PARK RIDGE, N.J. -- Hertz eliminated commission payments to U.S.
and Canadian agencies on contract rates offered to corporate and
government accounts, effective with bookings made after April 4.
The car rental firm also said it will not pay commissions to
agencies anywhere in the world if they book the contract rates for
rentals within the U.S. and Canada.
These rates, which are negotiated directly with customers,
typically were commissionable at 5%.
The car rental company said it will continue to pay commissions
on all business and leisure rentals not covered by the negotiated
deals; those base commissions are 5% for corporate and 10% on
leisure in most cases.
Hertz also said it will honor all contracts with retailers
involving overrides, bonuses or any other commission-related
terms.
For corporate agencies that rebate all commissions to customers
while earning their income from management fees, the impact may be
minimal; the customer absorbs a price increase.
However, one observer pointed out, it was not always clear to
agencies what commission dollars applied to which client. To the
extent that an agency credited too little commission rebate to
customers with contract rates, the agency will feel the hit rather
than the clients.
Also, agencies that rely on transaction fees face a familiar
challenge -- adjusting fee structures and renegotiating terms with
their customers.
Hertz has been paying an estimated $60 million in agency
commissions annually but said it could not estimate how much will
be saved with the new pay cut. "Obviously, the aim is to make
substantial savings," a spokesman said.
Contract rates originated in the 1970s as corporate discounts
and evolved by the late '70s into individually negotiated deals.
Hertz and its competitors dropped the pacts around 1980 as
uneconomic but reintroduced them in the '80s to stay competitive
with Alamo.
Commissions have always applied to some of the rates, but not
all.
Hickory Travel Systems chief Bill Chiles said he sees the Hertz
move as designed to "clean up" the inconsistencies that have
enabled some customers to enjoy what are effectively net rates
while collecting rebated commission checks from their agencies.
Also responding to the move, ASTA president Richard Copland
said, "It is unfortunate that Hertz does not appear to appreciate
the benefit of professional management that agencies deliver to
it."
"This is a cost increase for corporations. There's no doubt
about it," said ARTA president John Hawks.
"Agencies that do a lot of corporate business will just pass
this back to the corporations and make it perfectly clear that this
is Hertz's rate increase. We do believe that the car rental
community is much more competitive than the airline community.
"There will be big car rental firms that will not match this,
and we will certainly make sure our agencies are very aware of the
companies that don't match."
Michael Milligan contributed to this report.
Gov't retailers bear brunt of latest hit
By Jerry Limone
ertz's decision to pay no
commission on reservations where a contract rate is utilized adds
up to a price increase for corporate clients and is most damaging
to the bottom line for government retailers, according to travel
agencies.
Mike Koetting, senior vice president of TQ3 Maritz Travel
Solutions in St. Louis, said, "The effect on Maritz is negligible,
because we were passing on commissions to over 90% of our
clients.
"For the small percentage of accounts in which we kept
commissions, there will be an increase in fees [for those who have
a contract with Hertz]."
Carlson Wagonlit Travel in Minneapolis said Hertz's decision to
stop paying the 5% commission on contract rates is a way to ensure
that all future deals are net deals.
A spokeswoman at CWT wondered why Hertz didn't approach its
corporate customers about the possibility of negotiating net
contracts as standard practice instead of eliminating commissions
without warning.
"From a business perspective, Hertz is ultimately hurting its
best customers," she said.
The situation for government retailers is a bit more stark.
Dan Bohan, chief operating officer for Omega World Travel in
Fairfax, Va., said agencies with government contracts keep car
rental commissions and calculate their fees accordingly when
bidding on accounts.
"If the other major car companies match, we have to go back to
the government and plead for a fee increase," said Bohan.
He said there is no stipulation in the government's master
contract that says government accounts must accept a fee increase
if the car rental firms eliminate commissions.
Bohan said he doubts all car firms will match Hertz, and as long
as there are other firms that pay commissions and offer a
government rate, Omega will move share to them.
"We have shown we can move share in the past, and we will do it
again if Hertz does not come to us with a deal," said Bohan, who
noted that Hertz has been a preferred supplier of Omega for many
years.
Justine Coleman, owner of Sun Travel in El Paso, Texas, said her
agency will continue to sell Hertz to government travelers who want
to book the company but won't be recommending firms that don't pay
commissions when there are others that do.
"If enough business is pulled away from Hertz, it'll probably
reconsider this," Coleman said.
Because many government retailers also sell leisure travel,
Coleman said Hertz could lose volume in the leisure market,
too.
Avis calls competitor's move 'positive'
By Michael Milligan
WASHINGTON -- Avis called Hertz's decision to eliminate agent
commissions on certain contract rates a "positive" move and
indicated it intends to soon decide on whether it will follow.
"Corporate pricing in our industry has remained essentially flat
for the past decade," said an Avis spokesman.
"So our initial view is that the announcement [by Hertz] would
indicate a necessary and positive development for business health
of rental car companies."
The spokesman said Avis was "studying the potential impact [of
Hertz's new commission policy] on Avis' business, and we expect to
make a possible decision on how to proceed in the near term."
Other car rental companies contacted by Travel Weekly reacted
cautiously to Hertz's move.
"We are evaluating the Hertz announcement," said a spokeswoman
for Dollar. Similarly, a spokeswoman for Budget said, "We are
looking at all of our options."
At ANC, which owns Alamo and National, senior vice president of
worldwide sales Michael Going issued a statement saying the company
is "currently analyzing the commission policy changes by the Hertz
corporation."
"Alamo and National have always valued our partnerships with
travel agents and have continually evolved our compensation
structure to remain competitive in the marketplace."
Meanwhile, a spokesman for Thrifty said the company had "no
plans" to follow Hertz, but it nevertheless was "evaluating" the
new commission policy.
A spokeswoman for Enterprise said it "had no plans to make any
changes" to its commission structure.