INDUSTRY ANALYSIS OPERATIONAL CASE STUDY - ACELLERATE - Astranti
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OPERATIONAL CASE STUDY
INDUSTRY ANALYSIS
ACELLERATECHAPTER 1 5 HOW TO USE THIS ANALYSIS 5 1. What to expect from this analysis 5 CHAPTER 2 7 INTRODUCTION TO THE CAR RENTAL INDUSTRY 7 1. History 7 2. Services 10 CHAPTER 3 15 CUSTOMERS AND MARKETING 15 1. Customers 15 2. Marketing 19 CHAPTER 4 23 SUPPLY AND TECHNOLOGY 23 1. Suppliers 23 2. Distribution 27 3. Technology 28 CHAPTER 5 31 STAKEHOLDERS AND CSR 31 1. Staffing and human resources 31 2. Key stakeholders 33 3. Ethical and environmental issues 36 CHAPTER 6 39 COMPETITORS 39 1. Competitor analysis: SIXT 39 2. Other key competitors 48 CHAPTER 7 50 INDUSTRY ISSUES 50 1. Political and legal issues 50 2. Economic & Industry stats/ trends/ issues 52
Astranti Industry Analysis Acellerate
CHAPTER 8 55
INDUSTRY EXAMPLES 55
1. Lyft partners with SIXT in the US 56
2. Hertz uses new software for fairer repair pricing 57
3. Europcar acquires Fox Rent A Car 58
4. SIXT launches US subscription service 59
5. Europcar franchisee fined in Australia 60
6. Avis offers Avis Access 61
7. Use of ride-hailing instead of traditional car rental 62
8. Key trainer receives Professional of the Year Award 63
9. Enterprise streamlines used car selling 64
10. Europcar creates Nordic Cluster 65
11. Virtuo aims for 50% electric fleet 66
12. UK rental car damage survey 67
13. MirrorTrip offers cheaper one way rental 68
14. Expense of insurance from rental companies 69
15. Theft of fleet vehicles 70
16. Uber starts UK car rental service 71
17. Airline partners to offer car rental 72
18. The Carbon Disclosure Project (CDP) 73
19. Big data 74
20. Europcar receives gold ESG rating 75
21. Utility companies plan electric vehicle charging network 76
22. Europcar enters into electric van partnership 77
23. Localiza takes over Unidas, Movida objects 78
24. Enterprise gift card scheme benefits local economy 79
25. Move Mee sees early success 80
3Copyright notice Published by Astranti This content is for personal use only and is not licensed for use on courses. Any unauthorised copying or sharing of this material is punishable by CIMA under the CIMA code of ethics. Any incidence of copying will be reported to them. If found guilty, punishments are applicable, up to and including being removed from the institute. @ 2021 Astranti
Astranti Industry Analysis Acellerate
CHAPTER 1
HOW TO USE THIS
ANALYSIS
1. What to expect from this analysis
“An awareness of the industry that the business is in will help you to think of
the wider issues that might impact on decisions that you could be asked to
comment on.”
Recent Examiner's Report
The examiners expect you to have excellent knowledge of the pre-seen industry and
to demonstrate this in the exam. As the examiner says – the case study is designed to
test your application in the real world, and not to test your theoretical knowledge.
This industry guide is designed to help you to meet that expectation and maximise
your marks in the exam!
This requirement links directly into your role. In the pre-seen, you are told:
“You are a Finance Officer for Acellerate, a car rental company. Your main role is to
support Ethan Tennant, the Finance Manager. Your tasks include preparation of the
annual budget, producing the monthly management accounts and providing
information to management as required. You also assist with the preparation of the
financial statements and deal with any queries regarding financial reporting.”
You are expected to provide logical business advice as if you were an employee
working in this industry, and as if you know this industry inside out. If you know the
types of issues in the real world and the types of decisions that real world companies
5Astranti Industry Analysis Acellerate
are making, the chances are that your own logic in the exam will be better and
producing a logical, well rounded report is key to passing this exam.
