Hertz and Ryanair have divorced. What’s next?
The partnership between Hertz and Ryanair stopped on 2 July 2015 after years of strong cooperation.
Even though legal term was supposed to end in 2020, Hertz decided to breach the contract following a dispute over Ryanair’s indirect ticket sales. Since years, Hertz with Ryanair but also Europcar with Easyjet, opened their doors to the low cost air leisure segment as well, more recently, to short haul business air travelers. These partneships came to reinforce existing relation with regular air carriers like Air France for Hertz.
To sign a partnership contract with a big low cost air player, money and costs have a central aspect during the negotiation. Initially, marketing and sales elements are essential for the airline: service quality, station network density especially in the airports they serve, opening days and times, competitive rates to be offered to their passengers, etc. But it is not the only elements. In addition to big commission percentages to be paid on every single reservations, low cost carriers require initial contractual fee (usually in millions of euros) as well as marketing or promotional participation and mimum annual revenue guaranteed.
The reason why is simple: their profit does not come from the air fares, used mostly as a marketing tool, but on peripheral sales called “ancillaries”. Directly, they push all additional sales to their ticket (insurance, seating, luggage fees, etc). Indirectly, they try to convert other travel sales such as hotel stay or car rental. Clients are hooked in the reservation process and believe they will get a good deal booking on the company site their accommodation and rental.
As a car rental expert in car rental optimization, we strongly believe that their is a dilemna to face:
- should the car rental “buy” market share associated with a big volume of reservations but at a very low (or negative) financial contribution ? or
- should the car rental let the partnership opportunity to its competitors to protect its own profitabiity while loosing a significant volume of business ?
Facing recent financial troubles on their financial statments, Hertz seems having chosen the profitability way. But is it an example that other car rental suppliers should follow? Are they going to jump on the opportunity to improve their market share quickly? As Ryanair explained, they are negotiating with other suppliers to replace Hertz in October 2015? If none will accept (which I doubt), will they be able to sign with a broker generating even more tension on the market? And what will happen if none accepts the unacceptable financial conditions dictated by Ryanair? Let follow the end of this story in couple of months.