Launching a Car Rental Company at OKC Airport

Despite the proliferation of ride-sharing services such as Lyft and Uber, the rental car industry continues to thrive, with average fleet sizes and revenues experiencing significant increases since 2015 (2016 U.S. car rental market, 2017). One market location that is well positioned for a new non-franchise car rental enterprise is Oklahoma City, Oklahoma (OKC) which hosts a world-class international airport, the Will Rogers World Airport, located just 6 miles from the city's downtown. This paper provides an overview of the U.S. car rental market and a description of the basic business model that will be used by the new car rental enterprise which will be known as Stardust Car Rentals. In addition, a description of four performance measures, data collection methods and how the data will be used is followed by an outline and analysis of two cost-benefit decisions that will have to be considered. A discussion concerning two possible approaches for achieving and sustaining a competitive advantage is followed by an assessment of the immediate competition in the Oklahoma City car rental market and two potential risks to profitability and a mitigation plan for each. Finally, a summary of the research and important findings concerning the car rental industry in general and the proposed launch of Stardust Car Rentals in particular are presented in the paper's conclusion.

The U.S. car rental industry includes about 5,000 companies that have combined annual revenue of approximately $40 billion (Seay and Narsing 113). The car rental industry in the U.S. is highly concentrated, and the fifty largest companies account for more than 80% of the industry's total revenues (Seay and Narsing 113). According to Seay and Narsing, "Major companies include Enterprise Holdings, Hertz Global holdings, Avis Budget Group, Ryder, and U-Haul International. Companies in this industry rent and lease passenger cars, recreational vehicles, trucks (without drivers), and trailers" (114). A number of these companies have expanded their operations to the international level through franchises at international airports (Seay and Narsing 114). Against this backdrop, it is important to formulate a basic business model that can compete effectively with major franchises as discussed below.

The basic business model for Stardust Car Rentals (hereinafter alternative "Stardust" or "the company") will be an independent company (e.g,. non-franchise) that is focused on renting compact brands and classes of automobiles on a daily, weekly and monthly basis targeting business and leisure air travelers in the Oklahoma City area. The company will offer car rentals that are competitively priced compared to major franchise brands. The location of the new rental company will be the Will Rogers World Airport located at 5201 S. Meridian Avenue in Oklahoma City.

An initial fleet of 15 new Kia Souls will be used to launch the company. The manufacturer's lowest suggested retail price for these vehicles is $16,100 for a total of $241,500; however, it may be possible to negotiate a better purchase price for 15 vehicles. The Kia Soul received the highest rating out of 24 compact cards from U.S. News and World Report and features massive cargo room and spacious seating (Kia Soul, 2017), making this an ideal rental car for travelers. The Kia Soul is illustrated in Figure 1 below.

Fig. 1. 2017 Kia Soul

Source: https://cars.usnews.com/static/images/Auto/izmo/i10824740/ 2017_kia_soul_ angularfront.jpg

Four performance metrics that will be used to monitor the effectiveness of marketing initiatives and company profitability are as follows:

1. Revenues generated from vehicle rentals. This data will be collected on a daily basis and aggregated on a weekly and monthly basis for comparison to previous periods to assess profitability.

2. Number of cars rented. Similar the above metric, this data will also be collected on a daily basis but aggregated on a monthly basis to determine demand levels.

3. Number of repeat customers. This data will be collected automatically in the company's customer relationship management database and will be analyzed on a monthly basis to gauge customer loyalty levels.

4. Number of paid loyalty club members. As discussed further below, the number of paid loyalty club will be analyzed on a monthly basis to evaluate the effectiveness of promotional initiatives.

One of the most important cost-benefit decisions involved in the new car rental industry is the type of vehicles that will be offered. Although there are numerous compact models that are priced higher (and lower) than the Kia Soul, its demonstrated quality, proven dependability and other attributes make this the optimal choice for the company envisioned herein. Furthermore, by using a single model, the company will be able to maximize its maintenance efforts by minimizing the range of specialized services required for a single vehicle type.

