Ancillary Fees: Get Them on the Table in Car Rental Negotiations

Are you leaving money on the table when you close a rental car contract? For too many travel managers and business travel buyers, the short answer is yes. The solution is almost as short: ancillary fees.

Dave Kilduff

“Ancillary fees can be up to 50% of your total rental bill,” said David Kilduff, senior director of ground transportation consulting for the CWT Consulting Group. “Many buyers focus their negotiations on daily rates and mileage, the base rate. Ancillary fees can be a significant opportunity for negotiation.”

Just how big an opportunity depends on location. Local taxes and similar fees imposed by law are probably off the table. But energy surcharges and similar supplier fees are fair game, he said. Airport fees that can add 8% to 15% to the base rental rate may be negotiable.

In general, Kilduff said, the larger the account, the more flexibility suppliers are likely to show — but only if the buyer forces the issue.

Watch Those Below-the-Line Fees
Rental car companies have traditionally absorbed on-airport fees and similar costs in corporate travel contracts, Kilduff said. But as supplier costs began to rise in the 1990s, companies began passing their increased costs through to customers. Base rates didn’t change, but below-the-line fees began inflating the total rental car spend.

While ancillary fees vary by market and by rental location, typical charges include airport concession fees, refueling charges, transportation fees, state and local taxes, surcharges for energy use and other consumption-based assessment, vehicle license fees, GPS fees, and more.

Suppliers, including car rental companies, will turn to those fees for additional revenue. “If the supplier can’t get their pricing up, they can unbundle fees and services to get the bottom line up,” he explained. “You need to look at your supplier reports all the time for new charges and talk about them.”

Kilduff knows all about this strategy firsthand; he managed 17 states for a major rental car company when the firm initially began unbundling base rates and adding ancillary fees. Not a single corporate client complained about what amounted to a rate increase, or even questioned the new charges, he said.

“They were so focused on negotiating the base rate that ancillary fees went completely under the radar,” he told Travel Market Report. “We see the same thing happening from the consulting side. We negotiate every fee that we know of.”

Turning the Tables: Start With the Data
Travel managers can use the same strategy, Kilduff said. Negotiating ancillary fees starts with knowing what fees the company is paying and how much they are paying to which vendors. Travel buyers should request itemized invoice data for all charges on all rentals from all of their suppliers.

The request may produce a mountain of data, but data is what it takes to tell if fees are competitive between suppliers and how the fees compare to benchmarking data from outside sources. The goal is take the information into negotiations with an eye to having fees reduced or waived.

“If you are a smaller account, you may not be able to change much,” Kilduff cautioned. “Larger accounts are likely to have more success. Big or small, buyers will see different results for different rental locations. The hardest part is determining which fees are negotiable and which ones aren’t. It’s all part of the poker game that goes on in every negotiation.”

The Game Goes On
But unlike poker games, supplier negotiations never really end. Car rental suppliers, like their counterparts in air and hotel, are constantly on the lookout for additional fees to drive incremental revenue and transfer more of the cost of doing business to unwary buyers.

Suppliers often test new fees in leisure markets before rolling them out to business clients. Some of the newer rental car fees on the leisure side include: no-show fees, early check-in fees, early return fees, and reservation change fees.

CWT Consulting reports that no-show fees are making a strong showing in U.S. markets after being introduced in European markets. Airlines and hotels have long charged penalties or full rate for no-shows or even for late cancellations. Avis Budget reportedly implemented no-show fees on the consumer side earlier this year in selected markets and is considering extending the idea to corporate programs.

Hertz is taking a slightly different with a pre-paid program called Pay Now that offers a discount for prepayment but includes change restrictions. Under the program, there are no refunds or credits for unused rental days; cancellations more than 24 hours before pickup cost $25; cancellation less than 24 hours before pickup costs $50, and a no-show costs the entire prepaid rental fee.

The bottom line, Kilduff said, is that corporate travel buyers and managers have to understand their total rental spend and, equally important, all the individual elements that go into that spend. “You need to know your leverage with suppliers,” he said, “and you need to use every bit of leverage you’ve got to control your spend.”