In fact, its been interesting to note that in student feedback after the real exams, that
a number of people have commented that they felt that the exam was extremely
practical and they wished they had spent more time focusing on the case study
and the industry and less on revising theoretical knowledge as they felt that
would have helped them provide the practical answers they needed.
One key way of maximising your marks in the OCS exam is to have sound knowledge
of the relevant industry and to demonstrate that knowledge throughout. However,
the industry is large, and there is a lot of information. You have to make sure you
have the right information about the industry.
That's where we come in. In this industry analysis, we've scoured the web,
journals and magazines for the most relevant information relevant to your
exam. We do the difficult job of collecting the right information for you, so all
you have to do is read this report, learn the key points and then use them in the
exam.
6Astranti Industry Analysis Acellerate
CHAPTER 2
INTRODUCTION TO THE
CAR RENTAL INDUSTRY
1. History
Introduction
As car ownership as risen dramatically around the world, so too has car rental. The
link between the car rental industry and the travel industry has proven important,
with the majority of car rentals being taken out by people arriving in new locations.
History of car rental
Early history
The modern car was invented in 1886 by Karl Benz. However, it wasnʼt until the early
20th century that the first car rental services was established. However, as time went
on, more and more car rental companies started popping up around the world.
Here is a brief timeline of the early history of car rental companies:
• 1908 – Ford Model T, the first affordable car, available in the USA
• 1912 - SIXT is founded in Germany, with a three car fleet. It is still operational
today!
• 1916 – Joe Saunders creates the “Saunders Drive-It-Yourself System”, renting
Ford Model T cars in Omaha, Nebraska. The price? 10 cents per mile
7Astranti Industry Analysis Acellerate
• 1918 – Walter Jacobs started a rental company that became Hertz in the USA
• 1920 – Godfrey Davis, the UKʼs first car rental company, is founded
• 1923 – Saunders now has a major competitor in Walter Jacobs, whose rental
business generates over $1 million in gross annual sales
• 1930s – Joe Saunders goes bankrupt due to the Great Depression in the USA
• 1932 – Hertz establishes the first airport-based car rental service in Chicago
Air travel and post-World War II growth
After World War II, the demand for travel, especially the demand for air and railway
travel, began to rise. This was good news for the car rental companies, who began to
market their services to travellers arriving in new cities.
For instance, in 1946, Avis Airlines Rent a Car System was founded at the Willow Run
Airport in Detroit, targeting airline travellers, and went on to significant success.
Other companies followed a similar strategy by working with railways operators to
offer their services at train stations.
Peopleʼs disposable income rose in many countries around the world at this time,
which led to car rental becoming more commonplace. This meant that there were
high levels of competition. This prompted 24 US-based independent car rental
companies teamed up to found the National Car Rental System in 1947.
Other major companies founded around this time included Europcar in Paris (1949),
Enterprise Rent-A-Car in the USA (1957) and Arnold Clark Car and Van rental in the
UK (1963).
Additionally, during this period, some large car manufacturers such as Ford sought to
enter the market by acquiring controlling interest in larger car rental companies.
Competition in the industry remained high in the 1980s, during which time
companies fought on the basis of their discount and pricing schemes. Pricing
continues to be a key factor for competitiveness in the market to this day.
Recent developments
The car rental industry relies, in part, on the strength of the travel industry, due to
peopleʼs need to hire a car when arriving somewhere new for business or for a
holiday. As such, the car rental industry was affected by the fall in demand for air
8Astranti Industry Analysis Acellerate
travel following the September 11 attacks, and also by the Great Recession from
2007-2009. For instance, the net income of Hertz fell by an enormous 94% as a result
of this recession, and Advantage Rent a Car filed for bankruptcy.