A second important cost-benefit decision that will have to be considered is the compensation and benefit packages that will be offered to company employees. The failure to offer reasonably generous wages and benefits will adversely affect the company's ability to attract and retain qualified staff as well as turnover levels and employee performance during their tenure (Moyle 42). The high costs of turnover are well documented and disengaged employees can have an enormous impact on customer service levels. Employee costs for wages and benefits, however, will represent one of the largest expenditures for Stardust, making the need to identify an appropriate balance essential from the outset. Compensation and benefit packages will need to be reviewed on a regular basis to ensure they are in line with competitors and that valued employees are properly incentivized.

Paid loyalty program. So-called paid loyalty programs have proven effectiveness in helping rental car companies achieve and sustain a competitive advantage. These programs offer preferred service to members and are highly cost effective. For instance, according to McGinn (2009), "Some rental-car programs like Hertz #1 Gold and National's Emerald Club typically charge a $50 annual fee. Marketing pros call these 'paid loyalty programs.' I might call them an ingenious way for companies to generate income that costs them almost nothing" (p. 37).

Repeat customer discounts. In order to improve customer loyalty and generate additional rentals, Stardust will offer a 10% discount for all returning rental car customers and this offer will be featured prominently in marketing initiatives and using colorful posters in the company's rental offices. A version of this strategy is used by Alamo, for example, which offers a 5% discount and special deals via email for repeat customers.

The Will Rogers World Airport (aka OKC Airport) is the busiest airport in the state of Oklahoma, with 3.83 million departures or arrivals during 2014, a 5% increase over the previous year fueled in large part by a strong local economy and the city's burgeoning tourism industry (Monies 2). A listing of current car rental companies located in the airport on a lower level concourse is set forth in Table 1 below.

Table 1. Listing of car rental companies in the Will Rogers World Airport

Company

Description

Enterprise Car Rental

Offers full-size cars, economy, SUVs, minivans, and luxury cars.

Hertz

Offers a wide range of luxury, sports and hybrid vehicles.

OKC Airport Car Rental

This independent company offers compact, medium-sized and larger sedans.

Thrifty Car Rental

Offers economy, compact, mid-size, standard, full-size, premium, luxury, and mid-size SUVS (also features a "wild card" where the company selects the vehicle -- compact or larger).

Budget Car Rental

Specializes in mid-size cars, pickup trucks and luxury vehicles.

Dollar Rent a Car

Offers company, economy, intermediate, standard, full-size cars and minivans.

Advantage

Offers economy, intermediate, standard, full-size and luxury cars.

Avis

Offers economy, intermediate, standard, full-size and luxury cars and minivans.

Alamo

Offers economy, compact, mid-size, standard, full-size, premium/premium elite, luxury and hybrid cars.

National Car Rental

Offers economy, compact, mid-size, full-size, premium and luxury cars (after-hours returns are available).

As can be seen from the listing in Table 1 above, many of the major rental car companies are represented at the Will Rogers World Airport and it is reasonable to posit that the competition will be fierce, making the need to develop contingency plans that could threaten the company's profitability an essential element for the business plan as discussed further below.

Negative publicity as a result of a high-profile accident involved a Stardust car. There is the potential for one or more of the company's rental cars to become involved in a catastrophic accident involving the loss of human lives which could generate significant negative publicity, perhaps even at the national level. Therefore, it will be essential for the company to maintain high standards of maintenance, relying on Kia-provided warranty services at every opportunity. In addition, all fleet vehicles will be inspected using a standard checklist following their return by customers to ensure that all cars are in optimal operating condition and appearance. Maintenance records will also be carefully maintained for each vehicle and this information will be readily available in the event of a high-profile accident involving one of the company's Kia Souls.

Downturn in local economy. Although Oklahoma City has enjoyed steady economic growth over the past 10 years due in part to its investments in the tourism industry, the Oklahoma City Thunder professional basketball team and aggressive renovations of its downtown area, the city and state remained heavily dependent on the oil and gas industry, making it vulnerable to downturns in the larger national economy which would in turn affect passenger levels at the OKC Airport. This threat to profitability can be mitigated to some extent by offering special discounts to Oklahoma City and suburban residents who may want to rent a car for a vacation or business purposes. This would be a viable addition to the company's business model because the population of the Oklahoma City Metropolitan Statistical Area is more than 1.3 million people with a median household income of $55,100 (OKC facts 2). Moreover, the federal government is a major employer in Oklahoma City at Tinker Air Force Base and he U.S. Department of Transportation's Mike Monroney Aeronautical Center, helping insulate the community from economic downturns somewhat (OKC facts 3).