everyone who wants high-touch, then we make more gross [revenue] per car which pays our bills.”
The trends in competitive and optional pricing levels among hotel and airline travel websites is extending to ground transportation, he says. Electronic distribution systems (i.e. websites and smart-phone apps) result in fewer people involved in the process of getting a ride, such as reservationists, billing staff, and dispatchers. “As difficult as it is for the industry to accept, we are becoming much more like taxis and black cars,” Goff says.
Prepare for tough questions
Adams, the Philadelphia operator, has noticed some procurement departments that opt for a lower price on service can become suspicious of a long-time supplier. “They say they like a young kid with a limo biz that’s half the size coming in and giving $50 per hour on a sedan, and the procurement department says, ‘Let’s give him a try. Have you been overcharging us?’”
Business travel may be in a solid upswing, but it’s far more cost-conscious about private car service. “People who didn’t have RFPs before now have them,” Adams says. “Companies are getting calls from procurement departments questioning rates and asking for rates. CEOs are being held more accountable by boards about travel and car service, and about savings.”
In a client market tempted by lower priced operations, it behooves limousine companies to make sure they take every step to lower costs, Goff says. “There used to be a travel agent in every large office building. Now you don’t see as many. It also may have an effect on service. If you are not employing as many people and everything is electronic, price pressures will reward low cost operators. It will increase the [prevalence of] the New York-Boston style black car, a product between a taxi and a luxury Town Car service.”
Study the client
Knowing the mindset and pricing expectations of corporations is important, especially for second-tier and medium-sized operators who don’t have as much experience competing for such business as the major chauffeured transportation networks. In the new, more cost-conscious travel procurement environment, corporations are looking further down the supplier food chain in order to get the best value for the best price.
“If a shareholder sees a salesperson taking a minimum 2-hour rate from Manhattan to the airport instead of using a company with a flat rate point to point, well someone now has to answer to that shareholder,” D’Anzieri says.
The consultant points out that many procurement and travel managers do not have positive perceptions or experiences with ground transportation. The process is more regulated and requires more accountability because of new standards for publicly traded companies.
“That has to do with our culture,” she says. “So many operators think they can win publicly held companies via a handshake, whereas Sarbanes-Oxley [financial regulation rules] has eliminated that for public companies. Other private companies have adopted a similar Sarbanes approach to negotiating for ground travel.”
Learn how to respond
The challenge for operators is to learn how to respond to an RFP, and how to prospect and get in front of companies. “When I came into ground transportation, I was shocked,” D’Anzieri says. “Many travel manager friends have shown me responses to RFPs and been shocked. They don’t get it.”
There’s a lack of understanding on how to answer, how to sell, and how to explain how you provide customer service, she says. Chauffeured transportation companies answering RFPs need to have an understanding of a company’s travel policies before filling out an RFP. “You don’t want to start selling a Mercedes-Benz if their policy mandates a Toyota.”
D’Anzieri advises operators to never submit blind to RFPs. “No company has the manpower to waste time and money,” she says. “If I had to prioritize what procurement managers look for, it is price, safety and service.”
Blanchette points to an added challenge in dealing with more assertive procurement departments: The need to explain chauffeured service, detail charges in advance, and educate prospective corporate clients. “With [some] corporations, you have the same person analyzing the price of toilet paper who is also analyzing the cost of travel. Now RFPs have a lot of jargon, questions that aren’t relevant, and they don’t make sense. [Some] procurement offices are not familiar with ground transportation and cannot put its arms around the costs.”
Selling service is about emphasizing value and worth, D’Anzieri says. “If you teach clients how to control costs instead of bringing costs down, that’s what people are looking for. That’s where you sell your worth. There are so many ways we can help them control their costs. We never tell them we can minimize costs, but we can help them to control costs. There is a huge difference.”
In a more volatile pricing environment, flexibility on operating costs and service levels can provide the added margin. In addition to adopting more technology, offering vehicle tiers can prove attractive to price-weary prospects.
Operators who are embracing the technology-driven tiered service model are growing, those who are resisting are not, Goff says. “How long that will go on, I don’t know.”
The advantage of less costly, lower-tiered chauffeured services that are separately branded is that they can grow the middle class market for ground transportation, Goff says. A. Goff Transportation, which runs a full array of luxury limousine vehicles, also has a completely separate van service called Van On The Go that it acquired in 2003.
“Delivering [service] at a lower cost comes at a cost, and that cost is in the service,” Goff says. “There’s a segment of the executive traveling public that can absorb a lower level of service by being flexible on pick-up time, and you may not get the car you want. Those sorts of variations can deliver profit to operators. That lower cost can be passed on to consumers.”
However, tiers of service should be branded with different names, so luxury brands are not damaged, he says. “They should be marketed differently because they are different products. Windex and generic ammonia glass cleaner is the same stuff; it’s just sold differently. The ammonia, for example, is bought in a case, sold in places not known for beauty, and you stand in line longer,” says Goff, referring to big-box retailers.
“You have to decide as an operator what markets you want to get into,” he adds. “You can run more than one channel from the same infrastructure, and provide different levels of service and price points.”
At Coastal Car Worldwide, overall value and efficiency can be enhanced through technology and newer cars without raising rates. To relieve pressure on margins, the technology helps the company save time and labor costs, Blanchette says. Coastal also uses its sister company’s proprietary software, Event Ground Global, to manage group and event transportation planning. The company makes more use of electronic bookings and requires less staff while automated technologies enable instant status updates that forgo the need of dispatchers constantly radioing chauffeurs. That results in clearer internal communications that minimize botched jobs that force the company to eat hours and runs, he says.
Selling good service
Despite pricing pressures, the long-term strategy still boils down to quality service, Adams says. “Do you want a steakhouse or Sizzler?” Adams asks. “Well if you want quality, you have to pay for it. Sizzler and steakhouses are both packed every night. What kind of a limo company do you want to be? Volume and discount, or high-end with not making everyone happy with prices? But are you the best value?”
Adams raised his prices 8% five months ago, and although he lost a few customers, he has no regrets. “You have people in the industry who have not raised prices in two to four years, and they say you can’t, but I say, ‘Why can’t you?’ The cost of doing business is going up. Maybe you replace an account with someone willing to pay.”
For a chauffeured transportation company, the “steakhouse” approach would include: 24/7 answering and availability, high insurance coverage, multiple confirmations on a reservation, on-time arrivals, accurate instant billing, newer vehicles, background checks and drug testing of all chauffeurs, and ease of handling late night/early morning pick-ups, Adams says.
“I have customers who come back to me after the fact because the cheaper guy can’t perform in terms of service quality, new vehicles, receipts, and all things beyond the chauffeur in the seat. I just had a corporate account come back to me because the [competitor’s] cars are late, they don’t show up, they lost reservations. How much do you put up with to save money?”
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