Nonetheless, the industry remains large, with most of the activity occurring in the
USA and Europe. 2014 analysis from Nedrelid put the value of the industry worldwide
at $51 billion, with the USA making up the majority, at just over 50%, and Europe and
the Rest of the World having roughly equal shares of the remainder.
The industry is expected to continue to grow, with an estimated compound annual
growth rate of 6.1% between 2020 and 2025, and a projected industry valuation of
$120 billion by 2025.
Application to the pre-seen
We know from the pre-seen that Acellerate also earns significant income from
people who are travelling – in fact, its peak seasons are in the spring and summer
vacation periods.
Acellerate, like many real-world car rental companies, capitalises on this by having
many locations close to airports. It seems that Acellerate considers these airport
locations to be its most important, as it was chiefly the non-airport sites it chose to
close in response to the 2020 recession. It also has locations at train stations.
We can assume from the pre-seen that that the car rental market in Everland, as in
the real world, is highly competitive, including on price.
However, the pre-seen states that Acellerate charges relatively high rental fees.
So, it is vital that the company justifies these higher fees by continuing to
differentiate itself from its competition by targeting business and premium
travel and providing excellent customer service. This will allow it to retain its
competitive edge.
Further, weʼve seen in the pre-seen that the performance of Acellerate, like its real-
world counterparts, is dependent on the prevailing economic conditions. That is,
circumstances like recessions that mean people travel less (for business or for
leisure) mean that a key source of demand for car rentals drops.
9Astranti Industry Analysis Acellerate
2. Services
Types of car rental services
Type Description
Standard hire car service. The duration of rental, type of
Vehicle rental
vehicle and pick up and drop off location can vary.
Paying a monthly flat fee to rent a car. Can often swap
Car subscription
vehicles as part of the deal.
A driver will take the person to their destination - usually a
Chauffeured rental
premium service for a short trip.
Vehicle equipment Renting equipment for use in the car, like sat navs or baby
rental seats.
Car insurance Insurance to cover the rental car for the rental period.
Very short-term car rentals that can be offered by a company
Car sharing
with its own fleet. Normally booked through an app.
Fleet management Managing a fleet of cars on behalf of another company.
Leasing a whole fleet of cars at once to a business for
Fleet leasing
company cars.
Competitors
Top companies
# Company Country
1 Hertz USA
2 Avis Car Rental USA
3 SIXT Germany
4 Enterprise Rent-A-Car USA
5 Europcar France
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# Company Country
6 Record go Spain
7 UCAR France
8 Locauto Italy
9 ADA France
10 Easirent UK
Car rental trends
Market control
The real-world car rental market tends to be dominated by the same five companies
(Avis, Enterprise, Europcar Hertz and SIXT) throughout Europe and the USA. Key
exceptions are France and Spain, where independent companies have adopted
stronger market positions.
In any case, there is no clear winner between the five major players in every country.
This has meant that no individual company has been able to exert significant control
over the industry, or indeed over car rental prices, despite the market share being
divided between so few parties.
However, the fact that the market is largely split between a few large companies
means that the key avenue for growth for these companies is likely to be via
consolidation – i.e. through mergers or acquiring smaller, independent companies.
Comparison sites
The growth of intermediaries such as car rental brokers has had a significant impact
on the industry. Most of these brokers (e.g. kayak.co.uk or travelsupermarket.com)
allow the customer to compare the available prices for a variety of rental cars at a
given location in a given date range.
However, when using the services of these car rental brokers, the customer is looking
at the brokerʼs website, rather than that of the rental companiesʼ. This makes it more
difficult for them to get a feel for brand and the service provided by the different
rental companied. This makes it much harder for the rental companies to promote
and develop their brand, and instead fosters a focus of price.
11Astranti Industry Analysis Acellerate
Commoditisation
The car rental industry is highly commoditised. This means that it is difficult for the
customer to distinguish between the offerings of the major industry players. So, from
the customerʼs perspective, companies like Avis, Hertz or SIXT are more or less the
same!
