How Car Rental Companies Are Not Like Airlines

The comparison comes up regarding consolidation and its ability to improve pricing — but it’s not apples to apples.

As both the airlines and car rental companies have consolidated over the last five years, the general media seems to want to make a connection between the two: “If airfares went up after airlines consolidated, why can’t consolidation in car rental produce the same rental rate increase?”

In general, what causes price increases? They’re a function of limiting competition or supply, or boosting demand.

Oligopolies limit competition, though a true oligopoly is a lot easier to achieve through the air than on the ground. Until Elon Musk’s Hyperloop comes to pass, the airlines are the only efficient way to cross an ocean or long distances. The world is a lot flatter when it comes to ground transportation; there are more travel options that overlap with car rental.

Airline competition becomes even more limited when arrival and departure times are factored. There might be 20 flights a day from, say, Los Angeles to Miami, but perhaps only four that arrive within the traveler’s preferred time window, and only two of them might be non-stops. Limited choice ensures the bottom won’t drop out on airfares.

Though the eight largest car rental brands are controlled by three companies, there is still plenty of competition between car rental companies when your plane lands. And there are smaller rental brands with enough visibility market to market — on-airport and off-airport — that can offer lower rates. Certainly, maintaining this competition was the FTC’s reasoning in forcing Hertz to spin off Advantage to acquire Dollar and Thrifty.

Air travel supply is dictated by available airline seats for a given route. This supply changes as flights on that route increase or decrease, along with changes in plane capacity — but the changes don’t happen frequently enough to tilt the balance of supply and demand too severely.

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