Industry Research

Biz Travel Survey: CT Operators Face Perception, Demand Crisis

LCT Staff
Posted on June 3, 2009

NEW YORK — 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 Boston-based 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. Although indignation over corporations that received federal bailout money holding expensive group incentive programs seems to have passed, that's mostly 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% 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 one-quarter 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% 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.

The drop in fuel prices, and the overall economic situation, has rendered green issues somewhat less critical in chauffeured buying decisions. "While there is no escaping the fact that economic issues have stolen the spotlight of late, environmental sustainability continues to be important to our clients, too," Moulter said. Additionally, the financial crisis that befell the Big Three U.S. automakers likely will slow any wide expansion of expensive-to-manufacture hybrid limousines, although suppliers still are incorporating them into their fleets.

Just as the future of the Big Three is uncertain, so it is for the chauffeured industry. Solombrino expressed hope that the industry found the bottom of the downturn at the end of March and can ride along that level without deeper declines, even perhaps some negotiating opportunities for suppliers in the fall.

"I think we've seen the worst of that and are finally seeing the beginnings of recovery," he said. "It took quite some time to understand that there had been a paradigm shift on how people's thought process would use ground transportation as a commodity. None of us really expected it to be elongated and deep as it was, and it caught the industry off guard."

Moulter, too, expressed some optimism. "If the indicators and headlines are to be believed, we are seeing signs of recovery. As the economy begins to recover, so too will we see signs of increased demand for chauffeured transportation. However, I think the market has been changed fundamentally."

Carey's Kessler said chauffeured transportation would be on the vanguard of recovery. "We feel that as the economy starts to turn, corporate travel as a whole will be one of the first segments to recover, as many corporations will seek new business ventures and growth opportunities. We are fairly optimistic that the demand for chauffeured transportation will increase steadily as the economy recovers."

Still, given the myriad problems it faces, there's also a chance chauffeured transportation will be among the last in the travel industry to see a recovery. "It's going to be a two-year cycle from today," Solombrino said. "In the old days, chauffeured used to be a great economic barometer of things going good or bad. We were always a leading indicator, but this has been such a paradigm shift that chauffeured will be a lagging indicator. We won't see it until the end."

Source: Business Travel News

LCT Staff LCT Staff
Comments ( 0 )
More Stories
How will AI affect the future of business travel?

5 Ways AI Powers Business Travel

While companies are interacting constantly with artificial intelligence every day, the technology now transcends the office space.