A key contributor to this trend is the fight over pricing, in part driven by the rise of
price comparison sites. This has meant that the large companies have focussed on
offering lower prices for similar services, which has meant that there has been
comparatively less attention on finding ways to offer a superior customer experience.
Hourly rentals
Peer to peer rideshare services such as Uber and Lyft have grown in popularity
significantly in recent years. Whilst these services donʼt represent direct competition
to car rental services, some rental companies have sought to gain ground by offering
a substitute service in the form of hourly rentals. Examples are Enterprise CarShare
and Hertz 24/7.
These services are normally offered on a membership basis, with a relatively low cost
hourly hire fee. They are targeted towards people in cities.
Approaches to operations
The largest and most successful car rental companies use a mixture of different
operating models, depending on their location. These include standard franchising,
acquiring a franchisee company, adding new corporate locations, and franchising via
agreements with another company.
For instance, Enterprise Rent-A-Car expanded into Europe in the 2010s using both
corporate and franchise locations. This indicates that there is no consistently perfect
approach to expansion in the car rental industry, and the most appropriate option
will depend on the market in question.
Rental companies also target different locations to different extents. For instance,
59% of Hertzʼs revenue comes from its airport locations, compared to just 42% for
Europcar.
Application to the pre-seen
12Astranti Industry Analysis Acellerate
Market control
We can see from the pre-seen that Acellerate generated E$275,000,000 in revenue in
2019. Assuming that the E$ is similar in value to the Euro, this would mean that is
was larger than the main independent car rental companies in Europe (Goldcar,
for instance, was at the large end of the scale, generated €190.4 million in 2014 when
it was independent).
However, it remains smaller than the five largest real-world players, who each had
revenues exceeding €1 billion in 2014, which suggests that it is far from one of the
largest organisations in the world of the pre-seen.
From this, we can see that Acellerate could stand to gain ground in the market by
acquiring a smaller, independent rental operator.
Comparison sites
We know from the pre-seen that Acellerate receives booking through third-party
brokers, which presumably include price comparison websites. We also know that
Acellerate pays commission on these bookings, reducing its margins.
Therefore, it is vital the Acellerate continues to market it brand through other
channels, such as social media, its website and its app. This, alongside its
commitment to customer service, will help it to give customers a reason to select
Acellerateʼs service.
Commoditisation
We know from the pre-seen that Acellerate is charging rental fees above those of
value companies in the same industry. So, this indicates that Acellerate is aware of
the commoditisation in the car rental industry, and is seeking to offer a premium
service to mark itself out from its competition. The success of this approach will
depend on its ability to do so.
One way it could improve on this is by taking a suggestion from a 2019 Forbes article
by charging lower fees to customers returning cars without a full tank of petrol.
Filling the car up before returning it is inconvenient, and, whilst the pre-seen isnʼt
clear on the fee Acellerate charges, the charge in the real world is often significantly
more than the normal fuel price.
13Astranti Industry Analysis Acellerate
So, this would help Acellerate to distinguish itself from its competitors by providing
more convenience to the customer, which is a key part of offering a premium service.
This could be very beneficial in a commoditised market.
Hourly rentals
As far as we can tell from the pre-seen, Acellerate does not offer an hourly rental
service. Therefore, it is currently missing out on a potentially growing market
segment that real-world rental services are already capitalising on.
Given that, as weʼve seen, competition on price is fierce and, thanks to third-party
brokers, it is difficult to differentiate from the competition, it is important that
Acellerate investigates new opportunities for growth such as offering these
very short-term rentals.
Approaches to operations
We know from the pre-seen that Acellerate currently generates 68% of its revenue
from on-airport locations. This makes it more reliant on airport locations than
some larger real-world companies like Hertz and Europcar.
This, however, represents a potential opportunity. Acellerate could seek to make a
deal with a less airport-centred company (e.g. to open franchise off-airport
locations), and thereby diversify its revenue streams. This would make it more
resistant to factors affecting the air travel industry.
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