Industry speeds into fast lane

After a period of lull in 2009 and 2010, the car hire industry in the UAE is once again on a fast growth trajectory, thanks to an increase in the level of economic activities, rise in corporate travel expenses, development of tourism and the ensuing growth in domestic and inbound tourists. 
According to a recent study by Euromonitor, the auto rentals industry posted a 6 per cent increase in 2011 in both value sales and transaction volumes from 2010, reaching Dh661 million while conducting 2.2 million transactions.
In the UAE, it is the long-term lease segment that has traditionally bloated the purses of industry players. “Long-term rentals — cars leased for one month or more — represent about 80 per cent of our rental business. They are particularly popular with expats, especially those who have just arrived in the UAE. They look at long-term rental as a guarantee for safe and easy motoring at a fixed price,” says Nigel Johnson, the managing director of Hertz UAE.
However, the rise in leisure tourism has prompted a noticeable growth spurt in the short-term rental and insurance replacement segments, says Sam Eltibi, the executive director of Dollar Thrifty Automotive Group, Mena and Asia Pacific. “Before 2008, long-term rentals comprised 70 per cent of our total business but this now constitutes 50 per cent. The rest comes from short-term rentals.”
Though the car hire sector is growing in the UAE, it is yet to catch up with developed markets. Alan D’Souza, the sales manager of Shift Leasing and Car Rental, an Al Rostamani Group company with a fleet of more than 3,500 vehicles, says that the long-term rental business has been on an increase in the last few years and is significant compared to other GCC countries but is still in the nascent stage compared to European countries, where 45 per cent of the vehicles on roads are leased.
Realising the benefits, corporate clients in the UAE have also increasingly begun to outsource their fleet management to experienced rental agencies. This helps companies effectively streamline their fleet operation, while saving on administrative expenses that are associated with the buying and managing of fleets. Katja Oldenburg, the business development manager of Progress Rent a Car, which is also involved in the leasing of buses, says: “For enhanced safety regulations involved in the operations of buses, companies now prefer to outsource the service to specialised agencies instead of handling on their own.”
 

Growth engines
As the auto rental market picks up momentum, price sensitivity turns into a critical component. A heightened desire for value pushes customers towards less expensive models, which subsequently fuels growth in the economy and the budget segment of the rental business.
Following the recession, Oldenburg says, people have become price conscious and are hunting for value-for-money deals.
D’Souza of Shift Leasing and Car Rental adds: “Smaller and mid-sized cars are proving to be very popular as they are fuel efficient, easy to park and competitively priced.”
Attractive deals and loyalty programmes are also becoming drivers for growth. From giving a free tank of fuel and waiving charges for vehicle delivery and collection to offering upgrades to loyal customers, rental companies in the UAE roll out attractive promotions throughout the year to entice clients. When Hertz launched Hertz #1 Club Gold service programme at the Abu Dhabi and Dubai airports last year, it received a positive response. “In the last 12 months we enrolled more than 500 members and we expect growth from the loyalty programme to continue,” says Johnson.
The online rental facility is also pushing growth in the sector. The Euromonitor study highlights that the internet will soon become a significant sales channel for car rentals in the UAE and shape the leading players’ business strategies. The share of the channel is projected to rise to 21 per cent of overall car rental value sales by 2016 from just 7 per cent in 2011.
Eltibi of Dollar Thrifty explains that since the advent of web booking, customers are always on the look out for value packages and competitive deals on booking engines. “Most people are attracted to providers, where car rentals are packaged with hotel rooms or flights. We are looking at a very sophisticated consumer market where a well-informed customer knows what he wants and expects the best deals and return on his investments.”

Co-existence of brands
Given the fact that auto leasing is a niche segment involving several logistic issues with considerably high operating costs, it is hardly a surprise that the sector in the UAE is dominated mostly by global players with years of proven expertise and a robust fleet. So is there any scope for regional players to grow in the market?
“We are now seeing customers becoming more discerning in their choice of rental cars,” says Johnson of Hertz UAE. “A couple of years ago some might have gone to the little back street operations to get a cheaper vehicle, but now they come to the recognised brands for quality and value.” He, however, adds that there will always be room for small, local companies if they ensure that their customers receive the same service standards as those offered by global players.
The success of the Abu Dhabi headquartered Progress Rent a Car, a company which launched its operations in 2010 with just 50 cars and now boasts 1,500 in its fleet, is a testament to the fantastic growth opportunities that the UAE car hire sector offers to local players. “Though global brands have the advantage of getting overseas reservations, the core business for all car rental companies, whether global or local, comes from long-term leasing; hence all are on a level playing field,” says D’Souza of Shift Car Leasing and Rental.
With an understanding of the market, quality fleet, and sustained customer services, the sector is wide open for local and global players to thrive.

The demand for green cars
While the car hire market worldwide is witnessing a shift towards greener vehicles such as hybrid and electric cars, the UAE is yet to move into the green lane.
Considering the lack of demand for environmentally friendly vehicles, most car rental companies in the UAE do not find it commercially viable to include such cars in their fleet. “We are yet to have any green cars in the fleet but as soon as they are available on a mass scale in the Middle East, we will be looking at adding some to our fleet,” says Sam Eltibi of Dollar Thrifty Automotive Group.
Alan D’Souza of Shift Leasing and Car Rental puts the onus on the consumer. “The vehicle mix in our fleet depends on customer demands. If we get requests for environmentally friendly cars we will be happy to introduce them. But we have not received any requests for green cars so far.”